<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FRACTAL DESIGN CORPORATION
(Name of Registrant as Specified in Its Charter)
FRACTAL DESIGN CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
FRACTAL DESIGN CORPORATION
-----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 16, 1996
-----------
The Annual Meeting of Shareholders (the "Annual Meeting") of Fractal
Design Corporation, a California corporation (the "Company"), will be held at
the principal executive offices of the Company, located at 5550 Scotts Valley
Drive, Scotts Valley, California, on Wednesday, October 16, 1996, at 10:00 a.m.,
local time, for the following purposes:
1. To elect ten (10) directors of the Company to serve until the 1997
Annual Meeting of Shareholders or until their respective successors are elected
and qualified;
2. To ratify the appointment of Price Waterhouse LLP as the independent
auditors for the Company for the year ending March 31, 1997; and
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors,
are more fully described in the Proxy Statement which is attached and made a
part of this Notice.
The Board of Directors has fixed the close of business on August 30,
1996 as the record date for determining the shareholders entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponement thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign and return the enclosed proxy card as
promptly as possible in the postage-prepaid envelope provided to ensure your
representation and the presence of a quorum at the Annual Meeting. If you send
in your proxy card and then decide to attend the Annual Meeting to vote your
shares in person, you may still do so. Your proxy is revocable in accordance
with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
/s/ CRAIG W. JOHNSON
Craig W. Johnson
Secretary
Scotts Valley, California
September 20, 1996
<PAGE> 3
FRACTAL DESIGN CORPORATION
5550 SCOTTS VALLEY DRIVE
SCOTTS VALLEY, CA 95066
--------------------
PROXY STATEMENT
--------------------
GENERAL
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Fractal Design Corporation, a
California corporation (the "Company" or "Fractal"), of proxies in the enclosed
form for use in voting at the Annual Meeting of Shareholders (the "Annual
Meeting") to be held at the principal executive offices of the Company, located
at 5550 Scotts Valley Drive, Scotts Valley, California, on Wednesday, October
16, 1996, at 10:00 a.m., local time, and any adjournment or postponement
thereof.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report to Shareholders are being mailed to shareholders on or about September
20, 1996.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company
(Attention: Leslie Wright) a written notice of revocation or a duly executed
proxy bearing a later date, or by attending the Annual Meeting and voting in
person.
RECORD DATE
The close of business on August 30, 1996 has been fixed as the record
date (the "Record Date") for determining the holders of shares of Common Stock
of the Company entitled to notice of and to vote at the Annual Meeting. At the
close of business on the Record Date, the Company had approximately 11,750,692
shares of Common Stock outstanding.
VOTING AND SOLICITATION
Each outstanding share of Common Stock on the Record Date is entitled
to one vote on all matters and is entitled to cumulate votes for the election of
directors, subject to the conditions described below.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the Company's transfer agent, which will act as Inspector of
Elections. The Inspector of Elections will also determine whether or not a
quorum is present. Except with respect to the election of directors and except
in certain other specific circumstances, the affirmative vote of a majority of
shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute at least a majority
of the required quorum) is required under California law for approval of
proposals presented to shareholders. In general, California law also provides
that a quorum consists of a majority of the shares entitled to vote, represented
either in person or by proxy. The Inspector of Elections will treat abstentions
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as not voting for purposes of determining the approval
of any matter submitted to the shareholders for a vote.
The shares represented by the proxies received, properly marked, dated,
signed and not revoked will be voted at the Annual Meeting. Where such proxies
specify a choice with respect to any matter to be acted upon, the shares will be
voted in accordance with the specifications made. Any proxy in the enclosed form
which is returned
<PAGE> 4
but is not marked will be voted FOR the election of each of the ten nominees
named below, FOR ratification of the appointment of the designated independent
auditors and as the proxy holders deem advisable on other matters that may come
before the meeting. If a broker indicates on the enclosed proxy or its
substitute that it does not have discretionary authority as to certain shares to
vote on a particular matter ("broker non-votes"), those shares will not be
considered as voting with respect to that matter. While there is no definitive
specific statutory or case law authority in California concerning the proper
treatment of abstentions and broker non-votes, the Company believes that the
tabulation procedures to be followed by the Inspector of Elections are
consistent with the general statutory requirements in California concerning
voting of shares and determination of a quorum.
The solicitation of proxies will be conducted by mail and the Company
will bear all attendant costs. These costs will include the expense of preparing
and mailing proxy solicitation materials for the Annual Meeting and
reimbursements paid to brokerage firms and others for their expenses incurred in
forwarding solicitation materials regarding the Annual Meeting to beneficial
owners of the Company's Common Stock. The Company may conduct further
solicitation personally, telephonically or by facsimile through its officers,
directors and employees, none of whom will receive additional compensation for
assisting with the solicitation.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, the shareholders will elect ten directors to
serve until the 1997 Annual Meeting of Shareholders or until their respective
successors are elected and qualified. In the event any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the proxies
may be voted for the balance of those nominees named and for any substitute
nominee designated by the present Board or the proxy holders to fill such
vacancy, or for the balance of the nominees named without nomination of a
substitute, or the Board may be reduced in accordance with the Bylaws of the
Company. The Board has no reason to believe that any of the persons named below
will be unable or unwilling to serve as a nominee or as a director if elected.
In voting for directors, each shareholder is entitled to cast that
number of votes equal to the number of directors to be elected multiplied by the
number of shares of Common Stock held by such shareholder. Such votes may be
cast for one candidate or distributed in any manner among the nominees for
directors. However, the right to cumulate votes in favor of one or more
candidates may not be exercised unless the candidate or candidates have been
nominated prior to the voting, and a shareholder has given notice at the Annual
Meeting, prior to the voting, of the shareholder's intention to cumulate such
shareholder's votes. If any one shareholder gives such notice, all shareholders
may cumulate their votes for candidates in nomination.
Assuming a quorum is present, the ten nominees receiving the highest
number of affirmative votes of shares entitled to be voted for them will be
elected as directors of the Company for the ensuing year. Unless marked
otherwise, proxies received will be voted FOR the election of each of the ten
nominees named below. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner in accordance with cumulative voting as will ensure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders.
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<PAGE> 5
The names of the nominees, their ages as of August 30, 1996, and
certain other information about them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mark Zimmer........................ 40 Chairman of the Board of Directors and Chief Executive Officer
Thomas Hedges...................... 46 Vice Chairman of the Board of Directors and Vice President, Engineering
Eric Hautemont..................... 31 Director and President
Arthur J. Collmeyer (1)............ 55 Director
Craig W. Johnson (2)............... 49 Director and Secretary
Lee Jay Lorenzen (2)............... 37 Director
Stephen E. Manousos................ 46 Director
Alain Rossmann..................... 40 Director
Anthony Sun........................ 44 Director
Thomas I. Unterberg (1)............ 65 Director
</TABLE>
- --------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Mr. Zimmer, a founder of Fractal, has been Chief Executive Officer and
a director of Fractal since its inception and Chairman of the Board since May
1996. Mr. Zimmer served as President of Fractal until May 1996. Mr. Zimmer
co-developed the initial versions of Painter that became the initial product of
Fractal. From 1981 to 1985, Mr. Zimmer co-founded TRICAD, a software firm
specializing in computer aided design. Prior to that time, Mr. Zimmer worked at
Calma Corporation, a computer aided design software company, where he designed
several versions of CAD software.
Mr. Hedges, a founder of Fractal, has served as Vice President,
Engineering and a director of Fractal since its inception. From March 1993 until
May 1996, Mr. Hedges served Fractal as Chairman of the Board. He has served as
Vice Chairman of the Board since May 1996. From 1985 to 1990, Mr. Hedges was a
partner in Fractal Software with Mr. Zimmer where he co-developed ImageStudio,
ColorStudio, and the initial versions of Painter. From 1975 to 1985, Mr. Hedges
was a lead scientist and software engineer at Calma Corporation.
Mr. Hautemont has been President and a director of Fractal since May
1996. Mr. Hautemont was a co-founder of Ray Dream, Inc. and served as President,
Chief Executive Officer and a director of Ray Dream from December 1989 until Ray
Dream was acquired by Fractal in May 1996. Prior to founding Ray Dream, Mr.
Hautemont was a consultant to Matra Technology, Inc. from October 1988 to
December 1989.
Mr. Collmeyer has been a director of Fractal since January 1994. From
July 1994 until January 1995, Mr. Collmeyer served as President and Chief
Executive Officer of Dyna Logic Corporation, a development stage company
specializing in field programmable gate arrays. Prior to that time, Mr.
Collmeyer served as an officer of Weitek Corporation, a producer of
graphics-related semiconductors, for 12 years, most recently as Chief Executive
Officer. Prior to joining Weitek, Mr. Collmeyer served for seven years as Vice
President of Research and Development and as General Manager of the
Microelectronics Division of Calma Corporation, and for five years each with
Xerox Corporation and Motorola, Inc. in various engineering roles. He also
presently serves as a director of Weitek.
Mr. Johnson has been a director and Secretary of Fractal since January
1994. Mr. Johnson has been a Director in Venture Law Group, A Professional
Corporation, and a Partner in its predecessor partnership, since February 1993.
From 1980 to February 1993, Mr. Johnson was a member of the law firm of Wilson,
Sonsini, Goodrich & Rosati, P.C. Mr. Johnson also is a director of Collagen
Corporation, a biomaterials company, and Retix, a network equipment
manufacturer.
-3-
<PAGE> 6
Mr. Lorenzen, a founder of Fractal, has served Fractal as a director
since its inception. Since November 1990, Mr. Lorenzen has owned and currently
serves as President of Altura Software, Inc., a company providing porting
software and services. In 1985, Mr. Lorenzen founded Ventura Software Inc., a
provider of desktop publishing products, for which he served as a Director and
Vice President of Research and Development until 1991. Prior to 1985, Mr.
Lorenzen worked for Digital Research and Xerox Corporation developing user
interface technology. Mr. Lorenzen also is a director of several private
companies, including Aptos Post, Inc. ("Aptos Post"), a Postscript image setting
service bureau, Jump! Software, Inc., a developer and distributor of consumer
music software, PGSoft, Inc., a developer and distributor of disk storage
management utility software, and InfoHut, Inc., a developer and distributor of
Internet advertising and multimedia kiosk software and services.
Mr. Manousos, a founder of Fractal, served as Vice President, Sales
from March 1992 until June 1996, Vice President, Sales and Marketing from
February 1993 until July 1994, and Vice President, Operations from the inception
of Fractal until March 1992. He has also served as a director of Fractal since
its inception. From 1981 to present, Mr. Manousos also has owned and operated
Aptos Post. Prior to that time, Mr. Manousos published a weekly newspaper in
Aptos and served as an editor on the National Desk of the Los Angeles Times.
Mr. Rossmann has served as a director of Fractal since May 1996. From
December 1989 to May 1996, Mr. Rossmann served as a director of Ray Dream. Mr.
Rossmann founded Unwired Planet, Inc. in September 1994 and currently serves as
President, Chief Executive Officer, and director of Unwired Planet. From June
1991 until March 1994, Mr. Rossmann was President and Chief Executive Officer of
EO, Inc. Prior to that time, Mr. Rossmann was the Vice President of Operations
of C Cube Microsystems from May 1989 to March 1991. Prior to such time, Mr.
Rossmann was a co-founder and served as Vice President of Marketing and Sales of
Radius Inc. from July 1986 to February 1989.
Mr. Sun has been a director of Fractal since May 1996. From October
1991 until its acquisition by Fractal in May 1996, Mr. Sun served as a director
of Ray Dream. Mr. Sun has been a general partner at Venrock Associates, a
venture capital firm, since 1979. He is a director of Centura Software
Corporation, a client/server software company, Cognex Corporation, a computer
systems company, Inference Corporation, a client/server and Internet help desk
software, Komag, Inc., a computer storage component company, and Worldtalk
Communications Corporation, a network applications software company.
Mr. Unterberg has been a director of Fractal since September 1994. He
is co-founder and has served as Managing Director of Unterberg Harris, an
investment banking firm, since June 1989. He was Managing Director of Shearson
Lehman Brothers Inc. from 1987 to 1989. Prior to that time, he was Chairman of
the Board, Chief Executive Officer and Senior Managing Director of L.F.
Rothschild, Unterberg Towbin Holdings Inc., and was associated with such firm or
its predecessors since 1956. Mr. Unterberg also is a director of The AES
Corporation, an independent power producer, AES China Generating Co. Ltd., a
subsidiary of AES (serving China's power market), Electronics for Imaging, Inc.,
the manufacturer of the Fiery server for color desktop publishing and Systems,
Computer Technology Corporation, a supplier of software and facilities
management services to the utility, educational and government markets and ECCS,
Inc., a provider of RAID storage systems.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1996, the Board met 14 times and no director then in
office attended fewer than 75% of the aggregate number of meetings of the Board
and meetings of the committees of the Board on which he serves.
The Audit Committee consists of directors Collmeyer and Unterberg, two
of the Company's non-employee directors, and held 1 meeting during fiscal 1996.
The Audit Committee recommends the engagement of the firm of certified public
accountants to audit the financial statements of the Company, and monitors the
effectiveness of the audit effort, the Company's financial and accounting
organization and its system of internal accounting controls.
The Compensation Committee consists of directors Lorenzen and Johnson,
two of the Company's non-employee directors, and held 2 meetings during fiscal
1996. Its functions are to establish and administer the
-4-
<PAGE> 7
Company's policies regarding annual executive salaries and cash incentives and
long-term equity incentives. The Compensation Committee administers the
Company's 1995 Stock Option Plan, the Company's 1993 Stock Option Plan and the
Company's 1992 Assumed Ray Dream, Inc. Stock Option Plan.
The Board does not have a nominating committee or a committee
performing the functions of a nominating committee. Although there are no formal
procedures for shareholders to nominate persons to serve as directors, the Board
will consider nominations from shareholders, which should be addressed to Leslie
Wright, at the Company's address set forth above.
DIRECTOR COMPENSATION
The Company reimburses its directors for their out-of-pocket expenses
incurred in the performance of their duties as directors of the Company. The
Company does not pay fees to its directors for attendance at meetings. In
September 1994, each non-employee director of the Company received an option to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$0.75 per share ($0.825 per share in the case of Mr. Lorenzen). In May 1995,
each non-employee director received an option to purchase 10,000 shares of
Common Stock at an exercise price of $2.00 per share ($2.20 per share in the
case of Mr. Lorenzen). Each such option has a term of ten years, and vests over
four years from the date of grant. Such options become fully exercisable in the
event of any sale of all or substantially all of the Company's assets or any
merger, consolidation or stock sale which results in the holders of the
Company's capital stock immediately prior to such transaction owning less than
50% of the voting power of the Company's capital stock immediately after such
transaction. Pursuant to the 1995 Directors' Stock Option Plan, Messrs. Rossmann
and Sun each received options to purchase 20,000 shares of the Company's Common
Stock upon joining the Board in May 1996, and each of the Company's non-employee
directors who have served on the Board for six months prior to the date of the
Annual Meeting (Messrs. Collmeyer, Johnson, Lorenzen and Unterberg) will be
eligible to receive options to purchase 5,000 shares of the Company's Common
Stock under the Directors' Plan if such person is re-elected to the Board. All
options granted under the 1995 Directors' Plan have an exercise price equal to
the last closing price of the Company's Common Stock on the date of grant and
become fully exercisable in the event of any sale of all or substantially all of
the Company's assets or any merger, consolidation or stock sale which results in
the holders of the Company's capital stock immediately prior to such transaction
owning less than 50% of the voting power of the Company's capital stock
immediately after such transaction.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF ALL NOMINEES NAMED ABOVE.
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<PAGE> 8
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Price Waterhouse LLP has served as the Company's independent auditors
since fiscal 1994 and has been appointed by the Board to continue as the
Company's independent auditors for the fiscal year ending March 31, 1997. In the
event that ratification of this selection of auditors is not approved by a
majority of the shares of Common Stock voting at the Annual Meeting in person or
by proxy, management will review its future selection of auditors.
A representative of Price Waterhouse LLP is expected to be present at
the Annual Meeting. This representative will have an opportunity to make a
statement and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING MARCH 31, 1997.
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<PAGE> 9
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of August 30, 1996, (i) by
each person known by Fractal to own beneficially more than five percent of the
outstanding shares of Fractal's Common Stock, (ii) by each director of the
Company who beneficially owns shares of Common Stock and (iii) by all directors
and officers of Fractal as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF COMMON
BENEFICIAL OWNER OWNERSHIP (1) STOCK OUTSTANDING (2)
---------------- ------------- ---------------------
<S> <C> <C>
Mark Zimmer (3).......................................... 979,846 8.32%
c/o Fractal Design Corporation
5550 Scotts Valley Drive
Scotts Valley, CA 95066
Thomas I. Hedges (4)..................................... 929,846 7.89%
c/o Fractal Design Corporation
5550 Scotts Valley Drive
Scotts Valley, CA 95066
Lee Jay Lorenzen (5)..................................... 999,243 8.48%
c/o Altura Software, Inc.
510 Lighthouse Avenue, Suite Five
Pacific Grove, CA 93950
Eric Hautemont (6)....................................... 179,191 1.52%
c/o Fractal Design Corporation
5550 Scotts Valley Drive
Scotts Valley, CA 95066
Entities affiliated with Venrock Associates (7).......... 672,603 5.72%
755 Page Mill Road, Suite A230
Palo Alto, CA 94304
Thomas I. Unterberg and entities affiliated with Unterberg 710,625 6.03%
Harris (8)..............................................
c/o Unterberg Harris
Swiss Bank Tower
10 East 50th Street
New York, NY 10012
Stephen E. Manousos (9).................................. 373,723 3.17%
c/o Aptos Post, Inc.
1119 Pacific Avenue, Suite 202
Santa Cruz, CA 95060
Arthur J. Collmeyer (10)................................. 44,375 *
350 Bean Avenue
Los Gatos, CA 95030
Craig W. Johnson (11).................................... 28,560 *
c/o Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
-7-
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C> <C>
Alain Rossmann........................................... - - - - - -
c/o Unwired Planet, Inc.
390 Bridge Parkway
Redwood City, CA 94065
Anthony Sun (12)......................................... 672,603 5.72%
c/o Venrock Associates
755 Page Mill Road, Suite A 230
Palo Alto, CA 94304
All directors and executive officers as a group
(17 persons) (13)....................................... 5,163,699 42.51%
</TABLE>
- -----------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are exercisable on or before October 29, 1996 are
deemed outstanding. Such shares, however, are not deemed outstanding
for purposes of computing the ownership of each other person. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the shareholder named in the table has sole
voting and investment power with respect to the shares set forth
opposite such shareholder's name.
(2) Based on 11,750,692 shares of Fractal Common Stock outstanding on
August 30, 1996.
(3) Includes 947,815 shares held in joint tenancy and 32,031 shares
issuable upon exercise of options within 60 days of August 30, 1996
under Fractal's 1993 Stock Option Plan.
(4) Includes 897,815 shares held in joint tenancy and 32,031 shares
issuable upon exercise of options within 60 days of August 30, 1996
under Fractal's 1993 Stock Option Plan.
(5) Includes 962,936 shares held by a family trust for which Mr. Lorenzen
is a trustee, 1,932 shares which Mr. Lorenzen holds as a custodian, and
34,375 shares issuable upon exercise of options within 60 days of
August 30, 1996 under Fractal's 1993 Stock Option Plan.
(6) Includes 11,774 shares issuable upon exercise of options within 60 days
of August 30, 1996 under the 1992 Assumed Ray Dream, Inc. Stock Option
Plan.
(7) Includes 464,391 shares and 208,212 shares held by Venrock Associates
and Venrock Associates II, L.P., respectively. Anthony Sun, a director
of the Company, is a general partner of Venrock Associates and has
voting and investment power with respect to such shares. Mr. Sun
disclaims beneficial ownership of such shares except to the extent of
his proportionate partnership therein. See footnote (13).
(8) Includes 52,500 shares held by Thomas I. Unterberg. In addition,
includes 105,000 shares held by Unterberg Harris L.L.C., 52,999 shares
held by Unterberg Harris Private Equity Partners, C.V., 209,501 shares
held by Unterberg Harris Private Equity Partners, L.P., 262,500 shares
held by Unterberg Harris Interactive Media, L.P. I. (the "Unterberg
Entities"), and 28,125 shares issuable upon exercise of options within
60 days of August 30, 1996 under Fractal's 1993 Stock Option Plan held
by Mr. Unterberg directly. Mr. Unterberg disclaims beneficial ownership
of all shares held by the Unterberg Entities, except to the extent of
his pecuniary interests therein.
(9) Includes 341,567 shares held in a family trust for which Mr. Manousos
is a trustee and 32,156 shares issuable upon exercise of options within
60 days of August 30, 1996 under Fractal's 1993 Stock Option Plan.
-8-
<PAGE> 11
(10) Includes 34,375 shares issuable upon exercise of options within 60 days
of August 30, 1996 under Fractal's 1993 Stock Option Plan.
(11) Includes 750 shares issuable upon exercise of options within 60 days of
August 30, 1996 under Fractal's 1993 Stock Option Plan. Also includes
3,000 shares issuable upon exercise of options within 60 days of August
30, 1996 under Fractal's 1993 Stock Option Plan held by certain
affiliated partnerships.
(12) Includes 464,391 shares and 208,212 shares held by Venrock Associates
and Venrock Associates II, L.P., respectively. Anthony Sun, a director
of the Company, is a general partner of Venrock Associates and has
voting and investment power with respect to such shares. Mr. Sun
disclaims beneficial ownership of such shares except to the extent of
his proportionate partnership therein. See footnote (4).
(13) Includes 630,000 shares beneficially owned by the Unterberg Entities
affiliated with Mr. Unterberg for which he disclaims beneficial
ownership other than to the extent of his pecuniary interest therein.
Also includes 395,356 shares issuable upon exercise of options within
60 days of August 30, 1996 under Fractal's 1993 Stock Option Plan.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth all compensation for services rendered
to Fractal in all capacities for the two fiscal years ended March 31, 1995 and
March 31, 1996 by Fractal's Chief Executive Officer and certain other officers
(collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
SECURITIES ALL OTHER
FISCAL OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) (1) OPTIONS (#) ($)(2)
- --------------------------- ------ ---------- --------- -------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark Zimmer 1996 $187,927 $130,625 $12,845 12,000 $3,293
President and Chief Executive 1995 176,537 75,000 11,064 50,000 1,656
Officer (3)
Thomas Hedges 1996 169,941 85,750 13,083 12,000 3,293
Vice President, Engineering 1995 170,079 56,250 11,153 50,000 1,656
Stephen E. Manousos 1996 130,349 86,133 12,294 10,500 3,293
Vice President, Sales 1995 145,196 56,250 10,064 42,000 1,656
Leslie E. Wright 1996 154,504 78,750 12,000 100,000 3,293
Chief Operating Officer, Vice 1995 119,159 62,500 11,500 75,000 693
President, Finance and
Administration and Chief
Financial Officer
Steve I. Guttman 1996 130,347 68,906 12,000 25,000 3,293
Vice President, Marketing (4) 1995 87,893 37,500 8,000 100,000 2,547
Karen J. Bria 1996 77,797 167,531 --- 6,000 ---
Director, International Sales 1995 97,341 20,960 --- 16,500 ---
and Marketing (5)
</TABLE>
- -------------------------------------
(1) Represents automobile expense allowance.
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<PAGE> 12
(2) Represents health insurance premiums and, in the case of Mr. Guttman,
relocation expenses in fiscal year 1995.
(3) Mr. Zimmer resigned as President of Fractal in May 1996 in connection
with Fractal's acquisition of Ray Dream.
(4) Mr. Guttman joined Fractal in July 1994.
(5) Information with respect to Ms. Bria, who was not an executive officer of
the Company as of March 31, 1996, is provided pursuant to Item
402(a)(2)(iii) of Regulation S-B.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information for Named Executive Officers
with respect to grants of options to purchase Common Stock of Fractal made
during the fiscal year ended March 31, 1996:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR (1) $/SHARE DATE
---- -------------------- -------------------- -------------- ----------
<S> <C> <C> <C> <C>
Mark Zimmer 12,500 2.08% $2.20 5/01/05
Thomas Hedges 12,500 2.08 2.20 5/01/05
Stephen E. Manousos 10,500 1.75 2.00 5/01/05
Leslie E. Wright 100,000 16.64 2.00 5/01/05
Steve I. Guttman 25,000 4.16 2.00 5/01/05
Karen J. Bria 6,000 1.00 2.00 4/20/05
</TABLE>
- --------------------
(1) Options to purchase a total of 600,800 shares of Common Stock were
granted under Fractal's 1993 and 1995 Stock Option Plan during the
fiscal year ended March 31, 1996. These options vest over a period of
four years, provided however, that the stock options of the officers
listed vest automatically in the event of any sale of all or
substantially all of Fractal's assets or any merger, consolidation or
stock sale which results in the holders of Fractal's capital stock
immediately prior to such transaction owning less than 50% of the
voting power of Fractal's capital stock immediately after such
transaction.
-10-
<PAGE> 13
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth information for the Named Executive
Officers with respect to options to purchase Common Stock of Fractal held as of
March 31, 1996. No executive officer exercised any stock options during the
fiscal year ended March 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR-END ($)(1)
NAME (#) EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- ---- -------------------------------------- ---------------------------------
<S> <C> <C>
Mark Zimmer 18,750 / 43,750 $214,219 / $482,656
Thomas Hedges 18,750 / 43,750 214,219 / 482,656
Stephen Manousos 21,000 / 31,500 241,500 / 349,125
Leslie E. Wright 28,125 / 146,875 323,438 / 1,564,063
Steve I. Guttman 31,250 / 93,750 359,375 / 1,046,875
Karen J. Bria 8,062 / 14,438 92,713 / 158,537
</TABLE>
- -----------------------
(1) Based on a closing price of $12.25 on March 29, 1996, the last trading
day of the fiscal year ended March 31, 1996.
-11-
<PAGE> 14
CERTAIN TRANSACTIONS
Aptos Post, an image setting service bureau, provides services to
Fractal in connection with the preparation and printing of product manuals and
other materials. During the fiscal years ended March 31, 1995 and 1996, and the
three months ended June 30, 1996, the Company paid an aggregate of $80,200,
$151,276 and $40,324, respectively, to Aptos Post in connection with these
services. Stephen E. Manousos, a director of Fractal, and Lee Jay Lorenzen, a
director and a principal shareholder of Fractal, own 51% and 49% equity
interests, respectively, in Aptos Post and are officers of such company.
The Company has entered into an agreement with Altura Software, Inc.
("Altura") under which Altura provides technical services to the Company in
connection with the porting of Fractal's products. Under this Agreement, the
Company licenses software from Altura, including software that facilitates the
porting of Macintosh program applications to the Windows platform, in exchange
for certain payments which totaled less than $60,000 in each of fiscal 1995 and
1996 and the three months ended June 30, 1996. Lee Jay Lorenzen, one of
Fractal's directors and principal shareholders, is President of Altura and
beneficially owns a majority of Altura's capital stock.
During 1994, the Company sold an aggregate of 1,057,505 shares of its
Series A Preferred Stock and warrants to purchase an aggregate of 52,873 shares
of the Company's Common Stock at a purchase price of $2.00 per unit, with each
unit consisting of one share of Series A Preferred Stock and a warrant to
purchase one-twentieth of one share of Common Stock. The warrants were exercised
on November 14, 1995 in an aggregate net amount of 52,691 shares of Common Stock
at an exercise price of $2.00 per share. The following officers, directors and
holders of more than 5% of the voting securities of the Company invested more
than $60,000 in this financing:
<TABLE>
<CAPTION>
SHARES OF SERIES A WARRANTS TO PURCHASE
NAME PREFERRED STOCK COMMON STOCK
- ---- -------------------- ---------------------
<S> <C> <C>
Lee Jay Lorenzen and certain affiliated trusts................ 149,194 7,460
Entities affiliated with Thomas I. Unterberg.................. 650,000 32,500
</TABLE>
Craig Johnson, a director of the Company and the Company's Secretary,
is a director and shareholder of Venture Law Group, A Professional Corporation,
the Company's corporate counsel.
Unterberg Harris, an investment bank at which Mr. Unterberg, one of the
Company's directors, is a managing director, served as lead-manager for
Fractal's initial public offering in November 1995. In connection with this
transaction, Unterberg Harris received underwriting discounts of $645,000.
Unterberg Harris provided certain financial advisory services (including the
rendering of a fairness opinion) to the Company in connection with the
acquisition of Ray Dream, Inc. in May 1996, and received a fee of $130,000 in
connection with such services.
The Company believes that the foregoing transactions were on terms no
less favorable to the Company than the Company could have obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors and principal shareholders and their affiliates will be
approved by a majority of the disinterested members of the Board of Directors,
and will be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
The Company has entered into indemnification agreements with each of
its directors and executive officers. The agreements require the Company to
indemnify such individuals for certain liabilities to which they may be subject
as a result of their affiliation with the Company, to the fullest extent allowed
by law.
-12-
<PAGE> 15
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's
1997 Annual Meeting of Shareholders must be received by Leslie Wright, Fractal
Design Corporation, 5550 Scotts Valley Drive, Scotts Valley, CA 95066, no later
than May 23, 1997.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of the
Company's Common Stock (collectively, "Reporting Persons") to file with the
Securities and Exchange Commission initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by
Securities Exchange Commission regulations to furnish the Company with copies of
all Section 16(a) reports they file.
To the Company's knowledge, based solely on its review of the copies of
such reports received or written representations from certain Reporting Persons
that no other reports were required, the Company believes that during its fiscal
year ended March 31, 1996, all Reporting Persons complied with all applicable
filing requirements.
OTHER MATTERS
The Board of Directors knows of no other business which will be
presented to the Annual Meeting. If any other business is properly brought
before the Annual Meeting, proxies in the enclosed form will be voted in respect
thereof as the proxy holders deem advisable.
It is important that the proxies be returned promptly and that your
shares be represented. Shareholders are urged to mark, date, sign and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ CRAIG W. JOHNSON
Craig W. Johnson
Secretary
Scotts Valley, California
September 20, 1996
-13-
<PAGE> 16
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FRACTAL DESIGN CORPORATION
1996 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Fractal Design Corporation, a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated September 20, 1996, and hereby
appoints Eric Hautemont and Leslie Wright, or either of them, as proxies and
attorneys-in-fact with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1996 Annual Meeting
of Shareholders of Fractal Design Corporation to be held on October 16, 1996, at
10:00 a.m. local time, at 5550 Scotts Valley Drive, Scotts Valley, California,
and at any adjournment(s) or postponement(s) thereof, and to vote all shares of
Common Stock that the undersigned would be entitled to vote if then and there
personally present, on the matters set forth on the reverse side, and in their
discretion, upon such other matter or matters that may properly come before the
meeting and any adjournment(s) or postponement(s) thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 17
Please mark [X]
your votes as
indicated in
this example.
<TABLE>
<S> <C> <C>
FOR all nominees WITHHOLD authority
listed to the right to vote for all nominees
(except as indicated) listed to the right
1. Election of [ ] [ ] Nominees: Mark Zimmer
Directors. Thomas Hedges
Eric Hautemont
If you wish to withhold authority to vote for Arthur J. Collmeyer
an individual nominee, strike a line through Craig W. Johnson
the nominee's name in the list to the right. Lee Jay Lorenzen
Stephen E. Manousos
Alain Rossmann
Anthony Sun
Thomas I. Unterberg
</TABLE>
FOR AGAINST ABSTAIN
2. To ratify the appointment of Price [ ] [ ] [ ]
Waterhouse LLP as the Company's
independent auditors for the year ending
March 31, 1997.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
CONTRARY DIRECTION IS INITIATED, WILL BE VOTED AS
FOLLOWS: (1) FOR THE ELECTION OF DIRECTORS;
(2) FOR RATIFICATION OF THE APPOINTMENT OF PRICE
WATERHOUSE LLP AS INDEPENDENT AUDITORS, AND
AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
Signature(s)_____________________________________________Date___________________
NOTE: This Proxy should be marked, dated, and signed by the shareholder(s)
exactly as his or her name appears hereon, and returned in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should
sign.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
