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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the quarterly period ended March 31, 1998 or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from ___________ to ___________.
Commission file number 0-27168
METACREATIONS CORPORATION
(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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of May 8, 1998, there were outstanding 23,659,165 shares of the registrant's
Common Stock, $0.001 par value per share, which is the only outstanding class of
common or voting stock of the registrant.
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METACREATIONS CORPORATION
FORM 10-Q
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements....................................... 3
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997
Consolidated Statements of Operations - Three months
ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 16
SIGNATURES ........................................................... 17
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METACREATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 15,477 $ 9,653
Short-term investments ................................ 36,007 40,349
Accounts receivable, net .............................. 21,228 26,604
Inventories ........................................... 1,445 1,667
Income taxes receivable ............................... 3,606 3,324
Deferred income taxes ................................. 2,634 2,634
Prepaid expenses ...................................... 4,846 3,494
--------- ---------
Total current assets .............................. 85,243 87,725
Property and equipment, net ............................. 8,081 7,577
Other assets ............................................ 1,799 1,988
--------- ---------
Total assets ...................................... $ 95,123 $ 97,290
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 4,313 $ 4,860
Accrued expenses ...................................... 3,107 3,971
Royalties payable ..................................... 1,032 1,217
--------- ---------
Total current liabilities ......................... 8,452 10,048
Stockholders' equity:
Preferred stock, $.001 par value, 5,000 shares
authorized - no shares issued and outstanding at
March 31, 1998 and December 31, 1997,
respectively......................................... -- --
Common stock, $.001 par value; 75,000 shares authorized
- 23,641 and 23,606 shares issued and outstanding
at March 31, 1998 and December 31, 1997,
respectively ........................................ 24 24
Paid-in capital ....................................... 110,189 109,896
Notes receivable from stockholders .................... (3,212) (3,170)
Cumulative translation adjustment ..................... (134) (135)
Accumulated deficit ................................... (20,196) (19,373)
--------- ---------
Total stockholders' equity ........................ 86,671 87,242
--------- ---------
Total liabilities and stockholders' equity ........ $ 95,123 $ 97,290
========= =========
</TABLE>
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METACREATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Net revenues ........................................ $ 14,423 $ 13,252
Cost of revenues .................................... 2,331 2,668
-------- --------
Gross profit ........................................ 12,092 10,584
Operating expenses:
Sales and marketing ............................... 7,915 7,331
Research and development .......................... 4,219 3,059
General and administrative ........................ 1,848 1,632
-------- --------
Total operating expenses ............................ 13,982 12,022
-------- --------
Loss from operations ................................ (1,890) (1,438)
Interest and investment income, net ................. 714 811
-------- --------
Loss before benefit for income taxes ................ (1,176) (627)
Benefit for income taxes ............................ (353) (195)
-------- --------
Net loss ............................................ $ (823) $ (432)
======== ========
Net loss per common share - basic and diluted ....... $ (0.03) $ (0.02)
======== ========
Weighted average number of shares outstanding - basic
and diluted ....................................... 23,620 22,261
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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METACREATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................. $ (823) $ (432)
Adjustment to retained earnings as a result of ....... -- 513
business combination................................
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization .................... 973 348
Provision for losses on receivables and product 2,740 481
returns.........................................
Provision for losses on inventory ................ 239 --
Accrued interest income .......................... (42) (42)
Changes in operating assets and liabilities:
Accounts receivable ............................ 2,636 (636)
Inventories .................................... (17) (203)
Income taxes receivable ........................ (185) 416
Prepaid expenses and other assets .............. (1,220) (1,122)
Accounts payable and accrued expenses .......... (1,224) (822)
Royalties payable .............................. (185) 97
-------- --------
Net cash provided by (used in) operating 2,892 (1,402)
activities...................................
Cash flows from investing activities:
Purchases of short-term investments .................. (14,427) (7,813)
Proceeds from sales and maturities of short-term
investments ........................................ 18,769 2,324
Purchases of property and equipment .................. (1,245) (1,244)
Purchases of software technology and product rights .. (175) -
-------- --------
Net cash provided by (used in) investing
activities.................................... 2,922 (6,733)
Cash flows from financing activities:
Proceeds from exercise of stock options .............. 9 81
-------- --------
Net cash provided by financing activities ..... 9 81
Effect of exchange rates changes on cash ............... 1 -
-------- --------
Net increase (decrease) in cash and cash equivalents ... 5,824 (8,054)
Cash and cash equivalents at beginning of period ....... 9,653 21,605
-------- --------
Cash and cash equivalents at end of period ............. $ 15,477 $ 13,551
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
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METACREATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of MetaCreations Corporation and its wholly-owned subsidiaries
(collectively "MetaCreations" or the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation. In the opinion of management, the accompanying
consolidated balance sheets and related interim consolidated statements of
operations and cash flows include all adjustments (consisting only of normal
recurring items) considered necessary for their fair presentation. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates. The consolidated results of
operations for the period ended March 31, 1998 are not necessarily indicative of
results to be expected for the year ending December 31, 1998. The information
included in this Form 10-Q should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto as of December 31,
1997 and 1996, and for the three years in the period ended December 31, 1997, as
filed on Form 10-K.
Revenue Recognition
During the three months ended March 31, 1998, the Company adopted Statement of
Position ("SOP") 97-2, "Software Revenue Recognition," which superceded SOP
91-1. SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements (e.g., software products, upgrades/enhancements,
postcontract customer support, etc.) to be allocated to each element based on
the relative fair value of the elements. The fair value of an element must be
based on evidence which is specific to the Company. The revenue allocated to
software products (including specified upgrades/enhancements) generally is
recognized upon delivery of the products. The revenue allocated to postcontract
customer support generally is recognized ratably over the term of the support.
If the Company does not have evidence of the fair value for all elements in a
multiple-element arrangement, all revenue from the arrangement is deferred until
such evidence exists or until all elements are delivered. The impact of adopting
SOP 97-2 was not material to the Company's financial position, results of
operations or cash flows.
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METACREATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company provides an allowance for estimated returns at the time of product
shipments and adjusts this allowance as needed based on actual return history.
Such reserves as a percentage of net revenues have varied over recent years,
reflecting the Company's experience in product returns as it has significantly
expanded the proportion of its sales through third-party distribution channels
and increased its product portfolio. The Company expects reserves will continue
to vary in the future. The Company's agreements with its distributors generally
provide the distributors with limited rights to return unsold inventories under
a stock balancing program. The Company monitors the activities of its
distributors in an effort to minimize excessive returns and establishes its
reserves based on its estimates of expected returns.
Comprehensive Income
During the three months ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. Differences between comprehensive income
and net income were not material to the Company's financial position, results of
operations or cash flows for the three months ended March 31, 1998 and 1997.
Statement of Financial Accounting Standards Not Yet Adopted
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 requires publicly-held companies to report financial and other information
about key revenue-producing segments of the entity for which such information is
available and is utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements would be
provided. SFAS No. 131 requires companies to adopt its provisions for fiscal
years beginning after December 15, 1997, but does not require that segment
information be reported in financial statements for interim periods in the
initial year of application. Management is currently evaluating the requirements
of adopting SFAS No. 131 and the effects, if any, on the Company's current
reporting and disclosures.
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METACREATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
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<S> <C> <C>
Finished goods.................................... $ 1,188 $ 1,465
Materials and supplies............................ 257 202
-------- --------
$ 1,445 $ 1,667
======== ========
</TABLE>
3. INCOME TAXES
The benefits for income taxes for the three months ended March 31, 1998 and 1997
are based on the Company's estimated annualized effective tax rate for the
respective years, after giving effect to the utilization of available tax
credits and tax planning opportunities.
4. LOSS PER SHARE
The following table provides a reconciliation of the numerators and denominators
of the basic and diluted per-share computations for the three months ended March
31, 1998 and 1997 in accordance with SFAS No. 128, "Earnings per Share" (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
LOSS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Three Months Ended March 31, 1998:
Basic EPS............................. $(823) 23,620 $(.03)
Effect of dilutive securities......... -- --
----- ------
Diluted EPS........................... $(823) 23,620 $(.03)
===== ======
Three Months Ended March 31, 1997:
Basic EPS............................. $(432) 22,261 $(.02)
Effect of dilutive securities......... -- --
----- ------
Diluted EPS........................... $(432) 22,261 $(.02)
===== ======
</TABLE>
The computation of the diluted number of shares excludes unexercised stock
options which are anti-dilutive. Stock options to purchase 6,749,000 and
4,610,000 shares of common stock were outstanding as of March 31, 1998 and 1997,
respectively, and excluded from the computation.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto.
The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.
The Company's actual results could differ materially from those projected in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the section
entitled "Factors That May Affect Future Operating Results," as well as those
discussed elsewhere in the Company's SEC reports, including without limitation,
the Company's audited consolidated financial statements and notes thereto as of
December 31, 1997 and 1996, and for the three years in the period ended December
31, 1997, as filed on Form 10-K.
OVERVIEW
MetaCreations was formed in May 1997, as a result of the merger of MetaTools,
Inc. and Fractal Design Corporation, and included the acquisitions of Real Time
Geometry Corp. in December 1996 and Specular International. Ltd. in April 1997,
as well as the previous merger of Fractal and Ray Dream, Inc. in May 1996. The
financial results for the three months ended March 31, 1997 include the pooled
financial statements of MetaTools, Inc. and Fractal Design Corporation.
Revenue growth for MetaCreations during the three months ended March 31, 1998
was substantially achieved through the Company's continued introduction of new
products and the release of enhanced versions of its existing products, as well
as significant investment in the expansion of its sales and marketing activities
to address broader distribution channels. While the Company has significantly
expanded its product line, the Company's future revenues are substantially
dependent upon the continued market acceptance of the Company's existing leading
products: Art Dabbler, Bryce, Kai's Photo Soap, Kai's Power GOO, Kai's Power
SHOW, Kai's Power Tools, Painter, Poser, and Ray Dream Studio. In this regard,
revenue from the sale of these products represented a substantial majority of
net revenues during this period. The Company also has a number of new product
development efforts under way, and a significant portion of future revenues is
dependent upon the timely introduction and ultimate success of these products.
The Company develops substantially all of its products either internally or
occasionally through co-development arrangements with third parties. These
co-development arrangements generally provide the Company with certain exclusive
proprietary, copyright or marketing rights for developed products in exchange
for the payment of one-time and/or ongoing royalties. The Company expects to
continue fostering arrangements with external developers as part of its strategy
of expanding its product portfolio. There can be no assurance, however, that the
Company will be able to continue to supplement its product development efforts
in the future through such relationships.
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The Company sells its products primarily to domestic and international
distributors, including mail order resellers and retail outlets. The Company
also sells its products to Original Equipment Manufacturers ("OEMs") for
bundling with their hardware or software products and directly to end users,
generally through telesales and direct mail campaigns. Fluctuations in
distributor purchases can cause significant volatility in the Company's
revenues. Distributors generally stock the Company's products at levels which
may fluctuate significantly for a variety of reasons, including the
distributors' ability to finance the purchase of products and to devote shelf
space, catalog space or attention to the products. Distributor purchases may
also be affected by the Company's introduction of a new product or new version
of a product, the Company's end user promotions programs, anticipated product
price increases, the Company's purchases of display space at retail outlets and
other factors. Further, OEM agreements, which generally provide for minimum
guaranteed non-refundable payments to the Company, typically coincide with the
planned introduction of OEM bundled products and are often entered into at the
end of the quarter. The timing of the execution of such agreements can fluctuate
substantially throughout the year, causing volatility in the Company's revenues,
operating results, and cash flows.
Since its inception, the Company has focused on building its product portfolio
and establishing brandname awareness of its products. These activities have
resulted in significant increases in all expense categories. The Company's
recent product development efforts have also entailed significant research and
development expenditures. These higher expense levels combined with costs
associated with periodic mergers and acquisitions, including the related
write-off of acquired in-process technology, and quarterly fluctuations in net
revenues have contributed to the Company's periodic annual and quarterly losses,
as well as fluctuations in its operating results. The Company intends to
continue to invest significant amounts both in expanding its product portfolio
and in maintaining and enhancing brand awareness of its products, and
accordingly may continue to experience losses and volatility of net revenues and
operating results in future periods.
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OPERATING RESULTS
The following table sets forth certain selected financial information expressed
as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------ ------
<S> <C> <C>
Net revenues........................... 100.0 % 100.0 %
Cost of revenues....................... 16.2 20.1
----- -----
Gross margin........................ 83.8 79.9
Operating expenses:
Sales and marketing.................... 54.9 55.3
Research and development............... 29.2 23.1
General and administrative............. 12.8 12.3
----- -----
Total operating expenses............ 96.9 90.7
----- -----
Loss from operations................... (13.1) (10.8)
Interest and investment income, net.... 5.0 6.1
----- -----
Net loss before benefit for income
taxes.................................. (8.1) (4.7)
Benefit for income taxes............... (2.4) (1.5)
----- -----
Net loss............................... (5.7)% (3.2)%
===== =====
</TABLE>
Net Revenues
Net revenues totaled $14.4 million for the three months ended March 31, 1998, an
increase of 9% over net revenues of $13.3 million for the three months ended
March 31, 1997. Net revenues increased as a result of the Company's release of
new products and new versions of its existing products, increased expansion of
sales through OEM's and increased sales through the domestic distribution
channel. The Company released Kai's Power SHOW, Painter 3D and Painter Classic
during the first quarter of 1998. International sales accounted for $4.7
million, or 33% of net revenues, for the three months ended March 31, 1998,
compared to $6.3 million, or 48% of net revenues, for the three months ended
March 31, 1997, primarily due to the low number of localized versions of
products scheduled for release in international markets in the first quarter of
1998.
The Company recognizes revenue from the sale of its products in accordance with
SOP 97-2, which generally requires revenue earned on software arrangements
involving multiple elements (e.g., software products, upgrades/enhancements,
postcontract customer support, etc.) to be allocated to each element based on
the relative fair value of the elements. The fair value of an element must be
based on evidence which is specific to the Company. The revenue allocated to
software products (including specified upgrades/enhancements) generally is
recognized upon delivery of the products. The revenue allocated to postcontract
customer support generally is recognized ratably over the term of the support.
If the Company does not have evidence of the
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fair value for all elements in a multiple-element arrangement, all revenue from
the arrangement is deferred until such evidence exists or until all elements are
delivered.
The Company provides an allowance for estimated returns at the time of product
shipments and adjusts this allowance as needed based on actual return history.
Such reserves as a percentage of net revenues have varied over recent years,
reflecting the Company's experience in product returns as it has significantly
expanded the proportion of its sales through third-party distribution channels
and increased its product portfolio. The Company expects reserves will continue
to vary in the future. The Company's agreements with its distributors generally
provide the distributors with limited rights to return unsold inventories under
a stock balancing program. The Company monitors the activities of its
distributors in an effort to minimize excessive returns and establishes its
reserves based on its estimates of expected returns. While historically the
Company's returns have been within management's expectations, the establishment
of reserves requires judgments regarding such factors as future competitive
conditions and product life cycles, which can be difficult to predict. As a
result, there can be no assurance that established reserves will be adequate to
cover actual future returns.
Cost of Revenues
Cost of revenues includes the costs of goods sold, royalties due to external
developers, inventory management costs, freight and handling costs and reserves
for inventory obsolescence. Cost of revenues totaled $2.3 million, or 16% of net
revenues, for the three months ended March 31, 1998, compared to $2.7 million,
or 20% of net revenues, for the three months ended March 31, 1997. The decrease
in cost of revenues resulted from the changing mix of product sales, as well as
efficiencies achieved in the costs of goods and management costs following the
merger of MetaTools, Inc. and Fractal Design Corporation in May 1997. Royalties
represented 3% of net revenues for the three months ended March 31, 1998, down
from 5% of net revenues for the three months ended March 31, 1997.
The Company expects that cost of revenues will increase in the future
commensurate with the increase in net revenues, but may vary as a percentage of
net revenues.
Sales and Marketing
Sales and marketing expenses include advertising, promotional materials, mail
campaigns, trade shows and the compensation costs of sales, marketing, customer
service and public relations personnel who promote the Company's products,
including related facilities costs. Sales and marketing expenses totaled $7.9
million for the three months ended March 31, 1998, compared to $7.3 million for
the three months ended March 31, 1997, but remained flat as a percentage of net
revenues at 55%. The increase in sales and marketing expenses resulted primarily
from increased marketing activities.
The Company intends to continue such expansion and anticipates that sales and
marketing expenses will continue to increase significantly in future periods as
the Company's product offerings expand, although they may vary as a percentage
of net revenues.
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Research and Development
Research and development expenses consist primarily of personnel costs,
consultant fees and required equipment and facilities costs related to the
Company's product development efforts. Research and development expenses totaled
$4.2 million, or 29% of net revenues, for the three months ended March 31, 1998,
compared to $3.1 million, or 23% of net revenues, for the three months ended
March 31, 1997. The increase was attributed to increased personnel costs,
including personnel obtained via the acquisition of Specular International, Ltd.
in April 1997.
The Company expects research and development expenses will continue to increase
in future periods, but may vary as a percentage of net revenues.
General and Administrative
General and administrative expenses include compensation costs related to
executive management, finance and administration personnel of the Company along
with other administrative costs including legal and accounting fees, insurance
and bad debt expenses. General and administrative expenses totaled $1.8 million,
or 13% of net revenues, for the three months ended March 31, 1998, compared to
$1.6 million, or 12% of net revenues, for the three months ended March 31, 1997.
The increase in expenses is due to increased administrative expenses related to
the continued growth of the Company.
The Company expects that its general and administrative expenses will continue
to increase in the future as the Company expands its staffing to support
expanded operations, but may vary as a percentage of net revenues.
Benefit for Income Taxes
The benefits for income taxes for the three months ended March 31, 1998 and 1997
are based on the Company's estimated annualized effective tax rate for the
respective years, after giving effect to the utilization of available
tax credits and tax planning opportunities.
Net Loss
Net loss was $823,000, or $0.03 per share, for the three months ended March 31,
1998, compared to a net loss of $432,000, or $0.02 per share, for the three
months ended March 31, 1997.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Factors that may affect future operating results include, but are not limited
to, those discussed below, as well as those discussed elsewhere in the Company's
SEC reports, including without limitation, the Company's audited consolidated
financial statements and notes thereto as of December 31, 1997 and 1996, and for
the three years in the period ended December 31, 1997, as filed on Form 10-K.
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Seasonality and Fluctuations in Quarterly Results
The Company has experienced in the past and expects in the future to continue to
experience significant fluctuations in quarterly operating results. There can be
no assurance that the Company's future revenues, operating results and cash
flows will not also vary substantially. The Company generally ships products as
orders are received and, therefore, has little or no backlog. As a result,
quarterly revenues, operating results and cash flows of the Company will
generally depend on a number of factors that are difficult to forecast,
including, among others, the volume and timing of and the ability to fulfill
orders received and the timing of and ability to close OEM and licensing
agreements with third parties within a quarter. Quarterly revenues, operating
results and cash flows also may fluctuate due to factors such as demand for the
Company's products; introduction, localization or enhancement of products by the
Company and its competitors; customer or distributor order deferrals in
anticipation of new versions of products; market acceptance of new products;
reviews in the industry press concerning the products of the Company or its
competitors; changes or anticipated changes in pricing by the Company or its
competitors; the mix of distribution channels through which products are sold;
the mix of products sold; returns from distributors; and general economic
conditions. Revenues, operating results and cash flows from the Company's
products also may be negatively affected by delays in the introduction or
availability of new hardware and software products from third parties. The
Company experiences some effect of seasonality in its business, as demand for
its products tends to increase during the quarter ending December 31 as a result
of timing of year-end holiday season buying.
As is common in the software industry, the Company's experience has been that a
disproportionately large percentage of revenues in each fiscal quarter occurs in
the third month of that quarter. Because the Company's staffing and other
operating expenses are based in part on anticipated net revenues, a substantial
portion of which may not be realized until shortly before the end of each fiscal
quarter, delays in the receipt and shipment of orders, including delays that may
be occasioned by failures of third party product fulfillment firms to produce
and ship products, and delays or deferrals in the execution of OEM arrangements
can cause significant variations in the Company's financial position, results of
operations and cash flows from quarter to quarter. The Company will most likely
be unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall in revenues from the
Company's products in relation to expectations could have an immediate adverse
impact on Company's financial position, results of operations and cash flows. In
addition, the Company currently intends to increase its operating expenses to
fund greater levels of research and product development, to increase its sales
and marketing operations and to expand its distribution channels. To the extent
that such expenses precede, or are not subsequently followed by, increased
revenues, the Company's financial position, results of operations and cash flows
will be materially and adversely affected.
Due to the foregoing factors, it is likely that the operating results of the
Company for some future quarters may fall below the expectations of securities
analysts and investors. In such event, the trading price of the Company's common
stock could be materially and adversely affected.
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Year 2000 Compliance
The Company has completed implementation of a year 2000 compliant
enterprise-wide information system. The Company has also initiated an assessment
project, both within the Company and with its business partners, which addresses
those other significant systems that may have year 2000 compliance issues. The
Company presently believes that with the implementation of the new system and
modification to existing software, year 2000 compliance will not pose a
significant operational challenge for the Company. However, if these
modifications are not completed on a timely basis, including implementation by
its business partners, the Company's financial position, results of operations
and cash flows will be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Historically, net cash used in operating activities and investing activities of
the Company has been significant due to operating losses from acquisitions and
mergers and working capital requirements resulting from the growth of the
Company. Cash and investments totaled $51.5 million at March 31, 1998, up from
$50.0 million at December 31, 1997. Net cash provided by operating activities of
the Company totaled $2.9 million for the three months ended March 31, 1998,
compared to net cash used in operating activities of $(1.4) million for the
three months ended March 31, 1997. The increase in cash provided by operating
activities is primarily attributed to the decrease in accounts receivable and
the provision for losses on receivables and product returns recorded during the
quarter ended March 31, 1998. Net cash provided by (used in) investing
activities totaled $2.9 million and $(6.7) million for the three months ended
March 31, 1998 and 1997, respectively. The change resulted primarily from net
sales and purchases of short-term investments during the respective periods. Net
cash provided by financing activities totaled $9,000 and $81,000 for the three
months ended March 31, 1998 and 1997, respectively, resulting from proceeds
received from the exercise of stock options by the Company's employees during
the respective periods.
The Company expects that its working capital requirements will continue to
increase to the extent the Company continues to grow. The Company believes that
its current cash and investment balances, cash provided by future operations, if
any, and available borrowings under the Company's line of credit are sufficient
to meet its working capital needs and anticipated capital expenditure
requirements through at least the next twelve months.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 requires publicly-held companies to report financial and other information
about key revenue-producing segments of the entity for which such information is
available and is utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements would be
provided. SFAS No. 131 requires companies to adopt its provisions for fiscal
years beginning after December 15, 1997, but does not require that segment
information be reported in financial statements for interim
15
<PAGE> 16
periods in the initial year of application. Management is currently evaluating
the requirements of adopting SFAS No. 131 and the effects, if any, on the
Company's current reporting and disclosures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
<S> <C>
10.5 1995 Stock Plan, as amended on May 6, 1998
10.6 1995 Employee Stock Purchase Plan, as amended on May 6, 1998
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
16
<PAGE> 17
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.
METACREATIONS CORPORATION
(Registrant)
Date: May 14, 1998 /s/ TERANCE A. KINNINGER
------------------------
Terance A. Kinninger
Sr. Vice President and
Chief Financial Officer
17
<PAGE> 1
EXHIBIT 10.5
AS AMENDED ON MAY 6, 1998
METACREATIONS CORPORATION
(FORMERLY KNOWN AS METATOOLS, INC.)
1995 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.
(b) "Applicable Laws" means the legal requirements relating
to the administration of stock option plans under state corporate and
securities laws and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a Committee appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means MetaCreations Corporation, a Delaware
corporation formerly known as MetaTools, Inc.
(h) "Consultant" means any person, including a Director or
an advisor, engaged by the Company or a Parent or Subsidiary to render
services and who is compensated for such services.
<PAGE> 2
(i) "Continuous Status as an Employee or Consultant" means
that the employment or consulting relationship with the Company, any
Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of (i)
any leave of absence approved by the Company or (ii) transfers between locations
of the Company or between the Company, its Parent, any Subsidiary, or any
successor. A leave of absence approved by the Company shall include sick leave,
military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed ninety days, unless reemployment upon expiration of such leave
is guaranteed by statute or contract. If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, on the 181st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. Neither service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last market
trading day prior to the day of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the Nasdaq National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
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<PAGE> 3
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the
Plan.
(t) "Option Agreement" means a written agreement between
the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(u) "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
(v) "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.
(w) "Optionee" means an Employee or Consultant who holds an
outstanding Option or Stock Purchase Right.
(x) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1995 Stock Plan.
(z) "Restricted Stock" means shares of Common Stock
acquired pursuant to a grant of Stock Purchase Rights under Section 11 below.
(aa) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
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<PAGE> 4
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act
or any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(cc) "Section 16(b)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(dd) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase
Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of
Grant.
(ff) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 5,000,000 which number includes 426,300 Shares that were
previously authorized but unissued under the Company's 1994 Incentive Stock
Option, Non-Qualified Stock Option and Restricted Stock Purchase Plan. The
Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, and the original purchaser of such
Shares did not receive any benefits of ownership of such Shares, such Shares
shall become available for future grant under the Plan. For purposes of the
preceding sentence, voting rights shall not be considered a benefit of Share
ownership.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted
by Rule 16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are neither
Directors nor Officers.
(ii) Administration With Respect to Directors and
Officers Subject to Section 16(b). With respect to Option or Stock Purchase
Right grants made to Employees who are also
-4-
<PAGE> 5
Officers or Directors subject to Section 16(b) of the Exchange Act, the Plan
shall be administered by (A) the Board, if the Board may administer the Plan in
a manner complying with the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made, or (B) a
committee designated by the Board to administer the Plan, which committee shall
be constituted to comply with the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members, remove members (with
or without cause) and substitute new members, fill vacancies (however caused),
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.
(iii) Administration With Respect to Other Persons.
With respect to Option or Stock Purchase Right grants made to Employees or
Consultants who are neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a committee designated by the
Board, which committee shall be constituted to satisfy Applicable Laws. Once
appointed, such Committee shall serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions
of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to
whom Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent
Options and Stock Purchase Rights or any combination thereof, are granted
hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted
hereunder;
(v) to approve forms of agreement for use under the
Plan;
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<PAGE> 6
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option
or Stock Purchase Right to the then current Fair Market Value if the Fair
Market Value of the Common Stock covered by such Option or Stock Purchase Right
shall have declined since the date the Option or Stock Purchase Right was
granted;
(viii) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Option or
Stock Purchase Right previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions
applicable to Options and Stock Purchase Rights and any Restricted Stock; and
(xiv) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding
on all Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Employees and Consultants. Incentive Stock Options may be
granted only to Employees. If otherwise eligible, an Employee or Consultant who
has been granted an Option or Stock Purchase Right may be granted additional
Options or Stock Purchase Rights.
-6-
<PAGE> 7
6. Limitations.
(a) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such Shares
is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
(c) The following limitations shall apply to grants of
Options and Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal
year of the Company, Options and Stock Purchase Rights to purchase more than
300,000 Shares.
(ii) In connection with his or her initial employment,
an Employee may be granted Options and Stock Purchase Rights to purchase up to
an additional 150,000 Shares which shall not count against the limit set forth
in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 13.
(iv) If an Option or Stock Purchase Right is cancelled
in the same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 13), the cancelled Option or
Stock Purchase Right will be counted against the limits set forth in subsections
(i) and (ii) above. For this purpose, if the exercise price of an Option or
Stock Purchase Right is reduced, the transaction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant of a new Option
or Stock Purchase Right.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company as described in Section 19 of the
Plan. It shall continue in effect for a term of ten (10) years unless terminated
earlier under Section 15 of the Plan.
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<PAGE> 8
8. Term of Option. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant. Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Notice of
Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by
the Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the
time the Incentive Stock Option is granted, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than
an Employee described in paragraph (A) immediately above, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option,
the per Share exercise price shall be determined by the Administrator.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
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<PAGE> 9
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for
more than six months on the date of surrender, and (B) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
(v) delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
-9-
<PAGE> 10
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship.
Upon termination of an Optionee's Continuous Status as an Employee or
Consultant, other than upon the Optionee's death or Disability, the Optionee may
exercise his or her Option, but only within such period of time as is specified
in the Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant). In
the absence of a specified time in the Notice of Grant, the Option shall remain
exercisable for three (3) months following the Optionee's termination. In the
case of an Incentive Stock Option, such period of time for exercise shall not
exceed three (3) months from the date of termination. If, on the date of
termination, the Optionee is not entitled to exercise the Optionee's entire
Option, the Shares covered by the unexercisable portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's
change in status from Consultant to Employee or Employee to Consultant, an
Optionee's Continuous Status as an Employee or Consultant shall not
automatically terminate solely as a result of such change in status. However, in
such event, an Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option three months and one day following such change of
status.
(c) Disability of Optionee. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of
the Optionee's Disability, the Optionee may exercise his or her Option at any
time within twelve (12) months from the date of such termination, but only to
the extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the Optionee
was not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the
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<PAGE> 11
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to individuals subject to
Section 16 of the Exchange Act ("Insiders") must comply with the applicable
provisions of Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of Shares
that the offeree shall be entitled to purchase, the price to be paid, and the
time within which the offeree must accept such offer, which shall in no event
exceed six (6) months from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Rule 16b-3. Stock Purchase Rights granted to Insiders,
and Shares purchased by Insiders in connection with Stock Purchase Rights, shall
be subject to any restrictions applicable thereto in compliance with Rule 16b-3.
An Insider may only purchase Shares pursuant to the grant of a Stock Purchase
Right, and may only sell Shares purchased pursuant to the grant of a Stock
Purchase Right, during such time or times as are permitted by Rule 16b-3.
(d) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(e) Rights as a Shareholder. Once the Stock Purchase Right
is exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is
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<PAGE> 12
prior to the date the Stock Purchase Right is exercised, except as provided in
Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An
Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, to the extent that an Option
or Stock Purchase Right has not been previously exercised, it will terminate
immediately prior to the consummation of such proposed action. The Board may, in
the exercise of its sole discretion in such instances, declare that any Option
or Stock Purchase Right shall terminate as of a date fixed by the Board and give
each Optionee the right to exercise his or her Option or Stock Purchase Right as
to all or any part of the Optioned Stock, including Shares as to which the
Option or Stock Purchase Right would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all
of the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall have the right to exercise the Option
or Stock Purchase Right as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option
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<PAGE> 13
or Stock Purchase Right is exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee that the Option or Stock Purchase Right shall be fully exercisable for
a period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option or Stock Purchase Right, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain
shareholder approval of any Plan amendment to the extent necessary and desirable
to comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule
or statute or other applicable law, rule or regulation, including the
requirements of any exchange or quotation system on which the Common Stock is
listed or quoted). Such shareholder approval, if required, shall be obtained in
such a manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of
any Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
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<PAGE> 14
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option or Stock Purchase Right unless the exercise of
such Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, Applicable Laws, and the requirements of any
stock exchange or quotation system upon which the Shares may then be listed or
quoted, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
(b) Investment Representations. As a condition to the exercise
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. Liability of Company.
(a) Inability to Obtain Authority. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock
covered by an Option or Stock Purchase Right exceeds, as of the date of grant,
the number of Shares which may be issued under the Plan without additional
shareholder approval, such Option or Stock Purchase Right shall be void with
respect to such excess Optioned Stock, unless shareholder approval of an
amendment sufficiently increasing the number of Shares subject to the Plan is
timely obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
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<PAGE> 15
METACREATIONS CORPORATION
(FORMERLY KNOWN AS METATOOLS, INC.)
1995 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest twelve months
after the Vesting Commencement Date, and 1/48 of the Shares subject to the
Option shall vest each month thereafter.
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<PAGE> 16
Termination Period:
This Option may be exercised for three months after termination of
the Optionee's employment or consulting relationship with the Company. Upon the
death or Disability of the Optionee, this Option may be exercised for such
longer period as provided in the Plan. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
II. AGREEMENT
1 Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). If
this Option does exceed the $100,000 rule, it shall vest first in any calendar
year as to the ISO portion and then, once the $100,000 limit has been reached,
as to the NSO portion.
2 Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by
delivery of an exercise notice, in the form attached as Exhibit A (the
"Exercise Notice"), which shall state the election to exercise the Option, the
number of Shares in respect of which the Option is being exercised (the
"Exercised Shares"), and such other representations and agreements as may be
required by the Company pursuant to the provisions of the Plan. The Exercise
Notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.
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<PAGE> 17
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3 Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, AND (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
4 Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5 Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6 Tax Consequences. Some of the federal and California tax
consequences relating to this Option, as of the date of this Option, are set
forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax and [state] income tax liability upon exercise of a
NSO. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess,
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<PAGE> 18
if any, of the Fair Market Value of the Exercised Shares on the date of exercise
over their aggregate Exercise Price. If the Optionee is an Employee or a former
Employee, the Company will be required to withhold from his or her compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
in cash equal to a percentage of this compensation income at the time of
exercise, and may refuse to honor the exercise and refuse to deliver Shares if
such withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as
an ISO, the Optionee will have no regular federal income tax or California
income tax liability upon its exercise, although the excess, if any, of the Fair
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price will be treated as an adjustment to alternative minimum
taxable income for federal tax purposes and may subject the Optionee to
alternative minimum tax in the year of exercise. In the event that the Optionee
undergoes a change of status from Employee to Consultant, any Incentive Stock
Option of the Optionee that remains unexercised shall cease to qualify as an
Incentive Stock Option and will be treated for tax purposes as a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If
the Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to an ISO on or before the later of (i) two years after the grant date,
or (ii) one year after the exercise date, the Optionee shall immediately notify
the Company in writing of such disposition. The Optionee agrees that he or she
may be subject to income tax withholding by the Company on the compensation
income recognized from such early disposition of ISO Shares by payment in cash
or out of the current earnings paid to the Optionee.
7 Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified
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<PAGE> 19
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by California law except for
that body of law pertaining to conflict of laws.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: METACREATIONS CORPORATION
____________________________________ By:____________________________________
Signature
____________________________________ Title:_________________________________
Print Name
____________________________________
Residence Address
____________________________________
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<PAGE> 20
METACREATIONS CORPORATION
(FORMERLY KNOWN AS METATOOLS, INC.)
1995 STOCK PLAN
EXERCISE NOTICE
MetaCreations Corporation
Attention: Secretary
1 Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of MetaCreations Corporation (the
"Company") under and pursuant to the 1995 Stock Plan (the "Plan") and the Stock
Option Agreement dated , 19___ (the "Option Agreement"). The purchase price for
the Shares shall be $ , as required by the Option Agreement.
2 Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3 Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4 Rights as Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a Stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
5 Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6 Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject
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<PAGE> 21
matter hereof, and may not be modified adversely to the Purchaser's interest
except by means of a writing signed by the Company and Purchaser. This agreement
is governed by [state] law except for that body of law pertaining to conflict of
laws.
Submitted by: Accepted by:
PURCHASER: METACREATIONS CORPORATION
__________________________________ By: _________________________________
Signature
__________________________________ Its: ________________________________
Print Name
Address:
__________________________________
__________________________________
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<PAGE> 1
EXHIBIT 10.6
AS AMENDED ON MAY 6, 1998
METACREATIONS CORPORATION
(FORMERLY KNOWN AS METATOOLS, INC.)
1995 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1995 Employee
Stock Purchase Plan of MetaCreations Corporation.
1. Purpose. The purpose of the Plan is to provide employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean MetaCreations Corporation, a Delaware
corporation and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, including commissions, overtime, shift premium, and bonuses, but
excluding other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
<PAGE> 2
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ System
(but not on the Nasdaq National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board; or
(4) For the purposes of the Enrollment Date under the
first Offering Period under the Plan, the Fair Market Value of the Common Stock
shall be the price to public as set forth in the final prospectus included
within the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission for the initial public offering of the Common Stock.
(k) "Offering Period" shall mean the period of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after April 1 and
October 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period shall be a period of approximately twenty-two months, commencing with the
first Trading Day on or after the date on which the Company's registration
statement on Form S-1 (or any successor form thereof) is declared effective by
the Securities and Exchange Commission and terminating on the last Trading Day
in the period ending September 30, 1997. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the first day of the Enrollment
Date or on the Exercise Date, whichever is lower.
<PAGE> 3
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date; provided,
however, that the first Purchase Period of the first Offering Period under the
Plan shall be the period of approximately ten months, commencing with the first
Trading Day on or after the date on which the Company's registration statement
on Form S-1 (or any successor thereof) is declared effective by the Securities
and Exchange Commission and terminating on the last Trading Day in the period
ending September 30, 1996.
(o) "Reserves" shall mean the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the NASDAQ Stock Market are open for trading.
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be eligible under the Plan if such Employee
(or any other person whose stock would be attributed to such Employee pursuant
to Section 424(d) of the Code) owns capital stock of the Company and/or hold
outstanding options to purchase such stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of the capital stock
of the Company or of any Subsidiary.
4. Offering Periods. The Plan shall be implemented by
consecutive, overlapping Offering Periods with a new Offering Period commencing
on the first Trading Day on or after April 1 and October 1 each year, or on such
other date as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 19 hereof; provided, however, that the
first Offering Period shall be the period of approximately twenty-two months,
commencing with the first Trading Day on or after the date on which the
Company's registration statement on Form S-1 (or any successor form thereof) is
declared effective by the Securities and Exchange Commission and terminating on
the last Trading Day in the period ending September 30, 1997. Each twenty-four
month Offering Period will consist of four Purchase Periods of approximately six
months duration. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder
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<PAGE> 4
approval if such change is announced at least five (5) days prior to the
scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on
the first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed ten percent (10%) of the participant's Compensation during said
Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation
in the Plan as provided in Section 10 hereof, or may increase or decrease the
rate of his or her payroll deductions during the Offering Period by completing
or filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such
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<PAGE> 5
participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on each Exercise Date during such Offering Period
(at the applicable Purchase Price) up to a number of shares of the Company's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event shall an Employee be permitted to purchase during each Purchase
Period more than a number of Shares determined by dividing $12,500 by the Fair
Market Value of a share of the Company's Common Stock on the Enrollment Date;
provided, however, that in the case of the first Purchase Period under the first
Offering Period under the Plan and notwithstanding the limit of $12,500 in the
preceding clause, in no event shall an Employee be permitted to purchase during
such Purchase Period more than a number of Shares determined by dividing $25,000
by the Fair Market Value of a share of the Company's Common Stock on the
Enrollment Date; and provided further, that such purchase shall be subject to
the limitations set forth in Section 12 hereof. Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof, and shall expire on the last day of the Offering
Period.
8. Exercise of Option. Unless a participant withdraws from the
Plan as provided in Section 10 hereof, his or her option for the purchase of
shares will be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
-5-
<PAGE> 6
9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all
the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written notice
to the Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account will be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions will not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) Upon a participant's ceasing to be an Employee (as
defined in Section 2(g) hereof), for any reason, he or she will be deemed to
have elected to withdraw from the Plan and the payroll deductions credited to
such participant's account during the Offering Period but not yet used to
exercise the option will be returned to such participant or, in the case of his
or her death, to the person or persons entitled thereto under Section 14 hereof,
and such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
11. Interest. No interest shall accrue on the payroll
deductions of a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common
Stock which shall be made available for sale under the Plan shall be 425,000
shares, subject to adjustment upon changes in capitalization of the Company as
provided in Section 18 hereof. If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant will have no interest or voting right
in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the
Plan will be registered in the name of the participant or in the name of the
participant and his or her spouse.
-6-
<PAGE> 7
13. Administration.
(a) Administrative Body. The Plan shall be administered
by the Board or a committee of members of the Board appointed by the Board.
The Board or its committee shall have full and exclusive discretionary authority
to construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions
of Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the
-7-
<PAGE> 8
Company may treat such act as an election to withdraw funds from an Offering
Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the Reserves as well as the price per
share of Common Stock covered by each option under the Plan which has not yet
been exercised shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Offering Periods will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger of
the Company with or into another corporation, each option under the Plan shall
be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Periods then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the
Offering Periods then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for his option has been changed to the New Exercise Date and
that his option will be exercised
-8-
<PAGE> 9
automatically on the New Exercise Date, unless prior to such date he has
withdrawn from the Offering Period as provided in Section 10 hereof.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the Offering
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such
-9-
<PAGE> 10
shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 19 hereof.
23. Automatic Transfer to Low Price Offering Period. To the
extent permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of
the Common Stock on any Exercise Date in an Offering Period is lower than the
Fair Market Value of the Common Stock on the Enrollment Date of such Offering
Period, then all participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the exercise of their
option on such Exercise Date and automatically re-enrolled in the immediately
following Offering Period as of the first day thereof.
-10-
<PAGE> 11
EXHIBIT A
METACREATIONS CORPORATION
(FORMERLY KNOWN AS METATOOLS, INC.)
1995 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________ hereby elects to participate in the MetaCreations
Corporation 1995 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee
Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (1-10%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated
for the purchase of shares of Common Stock at the applicable
Purchase Price determined in accordance with the Employee Stock
Purchase Plan. I understand that if I do not withdraw from an
Offering Period, any accumulated payroll deductions will be used
to automatically exercise my option.
4. I have received a copy of the complete "MetaCreations Corporation
1995 Employee Stock Purchase Plan." I understand that my
participation in the Employee Stock Purchase Plan is in all
respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement
is subject to obtaining stockholder approval of the Employee
Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and spouse only): ______
__________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal
<PAGE> 12
income tax purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value of
the shares at the time such shares were purchased over the price which I
paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING
WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL
MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING
OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK.
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that such
income will be taxed as ordinary income only to the extent of an amount
equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_________________________________________________________
(First) (Middle) (Last)
- -------------------------------- ---------------------------------------
Relationship
---------------------------------------
(Address)
-2-
<PAGE> 13
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ____________________________________
Signature of Employee
_____________________________________
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE> 14
EXHIBIT B
METACREATIONS CORPORATION
(FORMERLY KNOWN AS METATOOLS, INC.)
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the
MetaCreations Corporation 1995 Employee Stock Purchase Plan which began on
____________, 19____ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:__________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 15,477
<SECURITIES> 36,007
<RECEIVABLES> 21,228
<ALLOWANCES> 0
<INVENTORY> 1,445
<CURRENT-ASSETS> 85,243
<PP&E> 13,593
<DEPRECIATION> 5,512
<TOTAL-ASSETS> 95,123
<CURRENT-LIABILITIES> 8,452
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 86,647
<TOTAL-LIABILITY-AND-EQUITY> 95,123
<SALES> 14,423
<TOTAL-REVENUES> 14,423
<CGS> 2,331
<TOTAL-COSTS> 2,331
<OTHER-EXPENSES> 13,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,176)
<INCOME-TAX> (353)
<INCOME-CONTINUING> (823)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (823)
<EPS-PRIMARY> (0.03)<F1>
<EPS-DILUTED> (0.03)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
