-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Of3cQjkcCz495UOlUWnc+H28rfDFle+MR1N42T80ycP/ZtYSsIaEvP3fUqjIcvC0 I5nD2UwwBSHT24+VykqLQA== 0000927016-97-000615.txt : 19970228 0000927016-97-000615.hdr.sgml : 19970228 ACCESSION NUMBER: 0000927016-97-000615 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970227 SROS: NASD GROUP MEMBERS: ANTHONY SUN GROUP MEMBERS: ARTHUR J. COLLMEYER GROUP MEMBERS: BRADEN RIPPETOE GROUP MEMBERS: CRAIG JOHNSON GROUP MEMBERS: JOHN DERRY GROUP MEMBERS: JOSEPH CONSUL GROUP MEMBERS: KAREN BRIA GROUP MEMBERS: LEE JAY LORENZEN GROUP MEMBERS: LESLIE WRIGHT GROUP MEMBERS: MARK ZIMMER GROUP MEMBERS: METATOOLS INC GROUP MEMBERS: MICHAEL POPOLO GROUP MEMBERS: PIERRE BERKALOFF GROUP MEMBERS: STEPHEN MANOUSOS GROUP MEMBERS: STEVE GUTTMAN GROUP MEMBERS: THOMAS HEDGES GROUP MEMBERS: THOMAS I. UNTERBERG GROUP MEMBERS: UNTERBERG HARRIS INTERACTIVE MEDIA, L.P., C.V. GROUP MEMBERS: UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, C.V. GROUP MEMBERS: UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, L.P. GROUP MEMBERS: UNTERBERG HARRIS, L.L.C. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FRACTAL DESIGN CORP CENTRAL INDEX KEY: 0000930884 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770276903 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-49919 FILM NUMBER: 97545631 BUSINESS ADDRESS: STREET 1: 335 SPRECKLES DRIVE CITY: APTOS STATE: CA ZIP: 95003 BUSINESS PHONE: 4086885300 MAIL ADDRESS: STREET 1: 335 SPRACKELS DR CITY: APTOS STATE: CA ZIP: 95003 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: METATOOLS INC CENTRAL INDEX KEY: 0000919794 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 954102687 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 6303 CARPINTERIA AVENUE CITY: CARPINTERIA STATE: CA ZIP: 93013 MAIL ADDRESS: STREET 1: 6303 CARPINTERIA AVE CITY: CARPINTERIA STATE: CA ZIP: 93013 SC 13D 1 SCHEDULE 13D -------------------------- OMB Number: 3235-0145 -------------------------- Expires: October 31, 1997 Estimated average burden hours per response 14.90 -------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ___________)* FRACTAL DESIGN CORP. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, $0.001 PAR VALUE PER SHARE - -------------------------------------------------------------------------------- (Title of Class of Securities) 351681 - -------------------------------------------------------------------------------- (CUSIP Number) MARK ZIMMER, FRACTAL DESIGN CORP., 5550 SCOTTS VALLEY DRIVE, SCOTTS VALLEY, CA 95066 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) February 11, 1997 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [_]. Check the following box if a fee is being paid with the statement [_]. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 2 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON METATOOLS, INC. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 STATE OF DELAWARE - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 In the event the stock option becomes exercisable and is exercised in full, MetaTools will have sole voting power with respect to that number of shares equal to 19.9% of the then outstanding shares of Common Stock of Fractal Design Corp. ("Fractal"), which, based upon the 11,979,647 shares of Fractal outstanding as of NUMBER OF February 19, 1997, currently equals 2,383,950 shares of Common Stock of Fractal. SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 3,948,184 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING In the event the stock option becomes exercisable and is exercised in full, MetaTools will have sole PERSON dispositive power with respect to that number of shares equal to 19.9% of the then outstanding shares WITH of Common Stock of Fractal, which, based upon the 11,979,647 shares of Fractal outstanding as of February 19, 1997, currently equals 2,383,950 shares of Common Stock of Fractal. ----------------------------------------------------------- SHARED DISPOSITIVE POWER 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 In the event the stock option becomes exercisable and is exercised in full, MetaTools will beneficially own that number of shares equal to 19.9% of the then outstanding shares of Common Stock of Fractal, which, based upon the 11,979,647 shares of Fractal outstanding as of February 19, 1997, currently equals 2,383,950 shares of Common Stock of Fractal, plus the 3,948,184 shares over which MetaTools shares voting power pursuant to the proxies. - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [X] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 52.86% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 CO - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 3 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON MARK ZIMMER - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 563,750 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 563,750 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 563,750 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 4.69% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 4 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON THOMAS HEDGES - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 767,658 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 767,658 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 767,658 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 6.39% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 5 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON LESLIE WRIGHT - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 00 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 108,577 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 108,577 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 108,577 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.90% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 6 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON BRADEN RIPPETOE - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 15,312 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 15,312 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 15,312 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.13% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 7 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON JOSEPH CONSUL - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 42,358 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 42,358 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 42,358 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.35% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 8 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON STEVE GUTTMAN - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 86,562 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 86,562 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 86,562 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.35% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 9 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON JOHN DERRY - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 16,906 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 16,906 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 16,906 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.14% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 10 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON PIERRE BERKALOFF - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 FRANCE - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 80,385 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 80,385 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 80,385 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.67% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 11 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON KAREN BRIA - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 17,120 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 17,120 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 17,120 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.14% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 12 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON MICHAEL POPOLO - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 20,655 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 20,655 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 20,655 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.17% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 13 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON ARTHUR J. COLLMEYER - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 51,875 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 51,875 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 51,875 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.43% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 14 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON STEPHEN MANOUSOS - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 368,885 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 368,885 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 368,885 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 3.07% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 15 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON CRAIG JOHNSON - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 30,500 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 21,500 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 9,000 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 30,500 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.25% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 16 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON LEE JAY LORENZEN - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 1,038,618 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 1,038,618 (Subject to the restrictions set forth in REPORTING that certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 1,038,618 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 8.64% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 17 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON ANTHONY SUN - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 20,898 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 20,898 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 20,898 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.17% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 18 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON THOMAS I. UNTERBERG - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 UNITED STATES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 88,125 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 88,125 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 88,125 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.73% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 19 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON UNTERBERG HARRIS, L.L.C. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 STATE OF NEW YORK - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 105,000 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 105,000 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 105,000 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.88% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 PN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 20 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON UNTERBERG HARRIS INTERACTIVE MEDIA, L.P., C.V. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 NETHERLANDS ANTILLES - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 262,500 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 262,500 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 262,500 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 2.19% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 PN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 21 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON UNTERBERG HARRIS INTERACTIVE MEDIA, L.P. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 STATE OF DELAWARE - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 209,501 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 209,501 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 209,501 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 1.75% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 PN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 22 OF 54 PAGES - ----------------------- ---------------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, C.V. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [X] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 [_] - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Netherlands Antilles - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF -0- SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 52,999 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 52,999 (Subject to the restrictions set forth in that REPORTING certain Affiliate Agreement dated February 11, 1997 filed as Exhibit 7 to this Schedule 13D) PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 -0- - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 52,999 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 0.44% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 PN - ------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 23 OF 54 PAGES - ----------------------- ---------------------- Neither the filing of this Schedule 13D nor any of its contents shall be deemed to constitute an admission by MetaTools, Inc., ("MetaTools"), Mark --------- Zimmer, Thomas Hedges, Leslie Wright, Braden Rippetoe, Joseph Consul, Steve Guttman, John Derry, Pierre Berkaloff, Karen Bria, Michael Popolo, Arthur J. Collmeyer, Stephen Manousos, Craig Johnson, Lee Jay Lorenzen, Anthony Sun, Thomas I. Unterberg, Unterberg Harris, L.L.C., Unterberg Harris Interactive Media, L.P., C.V., Unterberg Harris Private Equity Partners, L.P., or Unterberg Harris Private Equity Partners, C.V. (collectively, the "Individuals") that it ------------ or he is the beneficial owner of any of the Common Stock referred to herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Act"), or for any other purpose, and such beneficial --- ownership is expressly disclaimed. Any information contained herein as to any Individual has been provided by such Individual, and any information contained herein as to MetaTools, Inc. has been provided by MetaTools, Inc. ITEM 1. SECURITY AND ISSUER. This statement on Schedule 13D relates to the common stock, par value $0.001 per share ("Issuer Common Stock"), of Fractal Design Corporation, a ------------------- California corporation ("Issuer"). The principal executive offices of Issuer ------ are located at 5550 Scotts Valley Dr., Scotts Valley, California 95066. ITEM 2. IDENTITY AND BACKGROUND. The names of the people filing this statement are MetaTools, Inc., a Delaware corporation, Mark Zimmer, Thomas Hedges, Leslie Wright, Braden Rippetoe, Joseph Consul, Steve Guttman, John Derry, Pierre Berkaloff, Karen Bria, Michael Popolo, Arthur J. Collmeyer, Stephen Manousos, Craig Johnson, Lee Jay Lorenzen, Anthony Sun, Thomas I. Unterberg, Unterberg Harris, L.L.C., Unterberg Harris Interactive Media, L.P., C.V., Unterberg Harris Private Equity Partners, L.P., and Unterberg Harris Private Equity Partners, C.V. The address of the principal office and principal business of MetaTools is 6303 Carpinteria Avenue, Carpinteria, California 93013. MetaTools designs, develops, publishes, markets and supports software tools for the creation, editing and manipulation of computer graphic images, digital art and Internet/online content for Windows, Macintosh and other operating systems. Set forth in Schedule A is a list of each of MetaTools' directors and executive officers, as of the date hereof, along with the present principal occupation or employment of such directors and executive officers, their respective citizenship and the name, principal business and address of any corporation or other organization other than MetaTools in which such employment is conducted. Set forth in Schedule B is a list of each of the Individuals, their business address, principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is conducted and their citizenship. During the past five years neither MetaTools nor any of the Individuals nor, to MetaTools' knowledge, any person named in Schedule A to this statement, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). Also during the past five years neither MetaTools nor any of the Individuals nor, to MetaTools' knowledge, any person named in Schedule A to this statement, was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activity subject to, federal or state securities laws or finding any violation with respect to such laws. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 24 OF 54 PAGES - ----------------------- ---------------------- ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Pursuant to an Agreement and Plan of Reorganization dated February 11, 1997 (the "Merger Agreement") among MetaTools, Rook Acquisition Corp., a Delaware ---------------- corporation and a wholly-owned subsidiary of MetaTools ("Merger Sub") and ---------- Issuer, and subject to the conditions set forth therein (including approval by stockholders of Issuer and MetaTools), Merger Sub will be merged with and into Issuer (the "Merger"), with each share of Issuer Common Stock being converted ------ into the right to receive 0.749 shares of MetaTools common stock, $0.001 par value per share ("MetaTools Common Stock"). The foregoing summary of the Merger ---------------------- is qualified in its entirety by reference to the copy of the Merger Agreement included as Exhibit 1 to this Schedule 13D and incorporated herein in its entirety by reference. The Individuals are not parties to the Merger Agreement. This statement on Schedule 13D also relates to a voting agreement as described in Item 4 below. ITEM 4. PURPOSE OF TRANSACTION. As described in Item 3 above, this statement relates to the Merger of Merger Sub, a wholly-owned subsidiary of MetaTools, with and into Issuer in a statutory merger pursuant to the Delaware General Corporation Law ("Delaware -------- Law"). At the effective time of the Merger (the "Effective Time"), the separate -------------- existence of Merger Sub will cease and Issuer will continue as the surviving corporation and as a wholly-owned subsidiary of MetaTools ("Surviving --------- Corporation"). The initial directors of the Surviving Corporation shall be the - ----------- directors of Merger Sub immediately prior to the Effective Time, and the initial officers of the Surviving Corporation shall be the officers of Merger Sub immediately prior to the Effective Time. The Certificate of Incorporation of Merger Sub as in effect immediately prior to the Merger shall be the Certificate of Incorporation Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by the Delaware Law and such Certificate of Incorporation; provided, however, at the Effective Time the Certificate of -------- ------- Incorporation of the Surviving Corporation shall be amended so that the name of the Surviving Corporation shall be Fractal Corp. The Bylaws of Merger Sub as in effect immediately prior to the Merger shall be the Bylaws of the Surviving Corporation until thereafter amended. In connection with the Merger, holders of outstanding Issuer Common Stock will receive, in exchange for each share of Issuer Common Stock held by them, 0.749 shares of MetaTools Common Stock. In addition, MetaTools will assume all options outstanding under the Issuer's 1993 Stock Option Plan, 1995 Stock Plan, 1995 Directors' Stock Option Plan and 1992 Assumed Ray Dream, Inc. Stock Option Plan. If the Merger is consummated, the Issuer Common Stock will be deregistered under the Act and delisted from The Nasdaq National Market. The Merger Agreement contains customary representations and warranties on the part of MetaTools and Issuer, and the consummation of the Merger is subject to customary closing conditions, including, without limitation, approval by the stockholders of MetaTools and Issuer and no occurrence of an event with a material adverse effect with respect to a party. The Merger Agreement also contains covenants regarding the activities of the parties pending consummation of the Merger. Generally, each of the parties must conduct its business in the ordinary course consistent with past practice. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 25 OF 54 PAGES - ----------------------- ---------------------- The foregoing summary of the Merger is qualified in its entirety by reference to the copy of the Merger Agreement included as Exhibit 1 to this Schedule 13D and incorporated herein in its entirety by reference. The Individuals are not parties to the Merger Agreement. As an inducement to MetaTools to enter into the Merger Agreement, the Individuals (collectively, "Voting Agreement Stockholders") have each entered ----------------------------- into a Voting Agreement dated as of February 11, 1997 (the "Voting Agreement") ---------------- with MetaTools. Pursuant to the Voting Agreement, the Voting Agreement Stockholders have agreed to vote the shares of Issuer Common Stock owned by them in favor of approval and adoption of the Merger Agreement and the Merger and any matter that could reasonably be expected to facilitate the Merger. The Voting Agreement Stockholders have also executed and delivered to MetaTools an irrevocable proxy granting MetaTools the authority to vote the shares of Issuer Common Stock owned by the Voting Agreement Stockholders in the manner described in the previous sentence. The Voting Agreement terminates upon the earlier to occur of the Effective Time or the termination of the Merger Agreement. Each Voting Agreement Stockholder and the number of outstanding shares of Issuer Common Stock held of record by each Voting Agreement Stockholder is set forth in Schedule B hereto which is hereby incorporated by this reference. MetaTools did not pay any additional consideration to any Voting Agreement Stockholder in connection with the execution and delivery of the Voting Agreement. The foregoing summary of the Voting Agreement is qualified in its entirety by reference to a copy of the form of Voting Agreement included as Exhibit 2 to this Schedule 13D and incorporated herein in its entirety by reference. As an inducement to Issuer to enter into the Merger Agreement, certain stockholders of MetaTools have each entered into a Voting Agreement dated as of February 11, 1997 with Issuer, the substance of which is substantially similar to the substance of the Voting Agreement. A copy of this agreement is included as Exhibit 3 to this Schedule 13D and incorporated herein in its entirety by reference. Also as an inducement to MetaTools to enter into the Merger Agreement, MetaTools and Issuer entered into a Stock Option Agreement dated February 11, 1997 ("Stock Option Agreement") pursuant to which Issuer granted MetaTools the ---------------------- right (the "Option"), under certain conditions, to purchase up to a number of ------ shares of Issuer Common Stock equal to 19.9% of the issued and outstanding Issuer Common Stock. The Individuals are not parties to the Stock Option Agreement. As an inducement to Issuer to enter into the Merger Agreement, Issuer and MetaTools entered into a Stock Option Agreement dated February 11, 1997 pursuant to which MetaTools granted Issuer the right under certain conditions to purchase up to a number of shares of MetaTools Common Stock equal to 19.9% of the issued and outstanding MetaTools Common Stock. The substance of this agreement is substantially similar to the substance of the Stock Option Agreement, and a copy of this agreement is included as Exhibit 5 to this Schedule 13D and incorporated herein in its entirety by reference. The Individuals are not parties to this agreement. Also in connection with the Merger Agreement, certain stockholders of MetaTools (each an "Affiliate") have each entered into an affiliate agreement --------- with MetaTools (collectively, the "Affiliate Agreements") pursuant to which each -------------------- Affiliate has agreed to not sell, exchange, transfer, pledge, dispose or otherwise reduce such Affiliate's interest in or risk relative to any shares of MetaTools Common Stock or other equity securities of MetaTools owned by such Affiliate during the period commencing February 11, SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 26 OF 54 PAGES - ----------------------- ---------------------- 1997 and ending at such time as financial results covering at least 30 days of combined operations of MetaTools and Issuer have been publicly announced by MetaTools, so as to prevent interference with MetaTools accounting for the Merger as a pooling of interests. The foregoing summary of the Affiliate Agreements is qualified in its entirety by reference to the copy of a form of the Affiliate Agreement included as Exhibit 6 to this Schedule 13D and incorporated herein in its entirety by reference. Also in connection with the Merger Agreement, the Voting Agreement Stockholders have each entered into an affiliate agreement with MetaTools. The substance of these agreements is substantially similar to the substance Affiliate Agreements, except that each Voting Agreement Stockholder has also agreed that any sale, transfer or other disposition of Issuer Common Stock by such Voting Agreement Stockholder will be made in accordance with Rule 145 promulgated by the Securities and Exchange Commission (the "Commission") under ---------- the Securities Act of 1933, as amended, and has made certain representations pertaining to continuity of interest with respect to the shares held by such Voting Agreement Stockholder. A copy of a form of this agreement is included as Exhibit 7 to this Schedule 13D and incorporated herein in its entirety by reference. ITEM 5. INTEREST IN SECURITIES OF ISSUER. As a result of and subject to the Voting Agreement, MetaTools has shared power with the Individuals to vote an aggregate of 3,948,184 shares of Issuer Common Stock for the limited purposes described in Item 4 above, and such shares constitute approximately 32.96% of the issued and outstanding shares of Issuer Common Stock as of February 11, 1997. To the extent that MetaTools, as permitted by the Voting Agreement, requests proxies to vote all of the shares of Issuer Common Stock subject to the Voting Agreement and such proxies are granted pursuant to the Voting Agreement, MetaTools will have sole power to vote such shares. If pursuant to the Stock Option Agreement the Option becomes exercisable, MetaTools would have the right to acquire up to the number of shares of Issuer Common Stock constituting 19.9% of the Issuer Common Stock then issued and outstanding. If acquired, MetaTools would have sole voting and dispositive power over such shares, which shares would number 2,383,950 based upon the number of shares of Issuer Common Stock issued and outstanding as of February 11, 1997. The Individuals are not parties to the Option Agreement and do not have any rights to acquire Issuer Common Stock thereunder. As a result of the Voting Agreement and if the Option is exercised, MetaTools may be deemed to beneficially own an aggregate of 6,332,134 shares of Issuer Common Stock based upon the number of shares of Issuer Common Stock issued and outstanding as of February 11, 1997, or 52.86% of the issued and outstanding shares of Issuer Common Stock as of February 11, 1997. To MetaTools' knowledge, except for John J. Wilczak who owns 5,000 shares of Issuer Common Stock, no shares of Issuer Common Stock are beneficially owned by any of the persons named in Schedule A. In addition, MetaTools has not effected any transaction in Issuer Common Stock during the past 60 days and to MetaTools' knowledge, none of the persons named in Schedule A has effected any transaction in Issuer Common Stock during the past 60 days. Set forth on Schedule C opposite each Individual's name is (i) that number of shares of Issuer Common Stock beneficially owned by such Individual as of the date hereof SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 27 OF 54 PAGES - ----------------------- ---------------------- and (ii) the percentage of issued and outstanding Issuer Common Stock that such shares represent (based on the number of shares of Issuer Common Stock outstanding as of February 11, 1997). As a result of and subject to the Voting Agreement, each of the Individuals shares voting power with MetaTools to vote that number of shares of Issuer Common Stock as is set forth on Schedule C opposite such Individual's name for the limited purposes described in Item 4 above. Each Individual represents on behalf of itself that it has not effected any transaction in Issuer Common Stock during the past 60 days. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF ISSUER. Other than as described herein, to MetaTools' knowledge, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 and between such persons and any person with respect to any securities of Issuer, including but not limited to transfer or voting of any of the securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees or profits, division or profits or loss, or the giving or withholding or proxies. ITEM 7. MATERIALS TO BE FILED AS EXHIBITS. The following documents are filed as exhibits: 1. Agreement and Plan of Reorganization dated February 11, 1997 by and among MetaTools, Inc., a Delaware corporation, Rook Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of MetaTools, Inc., and Fractal Design Corp., a California corporation. 2. Voting Agreement dated February 11, 1997 by and among MetaTools, Inc., a Delaware corporation, Fractal Design Corp. and certain shareholders of Fractal Design Corp., a California corporation. 3. Voting Agreement dated February 11, 1997 by and among Fractal Design Corp., a California corporation, and certain stockholders of MetaTools, Inc., a Delaware corporation. 4. Stock Option Agreement dated February 11, 1997 by and between Fractal Design Corp., a California corporation and MetaTools, Inc., a Delaware corporation. 5. Stock Option Agreement dated February 11, 1997 by and between MetaTools, Inc., a Delaware corporation, and Fractal Design Corp., a California corporation. 6. MetaTools, Inc. Affiliate Agreement dated February 11, 1997 by and among MetaTools, Inc., a Delaware corporation, Fractal Design Corp., a California corporation and certain stockholders of MetaTools, Inc., a Delaware corporation. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 28 OF 54 PAGES - ----------------------- ---------------------- 7. Fractal Design Corp. Affiliate Agreement dated June 6, 1996 by and among MetaTools, Inc., a Delaware corporation, and certain shareholders of Fractal Design Corp., a California corporation. SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 29 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 METATOOLS, INC. By: /s/ Terance A. Kinninger ------------------------- Title: Vice President and Chief Financial Officer SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 30 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Mark Zimmer -------------------------- Mark Zimmer SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 31 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Thomas Hedges -------------------------- Thomas Hedges SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 32 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Leslie Wright ------------------------- Leslie Wright SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 33 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Braden Rippetoe ------------------------- Braden Rippetoe SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 34 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Joseph Consul ----------------------- Joseph Consul SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 35 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Steve Guttman ----------------------- Steve Guttman SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 36 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ John Derry -------------------- John Derry SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 37 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Pierre Berkaloff -------------------------- Pierre Berkaloff SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 38 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Karen Bria -------------------- Karen Bria SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 39 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Michael Popolo ------------------------ Michael Popolo SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 40 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Arthur J. Collmeyer ----------------------------- Arthur J. Collmeyer SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 41 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Stephen Manousos -------------------- Stephen Manousos SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 42 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Craig Johnson ---------------------- Craig Johnson SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 43 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Lee Jay Lorenzen -------------------- Lee Jay Lorenzen SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 44 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Anthony Sun -------------------- Anthony Sun SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 45 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 /s/ Thomas I. Unterberg ---------------------------- Thomas I. Unterberg SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 46 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 UNTERBERG HARRIS, L.L.C. By: /s/ Thomas I. Unterberg ------------------------ Title: Member SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 47 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 UNTERBERG HARRIS INTERACTIVE MEDIA, L.P., C.V. By: /s/ Thomas I. Unterberg ------------------------ Title: General Partner SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 48 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, L.P. By: /s/ Thomas I. Unterberg ------------------------ Title: General Partner SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 49 OF 54 PAGES - ----------------------- ---------------------- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 20, 1997 UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, C.V. By: /s/ Thomas I. Unterberg ------------------------ Title: General Partner SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 50 OF 54 PAGES - ----------------------- ---------------------- SCHEDULE A DIRECTORS AND EXECUTIVE OFFICERS OF METATOOLS, INC.
Present Principal Occupation Including Name and Title Name of Employer Citizenship - --------------------------- --------------------------------------------------------- ----------- John J. Wilczak Chairman of the Board of Directors, President U.S. and Chief Executive Officer of MetaTools, and Member of Compensation Committee Kai Krause Senior Science and Design Officer and Director of U.S. MetaTools Terance A. Kinninger Vice President and Chief Financial Officer of MetaTools U.S. James Mervis Vice President, Strategic Development and U.S. Business Affairs of MetaTools Fred Brown Senior Vice President, Sales and Marketing of MetaTools U.S. Jeffrey D. Saper Secretary, Wilson Sonsini Goodrich & Rosati, P.C. U.S. 650 Page Mill Road, Palo Alto, CA 94304 Alexander Migdal Vice President - Senior Scientist of MetaTools, U.S. Real Time Geometry Corp., 40 Washington Rd., Princeton Junction, NJ 08550 Sallie Olmsted Vice President, Corporate Communications U.S. of MetaTools Samuel H. Jones, Jr. Director of MetaTools, S&J Transportation, U.S. U.S. Route 40, P.O. Box 169, Woodstown, NJ 08098-0169 Bert Kolde Director of MetaTools, U.S. Paul Allen Group, 110 110th Ave. N.E., Suite 550, Bellevue, WA 98004 William H. Lane, III Director of MetaTools and Member of Audit U.S. Committee, Canyon Vista, Inc., 10695 Magdalena, Los Altos Hills, CA 94024 Howard L. Morgan Director of MetaTools and Member of Audit, U.S. Compensation, and Option Committee, The ARCA Group, Inc., 764 Mt. Moro Road, Villanova, PA 19085-2007 William J. Schroeder Director of MetaTools and Member of U.S. Compensation and Option Committee, Diamond Multimedia Systems, 2880 Junction Avenue, San Jose, CA, 94134
SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 51 OF 54 PAGES - ----------------------- ----------------------
Present Principal Occupation Including Name and Title Name of Employer Citizenship - --------------------------- --------------------------------------------------------- ----------- Robert E. Rice Vice President - Business Development of MetaTools, U.S. Real Time Geometry Corp., 51 John F. Kennedy Parkway, Suite 303 Short Hills, NJ 07078
SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 52 OF 54 PAGES - ----------------------- ---------------------- SCHEDULE B
NAME AND ADDRESS OF CORPORATION PRINCIPAL OCCUPATION OR OR OTHER ORGANIZATION IN WHICH INDIVIDUAL EMPLOYMENT WHICH EMPLOYED CITIZENSHIP - ------------------- --------------------------- ------------------------------ ------------ Mark Zimmer President and Chief Fractal Design Corp. U.S. Executive Officer 5550 Scotts Valley Scotts Valley, CA 95066 Thomas Hedges Vice President, Research Fractal Design Corp. U.S. and Development 5550 Scotts Valley Scotts Valley, CA 95066 Leslie E. Wright Chief Operating Officer, Fractal Design Corp. U.S. Vice President, Finance and 5550 Scotts Valley Administration and Chief Scotts Valley, CA 95066 Financial Officer Stephen E. Manousos President and Chief Post Digital Software Incorporated U.S. Executive Officer 1119 Pacific Avenue, Suite 300 Santa Cruz, CA 95060 Steve J. Guttman Vice President, Marketing Fractal Design Corp. U.S. 5550 Scotts Valley Scotts Valley, CA 95066 Thomas J. Unterberg Managing Director Unterberg Harris U.S. 65 East 55th Street, 18th Floor Park Avenue Tower New York, NY 10022 Unterberg Harris, Unterberg Harris New York L.L.C. 65 East 55th Street, 18th Floor Park Avenue Tower New York, NY 10022 Unterberg Harris Unterberg Harris Netherlands Interactive Media, 65 East 55th Street, 18th Floor Antilles L.P., C.V. Park Avenue Tower New York, NY 10022 Unterberg Harris Unterberg Harris Delaware Private Equity 65 East 55th Street, 18th Floor Partners, L.P. Park Avenue Tower New York, NY 10022 Unterberg Harris Unterberg Harris Netherlands Private Equity 65 East 55th Street, 18th Floor Antilles Partners, C.V. Park Avenue Tower New York, NY1 10022 Arthur J. Collmeyer President and CEO Hi/fn Inc. U.S. 12636 High Bluff Drive, Suite 400 San Diego, CA 92130
SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 53 OF 54 PAGES - ----------------------- ----------------------
NAME AND ADDRESS OF CORPORATION PRINCIPAL OCCUPATION OR OR OTHER ORGANIZATION IN WHICH INDIVIDUAL EMPLOYMENT WHICH EMPLOYED CITIZENSHIP - ------------------- --------------------------- ------------------------------ ------------ Craig Johnson Director Venture Law Group U.S. 2800 Sand Hill Rd. Menlo Park, CA 94025 Lee Jay Lorenzen President Altura Software, Inc. U.S. 510 Lighthouse Avenue, Suite Five Pacific Grove, CA 93950 Karen Bria Director, International Fractal Design Corp. U.S. Sales and Marketing 5550 Scotts Valley Drive Scotts Valley, CA 95066 Braden Rippetoe Vice President, Finance Fractal Design Corp. U.S. 5550 Scotts Valley Drive Scotts Valley, CA 95066 Joseph Consul Vice President, Operations Fractal Design Corp. U.S. 5550 Scotts Valley Drive Scotts Valley, CA 95066 John Derry Vice President, Creative Design Fractal Design Corp. U.S. 5550 Scotts Valley Drive Scotts Valley, CA 95066 Pierre Berkaloff Vice President, Engineering Fractal Design Corp. FRANCE 5550 Scotts Valley Drive Scotts Valley, CA 95066 Michael Popolo Vice President, North American Fractal Design Corp. U.S. Sales 5550 Scotts Valley Drive Scotts Valley, CA 95066 Anthony Sun General Partner Venrock Associates U.S. 775 Page Mill Road, Suite A230 Palo Alto, CA 94304
SCHEDULE 13D - ----------------------- ---------------------- CUSIP No. 351681 PAGE 54 OF 54 PAGES - ----------------------- ---------------------- SCHEDULE C
NUMBER OF SHARES OF ISSUER COMMON PERCENTAGE STOCK OF OUTSTANDING BENEFICIALLY OF ISSUER COMMON STOCK INDIVIDUAL OWNED AS OF FEBRUARY 19, 1997 - ---------------------------- ----------------- ----------------------- Mark Zimmer 563,750 4.69% Thomas Hedges 767,658 6.39% Leslie E. Wright 108,577 0.90% Stephen E. Manousos 368,885 3.07% Steve J. Guttman 86,562 0.72% Thomas J. Unterberg 88,125 0.73% Unterberg Harris, L.L.C. 105,000 0.88% Unterberg Harris Interactive 262,500 2.19% Media, L.P., C.V. Unterberg Harris Private 209,501 1.75% Equity Partners, L.P. Unterberg Harris Private 52,999 0.44% Equity Partners, C.V. Arthur J. Collmeyer 51,875 0.43% Craig Johnson 30,500 0.25% Lee Jay Lorenzen 1,038,618 8.64% Karen Bria 17,120 0.14% Braden Rippetoe 15,312 0.13% Joseph Consul 42,358 0.35% John Derry 16,906 0.14% Pierre Berkaloff 80,385 0.67% Michael Popolo 20,655 0.17% Anthony Sun 20,898 0.17%
EX-1 2 AGREEMENT AND PLAN OF REORGANIZATION EXHIBIT 1 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG FRACTAL DESIGN CORPORATION ROOK ACQUISITION CORP. AND METATOOLS, INC. DATED AS OF FEBRUARY 11, 1997 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE MERGER............................................................... 2 1.1 The Merger............................................................... 2 1.2 Effective Time; Closing.................................................. 2 1.3 Effect of the Merger..................................................... 2 1.4 Articles of Incorporation; Bylaws........................................ 3 1.5 Directors and Officers................................................... 3 1.6 Effect on Capital Stock.................................................. 3 1.7 Dissenting Shares........................................................ 4 1.8 Surrender of Certificates................................................ 5 1.9 No Further Ownership Rights in Fractal Common Stock...................... 6 1.10 Lost, Stolen or Destroyed Certificates................................... 6 1.11 Tax and Accounting Consequences.......................................... 7 1.12 Taking of Necessary Action; Further Action............................... 7 ARTICLE II REPRESENTATIONS AND WARRANTIES OF FRACTAL............................... 7 2.1 Organization of Fractal.................................................. 7 2.2 Fractal Capital Structure................................................ 8 2.3 Obligations With Respect to Capital Stock................................ 8 2.4 Authority................................................................ 9 2.5 SEC Filings; Fractal Financial Statements................................ 10 2.6 Absence of Certain Changes or Events..................................... 11 2.7 Tax...................................................................... 11 2.8 Title to Properties; Absence of Liens and Encumbrances................... 12 2.9 Intellectual Property.................................................... 12 2.10 Compliance; Permits; Restrictions........................................ 13 2.11 Litigation............................................................... 13 2.12 Brokers' and Finders' Fees............................................... 14 2.13 Employee Benefit Plans................................................... 14 2.14 Employees; Labor Matters................................................. 14 2.15 Environmental Matters.................................................... 15 2.16 Agreements, Contracts and Commitments.................................... 15 2.17 Pooling of Interests..................................................... 16 2.18 Change of Control Payments............................................... 16 2.19 Statements; Proxy Statement/Prospectus................................... 16 2.20 Board Approval........................................................... 17 2.21 Fairness Opinion......................................................... 17 ARTICLE III REPRESENTATIONS AND WARRANTIES OF METATOOLS AND MERGER SUB............. 17 3.1 Organization of.......................................................... 18 3.2 MetaTools and Merger Sub Capital Structure............................... 18 3.3 Obligations With Respect to Capital Stock................................ 19
-i- TABLE OF CONTENTS (continued)
PAGE ---- 3.4 Authority................................................................ 19 3.5 Section 203 of the Delaware General Corporation Law Not Applicable....... 21 3.6 SEC Filings; MetaTools Financial Statements.............................. 21 3.7 Absence of Certain Changes or Events..................................... 22 3.8 Tax Returns and Audits................................................... 22 3.9 Title to Properties; Absence of Liens and Encumbrances................... 23 3.10 Intellectual Property.................................................... 23 3.11 Compliance; Permits; Restrictions........................................ 24 3.12 Litigation............................................................... 24 3.13 Brokers' and Finders' Fees............................................... 24 3.14 Employee Benefit Plans................................................... 25 3.16 Environmental Matters.................................................... 25 3.17 Agreements, Contracts and Commitments.................................... 26 3.18 Pooling of Interests..................................................... 27 3.19 Change of Control Payments............................................... 27 3.20 Statements; Proxy Statement/Prospectus................................... 27 3.21 Board Approval........................................................... 28 3.22 Fairness Opinion......................................................... 28 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................................... 28 4.1 Conduct of Business...................................................... 28 ARTICLE V ADDITIONAL AGREEMENTS.................................................... 30 5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board Recommendations.......................................................... 30 5.2 Meetings of Shareholders and Stockholders................................ 31 5.3 Confidentiality; Access to Information................................... 32 5.4 No Solicitation.......................................................... 32 5.5 Public Disclosure........................................................ 35 5.6 Legal Requirements....................................................... 35 5.7 Third Party Consents..................................................... 36 5.8 Notification of Certain Matters.......................................... 36 5.9 Best Efforts and Further Assurances...................................... 36 5.10 Stock Options and Employee Benefits...................................... 36 5.11 Form S-8................................................................. 38 5.12 Indemnification and Insurance............................................ 38 5.13 NMS Listing.............................................................. 38 5.14 MetaTools Affiliate Agreement............................................ 38 5.15 Fractal Affiliate Agreement.............................................. 39 5.16 Regulatory Filings; Reasonable Efforts................................... 39 5.17 Board of Directors of the Combined Company............................... 39 5.19 Increase in Authorized Shares............................................ 39
-ii- TABLE OF CONTENTS (continued)
PAGE ---- ARTICLE VI CONDITIONS TO THE MERGER................................................ 40 6.1 Conditions to Obligations of Each Party to Effect the Merger............. 40 6.2 Additional Conditions to Obligations of Fractal.......................... 41 6.3 Additional Conditions to the Obligations of MetaTools and Merger Sub..... 41 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................................... 42 7.1 Termination.............................................................. 42 7.2 Notice of Termination; Effect of Termination............................. 43 7.3 Fees and Expenses........................................................ 44 7.4 Amendment................................................................ 46 7.5 Extension; Waiver........................................................ 46 ARTICLE VIII GENERAL PROVISIONS.................................................... 46 8.1 Non-Survival of Representations and Warranties........................... 46 8.2 Notices.................................................................. 46 8.3 Interpretation; Knowledge................................................ 47 8.4 Counterparts............................................................. 47 8.5 Entire Agreement; Third Party Beneficiaries.............................. 47 8.6 Severability............................................................. 48 8.7 Other Remedies; Specific Performance..................................... 48 8.8 Governing Law............................................................ 48 8.9 Rules of Construction.................................................... 48 8.10 Assignment............................................................... 48
-iii- INDEX OF EXHIBITS ----------------- Exhibit A-1 Form of Fractal Voting Agreement Exhibit A-2 Form of MetaTools Voting Agreement Exhibit B-1 Form of MetaTools Stock Option Agreement Exhibit B-2 Form of Fractal Stock Option Agreement Exhibit C-1 Form of MetaTools Affiliate Agreement Exhibit C-2 Form of Fractal Affiliate Agreement Exhibit D Form of Noncompetition Agreement -ii- -iii- -iv- AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and entered into as of February 11, 1997, among MetaTools, Inc., a Delaware corporation ("METATOOLS"), Rook Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of MetaTools ("MERGER SUB"), and Fractal Design Corporation, a California corporation ("FRACTAL"). RECITALS -------- A. Upon the terms and subject to the conditions of this Agreement (as defined in Section 1.2 below) and in accordance with the California General Corporation Law ("CALIFORNIA LAW"), MetaTools and Fractal intend to enter into a business combination transaction to pursue their long-term business strategies. B. Immediately upon the effectiveness of the Merger (as defined in Section 1.1), the Board of Directors of the combined company would consist of nine (9) members, with designees of Fractal to hold three (3) of such seats. It is also contemplated that the senior management of the combined company would consist of senior management from both Fractal and MetaTools. C. The Board of Directors of Fractal (i) has determined that the Merger is consistent with and in furtherance of the long-term business strategy of Fractal and fair to, and in the best interests of, Fractal and its shareholders, (ii) has approved this Agreement, the Merger and the other transactions contemplated by this Agreement and (iii) has determined to recommend that the shareholders of Fractal adopt and approve this Agreement and approve the Merger. D. The Board of Directors of MetaTools (i) has determined that the Merger is consistent with and in furtherance of the long-term business strategy of MetaTools and fair to, and in the best interests of, MetaTools and its stockholders, (ii) has approved this Agreement, the Merger and the other transactions contemplated by this Agreement and (iii) has determined to recommend that the stockholders of MetaTools vote to approve the issuance of shares of MetaTools Common Stock (as defined below) to the shareholders of Fractal pursuant to the terms of the Merger. E. Concurrently with the execution of this Agreement, and as a condition and inducement to MetaTools's willingness to enter into this Agreement, the Chief Executive Officer of Fractal and certain other affiliates of Fractal shall enter into Voting Agreements in substantially the form attached hereto as Exhibit A-1 (the "FRACTAL VOTING AGREEMENTS"). Concurrently with the execution - ----------- of this Agreement, and as a condition and inducement to Fractal's willingness to enter into this Agreement, the Chief Executive Officer of MetaTools and certain other affiliates of MetaTools shall enter into Voting Agreements in substantially the form attached hereto as Exhibit A-2 (the "METATOOLS VOTING ----------- AGREEMENTS"). F. Concurrently with the execution of this Agreement, and as a condition and inducement to Fractal's and MetaTools' willingness to enter into this Agreement, MetaTools shall execute and deliver a Stock Option Agreement in favor of Fractal in substantially the form attached hereto as Exhibit B-1 (the ----------- "METATOOLS STOCK OPTION AGREEMENT") and Fractal shall execute and deliver a Stock Option Agreement in favor of MetaTools in substantially the form attached hereto as Exhibit B-2 (the "FRACTAL STOCK OPTION AGREEMENT" and, together with ----------- the MetaTools Stock Option Agreement, the "STOCK OPTION AGREEMENTS"). The Board of Directors of MetaTools and Fractal have each approved the Stock Option Agreements. G. The parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE"). H. It is also intended by the parties hereto that the Merger shall qualify for accounting treatment as a pooling of interests. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and ---------- subject to and upon the terms and conditions of this Agreement and the applicable provisions of California Law, Merger Sub shall be merged with and into Fractal (the "MERGER"), the separate corporate existence of Merger Sub shall cease and Fractal shall continue as the surviving corporation. Fractal as the surviving corporation after the Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION." 1.2 Effective Time; Closing. Subject to the provisions of this Agreement, ----------------------- the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger with the Secretary of State of the State of California in accordance with the relevant provisions of California Law and by filing a Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the relevant provisions of Delaware General Corporation Law (collectively, the "AGREEMENT OF MERGER") (the time of such filing (or such later time as may be agreed in writing by the parties and specified in the Agreement of Merger) being the "EFFECTIVE TIME") as soon as practicable on or after the Closing Date (as herein defined). Unless the context otherwise requires, the term "AGREEMENT" as used herein refers collectively to this Agreement and Plan of Reorganization and the Agreement of Merger. The closing of the Merger (the "CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, at a time and date to be specified by the parties, which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Article VI, or at such other time, date and location as the parties hereto agree in writing (the "CLOSING DATE"). 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger -------------------- shall be as provided in this Agreement and the applicable provisions of California Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of Fractal and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of Fractal and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. -2- 1.4 Articles of Incorporation; Bylaws. --------------------------------- (a) At the Effective Time, the Articles of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Articles of Incorporation of the Surviving Corporation; provided, however, that at the Effective Time the Articles of Incorporation of - -------- ------- the Surviving Corporation shall be amended so that the name of the Surviving Corporation shall be Fractal Corporation. (b) The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving Corporation until thereafter amended. 1.5 Directors and Officers. The initial directors of the Surviving ---------------------- Corporation shall be the directors of Merger Sub immediately prior to the Effective Time, until their respective successors are duly elected or appointed and qualified. The initial officers of the Surviving Corporation shall be the officers of Merger Sub immediately prior to the Effective Time, until their respective successors are duly appointed. 1.6 Effect on Capital Stock. At the Effective Time, by virtue of the ----------------------- Merger and without any action on the part of Merger Sub, Fractal or the holders of any of the following securities: (a) Conversion of Fractal Common Stock. Each share of Common Stock, ---------------------------------- $.001 par value, of Fractal (the "FRACTAL COMMON STOCK") issued and outstanding immediately prior to the Effective Time, (other than any shares of Fractal Common Stock to be canceled pursuant to Section 1.6(b) and any Dissenting Shares (as defined in and to the extent provided in Section 1.7(a)) will be canceled and extinguished and automatically converted (subject to Sections 1.6(e) and (f)) into the right to receive 0.749 (the "EXCHANGE RATIO") share of Common Stock, par value $.001 per share, of MetaTools (the "METATOOLS COMMON STOCK") upon surrender of the certificate representing such share of Fractal Common Stock in the manner provided in Section 1.8 (or in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in the manner provided in Section 1.10). (b) Cancellation of MetaTools-Owned Stock. Each share of Fractal ------------------------------------- Common Stock held by Fractal or owned by Merger Sub, MetaTools or any direct or indirect wholly owned subsidiary of Fractal or of MetaTools immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (c) Stock Options; Employee Stock Purchase Plans. At the Effective -------------------------------------------- Time, all options to purchase Fractal Common Stock then outstanding under Fractal's 1993 Stock Option Plan, 1995 Stock Option Plan, 1995 Directors' Stock Option Plan and 1992 Assumed Ray Dream, Inc. Stock Option Plan (collectively, the "FRACTAL STOCK OPTION PLANS") shall be assumed by MetaTools in accordance with Section 5.10 hereof. (d) Capital Stock of Merger Sub. Each share of Common Stock, $.001, --------------------------- of Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding immediately prior to the Effective -3- Time shall be converted into one validly issued, fully paid and nonassessable share of Common Stock, $.001, of the Surviving Corporation. Each certificate evidencing ownership of shares of Merger Sub Common Stock shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. (e) Adjustments to Exchange Ratio. The Exchange Ratio shall be ----------------------------- adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into MetaTools Common Stock or Fractal Common Stock), reorganization, recapitalization or other like change with respect to MetaTools Common Stock or Fractal Common Stock occurring on or after the date hereof and prior to the Effective Time. (f) Fractional Shares. No fraction of a share of MetaTools Common ----------------- Stock will be issued by virtue of the Merger, but in lieu thereof each holder of shares of Fractal Common Stock who would otherwise be entitled to a fraction of a share of MetaTools Common Stock (after aggregating all fractional shares of MetaTools Common Stock to be received by such holder) shall receive from MetaTools an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the average closing price of one share of MetaTools Common Stock for the ten most recent days that MetaTools Common Stock has traded ending on the trading day immediately prior to the Effective Time, as reported on the Nasdaq National Market. 1.7 Dissenting Shares. ----------------- (a) Notwithstanding any provision of this Agreement to the contrary, the shares of any holder of Fractal Common Stock who has demanded and perfected appraisal rights for such shares in accordance with California Law and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal rights ("DISSENTING SHARES"), shall not be converted into or represent a right to receive MetaTools Common Stock pursuant to Section 1.6, but the holder thereof shall only be entitled to such rights as are granted by California Law. (b) Notwithstanding the foregoing, if any holder of shares of Fractal Common Stock who demands appraisal of such shares under California Law shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal, then, as of the later of the Effective Time or the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive MetaTools Common Stock and cash in lieu of fractional shares of MetaTools Common Stock in accordance with Section 1.6 hereof, without interest thereon, upon surrender of the certificate representing such shares of Fractal Common Stock in the manner provided in Section 1.8 (or in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in the manner provided in Section 1.10). (c) Fractal shall give MetaTools (i) prompt notice of any written demands for appraisal of any shares of Fractal Common Stock, withdrawals of such demands, and any other instruments served pursuant to California Law and received by Fractal which relate to any such demand for appraisal and (ii) the opportunity to participate in all negotiations and proceedings which -4- take place prior to the Effective Time with respect to demands for appraisal under California Law. Fractal shall not, except with the prior written consent of MetaTools or as may be required by applicable law, voluntarily make any payment with respect to any demands for appraisal of Fractal Common Stock or offer to settle or settle any such demands. Any payments made in respect of Dissenting Shares shall be made by Fractal or the Surviving Corporation as the case may be. 1.8 Surrender of Certificates. ------------------------- (a) Exchange Agent. MetaTools shall select a bank or trust company -------------- with assets of not less than $500 million to act as the exchange agent (the "EXCHANGE AGENT") in the Merger. (b) MetaTools to Provide Common Stock. Promptly after the Effective --------------------------------- Time, MetaTools shall make available to the Exchange Agent for exchange in accordance with this Article I, the shares of MetaTools Common Stock issuable pursuant to Section 1.6 in exchange for outstanding shares of Fractal Common Stock, and cash in an amount sufficient for payment in lieu of fractional shares pursuant to Section 1.6(f) and any dividends or distributions which holders of shares of Fractal Common Stock may be entitled pursuant to Section 1.8(d). (c) Exchange Procedures. Promptly after the Effective Time, MetaTools ------------------- shall cause the Exchange Agent to mail to each holder of record (as of the Effective Time) of a certificate or certificates (the "CERTIFICATES"), which immediately prior to the Effective Time represented outstanding shares of Fractal Common Stock whose shares were converted into the right to receive shares of MetaTools Common Stock pursuant to Section 1.6, cash in lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or other distributions pursuant to Section 1.8(d), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as MetaTools may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of MetaTools Common Stock, cash in lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or other distributions pursuant to Section 1.8(d). Upon surrender of Certificates for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by MetaTools, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holders of such Certificates shall be entitled to receive in exchange therefor certificates representing the number of whole shares of MetaTools Common Stock, payment in lieu of fractional shares which such holders have the right to receive pursuant to Section 1.6(f) and any dividends or distributions payable pursuant to Section 1.8(d), and the Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Certificates will be deemed from and after the Effective Time, for all corporate purposes, subject to Section 1.8(d) as to the payment of dividends, to evidence the ownership of the number of full shares of MetaTools Common Stock into which such shares of Fractal Common Stock shall have been so converted and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.6(f) and any dividends or distributions payable pursuant to Section 1.8(d). (d) Distributions With Respect to Unexchanged Shares. No dividends or ------------------------------------------------ other distributions declared or made after the date of this Agreement with respect to MetaTools Common Stock with a record date after the Effective Time will be paid to the holders of any unsurrendered -5- Certificates with respect to the shares of MetaTools Common Stock represented thereby until the holders of record of such Certificates shall surrender such Certificates. Subject to applicable law, following surrender of any such Certificates, the Exchange Agent shall deliver to the record holders thereof, without interest, certificates representing whole shares of MetaTools Common Stock issued in exchange therefor along with payment in lieu of fractional shares pursuant to Section 1.6(f) hereof and the amount of any such dividends or other distributions with a record date after the Effective Time payable with respect to such whole shares of MetaTools Common Stock. (e) Transfers of Ownership. If certificates for shares of MetaTools ---------------------- Common Stock are to be issued in a name other than that in which the Certificates surrendered in exchange therefor are registered, it will be a condition of the issuance thereof that the Certificates so surrendered will be properly endorsed and otherwise in proper form for transfer and that the persons requesting such exchange will have paid to MetaTools or any agent designated by it any transfer or other taxes required by reason of the issuance of certificates for shares of MetaTools Common Stock in any name other than that of the registered holder of the Certificates surrendered, or established to the satisfaction of MetaTools or any agent designated by it that such tax has been paid or is not payable. (f) No Liability. Notwithstanding anything to the contrary in this ------------ Section 1.8, neither the Exchange Agent, MetaTools, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of MetaTools Common Stock or Fractal Common Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.9 No Further Ownership Rights in Fractal Common Stock. All shares of --------------------------------------------------- MetaTools Common Stock issued upon the surrender for exchange of shares of Fractal Common Stock in accordance with the terms hereof (including any cash paid in respect thereof pursuant to Section 1.6(f) and 1.8(d)) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Fractal Common Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Fractal Common Stock which were outstanding immediately prior to the Effective Time. If after the Effective Time Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates -------------------------------------- shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of MetaTools Common Stock, cash for fractional shares, if any, as may be required pursuant to Section 1.6(f) and any dividends or distributions payable pursuant to Section 1.8(d); provided, however, that MetaTools may, in its discretion and as a -------- ------- condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against MetaTools, Fractal or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. -6- 1.11 Tax and Accounting Consequences. ------------------------------- (a) It is intended by the parties hereto that the Merger shall constitute a reorganization within the meaning of Section 368 of the Code. The parties hereto adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations. (b) It is intended by the parties hereto that the Merger shall qualify for accounting treatment as a pooling of interests. 1.12 Taking of Necessary Action; Further Action. If, at any time after the ------------------------------------------ Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of Fractal and Merger Sub, the officers and directors of Fractal and Merger Sub will take all such lawful and necessary action, so long as such action is consistent with this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES OF FRACTAL Fractal represents and warrants to MetaTools and Merger Sub, subject to the exceptions specifically disclosed in writing in the disclosure letter supplied by Fractal to MetaTools dated as of the date hereof and certified by a duly authorized officer of Fractal (the "FRACTAL SCHEDULES"), as follows: 2.1 Organization of Fractal. ----------------------- (a) Fractal and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; has the corporate power and authority to own, lease and operate its assets and property and to carry on its business as now being conducted and as proposed to be conducted; and is duly qualified or licensed to do business and is in good standing in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except where the failure to be so qualified would not have a Material Adverse Effect (as defined below) on Fractal. (b) Fractal has delivered to MetaTools a true and complete list of all of Fractal's subsidiaries, indicating the jurisdiction of incorporation of each subsidiary and Fractal's equity interest therein. (c) Fractal has delivered or made available to MetaTools a true and correct copy of the Articles of Incorporation and Bylaws of Fractal and similar governing instruments of each of its subsidiaries, each as amended to date, and each such instrument is in full force and effect. Neither Fractal nor any of its subsidiaries is in violation of any of the provisions of its Articles of Incorporation or Bylaws or equivalent governing instruments. -7- (d) When used in connection with Fractal, the term "MATERIAL ADVERSE EFFECT" means, for purposes of this Agreement, any change, event or effect that is materially adverse to the business, assets (including intangible assets), financial condition or results of operations of Fractal and its subsidiaries taken as a whole. 2.2 Fractal Capital Structure. The authorized capital stock of Fractal ------------------------- consists of 50,000,000 shares of Common Stock, $.001 par value, of which there were 11,979,647 shares issued and outstanding as of February 7, 1997 and 5,000,000 shares of Preferred Stock, $.001, of which no shares are issued or outstanding. All outstanding shares of Fractal Common Stock are duly authorized, validly issued, fully paid and nonassessable and are not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of Fractal or any agreement or document to which Fractal is a party or by which it is bound. As of February 7, 1997, Fractal had reserved an aggregate of 2,516,336 shares of Fractal Common Stock, net of exercises, for issuance to employees, consultants and non-employee directors pursuant to the Fractal Stock Option Plans. As of February 7, 1997, there were options outstanding to purchase an aggregate of 2,017,666 shares of Common Stock, issued to employees, consultants and non-employee directors pursuant to the Fractal Stock Option Plans. All shares of Fractal Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and nonassessable. The Fractal Schedules list for each person who held in the aggregate options to acquire 10,000 or more shares of Fractal Common Stock at on or about February 7, 1997, the name of the holder of such option, the exercise price of such option, the number of shares as to which such option will have vested at such date, the vesting schedule for such option and whether the exercisability of such option will be accelerated in any way by the transactions contemplated by this Agreement, and indicate the extent of acceleration, if any. Fractal has reserved 100,000 shares of Common Stock for issuance pursuant to Fractal's 401(k) Profit Sharing Plan and Trust. 2.3 Obligations With Respect to Capital Stock. Except as set forth in ----------------------------------------- Section 2.2, there are no equity securities, partnership interests or similar ownership interests of any class of Fractal, or any securities exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar ownership interests, issued, reserved for issuance or outstanding. Except for securities Fractal owns, directly or indirectly through one or more subsidiaries, there are no equity securities, partnership interests or similar ownership interests of any class of any subsidiary of Fractal, or any security exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar ownership interests, issued, reserved for issuance or outstanding. Except as set forth in Section 2.2, there are no options, warrants, equity securities, partnership interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character to which Fractal or any of its subsidiaries is a party or by which it is bound obligating Fractal or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition, of any shares of capital stock, partnership interests or similar ownership interests of Fractal or any of its subsidiaries or obligating Fractal or any of its subsidiaries to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement. There are no registration rights and, to the knowledge of Fractal, as of the date of this Agreement, there are no voting trusts, proxies or other agreements or understandings with respect to any equity security of -8- any class of Fractal or with respect to any equity security, partnership interest or similar ownership interest of any class of any of its subsidiaries. 2.4 Authority. --------- (a) Fractal has all requisite corporate power and authority to enter into this Agreement and the Fractal Stock Option Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and the execution and delivery of the Fractal Stock Option Agreement and the consummation of the transactions contemplated thereby, have been duly authorized by all necessary corporate action on the part of Fractal, subject only to the approval and adoption of this Agreement and the approval of the Merger by Fractal's shareholders and the filing and recordation of the Agreement of Merger pursuant to California Law. A vote of the holders of at least a majority of the outstanding shares of the Fractal Common Stock is required for Fractal's shareholders to approve and adopt this Agreement and approve the Merger. This Agreement and the Fractal Stock Option Agreement have been duly executed and delivered by Fractal and, assuming the due authorization, execution and delivery by MetaTools and, if applicable, Merger Sub, constitute valid and binding obligations of Fractal, enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. The execution and delivery of this Agreement and the Fractal Stock Option Agreement by Fractal do not, and the performance of this Agreement and the Fractal Stock Option Agreement by Fractal will not, (i) conflict with or violate the Articles of Incorporation or Bylaws of Fractal or the equivalent organizational documents of any of its subsidiaries, (ii) subject to obtaining the approval and adoption of this Agreement and the approval of the Merger by Fractal's shareholders as contemplated in Section 5.2 and compliance with the requirements set forth in Section 2.4(b) below, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Fractal or any of its subsidiaries or by which its or any of their respective properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Fractal's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Fractal or any of its subsidiaries pursuant to, any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Fractal or any of its subsidiaries is a party or by which Fractal or any of its subsidiaries or its or any of their respective properties are bound or affected. The Fractal Schedules list all material consents, waivers and approvals under any of Fractal's or any of its subsidiaries' agreements, contracts, licenses or leases required to be obtained in connection with the consummation of the transactions contemplated hereby. (b) No consent, approval, order or authorization of, or registration, declaration or filing with any court, administrative agency or commission or other governmental authority or instrumentality, foreign or domestic ("GOVERNMENTAL ENTITY"), is required by or with respect to Fractal in connection with the execution and delivery of this Agreement and the Fractal Stock Option Agreement or the consummation of the Merger, except for (i) the filing of the Agreement of Merger with the Secretary of State of the State of California, (ii) the filing of the Proxy Statement (as defined in Section 2.19) with the Securities and Exchange Commission ("SEC") in accordance with the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (iii) such consents, approvals, -9- orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the securities or antitrust laws of any foreign country, and (iv) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not be material to Fractal or MetaTools or have a material adverse effect on the ability of the parties to consummate the Merger. 2.5 SEC Filings; Fractal Financial Statements. ----------------------------------------- (a) Fractal has filed all forms, reports and documents required to be filed with the SEC since November 9, 1995 and has made available to MetaTools such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including those that Fractal may file subsequent to the date hereof) are referred to herein as the "FRACTAL SEC REPORTS." As of their respective dates, the Fractal SEC Reports (i) were prepared in accordance with the requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Fractal SEC Reports, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of Fractal's subsidiaries is required to file any forms, reports or other documents with the SEC. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in Fractal SEC Reports (the "FRACTAL FINANCIALS"), including any Fractal SEC Reports filed after the date hereof until the Closing, (x) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (y) was prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act) and (z) fairly presented the consolidated financial position of Fractal and its subsidiaries as at the respective dates thereof and the consolidated results of Fractal's operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments. The balance sheet of Fractal contained in Fractal SEC Reports as of September 30, 1996 is hereinafter referred to as the "FRACTAL BALANCE SHEET." Except as disclosed in the Fractal Financials, since the date of the Fractal Balance Sheet neither Fractal nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance sheet or in the related notes to the consolidated financial statements prepared in accordance with GAAP which are, individually or in the aggregate, material to the business, results of operations or financial condition of Fractal and its subsidiaries taken as a whole, except liabilities (i) provided for in the Fractal Balance Sheet, or (ii) incurred since the date of the Fractal Balance Sheet in the ordinary course of business consistent with past practices and immaterial in the aggregate. (c) Fractal has heretofore furnished to MetaTools a complete and correct copy of any amendments or modifications, which have not yet been filed with the SEC but which are required -10- to be filed, to agreements, documents or other instruments which previously had been filed by Fractal with the SEC pursuant to the Securities Act or the Exchange Act. 2.6 Absence of Certain Changes or Events. Since the date of the Fractal ------------------------------------ Balance Sheet through the date of this Agreement, there has not been: (i) any Material Adverse Effect on Fractal, (ii) any material change by Fractal in its accounting methods, principles or practices, except as required by concurrent changes in GAAP, or (iii) any material revaluation by Fractal of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing off notes or accounts receivable other than in the ordinary course of business. 2.7 Taxes. ----- (a) Definition of Taxes. For the purposes of this Agreement, "TAX" or ------------------- "TAXES" refers to any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities relating to taxes, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. ---------------------- (i) Fractal and each of its subsidiaries have timely filed all federal, state, local and foreign returns, estimates, information statements and reports ("RETURNS") relating to Taxes required to be filed by Fractal and each of its subsidiaries, except such Returns which are not material to Fractal, and have paid all Taxes shown to be due on such Returns. (ii) Except as is not material to Fractal, Fractal and each of its subsidiaries as of the Effective Time will have withheld with respect to its employees all federal and state income taxes, the Federal Insurance Contribution Act ("FICA"), the Federal Unemployment Tax Act ("FUTA") and other Taxes required to be withheld. (iii) Except as is not material to Fractal, neither Fractal nor any of its subsidiaries has been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against Fractal or any of its subsidiaries, nor has Fractal or any of its subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) Except as is not material to Fractal, no audit or other examination of any Return of Fractal or any of its subsidiaries is presently in progress, nor has Fractal or any of its subsidiaries been notified of any request for such an audit or other examination. (v) Except as is not material to Fractal, no adjustment relating to any Returns filed by Fractal or any of its subsidiaries has been proposed formally or informally by any Tax authority to Fractal or any of its subsidiaries or any representative thereof. -11- (vi) Except as is not material to Fractal, neither Fractal nor any of its subsidiaries has any liability for unpaid Taxes which has not been accrued for or reserved on the Fractal Balance Sheet, whether asserted or unasserted, contingent or otherwise, which is material to Fractal. (vii) There is no contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of Fractal or any of its subsidiaries that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code. (viii) Neither Fractal nor any of its subsidiaries has filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by Fractal. (ix) Neither Fractal nor any of its subsidiaries is party to or has any obligation under any tax-sharing or allocation agreement or arrangement. 2.8 Title to Properties; Absence of Liens and Encumbrances. ------------------------------------------------------ (a) The Schedules list the real property owned by Fractal. The Schedules list all real property leases to which Fractal is a party and each amendment thereto. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default) that would give rise to a claim in an amount greater than $100,000. (b) Fractal has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any liens, pledges, charges, claims, security interests or other encumbrances of any sort ("LIENS"), except as reflected in Fractal Financials or in the Schedules and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 2.9 Intellectual Property. --------------------- (a) Fractal and its subsidiaries either own, or have a valid license with respect to, all patents, copyrights, trademarks, trade secrets and other intellectual property used in, by, or necessary to, the operation or conduct of their respective businesses as presently conducted (such intellectual property and the rights thereto are collectively referred to herein as the "FRACTAL IP RIGHTS"). -12- (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not constitute a material breach of any instrument or agreement governing any patent, copyright, trademark, trade secret or other intellectual property rights licensed by, or to, Fractal, will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any Fractal IP Rights or materially impair the right of Fractal, the Surviving Corporation or MetaTools in or to use, sell, enforce license or otherwise exploit any Fractal IP Rights or portion thereof. (c) Neither the operation of Fractal's nor any of its subsidiaries' respective businesses nor the manufacture, marketing, license, sale or intended use of any product, service or technology currently licensed, manufactured, created, distributed, authored, used, sold or under development by Fractal or any of its subsidiaries (i) violates in any material respect any license or agreement between Fractal or any of its subsidiaries and any third party or (ii) infringes any patents, copyright, trademark, trade secret or other intellectual property right of any other party; and there is no pending or, to the knowledge of Fractal, threatened claim or litigation contesting the validity, ownership or right to use, sell, enforce, license or dispose of any Fractal IP Rights, nor has Fractal received any written notice asserting that any Fractal IP Rights or the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party. (d) Fractal has taken reasonable and practicable steps designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary rights in, all Fractal IP Rights. 2.10 Compliance; Permits; Restrictions. --------------------------------- (a) Neither Fractal nor any of its subsidiaries is, in any material respect, in conflict with, or in default or violation of (i) any law, rule, regulation, order, judgment or decree applicable to Fractal or any of its subsidiaries or by which Fractal or any of its subsidiaries or any of their respective properties is bound or affected, or (ii) any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Fractal or any of its subsidiaries is a party or by which Fractal or any of its subsidiaries or its or any of their respective properties is bound or affected. To the knowledge of Fractal, no investigation or review by any Governmental Entity is pending or threatened against Fractal or any of its subsidiaries, nor has any Governmental Entity indicated an intention to conduct the same. There is no material agreement, judgment, injunction, order or decree binding upon Fractal or any of its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of Fractal or any of its subsidiaries, any acquisition of material property by Fractal or any of its subsidiaries or the conduct of business by Fractal as currently conducted. (b) Fractal and its subsidiaries hold all permits, licenses, variances, exemptions, orders and approvals from governmental authorities that are material to the operation of the business of Fractal (collectively, the "FRACTAL PERMITS"). Fractal and its subsidiaries are in compliance in all material respects with the terms of the Fractal Permits. 2.11 Litigation. There is no action, suit, proceeding, claim, arbitration ---------- or investigation pending, or as to which Fractal or any of its subsidiaries has received any notice of assertion nor, to -13- Fractal's knowledge, is there a threatened action, suit, proceeding, claim, arbitration or investigation against Fractal or any of its subsidiaries which reasonably would be likely to be material to Fractal. To the knowledge of Fractal, no Governmental Entity has at any time challenged or questioned in writing the legal right of Fractal to manufacture, offer or sell any of its products in the present manner or style thereof. 2.12 Brokers' and Finders' Fees. Except for fees payable to Unterberg -------------------------- Harris pursuant to an engagement letter dated February 11, 1997, a copy of which has been provided to MetaTools, Fractal has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.13 Employee Benefit Plans. ---------------------- (a) With respect to each material employee benefit plan, program, arrangement and contract (including, without limitation, any "employee benefit plan" as defined in Section 3(3) of ERISA) maintained or contributed to by Fractal or any trade or business which is under common control with Fractal within the meaning of Section 414 of the Code (the "FRACTAL EMPLOYEE PLANS"), Fractal has made available to MetaTools a true and complete copy of, to the extent applicable, (i) such Fractal Employee Plan, (ii) the most recent annual report (Form 5500), (iii) each trust agreement related to such Fractal Employee Plan, (iv) the most recent summary plan description for each Fractal Employee Plan for which such a description is required, (v) the most recent actuarial report relating to any Fractal Employee Plan subject to Title IV of ERISA and (vi) the most recent IRS determination letter issued with respect to any Fractal Employee Plan. (b) Each Fractal Employee Plan which is intended to be qualified under Section 401(a) of the Code has received a favorable determination from the IRS covering the provisions of the Tax Reform Act of 1986 stating that such Fractal Employee Plan is so qualified and nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such plan. Each Fractal Employee Plan has been operated in all material respects in accordance with its terms and the requirements of applicable law. Neither Fractal nor any ERISA Affiliate of Fractal has incurred or is reasonably expected to incur any material liability under Title IV of ERISA in connection with any Fractal Employee Plan. 2.14 Employees; Labor Matters. To Fractal's knowledge after reasonable ------------------------ inquiry, no employee of Fractal (i) is in violation of any term of any employment contract, patent disclosure agreement, non-competition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by Fractal because of the nature of the business conducted or presently proposed to be conducted by Fractal or to the use of trade secrets or proprietary information of others and (ii) has given notice to Fractal, nor is Fractal otherwise aware, that any employee intends to terminate his or her employment with Fractal except for terminations of a nature and number that are consistent with Fractal's prior experience. To Fractal's knowledge, there are no activities or proceedings of any labor union to organize any employees of Fractal or any of its subsidiaries and there are no strikes, or material slowdowns, work stoppages or lockouts, or threats thereof by or with respect to any employees of Fractal or any of its subsidiaries. Fractal and its subsidiaries are and have been in compliance in all material respects with all applicable laws regarding -14- employment practices, terms and conditions of employment, and wages and hours (including, without limitation, ERISA, WARN or any similar state or local law). 2.15 Environmental Matters. --------------------- (a) Hazardous Material. Except as reasonably would not be likely to ------------------ result in a material liability to Fractal, no underground storage tanks and no amount of any substance that has been designated by any Governmental Entity or by applicable federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"), but excluding office and janitorial supplies, are present, as a result of the actions of Fractal or any of its subsidiaries or any affiliate of Fractal, or, to Fractal's knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Fractal or any of its subsidiaries has at any time owned, operated, occupied or leased. (b) Hazardous Materials Activities. Except as reasonably would not be ------------------------------ likely to result in a material liability to Fractal, neither Fractal nor any of its subsidiaries has transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Closing Date, nor has Fractal or any of its subsidiaries disposed of, transported, sold, used, released, exposed its employees or others to or manufactured any product containing a Hazardous Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. (c) Permits. Fractal and its subsidiaries currently hold all ------- environmental approvals, permits, licenses, clearances and consents (the "FRACTAL ENVIRONMENTAL PERMITS") necessary for the conduct of Fractal's and its subsidiaries' Hazardous Material Activities and other businesses of Fractal and its subsidiaries as such activities and businesses are currently being conducted. (d) Environmental Liabilities. No material action, proceeding, ------------------------- revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to Fractal's knowledge, threatened concerning any Fractal Environmental Permit, Hazardous Material or any Hazardous Materials Activity of Fractal or any of its subsidiaries. Fractal is not aware of any fact or circumstance which could involve Fractal or any of its subsidiaries in any material environmental litigation or impose upon Fractal any material environmental liability. 2.16 Agreements, Contracts and Commitments. Except as set forth in the ------------------------------------- Fractal Schedules, neither Fractal nor any of its subsidiaries is a party to or is bound by: (a) any employment or consulting agreement, contract or commitment with any officer or director level employee or member of Fractal's Board of Directors, other than those that are -15- terminable by Fractal or any of its subsidiaries on no more than thirty days notice without liability or financial obligation, except to the extent general principles of wrongful termination law may limit Fractal's or any of its subsidiaries' ability to terminate employees at will; (b) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (c) any agreement of indemnification or guaranty not entered into in the ordinary course of business other than indemnification agreements between Fractal or any of its subsidiaries and any of its officers or directors; (d) any agreement, contract or commitment containing any covenant limiting the freedom of Fractal or any of its subsidiaries to engage in any line of business or compete with any person or granting any exclusive distribution rights; (e) any agreement, contract or commitment currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise; or (f) any material joint marketing or development agreement. Neither Fractal nor any of its subsidiaries, nor to Fractal's knowledge any other party to a Fractal Contract (as defined below), has breached, violated or defaulted under, or received notice that it has breached violated or defaulted under, any of the material terms or conditions of any of the agreements, contracts or commitments to which Fractal or any of its subsidiaries is a party or by which it is bound of the type described in clauses (a) through (l) above (any such agreement, contract or commitment, a "FRACTAL CONTRACT") in such a manner as would permit any other party to cancel or terminate any such Fractal Contract, or would permit any other party to seek damages, which would be reasonably likely to be material to Fractal. 2.17 Pooling of Interests. To the knowledge of Fractal, based on -------------------- consultation with its independent accountants, neither Fractal nor any of its directors, officers, affiliates or shareholders has taken any action which would preclude MetaTools' ability to account for the Merger as a pooling of interests. 2.18 Change of Control Payments. The Fractal Schedules set forth each plan -------------------------- or agreement pursuant to which any material amounts may become payable (whether currently or in the future) to current or former officers and directors of Fractal as a result of or in connection with the Merger. 2.19 Statements; Proxy Statement/Prospectus. The information supplied by -------------------------------------- Fractal for inclusion in the Registration Statement (as defined in Section 3.4(b)) shall not at the time the Registration Statement is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be -16- stated therein or necessary in order to make the statements therein not misleading. The information supplied by Fractal for inclusion in the proxy statement/prospectus to be sent to the shareholders of Fractal and stockholders of MetaTools in connection with the meeting of Fractal's shareholders to consider the approval and adoption of this Agreement and the approval of the Merger (the "FRACTAL SHAREHOLDERS' MEETING") and in connection with the meeting of MetaTools' stockholders to consider the approval of (i) the amendment of MetaTools' Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of MetaTools Common Stock by virtue of the Merger and (ii) the issuance of shares of MetaTools Common Stock by virtue of the Merger, (the "METATOOLS STOCKHOLDERS' MEETING") (such proxy statement/prospectus as amended or supplemented is referred to herein as the "PROXY STATEMENT") shall not, on the date the Proxy Statement is first mailed to Fractal's shareholders and MetaTools' stockholders, at the time of the Fractal Shareholders' Meeting or the MetaTools Stockholders' Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Fractal Shareholders' Meeting or the MetaTools Stockholders' Meeting which has become false or misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. If at any time prior to the Effective Time, any event relating to Fractal or any of its affiliates, officers or directors should be discovered by Fractal which should be set forth in an amendment to the Registration Statement or a supplement to the Proxy Statement, Fractal shall promptly inform MetaTools. Notwithstanding the foregoing, Fractal makes no representation or warranty with respect to any information supplied by MetaTools or Merger Sub which is contained in any of the foregoing documents. 2.20 Board Approval. The Board of Directors of Fractal has, as of the date -------------- of this Agreement, determined (i) that the Merger is fair to, and in the best interests of Fractal and its shareholders, and (ii) to recommend that the shareholders of Fractal approve and adopt this Agreement and approve the Merger. 2.21 Fairness Opinion. Fractal's Board of Directors has received a written ---------------- opinion from Unterberg Harris dated as of the date hereof, to the effect that as of the date hereof, the Exchange Ratio is fair to Fractal's shareholders from a financial point of view and has delivered to MetaTools a copy of such opinion. ARTICLE III REPRESENTATIONS AND WARRANTIES OF METATOOLS AND MERGER SUB MetaTools and Merger Sub represent and warrant to Fractal, subject to the exceptions specifically disclosed in writing in the disclosure letter supplied by MetaTools to Fractal dated as of the date hereof and certified by a duly authorized officer of MetaTools (the "METATOOLS SCHEDULES"), as follows: -17- 3.1 Organization of MetaTools. ------------------------- (a) MetaTools and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; has the corporate power and authority to own, lease and operate its assets and property and to carry on its business as now being conducted and as proposed to be conducted; and is duly qualified or licensed to do business and is in good standing in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except where the failure to be so qualified would not have a Material Adverse Effect (as defined below) on MetaTools. (b) MetaTools has delivered to Fractal a true and complete list of all of MetaTools' subsidiaries, indicating the jurisdiction of incorporation of each subsidiary and MetaTools' equity interest therein. (c) MetaTools has delivered or made available to Fractal a true and correct copy of the Certificate of Incorporation and Bylaws of MetaTools and similar governing instruments of each of its subsidiaries, each as amended to date, and each such instrument is in full force and effect. Neither MetaTools nor any of its subsidiaries is in violation of any of the provisions of its Certificate of Incorporation or Bylaws or equivalent governing instruments. (d) When used in connection with MetaTools, the term "MATERIAL ADVERSE EFFECT" means, for purposes of this Agreement, any change, event or effect that is materially adverse to the business, assets (including intangible assets), financial condition or results of operations of MetaTools and its subsidiaries taken as a whole. 3.2 MetaTools and Merger Sub Capital Structure. The authorized capital ------------------------------------------ stock of MetaTools consists of 30,000,000 shares of Common Stock, par value $0.001 per share, of which there were 13,233,949 shares issued and outstanding as of February 6,1997, and 5,000,000 shares of Preferred Stock, par value $0.001 per share, of which no shares are issued or outstanding. The authorized capital stock of Merger Sub consists of 100 shares of Common Stock, $.001 par value, all of which, as of the date hereof, are issued and outstanding and are held by MetaTools. Merger Sub was formed on December 12, 1996, for the purpose of consummating a merger and has no material assets or liabilities except as necessary for such purpose. All outstanding shares of MetaTools Common Stock are duly authorized, validly issued, fully paid and nonassessable and are not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of MetaTools or any agreement or document to which MetaTools is a party or by which it is bound. As of February 6, 1997, MetaTools had reserved an aggregate of 4,296,230, net of exercise, for issuance to employees, consultants and non-employee directors pursuant to the MetaTools Stock Option Plans. As of February 7, 1997, there were options outstanding to purchase an aggregate of 901,084 shares of Common Stock, issued to employees, consultants and non-employee directors pursuant to the MetaTools Stock Option Plans. All shares of MetaTools Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and nonassessable. The MetaTools Schedules list for each person who held in the aggregate options to acquire 10,000 or more shares of MetaTools Common Stock at February 6, 1997, the name of the holder of such -18- option, the number of shares subject to such option, the exercise price of such option, the number of shares as to which such option will have vested at such date, the vesting schedule for such option and whether the exercisability of such option will be accelerated in any way by the transactions contemplated by this Agreement, and indicate the extent of acceleration, if any. As of February 6, 1997, an aggregate of 141,763 shares of MetaTools Common Stock have been reserved for issuance pursuant to MetaTools' Employee Stock Purchase Plan (the "METATOOLS EMPLOYEE STOCK PURCHASE PLAN"). 3.3 Obligations With Respect to Capital Stock. Except as set forth in ----------------------------------------- Section 3.2, there are no equity securities, partnership interests or similar ownership interests of any class of MetaTools, or any securities exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar ownership interests, issued, reserved for issuance or outstanding. Except for securities MetaTools owns, directly or indirectly through one or more subsidiaries, there are no equity securities, partnership interests or similar ownership interests of any class of any subsidiary of MetaTools, or any security exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar ownership interests, issued, reserved for issuance or outstanding. Except as set forth in Section 3.2, there are no options, warrants, equity securities, partnership interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character to which MetaTools or any of its subsidiaries is a party or by which it is bound obligating MetaTools or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition, of any shares of capital stock, partnership interests or similar ownership interests of MetaTools or any of its subsidiaries or obligating MetaTools or any of its subsidiaries to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement. There are no registration rights and, to the knowledge of MetaTools, as of the date of this Agreement, there are no voting trusts, proxies or other agreements or understandings with respect to any equity security of any class of MetaTools or with respect to any equity security, partnership interest or similar ownership interest of any class of any of its subsidiaries. 3.4 Authority. --------- (a) Each of MetaTools and Merger Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby and MetaTools has all requisite corporate power and authority to enter into the MetaTools Stock Option Agreement and to consummate the transactions contemplated thereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and the execution and delivery of the MetaTools Stock Option Agreement and the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of MetaTools and, in the case of this Agreement, Merger Sub, subject only to the filing and recordation of the Agreement of Merger pursuant to California Law and the approval by MetaTools' stockholders of (i) the amendment of MetaTools' Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of MetaTools Common Stock by virtue of the Merger and (ii) the issuance of shares of MetaTools Common Stock by virtue of the Merger. A vote of the holders of at least a majority of the outstanding shares of the MetaTools Common Stock is required for MetaTools' stockholders to approve each of (i) the amendment of MetaTools' Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of MetaTools Common Stock -19- by virtue of the Merger and (ii) the issuance of shares of MetaTools Common Stock by virtue of the Merger. This Agreement has been duly executed and delivered by each of MetaTools and Merger Sub and, assuming the due authorization, execution and delivery by Fractal, constitutes the valid and binding obligation of MetaTools, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. The MetaTools Stock Option Agreement has been duly executed and delivered by MetaTools and, assuming due authorization, execution and delivery of the MetaTools Stock Option Agreement by Fractal, the MetaTools Stock Option Agreement constitutes the valid and binding obligation of MetaTools, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. The execution and delivery of this Agreement by each of MetaTools and Merger Sub and the execution and delivery of the MetaTools Stock Option Agreement by MetaTools do not, and the performance of this Agreement by each of MetaTools and Merger Sub will not and the performance of the MetaTools Stock Option Agreement by MetaTools will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of MetaTools or the Articles of Incorporation or Bylaws of Merger Sub or the equivalent organizational documents of any of MetaTools' other subsidiaries, (ii) subject to obtaining the approval of MetaTools' stockholders of (y) the amendment of MetaTools' Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of MetaTools Common Stock by virtue of the Merger and (z) the issuance of shares of MetaTools Common Stock by virtue of the Merger as contemplated in Section 5.2 and compliance with the requirements set forth in Section 3.4(b) below, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to MetaTools or any of its subsidiaries (including Merger Sub) or by which its or any of their respective properties is bound or affected or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair MetaTools' rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of MetaTools or any of its subsidiaries (including Merger Sub) pursuant to, any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which MetaTools or any of its subsidiaries (including Merger Sub) is a party or by which MetaTools or any of its sub sidiaries or its or any of their respective properties are bound or affected. The MetaTools Schedules list all material consents, waivers and approvals under any of MetaTools' or any of its subsidiaries' agreements, contracts, licenses or leases required to be obtained in connection with the consummation of the transactions contemplated hereby. (b) No consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Entity is required by or with respect to MetaTools or Merger Sub in connection with the execution and delivery of this Agreement and the MetaTools Stock Option Agreement or the consummation of the Merger, except for (i) the filing of a Form S-4 Registration Statement (the "REGISTRATION STATEMENT") with the SEC in accordance with the Securities Act, (ii) the filing of the Agreement of Merger with the Secretary of State of the State of California and the Secretary of State of the State of Delaware, (iii) the filing of the Proxy Statement with the SEC in accordance with the Exchange Act, (iv) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and the HSR Act and the securities or antitrust laws of any foreign country, and (v) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not -20- be material to MetaTools or Fractal or have a material adverse effect on the ability of the parties to consummate the Merger. 3.5 Section 203 of the Delaware General Corporation Law Not Applicable. ------------------------------------------------------------------ The Board of Directors of MetaTools has taken all actions so that the restrictions contained in Section 203 of the Delaware General Corporation Law applicable to a "business combination" (as defined in such Section 203) will not apply to the execution, delivery or performance of this Agreement or the Stock Option Agreements or to the consummation of the Merger or the other transactions contemplated by this Agreement or the Stock Option Agreements. 3.6 SEC Filings; MetaTools Financial Statements. ------------------------------------------- (a) MetaTools has filed all forms, reports and documents required to be filed with the SEC since December 12, 1995, and has made available to Fractal such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including those that MetaTools may file subsequent to the date hereof) are referred to herein as the "METATOOLS SEC REPORTS." As of their respective dates, the MetaTools SEC Reports (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such MetaTools SEC Reports, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of MetaTools' subsidiaries is required to file any forms, reports or other documents with the SEC. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in MetaTools SEC Reports (the "METATOOLS FINANCIALS"), including any MetaTools SEC Reports filed after the date hereof until the Closing, (x) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (y) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act) and (z) fairly presented the consolidated financial position of MetaTools and its subsidiaries as at the respective dates thereof and the consolidated results of MetaTools' operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments. The balance sheet of MetaTools contained in MetaTools SEC Reports as of September 30, 1996 is hereinafter referred to as the "METATOOLS BALANCE SHEET." Except as disclosed in the MetaTools Financials, since the date of the MetaTools Balance Sheet neither MetaTools nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance sheet or in the related notes to the consolidated financial statements prepared in accordance with GAAP which are, individually or in the aggregate, material to the business, results of operations or financial condition of MetaTools and its subsidiaries taken as a whole, except liabilities (i) provided for in the MetaTools Balance Sheet, or (ii) incurred since the date of the MetaTools Balance Sheet in the ordinary course of business consistent with past practices and immaterial in the aggregate. -21- (c) MetaTools has heretofore furnished to Fractal a complete and correct copy of any amendments or modifications, which have not yet been filed with the SEC but which are required to be filed, to agreements, documents or other instruments which previously had been filed by MetaTools with the SEC pursuant to the Securities Act or the Exchange Act. 3.7 Absence of Certain Changes or Events. Since the date of the MetaTools ------------------------------------ Balance Sheet through the date of this Agreement, there has not been: (i) any Material Adverse Effect on MetaTools, (ii) any material change by MetaTools in its accounting methods, principles or practices, except as required by concurrent changes in GAAP, or (iii) any material revaluation by MetaTools of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing off notes or accounts receivable other than in the ordinary course of business. 3.8 Tax Returns and Audits. ---------------------- (a) MetaTools and each of its subsidiaries have timely filed all Returns relating to Taxes required to be filed by MetaTools and each of its subsidiaries, except such Returns which are not material to MetaTools, and have paid all Taxes shown to be due on such Returns. (b) Except as is not material to MetaTools, MetaTools and each of its subsidiaries as of the Effective Time will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (c) Except as is not material to MetaTools, neither MetaTools nor any of its subsidiaries has been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against MetaTools or any of its subsidiaries, nor has MetaTools or any of its subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (d) Except as is not material to MetaTools, no audit or other examination of any Return of MetaTools or any of its subsidiaries is presently in progress, nor has MetaTools or any of its subsidiaries been notified of any request for such an audit or other examination. (e) Except as is not material to MetaTools, no adjustment relating to any Returns filed by MetaTools or any of its subsidiaries has been proposed formally or informally by any Tax authority to MetaTools or any of its subsidiaries or any representative thereof. (f) Except as is not material to MetaTools, neither MetaTools nor any of its subsidiaries has any liability for unpaid Taxes which has not been accrued for or reserved on the MetaTools Balance Sheet, whether asserted or unasserted, contingent or otherwise, which is material to MetaTools. (g) There is no contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of MetaTools or any of its subsidiaries that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code. -22- (h) Neither MetaTools nor any of its subsidiaries has filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by MetaTools. (i) Neither MetaTools nor any of its subsidiaries is party to or has obligations under any tax-sharing or allocation agreement or arrangement. 3.9 Title to Properties; Absence of Liens and Encumbrances. ------------------------------------------------------ (a) The Schedules list the real property owned by MetaTools. The Schedules list all real property leases to which MetaTools is a party and each amendment thereto. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default) that would give rise to a claim in an amount greater than $100,000. (b) MetaTools has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in MetaTools Financials or in the Schedules and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 3.10 Intellectual Property. --------------------- (a) MetaTools and its subsidiaries either own, or have a valid license with respect to, all patents, copyrights, trademarks, trade secrets and other intellectual property used in, by or necessary to the operation or conduct of their respective businesses as presently conducted (such intellectual property and the rights thereto are collectively referred to herein as the "METATOOLS IP RIGHTS"). (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not constitute a material breach of any instrument or agreement governing any patent, copyright, trademark, trade secret or other intellectual property rights licensed by or to, MetaTools, will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any MetaTools IP Rights or materially impair the right of MetaTools, the Surviving Corporation or Fractal in or to use, sell, enforce, license or otherwise exploit any MetaTools IP Rights or portion thereof. (c) Neither the operation of MetaTools' nor any of its subsidiaries' respective business nor the manufacture, marketing, license, sale or intended use of any product, service or technology currently licensed, manufactured, created, distributed, authored, used, sold or under development by MetaTools or any of its subsidiaries (i) violates in any material respect any license or agreement between MetaTools or any of its subsidiaries and any third party or (ii) infringes any -23- patent, copyright, trademark, trade secret or other intellectual property right of any other party; and there is no pending or, to the knowledge of MetaTools, threatened claim or litigation contesting the validity, ownership or right to use, sell, enforce, license or dispose of any MetaTools IP Rights, nor has MetaTools received any written notice asserting that any MetaTools IP Rights or the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party. (d) MetaTools has taken reasonable and practicable steps designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary rights in, all MetaTools IP Rights. 3.11 Compliance; Permits; Restrictions. --------------------------------- (a) Neither MetaTools nor any of its subsidiaries is, in any material respect, in conflict with, or in default or violation of (i) any law, rule, regulation, order, judgment or decree applicable to MetaTools or any of its subsidiaries or by which MetaTools or any of its subsidiaries or any of their respective properties is bound or affected, or (ii) any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which MetaTools or any of its subsidiaries is a party or by which MetaTools or any of its subsidiaries or its or any of their respective properties is bound or affected. To the knowledge of MetaTools, no investigation or review by any Governmental Entity is pending or threatened against MetaTools or any of its subsidiaries, nor has any Governmental Entity indicated an intention to conduct the same. There is no material agreement, judgment, injunction, order or decree binding upon MetaTools or any of its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of MetaTools or any of its subsidiaries, any acquisition of material property by MetaTools or any of its subsidiaries or the conduct of business by MetaTools as currently conducted. (b) MetaTools and its subsidiaries hold all permits, licenses, variances, exemp tions, orders and approvals from governmental authorities which are material to the operation of the business of MetaTools (collectively, the "METATOOLS PERMITS"). MetaTools and its subsidiaries are in compliance in all material respects with the terms of the MetaTools Permits. 3.12 Litigation. There is no action, suit, proceeding, claim, arbitration ---------- or investigation pending, or as to which MetaTools or any of its subsidiaries has received any notice of assertion nor, to MetaTools' knowledge, is there a threatened action, suit, proceeding, claim, arbitration or investigation against MetaTools or any of its subsidiaries which reasonably would be likely to be material to MetaTools. To the knowledge of MetaTools, no Governmental Entity has at any time challenged or questioned in writing the legal right of MetaTools to manufacture, offer or sell any of its products in the present manner or style thereof. 3.13 Brokers' and Finders' Fees. Except for fees payable to Alex. Brown & -------------------------- Sons pursuant to an engagement letter dated February 3, 1997, a copy of which has been provided to Fractal, MetaTools has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. -24- 3.14 Employee Benefit Plans. ---------------------- (a) With respect to each material employee benefit plan, program, arrangement and contract (including, without limitation, any "employee benefit plan" as defined in Section 3(3) of ERISA) maintained or contributed to by MetaTools or any trade or business which is under common control with MetaTools within the meaning of Section 414 of the Code (the "METATOOLS EMPLOYEE PLANS"), MetaTools has made available to Fractal a true and complete copy of, to the extent applicable, (i) such MetaTools Employee Plan, (ii) the most recent annual report (Form 5500), (iii) each trust agreement related to such MetaTools Employee Plan, (iv) the most recent summary plan description for each MetaTools Employee Plan for which such a description is required, (v) the most recent actuarial report relating to any MetaTools Employee Plan subject to Title IV of ERISA and (vi) the most recent IRS determination letter issued with respect to any MetaTools Employee Plan. (b) Each MetaTools Employee Plan which is intended to be qualified under Section 401(a) of the Code has received a favorable determination from the IRS covering the provisions of the Tax Reform Act of 1986 stating that such MetaTools Employee Plan is so qualified and nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such plan. Each MetaTools Employee Plan has been operated in all material respects in accordance with its terms and the requirements of applicable law. Neither MetaTools nor any ERISA Affiliate of MetaTools has incurred or is reasonably expected to incur any material liability under Title IV of ERISA in connection with any MetaTools Employee Plan. 3.15 Employees; Labor Matters. To MetaTools' knowledge after reasonable ------------------------ inquiry, no employee of MetaTools (i) is in violation of any term of any employment contract, patent disclosure agreement, non-competition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by MetaTools because of the nature of the business conducted or presently proposed to be conducted by MetaTools or to the use of trade secrets or proprietary information of others and (ii) has given notice to MetaTools, nor is MetaTools otherwise aware, that any employee intends to terminate his or her employment with MetaTools except for terminations of a nature and number that are consistent with MetaTools' prior experience. To MetaTools' knowledge, there are no activities or proceedings of any labor union to organize any employees of MetaTools or any of its subsidiaries and there are no strikes, or material slowdowns, work stoppages or lockouts, or threats thereof by or with respect to any employees of MetaTools or any of its subsidiaries. MetaTools and its subsidiaries are and have been in compliance in all material respects with all applicable laws regarding employment practices, terms and conditions of employment, and wages and hours (including, without limitation, ERISA, WARN or any similar state or local law). 3.16 Environmental Matters. --------------------- (a) Hazardous Material. Except as reasonably would not be likely to ------------------ result in a material liability to MetaTools, no underground storage tanks and no amount of any Hazardous Material, but excluding office and janitorial supplies, are present, as a result of the actions of MetaTools or any of its subsidiaries or any affiliate of MetaTools, or, to MetaTools' knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land -25- and the improvements, ground water and surface water thereof, that MetaTools or any of its subsidiaries has at any time owned, operated, occupied or leased. (b) Hazardous Materials Activities. Except as reasonably would not be ------------------------------ likely to result in a material liability to MetaTools, neither MetaTools nor any of its subsidiaries has transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Closing Date, nor has MetaTools or any of its subsidiaries engaged in any Hazardous Materials Activities in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. (c) Permits. MetaTools and its subsidiaries currently hold all ------- environmental approvals, permits, licenses, clearances and consents (the "METATOOLS ENVIRONMENTAL PERMITS") necessary for the conduct of MetaTools' and its subsidiaries' Hazardous Material Activities and other businesses of MetaTools and its subsidiaries as such activities and businesses are currently being conducted. (d) Environmental Liabilities. No material action, proceeding, ------------------------- revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to MetaTools' knowledge, threatened concerning any MetaTools Environmental Permit, Hazardous Material or any Hazardous Materials Activity of MetaTools or any of its subsidiaries. MetaTools is not aware of any fact or circumstance which could involve MetaTools or any of its subsidiaries in any material environmental litigation or impose upon MetaTools any material environmental liability. 3.17 Agreements, Contracts and Commitments. Except as set forth in the ------------------------------------- MetaTools Schedules, neither MetaTools nor any of its subsidiaries is a party to or is bound by: (a) any employment or consulting agreement, contract or commitment with any officer or director level employee or member of MetaTools' Board of Directors, other than those that are terminable by MetaTools or any of its subsidiaries on no more than thirty days notice without liability or financial obligation, except to the extent general principles of wrongful termination law may limit MetaTools' or any of its subsidiaries' ability to terminate employees at will; (b) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (c) any agreement of indemnification or guaranty not entered into in the ordinary course of business other than indemnification agreements between MetaTools or any of its subsidiaries and any of its officers or directors; -26- (d) any agreement, contract or commitment containing any covenant limiting the freedom of MetaTools or any of its subsidiaries to engage in any line of business or compete with any person or granting any exclusive distribution rights; (e) any agreement, contract or commitment currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise; or (f) any material joint marketing or development agreement. Neither MetaTools nor any of its subsidiaries, nor to MetaTools' knowledge any other party to a MetaTools Contract (as defined below), has breached, violated or defaulted under, or received notice that it has breached violated or defaulted under, any of the material terms or conditions of any of the agreements, contracts or commitments to which MetaTools or any of its subsidiaries is a party or by which it is bound of the type described in clauses (a) through (l) above (any such agreement, contract or commitment, a "METATOOLS CONTRACT") in such a manner as would permit any other party to cancel or terminate any such MetaTools Contract, or would permit any other party to seek damages, which would be reasonably likely to be material to MetaTools. 3.18 Pooling of Interests. To the knowledge of MetaTools, based on -------------------- consultation with its independent accountants, neither MetaTools nor any of its directors, officers, affiliates or stockholders has taken any action which would preclude MetaTools' ability to account for the Merger as a pooling of interests. 3.19 Change of Control Payments. The MetaTools Schedules set forth each -------------------------- plan or agreement pursuant to which any material amounts may become payable (whether currently or in the future) to current or former officers and directors of MetaTools as a result of or in connection with the Merger. 3.20 Statements; Proxy Statement/Prospectus. The information supplied by -------------------------------------- MetaTools for inclusion in the Registration Statement shall not at the time the Registration Statement is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. The information supplied by MetaTools for inclusion in the Proxy Statement shall not, on the date the Proxy Statement is first mailed to MetaTools' stockholders and Fractal's shareholders, at the time of the MetaTools Stockholders' Meeting or the Fractal Shareholders' Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the MetaTools Stockholders' Meeting or the Fractal Shareholders' Meeting which has become false or misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. If at any time prior to the Effective Time, any event relating to MetaTools or any of its affiliates, officers or directors should be discovered by MetaTools which should be set forth in an -27- amendment to the Registration Statement or a supplement to the Proxy Statement, MetaTools shall promptly inform Fractal. Notwithstanding the foregoing, MetaTools makes no representation or warranty with respect to any information supplied by Fractal which is contained in any of the foregoing documents. 3.21 Board Approval. The Board of Directors of MetaTools has, as of the -------------- date of this Agreement, determined (i) that the Merger is fair to, and in the best interests of MetaTools and its stockholders, and (ii) to recommend that the stockholders of MetaTools approve (y) the amendment of MetaTools' Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of MetaTools Common Stock by virtue of the Merger and (z) the issuance of shares of MetaTools Common Stock by virtue of the Merger. 3.22 Fairness Opinion. MetaTools' Board of Directors has received written ---------------- opinions from Alex. Brown & Sons Incorporated, dated as of the date hereof, to the effect is Board of Directors that as of the date hereof, the Exchange Ratio is fair to MetaTools from a financial point of view and has delivered to Fractal a copy of such opinions. ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1 Conduct of Business. During the period from the date of this ------------------- Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, Fractal (which for the purposes of this Article 4 shall include Fractal and each of its subsidiaries) and MetaTools (which for the purposes of this Article 4 shall include MetaTools and each of its subsidiaries) agree, except (i) in the case of Fractal as provided in Article 4 of the Fractal Schedules and in the case of MetaTools as provided in Article 4 of the MetaTools Schedules, or (ii) to the extent that the other of them shall otherwise consent in writing, to carry on its business diligently and in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, in substantially the same manner as heretofore conducted and in compliance with all applicable laws and regulations, to pay its debts and taxes when due subject to good faith disputes over such debts or taxes, to pay or perform other material obligations when due, and use its commercially reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others with which it has business dealings. In addition, each of Fractal and MetaTools will promptly notify the other of any material event involving its business or operations. In addition, except as permitted by the terms of this Agreement or the Stock Option Agreements, and except in the case of Fractal as provided in Article 4 of the Fractal Schedules, and except in the case of MetaTools as provided in Article 4 of the MetaTools Schedules, without the prior written consent of the other, neither Fractal nor MetaTools shall do any of the following, and neither Fractal nor MetaTools shall permit its subsidiaries to do any of the following: -28- (a) Waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any employee, consultant or director stock plans or authorize cash payments in exchange for any options granted under any of such plans; (b) Grant any severance or termination pay to any officer or employee except payments in amounts consistent with policies and past practices or pursuant to written agreements outstanding, or policies existing, on the date hereof and as previously disclosed in writing to the other, or adopt any new severance plan; (c) Transfer or license to any person or entity or otherwise extend, amend or modify in any material respect any rights to the Fractal IP Rights or the MetaTools IP Rights, as the case may be, or enter into grants to future patent rights, other than in the ordinary course of business; (d) Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any capital stock or split, combine or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any capital stock. (e) Repurchase or otherwise acquire, directly or indirectly, any shares of capital stock except pursuant to rights of repurchase of any such shares under any employee, consultant or director stock plan existing on the date hereof. (f) Issue, deliver, sell, authorize or propose the issuance, delivery or sale of, any shares of capital stock or any securities convertible into shares of capital stock, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into shares of capital stock, or enter into other agreements or commitments of any character obligating it to issue any such shares or convertible securities, other than (i) the issuance of shares of Fractal Common Stock or MetaTools Common Stock, as the case may be, pursuant to the exercise of stock options therefor outstanding as of the date of this Agreement, (ii) options to purchase shares of Fractal Common Stock or MetaTools Common Stock, as the case may be, to be granted at fair market value in the ordinary course of business, consistent with past practice and in accordance with stock option plans existing on the date hereof, (iii) shares of Fractal Common Stock or MetaTools Common Stock, as the case may be, issuable upon the exercise of the options referred to in clause (ii), (iv) shares of Fractal Common Stock or MetaTools Common Stock, as the case may be, issuable to participants in the MetaTools Employee Stock Purchase Plan consistent with past practice and the terms thereof and (v) shares of the Fractal Common Stock or MetaTools Common Stock, as the case may be, issuable pursuant to the Option Agreements; (g) Cause, permit or propose any amendments to any charter document or Bylaw (or similar governing instruments of any subsidiaries); (h) Acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a material portion of the assets of, or by any other manner, any business or any corporation, partnership interest, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, -29- to the business of Fractal or MetaTools, as the case may be, or enter into any material joint ventures, strategic partnerships or alliances; (i) Sell, lease, license, encumber or otherwise dispose of any properties or assets which are material, individually or in the aggregate, to the business of Fractal or MetaTools, as the case may be, except in the ordinary course of business consistent with past practice; (j) Incur any indebtedness for borrowed money (other than ordinary course trade payables or pursuant to existing credit facilities in the ordinary course of business) or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire debt securities of Fractal or MetaTools, as the case may be, or guarantee any debt securities of others; (k) Adopt or amend any employee benefit or employee stock purchase or employee option plan, or enter into any employment contract, pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates of its officers or employees other than in the ordinary course of business, consistent with past practice, or change in any material respect any management policies or procedures; provided, however that this Section 4.1(k) will not prohibit MetaTools from amending its 401(k) plan to include contributions from MetaTools' the; (l) Pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business; (m) Make any grant of exclusive rights to any third party, other than in the ordinary course of business; (n) Take any action that would be reasonably likely to interfere with MetaTools' ability to account for the Merger as a pooling of interests; or (o) Agree in writing or otherwise to take any of the actions described in Article 4 (a) through (n) above. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; ------------------------------------------------------------------ Board Recommendations. - --------------------- (a) As promptly as practicable after the execution of this Agreement, Fractal and MetaTools will prepare, and file with the SEC, the Proxy Statement and MetaTools will prepare and file with the SEC the Registration Statement in which the Proxy Statement will be included as a prospectus. Each of Fractal and MetaTools will respond to any comments of the SEC, will use its respective reasonable best efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and will cause the Proxy Statement to be -30- mailed to its respective stockholders or shareholders, as the case may be, at the earliest practicable time. As promptly as practicable after the date of this Agreement, Fractal and MetaTools will prepare and file any other filings required under the Exchange Act, the Securities Act or any other Federal, foreign or Blue Sky laws relating to the Merger and the transactions contemplated by this Agreement (the "OTHER FILINGS"). Each of Fractal and MetaTools will notify the other promptly upon the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Registration Statement, the Proxy Statement or any Other Filing or for additional information and will supply the other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Registration Statement, the Proxy Statement, the Merger or any Other Filing. The Proxy Statement, the Registration Statement and the Other Filings will comply in all material respects with all applicable requirements of law and the rules and regulations promulgated thereunder. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Proxy Statement, the Registration Statement or any Other Filing, Fractal or MetaTools, as the case may be, will promptly inform the other of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to shareholders of Fractal or stockholders of MetaTools, such amendment or supplement. (b) The Proxy Statement will include the recommendation of the Board of Directors of Fractal in favor of adoption and approval of this Agreement and approval of the Merger (except that the Board of Directors of Fractal may withdraw, modify or refrain from making such recommendation to the extent that the Board determines, in good faith, after consultation with outside legal counsel, that compliance with the Board's fiduciary duties under applicable law would require it to do so). In addition, the Proxy Statement will include the recommendations of the Board of Directors of MetaTools in favor of (x) the amendment of MetaTools' Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of MetaTools Common Stock by virtue of the Merger and (y) the issuance of shares of MetaTools Common Stock by virtue of the Merger. 5.2 Meetings of Shareholders and Stockholders. Promptly after the date ----------------------------------------- hereof, Fractal will take all action necessary in accordance with California Law and its Articles of Incorporation and Bylaws to convene the Fractal Shareholders' Meeting to be held as promptly as practicable, and in any event (to the extent permissible under applicable law) within 45 days after the declaration of effectiveness of the Registration Statement, for the purpose of voting upon this Agreement. Fractal will consult with MetaTools and use its reasonable best efforts to hold the Fractal Shareholders' Meeting on the same day as the MetaTools Stockholders' Meeting. Promptly after the date hereof, MetaTools will take all action necessary in accordance with the Delaware General Corporation Law and its Certificate of Incorporation and Bylaws to convene the MetaTools Stockholders' Meeting to be held as promptly as practicable, and in any event (to the extent permissible under applicable law) within 45 days after the declaration of effectiveness of the Registration Statement, for the purpose of (i) amending its Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of MetaTools Common Stock by virtue of the Merger and (ii) voting upon the issuance of shares of MetaTools Common Stock by virtue of the Merger. MetaTools will consult with Fractal and will use its reasonable best efforts to hold the MetaTools Stockholders' Meeting on the same day as the Fractal Shareholders' Meeting. For so long as the Board of Directors of Fractal -31- continues to make the recommendation set forth in Section 5.1, Fractal will use its reasonable best efforts to solicit from its shareholders proxies in favor of the adoption and approval of this Agreement and the approval of the Merger and will take all other action necessary or advisable to secure the vote or consent of its shareholders required by the rules of the National Association of Securities Dealers, Inc. or California Law to obtain such approvals. For so long as the Board of Directors of MetaTools continues to make the recommendations set forth in Section 5.1, MetaTools will use its best efforts to solicit from its stockholders proxies in favor of (i) the amendment of MetaTools' Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of MetaTools Common Stock by virtue of the Merger and (ii) the issuance of shares of MetaTools Common Stock by virtue of the Merger. 5.3 Confidentiality; Access to Information. -------------------------------------- (a) The parties acknowledge that Fractal and MetaTools have previously executed a Mutual Nondisclosure Agreement, dated November 26, 1996, and a Confidentiality Agreement, dated February 9, 1997 (collectively the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in full force and effect in accordance with its terms. (b) Access to Information. Each party will afford the other party and its accountants, counsel, and other representatives access during normal business hours to the properties, books, records and personnel of the other party during the period prior to the Effective Time to obtain all information concerning the business, including the status of product development efforts, properties, results of operations and personnel of such party, as the other party may reasonably request. No information or knowledge obtained in any investigation pursuant to this Section 5.3 will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger. 5.4 No Solicitation. --------------- (a) Restrictions on MetaTools. ------------------------- (i) From and after the date of this Agreement until the earlier of the Effective Time or termination of this Agreement pursuant to its terms, MetaTools and its subsidiaries shall not, and will instruct their respective directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly, (i) solicit or knowingly encourage submission of, any proposals or offers by any person, entity or group (other than Fractal and its affiliates, agents and representatives), or (ii) participate in any discussions or negotiations with, or disclose any non-public information concerning MetaTools or any of its subsidiaries to, or afford any access to the properties, books or records of MetaTools or any of its subsidiaries to, or otherwise assist or facilitate, or enter into any agreement or understanding with, any person, entity or group (other than Fractal and its affiliates, agents and representatives), in connection with any Acquisition Proposal with respect to MetaTools. For the purposes of this Agreement, an "ACQUISITION PROPOSAL" with respect to an entity means any proposal or offer relating to (i) any merger, consolidation, sale of substantial assets or similar transactions involving the entity or any subsidiaries of the entity (other than sales of assets or inventory in the ordinary course of business or as permitted under the terms of this Agreement), (ii) sale of 15% or more of the outstanding shares of capital stock of the entity (including without limitation by way of a tender offer or an exchange offer), (iii) the acquisition by any person of beneficial ownership or a right to acquire beneficial ownership of, or the formation of any "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) which beneficially owns, or has the right to acquire beneficial ownership of, 15% or more of the then outstanding shares of capital stock -32- of the entity (except for acquisitions for passive investment purposes only in circumstances where the person or group qualifies for and files a Schedule 13G with respect thereto); or (iv) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. MetaTools will immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. MetaTools will (i) notify Fractal as promptly as practicable if any inquiry or proposal is made or any information or access is requested in writing in connection with an Acquisition Proposal or potential Acquisition Proposal and (ii) as promptly as practicable notify Fractal of the significant terms and conditions of any such Acquisition Proposal. In addition, subject to the other provisions of this Section 5.4(a), from and after the date of this Agreement until the earlier of the Effective Time and termination of this Agreement pursuant to its terms, MetaTools and its subsidiaries will not, and will instruct their respective directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly, make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal made by any person, entity or group (other than Fractal); provided, however, that nothing herein shall -------- ------- prohibit MetaTools' Board of Directors from taking and disclosing to MetaTools' stockholders a position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. (ii) Notwithstanding the provisions of paragraph (a)(i) above, prior to the Effective Time, MetaTools may, to the extent the Board of Directors of MetaTools determines, in good faith, after consultation with outside legal counsel, that the Board's fiduciary duties under applicable law require it to do so, participate in discussions or negotiations with, and, subject to the requirements of paragraph (a)(iii), below, furnish information to any person, entity or group after such person, entity or group has delivered to MetaTools in writing, an unsolicited bona fide Acquisition Proposal which the Board of Directors of MetaTools in its good faith reasonable judgment determines, after consultation with its independent financial advisors, would result in a transaction more favorable than the Merger to the stockholders of MetaTools (a "METATOOLS SUPERIOR PROPOSAL"). In addition, notwithstanding the provisions of paragraph (a)(i) above, in connection with a possible Acquisition Proposal, MetaTools may refer any third party to this Section 5.4(a) or make a copy of this Section 5.4(a) available to a third party. In the event MetaTools receives a MetaTools Superior Proposal, nothing contained in this Agreement (but subject to the terms hereof) will prevent the Board of Directors of MetaTools from recommending such MetaTools Superior Proposal to MetaTools' stockholders, if the Board determines, in good faith, after consultation with outside legal counsel, that such action is required by its fiduciary duties under applicable law; in such case, the Board of Directors of MetaTools may withdraw, modify or refrain from making its recommendations set forth in Section 5.1(b), and, to the extent it does so, MetaTools may refrain from soliciting proxies and taking such other action necessary to secure the vote of its stockholders as may be required by Section 5.2; provided, however, that MetaTools shall not recommend to its -------- ------- stockholders a MetaTools Superior Proposal for a period of not less than 48 hours after Fractal's receipt of a copy of such MetaTools Superior Proposal (or a description of the significant terms and conditions thereof, if not in writing); and provided further, that nothing contained in this Section shall -------- ------- limit MetaTools' -33- obligation to hold and convene the MetaTools Stockholders Meeting (regardless of whether the recommendations of the Board of Directors of MetaTools shall have been withdrawn, modified or not yet made). (iii) Notwithstanding anything to the contrary herein, MetaTools will not provide any non-public information to a third party unless: (x) MetaTools provides such non-public information pursuant to a nondisclosure agreement with terms regarding the protection of confidential information at least as restrictive as such terms in the Confidentiality Agreement; and (y) such non-public information has been previously delivered to Fractal. (b) Restrictions on Fractal. ----------------------- (i) From and after the date of this Agreement until the earlier of the Effective Time or termination of this Agreement pursuant to its terms, Fractal and its subsidiaries will not, and will instruct their respective directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly, (i) solicit or knowingly encourage submission of, any proposals or offers by any person, entity or group (other than MetaTools and its affiliates, agents and representatives), or (ii) participate in any discussions or negotiations with, or disclose any non-public information concerning Fractal or any of its subsidiaries to, or afford any access to the properties, books or records of Fractal or any of its subsidiaries to, or otherwise assist or facilitate, or enter into any agreement or understanding with, any person, entity or group (other than MetaTools and its affiliates, agents and representatives), in connection with any Acquisition Proposal with respect to Fractal. Fractal will immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. Fractal will (i) notify MetaTools as promptly as practicable if any inquiry or proposal is made or any information or access is requested in writing in connection with an Acquisition Proposal or potential Acquisition Proposal and (ii) as promptly as practicable notify MetaTools of the significant terms and conditions of any such Acquisition Proposal. In addition, subject to the other provisions of this Section 5.4(b), from and after the date of this Agreement until the earlier of the Effective Time and termination of this Agreement pursuant to its terms, Fractal and its subsidiaries will not, and will instruct their respective directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly, make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal made by any person, entity or group (other than MetaTools); provided, however, that nothing herein -------- ------- shall prohibit Fractal's Board of Directors from taking and disclosing to Fractal's shareholders a position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. (ii) Notwithstanding the provisions of paragraph (b)(i) above, prior to the Effective Time, Fractal may, to the extent the Board of Directors of Fractal determines, in good faith, after consultation with outside legal counsel, that the Board's fiduciary duties under applicable law require it to do so, participate in discussions or negotiations with, and, subject to the requirements of paragraph (b)(iii), below, furnish information to any person, entity or group after such person, entity or group has delivered to Fractal in writing, an unsolicited bona fide Acquisition Proposal which the Board of Directors of Fractal in its good faith reasonable judgment determines, after consultation with its independent financial advisors, would result in a transaction more favorable than the Merger to the shareholders of Fractal (a "FRACTAL SUPERIOR PROPOSAL"). In addition, notwithstanding the provisions -34- of paragraph (b)(i) above, in connection with a possible Acquisition Proposal, Fractal may refer any third party to this Section 5.4(b) or make a copy of this Section 5.4(b) available to a third party. In the event Fractal receives a Fractal Superior Proposal, nothing contained in this Agreement (but subject to the terms hereof) will prevent the Board of Directors of Fractal from recommending such Fractal Superior Proposal to its stockholders, if the Board determines, in good faith, after consultation with outside legal counsel, that such action is required by its fiduciary duties under applicable law; in such case, the Board of Directors of Fractal may withdraw, modify or refrain from making its recommendation set forth in Section 5.1(b), and, to the extent it does so, Fractal may refrain from soliciting proxies and taking such other action necessary to secure the vote of its shareholders as may be required by Section 5.2; provided, however, that Fractal shall not recommend to its -------- ------- shareholders a Fractal Superior Proposal for a period of not less than 48 hours after MetaTools' receipt of a copy of such Fractal Superior Proposal (or a description of the significant terms and conditions thereof, if not in writing); and provided further, that nothing contained in this Section shall limit -------- ------- Fractal's obligation to hold and convene the Fractal Shareholders Meeting (regardless of whether the recommendation of the Board of Directors of Fractal shall have been withdrawn, modified or not yet made). (iii) Notwithstanding anything to the contrary in paragraph (b), Fractal will not provide any non-public information to a third party unless: (x) Fractal provides such non-public information pursuant to a nondisclosure agreement with terms regarding the protection of confidential information at least as restrictive as such terms in the Confidentiality Agreement; and (y) such non-public information has been previously delivered to MetaTools. 5.5 Public Disclosure. MetaTools and Fractal will consult with each ----------------- other, and to the extent practicable, agree, before issuing any press release or otherwise making any public statement with respect to the Merger, this Agreement or an Acquisition Proposal and will not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with a national securities exchange or the Nasdaq Stock Market. The parties have agreed to the text of the joint press release announcing the signing of this Agreement. 5.6 Legal Requirements. Each of MetaTools, Merger Sub and Fractal will ------------------ take all reasonable actions necessary or desirable to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement (including furnishing all information required in connection with approvals by or filings with any Governmental Entity, and prompt resolution of any litigation prompted hereby) and will promptly cooperate with and furnish information to any party hereto necessary in connection with any such filings with or investigations by any Governmental Entity, and any other such requirements imposed upon any of them or their respective subsidiaries in connection with the consummation of the transactions contemplated by this Agreement. MetaTools will use its commercially reasonable efforts to take such steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of MetaTools Common Stock pursuant hereto. Fractal will use its commercially reasonable efforts to assist MetaTools as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the issuance of MetaTools Common Stock pursuant hereto. -35- 5.7 Third Party Consents. As soon as practicable following the date -------------------- hereof, MetaTools and Fractal will each use its commercially reasonable efforts to obtain all material consents, waivers and approvals under any of its or its subsidiaries' agreements, contracts, licenses or leases required to be obtained in connection with the consummation of the transactions contemplated hereby. 5.8 Notification of Certain Matters. MetaTools and Merger Sub will give ------------------------------- prompt notice to Fractal, and Fractal will give prompt notice to MetaTools, of the occurrence, or failure to occur, of any event, which occurrence or failure to occur would be reasonably likely to cause (a) any representation or warranty contained in this Agreement and made by it to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Effective Time such that the conditions set forth in Section 6.2(a) or 6.3(a), as the case may be, would not be satisfied as a result thereof or (b) any material failure of MetaTools and Merger Sub or Fractal, as the case may be, or of any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the above, the delivery of any notice pursuant to this section will not limit or otherwise affect the remedies available hereunder to the party receiving such notice. 5.9 Best Efforts and Further Assurances. Subject to the respective rights ----------------------------------- and obligations of MetaTools and Fractal under this Agreement, each of the parties to this Agreement will use its reasonable best efforts to effectuate the Merger and the other transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to closing under this Agreement; provided that neither MetaTools nor Fractal nor any subsidiary or affiliate thereof will be required to agree to any divestiture by itself or any of its affiliates of shares of capital stock or of any business, assets or property, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. Subject to the foregoing, each party hereto, at the reasonable request of another party hereto, will execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the transactions contemplated hereby. 5.10 Stock Options and Employee Benefits. ----------------------------------- (a) At the Effective Time, each outstanding option to purchase shares of Fractal Common Stock (each a "FRACTAL STOCK OPTION") under the Fractal Stock Option Plans, whether or not exercisable, will be assumed by MetaTools. Each Fractal Stock Option so assumed by MetaTools under this Agreement will continue to have, and be subject to, the same terms and conditions set forth in the applicable Fractal Stock Option Plan immediately prior to the Effective Time (including, without limitation, any repurchase rights), except that (i) each Fractal Stock Option will be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of MetaTools Common Stock equal to the product of the number of shares of Fractal Common Stock that were issuable upon exercise of such Fractal Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest whole number of shares of MetaTools Common Stock, and (ii) the per share exercise price for the shares of MetaTools Common Stock issuable upon exercise of such assumed Fractal Stock Option will be equal to the quotient determined by dividing the exercise price per share of Fractal Common Stock at which such Fractal Stock Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. After the Effective Time, MetaTools will issue to each holder of an outstanding -36- Fractal Stock Option a notice describing the foregoing assumption of such Fractal Stock Option by MetaTools. (b) It is intended that Fractal Stock Options assumed by MetaTools shall qualify following the Effective Time as incentive stock options as defined in Section 422 of the Code to the extent Fractal Stock Options qualified as incentive stock options immediately prior to the Effective Time and the provisions of this Section 5.10 shall be applied consistent with such intent. (c) MetaTools will reserve sufficient shares of MetaTools Common Stock for issuance under Section 5.10(a) and under Section 1.6(c) hereof. (d) Employees and Employee Benefits; Location of Facilities. ------------------------------------------------------- (i) Employees and Employee Benefits. From and after the ------------------------------- Effective Time, MetaTools shall grant all employees of Fractal and any subsidiaries of Fractal credit for all service (to the same extent as service with MetaTools or any subsidiary of MetaTools is taken into account with respect to similarly situated employees of MetaTools and the subsidiaries of MetaTools) with Fractal and any subsidiary of Fractal and their respective predecessors prior to the Effective Time for all purposes as if such service with Fractal or any subsidiary of Fractal was service with MetaTools or any subsidiary of MetaTools (provided, however, that no such past service credit shall be granted -------- ------- to the extent it would result in duplicative accrual of benefits for the same period of service), and, with respect to any medical or dental benefit plan, MetaTools shall waive any pre-existing condition exclusions and actively-at-work requirements (provided, however, that no such waiver shall apply to a pre- -------- ------- existing condition of any employee of Fractal or any subsidiary of Fractal who was, as of the Effective Time, excluded from participation in a plan by virtue of such pre-existing condition) and provide that any covered expenses incurred on or before the Effective Time by an employee or an employee's covered dependent shall be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Effective Time to the same extent as such expenses are taken into account for the benefit of similarly situate employees of MetaTools and subsidiaries of MetaTools. MetaTools shall provide or shall cause Fractal and each subsidiary of Fractal to provide benefits to any employee of Fractal and each subsidiary of Fractal which are not less favorable in the aggregate than the benefits provided to similarly situated employees of MetaTools and subsidiaries of MetaTools. (ii) Location of Facilities. It is the current intention of the ---------------------- parties that following the Closing, operations of Fractal and MetaTools shall remain in substantially the same geographic locations as such operations are located prior to the Closing. (iii) Fractal 401(k). The parties will agree as to the treatment -------------- of the Fractal 401(k) as a result of the Merger. It is understood that any treatment of the Fractal 401(k) Plan will not preclude MetaTools' ability to account for the Merger as a pooling of interests and will not treat any participant in the Fractal 401(k) in a manner disproportionate to similarly situated employees of MetaTools. -37- 5.11 Form S-8. MetaTools agrees to file a registration statement on Form -------- S-8 for the shares of MetaTools Common Stock issuable with respect to assumed Fractal Stock Options no later than the next business day after the Closing Date. 5.12 Indemnification and Insurance. ----------------------------- (a) From and after the Effective Time, MetaTools will fulfill and honor and will cause the Surviving Corporation to fulfill and honor in all respects the obligations of Fractal pursuant to any indemnification agreements between Fractal and its directors and officers existing prior to the date hereof. From and after the Effective Time, such obligations shall be the joint and several obligations of MetaTools and the Surviving Corporation and, by executing this Agreement, MetaTools hereby assumes such obligations. The Articles of Incorporation and By-laws of the Surviving Corporation will contain the provisions with respect to indemnification set forth in the Articles of Incorporation and Bylaws of Fractal, which provisions will not be amended, repealed or otherwise modified from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who, immediately prior to the Effective Time, were directors, officers, employees or agents of Fractal, unless such modification is required by law. (b) For a period of six years after the Effective Time, MetaTools will cause the Surviving Corporation to use its commercially reasonable efforts to maintain in effect, if available, directors' and officers' liability insurance covering those persons who are currently covered by Fractal's directors' and officers' liability insurance policy on terms comparable to those applicable to the then current directors and officers of MetaTools; provided, -------- however, that in no event will MetaTools or the Surviving Corporation be - ------- required to expend in excess of 175% of the annual premium currently paid by Fractal for such coverage (or such coverage as is available for such 175% of the annual premium). (c) This Section 5.13 will survive any termination of this Agreement and the consummation of the Merger at the Effective Time, is intended to benefit Fractal, the Surviving Corporation and the Indemnified Parties, and will be binding on all successors and assigns of the Surviving Corporation. 5.13 NMS Listing. MetaTools agrees to authorize for listing on the Nasdaq ----------- National Market the shares of MetaTools Common Stock issuable, and those required to be reserved for issuance, in connection with the Merger, upon official notice of issuance. 5.14 MetaTools Affiliate Agreement. Set forth on the MetaTools Schedules ----------------------------- is a list of those persons who may be deemed to be, in MetaTools' reasonable judgment, affiliates of MetaTools within the meaning of Rule 145 promulgated under the Securities Act (each a "METATOOLS AFFILIATE"). MetaTools will provide Fractal with such information and documents as Fractal reasonably requests for purposes of reviewing such list. MetaTools will use its reasonable best efforts to deliver or cause to be delivered to Fractal, as promptly as practicable on or following the date hereof, from each MetaTools Affiliate an executed affiliate agreement in substantially the form attached hereto as Exhibit C-1, each of ----------- which will be in full force and effect as of the Effective Time. -38- 5.15 Fractal Affiliate Agreement. Set forth on the Fractal Schedules is a --------------------------- list of those persons who may be deemed to be, in Fractal's reasonable judgment, affiliates of Fractal within the meaning of Rule 145 promulgated under the Securities Act (each a "FRACTAL AFFILIATE"). Fractal will provide MetaTools with such information and documents as MetaTools reasonably requests for purposes of reviewing such list. Fractal will use its reasonable best efforts to deliver or cause to be delivered to MetaTools, as promptly as practicable on or following the date hereof, from each Fractal Affiliate an executed affiliate agreement in substantially the form attached hereto as Exhibit C-2 (the "FRACTAL ----------- AFFILIATE AGREEMENT"), each of which will be in full force and effect as of the Effective Time. MetaTools will be entitled to place appropriate legends on the certificates evidencing any MetaTools Common Stock to be received by a Fractal Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the MetaTools Common Stock, consistent with the terms of the Fractal Affiliate Agreement. 5.16 Regulatory Filings; Reasonable Efforts. If required under applicable -------------------------------------- law, as soon as may be reasonably practicable, Fractal and MetaTools each shall file with the United States Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice ("DOJ") Notification and Report Forms relating to the transactions contemplated herein as required by the HSR Act, as well as comparable pre-merger notification forms required by the merger notification or control laws and regulations of any applicable jurisdiction, as agreed to by the parties. Fractal and MetaTools each shall promptly (a) supply the other with any information which may be required in order to effectuate such filings and (b) supply any additional information which reasonably may be required by the FTC, the DOJ or the competition or merger control authorities of any other jurisdiction and which the parties may reasonably deem appropriate. 5.17 Board of Directors of the Combined Company. The Board of Directors of ------------------------------------------ MetaTools will take all actions necessary to cause the Board of Directors of MetaTools, immediately after the Effective Time, to consist of nine (9) persons, three (3) of whom shall be Thomas Hedges, Mark Zimmer and one (1) additional person to be named by Fractal who shall be reasonably acceptable to MetaTools. If, prior to the Effective Time, Mr. Hedges or Mr. Zimmer shall decline or be unable to serve as a Fractal director, Fractal shall designate another person to serve in such person's stead, which person shall be reasonably acceptable to MetaTools. 5.18 Committees of Board of Directors of MetaTools. The Board of Directors --------------------------------------------- of MetaTools will take all actions necessary to cause the Audit Committee and the Compensation Committee of the Board of Directors of MetaTools to each consist only of independent directors. In addition, the Board of Directors of MetaTools will take all actions necessary to cause the Nominating Committee of the Board of Directors of MetaTools to consist of two (2) independent directors and the Chief Executive Officer of MetaTools. 5.19 Increase in Authorized Shares. Subject to the terms hereof, at the ----------------------------- MetaTools Stockholders' Meeting MetaTools shall propose and recommend that its Certificate of Incorporation be amended to increase the authorized number of shares of Common Stock thereunder to 75,000,000 shares, provided that MetaTools may propose and recommend an increase of such lesser number as in good faith it determines (provided that, subject to the terms hereof, such lesser number is not less than the number required to issue shares by virtue of the Merger and the other transactions contemplated hereby). -39- 5.20 MetaTools Name Change. The Proxy Statement shall include a proposal --------------------- to change the name of MetaTools (upon, and subject to consummation of, the Merger) to a name that is mutually agreeable to the parties hereto. 5.21 Tax-Free Reorganization. No party shall take any action either prior ----------------------- to or after the Effective Time that could reasonably be expected to cause the merger to fail to qualify as a "reorganization" under Section 368(a) of the Code. ARTICLE VI CONDITIONS TO THE MERGER 6.1 Conditions to Obligations of Each Party to Effect the Merger. The ------------------------------------------------------------ respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) Stockholder and Shareholder Approval. This Agreement shall have ------------------------------------ been approved and adopted, and the Merger shall have been duly approved, by the requisite vote under applicable law, by the shareholders of Fractal; and an increase in the authorized number of shares of MetaTools Common Stock so as to permit the issuance of shares of MetaTools Common Stock by virtue of the Merger, as well as such issuance, shall have been duly approved by the requisite vote under applicable law and the rules of the National Association of Securities Dealers, Inc. by the stockholders of MetaTools. (b) Registration Statement Effective; Proxy Statement. The SEC shall ------------------------------------------------- have declared the Registration Statement effective. No stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose, and no similar proceeding in respect of the Proxy Statement, shall have been initiated or threatened in writing by the SEC. (c) No Order; HSR Act. No Governmental Entity shall have enacted, ----------------- issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. All waiting periods, if any, under the HSR Act relating to the transactions contemplated hereby will have expired or terminated early. (d) Tax Opinions. MetaTools and Fractal shall each have received written opinions from their respective counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation, and Venture Law Group, Professional Corporation, in form and substance reasonably satisfactory to them, to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code and such opinions shall not have been withdrawn; provided, however, that if the counsel to either MetaTools or Fractal does not - -------- ------- render such opinion, this condition shall nonetheless be deemed to be satisfied with respect to such party if counsel to the other party renders such opinion to such party. The parties to this Agreement agree to make reasonable representations as requested by such counsel for the purpose of rendering such opinions. -40- (e) Nasdaq Listing. The shares of MetaTools Common Stock issuable to -------------- shareholders of Fractal pursuant to this Agreement and such other shares required to be reserved for issuance in connection with the Merger shall have been authorized for listing on the Nasdaq National Market upon official notice of issuance. (f) Opinion of Accountants. Each of MetaTools and Fractal shall have ---------------------- received a letter from Coopers & Lybrand L.L.P. and Price Waterhouse LLP, respectively, dated within two (2) business days prior to the Effective Time, regarding that firm's concurrence with MetaTools' managements' and Fractal's managements' conclusions as to the appropriateness of pooling of interest accounting for the Merger under Accounting Principles Board Opinion No. 16, if the Merger is consummated in accordance with this Agreement. 6.2 Additional Conditions to Obligations of Fractal. The obligation of ----------------------------------------------- Fractal to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by Fractal: (a) Representations and Warranties. The representations and ------------------------------ warranties of MetaTools and Merger Sub contained in this Agreement shall have been true and correct in all material respects as of the date of this Agreement. In addition, the representations and warranties of MetaTools and Merger Sub contained in this Agreement shall be true and correct in all material respects on and as of the Effective Time except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such particular date), with the same force and effect as if made on and as of the Effective Time, except in such cases (other than the representations in Sections 3.2, 3.3 and 3.22) where the failure to be so true and correct would not have a Material Adverse Effect on MetaTools. Fractal shall have received a certificate with respect to the foregoing signed on behalf of MetaTools by the Chief Executive Officer and the Chief Financial Officer of MetaTools; (b) Agreements and Covenants. MetaTools and Merger Sub shall have ------------------------ performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Effective Time, and Fractal shall have received a certificate to such effect signed on behalf of MetaTools by the Chief Executive Officer and the Chief Financial Officer of MetaTools; and (c) Material Adverse Effect. No Material Adverse Effect with respect ----------------------- to MetaTools shall have occurred since the date of this Agreement. 6.3 Additional Conditions to the Obligations of MetaTools and Merger Sub. -------------------------------------------------------------------- The obligations of MetaTools and Merger Sub to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by MetaTools: (a) Representations and Warranties. The representations and ------------------------------ warranties of Fractal contained in this Agreement shall have been true and correct in all material respects as of the date of this Agreement. In addition, the representations and warranties of Fractal contained in this Agreement shall be true and correct in all material respects on and as of the Effective Time except for -41- changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such particular date), with the same force and effect as if made on and as of the Effective Time, except in such cases (other than the representations in Sections 2.2, 2.3 and 2.21) where the failure to be so true and correct would not have a Material Adverse Effect on Fractal. MetaTools shall have received a certificate with respect to the foregoing signed on behalf of Fractal by the Chief Executive Officer and the Chief Financial Officer of Fractal; (b) Agreements and Covenants. Fractal shall have performed or ------------------------ complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and the MetaTools shall have received a certificate to such effect signed on behalf of Fractal by the President and the Chief Financial Officer of Fractal; and (c) Material Adverse Effect. No Material Adverse Effect with respect ----------------------- to Fractal shall have occurred since the date of this Agreement. (d) No Dissenters. Holders of more than 4.9% of the outstanding ------------- shares of Fractal Common Stock shall not have exercised, nor shall they have any continued right to exercise, appraisal, dissenters' or similar rights under applicable law with respect to their shares by virtue of the Merger. (e) Noncompetition Agreements. Thomas Hedges and Mark Zimmer shall ------------------------- have entered into Noncompetition Agreements substantially in the form attached hereto as Exhibit D and such agreements shall be in full force and effect. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER 7.1 Termination. This Agreement may be terminated at any time prior to ----------- the Effective Time of the Merger, whether before or after approval of the Merger by the shareholders of Fractal or the approval of the issuance of MetaTools Common Stock in connection with the Merger by the stockholders of MetaTools: (a) by mutual written consent duly authorized by the Boards of Directors of MetaTools and Fractal; (b) by either Fractal or MetaTools if the Merger shall not have been consummated by August 31, 1997 for any reason; provided, however, that the right -------- ------- to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement; (c) by either Fractal or MetaTools if a Governmental Entity shall have issued an order, decree or ruling or taken any other action (an "ORDER"), in any case having the effect of -42- permanently restraining, enjoining or otherwise prohibiting the Merger, which order, decree or ruling is final and nonappealable; (d) by either Fractal or MetaTools if the required approvals of the shareholders of Fractal or the stockholders of MetaTools contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the required vote upon a vote taken at a meeting of shareholders or stockholders, as the case may be, duly convened therefor or at any adjournment thereof (provided -------- that the right to terminate this Agreement under this Section 7.1(d) shall not be available to any party where the failure to obtain shareholder or stockholder approval of such party shall have been caused by the action or failure to act of such party in breach of this Agreement); (e) by MetaTools, if the Board of Directors of Fractal recommends a Fractal Superior Proposal to the shareholders of Fractal, or if the Board of Directors of Fractal shall have withheld, withdrawn or modified in a manner adverse to MetaTools its recommendation in favor of adoption and approval of this Agreement and approval of the Merger; (f) by Fractal, if the Board of Directors of MetaTools recommends a MetaTools Superior Proposal to the stockholders of MetaTools, or if the Board of Directors of MetaTools shall have withheld, withdrawn or modified in a manner adverse to Fractal its recommendation in favor of approving the issuance of the shares of MetaTools Common Stock by virtue of the Merger; (g) by Fractal, upon a breach of any representation, warranty, covenant or agreement on the part of MetaTools set forth in this Agreement, or if any representation or warranty of MetaTools shall have become untrue, in either case such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, provided that if such -------- inaccuracy in MetaTools' representations and warranties or breach by MetaTools is curable by MetaTools through the exercise of its commercially reasonable efforts, then Fractal may not terminate this Agreement under this Section 7.1(i) provided MetaTools continues to exercise such commercially reasonable efforts to cure such breach; or (h) by MetaTools, upon a breach of any representation, warranty, covenant or agreement on the part of Fractal set forth in this Agreement, or if any representation or warranty of Fractal shall have become untrue, in either case such that the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, provided, that if such -------- inaccuracy in Fractal's representations and warranties or breach by Fractal is curable by Fractal through the exercise of its commercially reasonable efforts, then MetaTools may not terminate this Agreement under this Section 7.1(j) provided Fractal continues to exercise such commercially reasonable efforts to cure such breach. 7.2 Notice of Termination; Effect of Termination. Any termination of this -------------------------------------------- Agreement under Section 7.1 above will be effective immediately upon the delivery of written notice of the terminating party to the other parties hereto. In the event of the termination of this Agreement as provided in Section 7.1, this Agreement shall be of no further force or effect, except (i) as set forth in this Section 7.2, Section 7.3 and Article 8 (miscellaneous), each of which shall survive the termination -43- of this Agreement, and (ii) nothing herein shall relieve any party from liability for any breach of this Agreement. No termination of this Agreement shall affect the obligations of the parties contained in the Confidentiality Agreement or the Stock Option Agreements, all of which obligations shall survive termination of this Agreement in accordance with their terms. 7.3 Fees and Expenses. ----------------- (a) General. Except as set forth in this Section 7.3, all fees and ------- expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses whether or not the Merger is consummated; provided, however, that MetaTools and Fractal -------- ------- shall share equally all fees and expenses, other than attorneys' and accountants fees and expenses, incurred in relation to the printing and filing of the Proxy Statement (including any preliminary materials related thereto) and the Registration Statement (including financial statements and exhibits) and any amendments or supplements thereto. (b) Fractal Payments. ---------------- (i) If (x) the Board of Directors of Fractal shall have withheld, withdrawn or modified in a manner adverse to MetaTools its recommendation in favor of adoption and approval of this Agreement and approval of the Merger and at that time (A) there shall not have occurred a Material Adverse Effect on MetaTools and (B) the condition set forth in Section 6.1(d) hereof shall not be incapable of being satisfied (other than incapability as a result of a failure of the parties hereto and their respective affiliates to make reasonable representations for the purposes of the opinions described in Section 6.1(d) hereof), or (y) the Board of Directors of Fractal recommends a Fractal Superior Proposal to the shareholders of Fractal, Fractal shall pay to MetaTools an amount equal to $4,000,000 within one business day following the earlier to occur of (A) termination of this Agreement pursuant to Section 7.1(e) hereof and (B) a Fractal Negative Vote (as defined below); (ii) If no payment shall be required pursuant to clause 7.3(b)(i) above, and if (x) the vote of the shareholders of Fractal approving and adopting this Agreement and approving the Merger shall not have been obtained by reason of the failure to obtain the required vote upon a vote taken at a meeting of shareholders duly convened therefor or at any adjournment thereof (a "FRACTAL NEGATIVE VOTE") and (y) prior to such Fractal Negative Vote there shall have occurred an Acquisition Proposal with respect to Fractal which shall have been publicly disclosed and not withdrawn (a "FRACTAL COMPETING PROPOSAL") and (z) (i) within 12 months following such Fractal Negative Vote, Fractal shall enter into a definitive agreement with respect to an Acquisition Proposal with the party (or any affiliate of the party) that made the Fractal Competing Proposal or an Acquisition Proposal with such party (or any such affiliate) with respect to Fractal shall have been consummated or (ii) within 6 months following such Fractal Negative Vote, Fractal shall enter into a definitive agreement with respect to an Acquisition Proposal with any other party or an Acquisition Proposal with any other party with respect to Fractal shall have been consummated, then, provided that there shall have not occurred a Material Adverse Effect on MetaTools prior to the Fractal Negative Vote, Fractal shall pay to MetaTools an amount equal to $4,000,000 within one business day following demand therefor after the occurrence of the events set forth in (x) and (y) and either (z)(i) or (z)(ii) above; and -44- (iii) If no payment shall be required pursuant to clauses 7.3(b)(i) or (ii) above and if there shall be a Fractal Negative Vote then Fractal shall pay to MetaTools an amount equal to $750,000 within one business day following demand therefor; provided there shall not have occurred a Material Adverse Effect on MetaTools prior to the Fractal Negative Vote. (c) MetaTools Payments. ------------------ (i) If (x) the Board of Directors of MetaTools shall have withheld, withdrawn or modified in a manner adverse to Fractal its recommendation in favor of approving the issuance of the shares of MetaTools Common Stock by virtue of the Merger and at that time (A) there shall not have occurred a Material Adverse Effect on Fractal and (B) the condition set forth in Section 6.1(d) hereof shall not be incapable of being satisfied (other than incapability as a result of a failure of the parties hereto and their respective affiliates to make reasonable representations for the purposes of the opinions described in Section 6.1(d) hereof), or (y) the Board of Directors of MetaTools recommends a MetaTools Superior Proposal to the stockholders of MetaTools, MetaTools shall pay to Fractal an amount equal to $4,000,000 million within one business day following the earlier to occur of (A) termination of this Agreement pursuant to Section 7.1(f) hereof and (B) a MetaTools Negative Vote (as defined below); (ii) If no payment shall be required pursuant to clause 7.3(c)(i) above, and if (x) the vote of the stockholders of MetaTools in favor of an increase in the authorized number of shares of MetaTools Common Stock so as to permit the issuance of shares of MetaTools Common Stock by virtue of the Merger, as well as such issuance, shall not have been obtained by reason of the failure to obtain the required vote upon a vote taken at a meeting of stockholders duly convened therefor or at any adjournment thereof (a "METATOOLS NEGATIVE VOTE") and (y) prior to such MetaTools Negative Vote there shall have occurred an Acquisition Proposal with respect to MetaTools which shall have been publicly disclosed and not withdrawn (a "METATOOLS COMPETING PROPOSAL") and (z) (i) within 12 months following such MetaTools Negative Vote MetaTools shall enter into a definitive agreement with respect to an Acquisition Proposal with the party (or any affiliate of the party) that made the MetaTools Competing Proposal or an Acquisition Proposal with such party (or any such affiliate) with respect to MetaTools shall have been consummated or (ii) within 6 months following such MetaTools Negative Vote, MetaTools shall enter into a definitive agreement with respect to an Acquisition Proposal with any other party or an Acquisition Proposal with any other party with respect to MetaTools shall have been consummated, then, provided that there shall not have occurred a Material Adverse Effect on Fractal prior to the MetaTools Negative Vote, MetaTools shall pay to Fractal an amount equal to $4,000,000 within one business day following demand therefor after the occurrence of the events set forth in (x) and (y) and either z(i) or (z)(ii) above; and (iii) If no payment shall be required pursuant to clauses 7.3(c)(i) or (ii) above and if there shall be a MetaTools Negative Vote then MetaTools shall pay to Fractal an amount equal to $750,000 within one business day following demand therefor; provided there shall not have occurred a Material Adverse Effect on Fractal prior to the MetaTools Negative Vote. (d) Payment of the fees described in Section 7.3(b) and (c) above shall not be in lieu of damages incurred in the event of breach of this Agreement. -45- 7.4 Amendment. Subject to applicable law, this Agreement may be amended --------- by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 7.5 Extension; Waiver. At any time prior to the Effective Time any party ----------------- hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Delay in exercising any right under this Agreement shall not constitute a waiver of such right. ARTICLE VIII GENERAL PROVISIONS 8.1 Non-Survival of Representations and Warranties. The representations ---------------------------------------------- and warranties of Fractal, MetaTools and Merger Sub contained in this Agreement shall terminate at the Effective Time, and only the covenants that by their terms survive the Effective Time shall survive the Effective Time. 8.2 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via telecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or at such other address or telecopy numbers for a party as shall be specified by like notice): (a) if to MetaTools or Merger Sub, to: MetaTools, Inc. 6303 Carpinteria Avenue Carpinteria, California 93013 Attention: Chief Executive Officer Telephone No.: (805) 566-6700 Telecopy No.: (805) 566-6384 with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Jeffrey D. Saper, Esq. Marty Korman, Esq. Telephone No.: (415) 493-9300 Telecopy No.: (415) 493-6811 -46- (b) if to Fractal, to: Fractal Design Corporation 335 Spreckels Drive Aptos, California 95003 Attention: President Telephone No.: (408) 688-5300 Telecopy No.: (408) 430-0305 with a copy to: Venture Law Group 2800 Sand Hill Road Menlo Park, California 94025 Attention: James Brock, Esq. Telephone No.: (415) 854-4488 Telecopy No.: (415) 233-8386 8.3 Interpretation; Knowledge. ------------------------- (a) When a reference is made in this Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement unless otherwise indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When reference is made herein to "THE BUSINESS OF" an entity, such reference shall be deemed to include the business of all direct and indirect subsidiaries of such entity. Reference to the subsidiaries of an entity shall be deemed to include all direct and indirect subsidiaries of such entity. (b) For purposes of this Agreement, the term "KNOWLEDGE" means, with respect to any matter in question, that any of the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer or Controller of Fractal or MetaTools, as the case may be, have actual knowledge of such matter. 8.4 Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the ------------------------------------------- documents and instruments and other agreements among the parties hereto as contemplated by or referred to herein, including Fractal Schedules and the MetaTools Schedules (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, it being understood that the Confidentiality Agreement shall continue in full force and effect until the Closing and shall survive any termination of this Agreement; and (b) are not intended to confer upon -47- any other person any rights or remedies hereunder, except with respect to the matters set forth in Section 5.12. 8.6 Severability. In the event that any provision of this Agreement or ------------ the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 8.7 Other Remedies; Specific Performance. Except as otherwise provided ------------------------------------ herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 8.8 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof; provided that issues involving the corporate governance of any of the parties hereto shall be governed by their respective jurisdictions of incorporation. Each of the parties hereto irrevocably consents to the exclusive jurisdiction of any state or federal court within the Northern District of California, in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein, other than issues involving the corporate governance of any of the parties hereto, agrees that process may be served upon them in any manner authorized by the laws of the State of California for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. 8.9 Rules of Construction. The parties hereto agree that they have been --------------------- represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 8.10 Assignment. No party may assign either this Agreement or any of its ---------- rights, interests, or obligations hereunder without the prior written approval of the of the parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. -48- 8.11 WAIVER OF JURY TRIAL. EACH OF METATOOLS, FRACTAL AND MERGER SUB -------------------- HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF METATOOLS, FRACTAL OR MERGER SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF. ***** -49- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized respective officers as of the date first written above. METATOOLS, INC. By:___________________________________________ Name: Title: ROOK ACQUISITION CORP. By:___________________________________________ Name: Title: FRACTAL DESIGN CORPORATION By:___________________________________________ Name: Title: **** REORGANIZATION AGREEMENT **** EX-2 3 FRACTAL DESIGN CORP VOTING AGMT EXHIBIT 2 FRACTAL DESIGN CORPORATION VOTING AGREEMENT This Voting Agreement ("AGREEMENT") is made and entered into as of February 11, 1997, between MetaTools, Inc., a Delaware corporation ("PARENT"), and the undersigned shareholder ("SHAREHOLDER") of Fractal Design Corporation, a California corporation (the "COMPANY"). RECITALS A. Concurrently with the execution of this Agreement, Parent, the Company and Rook Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), are entering into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT") which provides for the merger (the "MERGER") of Merger Sub with and into the Company. Pursuant to the Merger, shares of capital stock of the Company will be converted into Common Stock of Parent on the basis described in the Merger Agreement. B. The Shareholder is the record holder and beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")), of such number of shares of the outstanding Common Stock of the Company as is indicated on the final page of this Agreement (the "SHARES"). C. As a material inducement to enter into the Merger Agreement, Parent desires the Shareholder to agree, and the Shareholder is willing to agree to vote the Shares and any other such shares of capital stock of the Company so as to facilitate consummation of the Merger. NOW, THEREFORE, intending to be legally bound, the parties agree as follows: 1. Agreement to Vote Shares; Additional Purchases. ---------------------------------------------- 1.1 Agreement to Vote Shares. At every meeting of the shareholders ------------------------ of the Company called with respect to any of the following, and at every adjournment thereof, and on every action or approval by written consent of the shareholders of the Company with respect to any of the following, Shareholder shall vote the Shares and any New Shares in favor of (x) approval of the Merger Agreement and the Merger and (y) any matter that could reasonably be expected to facilitate the Merger. 1.2 Additional Purchases. Shareholder agrees that any shares of -------------------- capital stock of the Company that Shareholder purchases or with respect to which Shareholder otherwise acquires beneficial ownership after the execution of this Agreement and prior to the Expiration Date ("NEW SHARES") shall be subject to the terms and conditions of this Agreement to the same extent as if they constituted Shares. 2. Irrevocable Proxy. Concurrently with the execution of this Agreement, ----------------- Shareholder agrees to deliver to Parent a proxy in the form attached hereto as Exhibit A (the "PROXY"), which shall be irrevocable, with the total number of shares of capital stock of the Company beneficially owned (as such term is defined in Rule 13d-3 under the Exchange Act) by Shareholder set forth therein. 3. Representations and Warranties of the Shareholder. Shareholder (i) is ------------------------------------------------- the beneficial owner of the Shares, which at the date hereof are free and clear of any liens, claims, options, charges or other encumbrances; (ii) does not beneficially own any shares of capital stock of the Company other than the Shares (excluding shares s to which Shareholder currently disclaims beneficial ownership in accordance with applicable law); and (iii) has full power and authority to make, enter into and carry out the terms of this Agreement. 4. Additional Documents. Shareholder hereby covenants and agrees to -------------------- execute and deliver any additional documents necessary or desirable, in the reasonable opinion of Parent or Shareholder, as the case may be, to carry out the intent of this Agreement. 5. Consent and Waiver. Shareholder hereby gives any consents or waivers ------------------ that are reasonably required for the consummation of the Merger under the terms of any agreements to which Shareholder is a party or pursuant to any rights Shareholder may have. 6. Termination. This Agreement shall terminate and shall have no further ----------- force or effect as of the earlier to occur of (i) such date and time as the Merger shall become effective in accordance with the terms and provisions of the Merger Agreement or (ii) such date and time as the Merger Agreement shall have been terminated pursuant to Article VII thereof. 7. Miscellaneous. ------------- 7.1 Severability. If any term, provision, covenant or restriction of ------------ this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 7.2 Binding Effect and Assignment. This Agreement and all of the ----------------------------- provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but, except as otherwise specifically provided herein, neither this Agreement nor any of the rights, interests or obligations of the parties hereto may be assigned by either of the parties without prior written consent of the other. 7.3 Amendments and Modification. This Agreement may not be modified, --------------------------- amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. 7.4 Specific Performance; Injunctive Relief. The parties hereto --------------------------------------- acknowledge that Parent will be irreparably harmed and that there will be no adequate remedy at law for a violation of any of the covenants or agreements of Shareholder set forth herein. Therefore, it is agreed that, in addition to any other remedies that may be available to Parent upon any such violation, Parent shall have the right to enforce such covenants and agreements by specific performance, injunctive relief or by any other means available to Parent at law or in equity. 7.5 Notices. All notices, requests, claims, demands and other ------- communications hereunder shall be in writing and sufficient if delivered in person, by cable, telegram or telex, or sent by mail (registered or certified mail, postage prepaid, return receipt requested) or overnight courier (prepaid) to the respective parties as follows: If to Parent: MetaTools, Inc. 6303 Carpinteria Avenue Carpinteria, California 93013 Attn: President and Chief Executive Officer -2- With a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attn: Jeffrey D. Saper, Esq. Marty Korman, Esq. If to the Shareholder: To the address for notice set forth on the last page hereof. With a copy to: Venture Law Group 2800 Sand Hill Road Menlo Park, California 94025 Attn: James Brock, Esq. or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. 7.6 Governing Law. This Agreement shall be governed by, and ------------- construed and enforced in accordance with, the internal laws of the State of California (without regard to the principles of conflict of laws thereof). 7.7 Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties in respect of the subject matter hereof, and supersedes all prior negotiations and understandings between the parties with respect to such subject matter. 7.8 Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 7.9 Effect of Headings. The section headings herein are for ------------------ convenience only and shall not affect the construction or interpretation of this Agreement. -3- IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly executed on the date and year first above written. PARENT By: ------------------------------------------- Title: President and Chief Executive Officer ---------------------------------------- SHAREHOLDER: By: -------------------------------------------- Shareholder's Address for Notice: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Shares of Common Stock Beneficially Owned: ------ ***FRACTAL VOTING AGREEMENT*** -4- EXHIBIT A IRREVOCABLE PROXY The undersigned shareholder of Fractal Design Corporation, a California corporation (the "COMPANY"), hereby irrevocably appoints the directors on the Board of Directors of MetaTools, Inc., a Delaware corporation ("PARENT"), and each of them, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and resubstitution, to the full extent of the undersigned's rights with respect to the shares of capital stock of the Company beneficially owned by the undersigned, which shares are listed on the final page of this Proxy (the "SHARES"), and any and all other shares or securities issued or issuable in respect thereof on or after the date hereof, until such time as that certain Agreement of Merger and Plan of Reorganization dated as of February 11, 1997 (the "MERGER AGREEMENT"), among Parent, Rook Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), and the Company, shall be terminated in accordance with its terms or the Merger (as defined in the Merger Agreement) is effective. Upon the execution hereof, all prior proxies given by the undersigned with respect to the Shares and any and all other shares or securities issued or issuable in respect thereof on or after the date hereof are hereby revoked and no subsequent proxies will be given. This proxy is irrevocable, is granted pursuant to the Voting Agreement dated as of February 11, 1997 between Parent and the undersigned shareholder (the "VOTING AGREEMENT"), and is granted in consideration of Parent entering into the Merger Agreement. The attorneys and proxies named above will be empowered at any time prior to termination of the Merger Agreement to exercise all voting and other rights (including, without limitation, the power to execute and deliver written consents with respect to the Shares) of the undersigned at every annual, special or adjourned meeting of the Company shareholders, and in every written consent in lieu of such a meeting, or otherwise, in favor of approval of the Merger and the Merger Agreement and any matter that could reasonably be expected to facilitate the Merger. The attorneys and proxies named above may only exercise this proxy to vote the Shares subject hereto at any time prior to termination of the Merger Agreement at every annual, special or adjourned meeting of the shareholders of the Company and in every written consent in lieu of such meeting, in favor of approval of the Merger and the Merger Agreement and any matter that could reasonably be expected to facilitate the Merger. The undersigned shareholder may vote the Shares on all other matters. -1- Any obligation of the undersigned hereunder shall be binding upon the successors and assigns of the undersigned. This proxy is irrevocable. Dated: February 11, 1997 Signature of Shareholder: ___________________________________ Print Name of Shareholder: __________________________________ __________ Shares of Common Stock Beneficially Owned ***FRACTAL PROXY*** -2- EX-3 4 METATOOLS, INC. VOTING AGMT EXHIBIT 3 METATOOLS, INC. VOTING AGREEMENT This Voting Agreement ("AGREEMENT") is made and entered into as of February 11, 1997, between Fractal Design Corporation, a California corporation (the "COMPANY"), and the undersigned stockholder ("STOCKHOLDER") of MetaTools, Inc., a Delaware corporation ("PARENT"). RECITALS A. Concurrently with the execution of this Agreement, the Company, Parent and Rook Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), are entering into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT") which provides for the merger (the "MERGER") of Merger Sub with and into the Company. Pursuant to the Merger, shares of capital stock of the Company will be converted into Common Stock of Parent on the basis described in the Merger Agreement. B. The Stockholder is the record holder and beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")), of such number of shares of the outstanding Common Stock of Parent as is indicated on the final page of this Agreement (the "SHARES"). C. As a material inducement to enter into the Merger Agreement, the Company desires the Stockholder to agree, and the Stockholder is willing to agree to vote the Shares and any other such shares of capital stock of Parent so as to facilitate consummation of the Merger. NOW, THEREFORE, intending to be legally bound, the parties agree as follows: 1. Agreement to Vote Shares: Additional Purchases. ---------------------------------------------- 1.1 Agreement to Vote Shares. At every meeting of the stockholders ------------------------ of Parent called with respect to any of the following, and at every adjournment thereof, and on every action or approval by written consent of the stockholders of Parent with respect to any of the following Stockholder shall vote the Shares and any New Shares in favor of approval of (x) the amendment of Parent's Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of its Common Stock by virtue of the Merger, (y) the issuance of shares of such Common Stock by virtue of the Merger and (z) any matter that could reasonably be expected to facilitate the Merger. 1.2 Additional Purchases. Stockholder agrees that any shares of -------------------- capital stock of Parent that Stockholder purchases or with respect to which Stockholder otherwise acquires beneficial ownership after the execution of this Agreement and prior to the Expiration Date ("NEW SHARES") shall be subject to the terms and conditions of this Agreement to the same extent as if they constituted Shares. 2. Irrevocable Proxy. Concurrently with the execution of this Agreement, ----------------- Stockholder agrees to deliver to Parent a proxy in the form attached hereto as Exhibit A (the "PROXY"), which shall be irrevocable, with the total number of shares of capital stock of Parent beneficially owned (as such term is defined in Rule 13d-3 under the Exchange Act) by Stockholder set forth therein. 3. Representations and Warranties of the Stockholder. Stockholder (i) ------------------------------------------------- is the beneficial owner of the Shares, which at the date hereof are free and clear of any liens, claims, options, charges or other encumbrances; (ii) does not beneficially own any shares of capital stock of Parent other than the Shares (excluding shares as to which Stockholder currently disclaims beneficial ownership in accordance with applicable law); and (iii) has full power and authority to make, enter into and carry out the terms of this Agreement. 4. Additional Documents. Stockholder hereby covenants and agrees to -------------------- execute and deliver any additional documents necessary or desirable, in the reasonable opinion of the Company or Stockholder, as the case may be, to carry out the intent of this Agreement. 5. Consent and Waiver. Stockholder hereby gives any consents or waivers ------------------ that are reasonably required for the consummation of the Merger under the terms of any agreements to which Stockholder is a party or pursuant to any rights Stockholder may have. 6. Termination. This Agreement shall terminate and shall have no further ----------- force or effect as of the earlier to occur of (i) such date and time as the Merger shall become effective in accordance with the terms and provisions of the Merger Agreement or (ii) such date and time as the Merger Agreement shall have been terminated pursuant to Article VII thereof. 7. Miscellaneous. ------------- 7.1 Severability. If any term, provision, covenant or restriction of ------------ this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 7.2 Binding Effect and Assignment. This Agreement and all of the ----------------------------- provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but, except as otherwise specifically provided herein, neither this Agreement nor any of the rights, interests or obligations of the parties hereto may be assigned by either of the parties without prior written consent of the other. 7.3 Amendments and Modification. This Agreement may not be modified, --------------------------- amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. 7.4 Specific Performance; Injunctive Relief. The parties hereto --------------------------------------- acknowledge that the Company will be irreparably harmed and that there will be no adequate remedy at law for a violation of any of the covenants or agreements of Stockholder set forth herein. Therefore, it is agreed that, in addition to any other remedies that may be available to the Company upon any such violation, the Company shall have the right to enforce such covenants and agreements by specific performance, injunctive relief or by any other means available to the Company at law or in equity. 7.5 Notices. All notices, requests, claims, demands and other ------- communications hereunder shall be in writing and sufficient if delivered in person, by cable, telegram or telex, or sent by mail (registered or certified mail, postage prepaid, return receipt requested) or overnight courier (prepaid) to the respective parties as follows: If to the Company: Fractal Design Corporation 5550 Scotts Valley Drive Scotts Valley, California 95066 Attn: President and Chief Executive Officer With a copy to: Venture Law Group 2800 Sand Hill Road -2- Menlo Park, California 94025 Attn: James Brock, Esq. If to the Stockholder: To the address for notice set forth on the last page hereof. With a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attn: Jeffrey D. Saper, Esq. Marty Korman, Esq. or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. 7.6 Governing Law. This Agreement shall be governed by, and ------------- construed and enforced in accordance with, the internal laws of the State of California (without regard to the principles of conflict of laws thereof). 7.7 Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties in respect of the subject matter hereof, and supersedes all prior negotiations and understandings between the parties with respect to such subject matter. 7.8 Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 7.9 Effect of Headings. The section headings herein are for ------------------ convenience only and shall not affect the construction or interpretation of this Agreement. -3- IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly executed on the date and year first above written. FRACTAL DESIGN CORPORATION By: ----------------------------------------- Title: --------------------------------------- STOCKHOLDER: By: ----------------------------------------- Stockholder's Address for Notice: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Shares of Common Stock Beneficially Owned: ---- ***METATOOLS VOTING AGREEMENT*** -4- EXHIBIT A IRREVOCABLE PROXY The undersigned stockholder of MetaTools, Inc., a Delaware corporation ("PARENT"), hereby irrevocably appoints the directors on the Board of Directors of Fractal Design Corporation, a California corporation (the "COMPANY"), and each of them, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and resubstitution, to the full extent of the undersigned's rights with respect to the shares of capital stock of Parent beneficially owned by the undersigned, which shares are listed on the final page of this Proxy (the "SHARES"), and any and all other shares or securities issued or issuable in respect thereof on or after the date hereof, until such time as that certain Agreement of Merger and Plan of Reorganization dated as of February 11, 1997 (the "MERGER AGREEMENT"), among Parent, Rook Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), and the Company, shall be terminated in accordance with its terms or the Merger (as defined in the Merger Agreement) is effective. Upon the execution hereof, all prior proxies given by the undersigned with respect to the Shares and any and all other shares or securities issued or issuable in respect thereof on or after the date hereof are hereby revoked and no subsequent proxies will be given. This proxy is irrevocable, is granted pursuant to the Voting Agreement dated as of February 11, 1997 between the Company and the undersigned stockholder (the "VOTING AGREEMENT"), and is granted in consideration of the Company entering into the Merger Agreement. The attorneys and proxies named above will be empowered at any time prior to termination of the Merger Agreement to exercise all voting and other rights (including, without limitation, the power to execute and deliver written consents with respect to the Shares) of the undersigned at every annual, special or adjourned meeting of Parent stockholders, and in every written consent in lieu of such a meeting, or otherwise, in favor of approval of (x) the amendment of Parent's Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of its Common Stock by virtue of the Merger, (y) the issuance of shares of such Common Stock by virtue of the Merger and (z) any matter that could reasonably be expected to facilitate the Merger. The attorneys and proxies named above may only exercise this proxy to vote the Shares subject hereto at any time prior to termination of the Merger Agreement at every annual, special or adjourned meeting of the stockholders of the Company and in every written consent in lieu of such meeting, in favor of approval of (x) the amendment of Parent's Certificate of Incorporation to increase its authorized share capital to allow for the issuance of shares of its Common Stock by virtue of the Merger, (y) the issuance of shares of such Common Stock by virtue of the Merger and (z) any matter that could reasonably be expected to facilitate the Merger. The undersigned stockholder may vote the Shares on all other matters. -1- Any obligation of the undersigned hereunder shall be binding upon the successors and assigns of the undersigned. This proxy is irrevocable. Dated: February 11, 1997 Signature of Stockholder: -------------------------------------- Print Name of Stockholder: ------------------------------------- Shares of Common Stock Beneficially Owned --------------------- ***METATOOLS PROXY*** -2- EX-4 5 STOCK OPTION AGMT FROM FRACTAL TO METATOOLS EXHIBIT 4 [Option from Fractal to MetaTools] STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT dated as of February 11, 1997 (the "AGREEMENT") is entered into by and between Fractal Design Corporation, a California corporation ("FRACTAL"), and MetaTools, Inc., a Delaware corporation ("METATOOLS"). RECITALS -------- WHEREAS, concurrently with the execution and delivery of this Agreement, Fractal, MetaTools and Rook Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of MetaTools ("SUB"), are entering into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT"), which provides that, among other things, upon the terms and subject to the conditions thereof, Fractal and MetaTools will enter into a business combination transaction to pursue their long-term business strategies (the "MERGER"); and WHEREAS, as a condition to MetaTools' willingness to enter into the Merger Agreement, MetaTools has requested that Fractal agree, and Fractal has so agreed, to grant to MetaTools an option to acquire shares of Fractal's Common Stock, $0.001 par value, upon the terms and subject to the conditions set forth herein; AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein and in the Merger Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION --------------- Fractal hereby grants to MetaTools an irrevocable option (the "OPTION") to acquire up to a number of shares of the Common Stock, $0.001 par value, of Fractal ("FRACTAL SHARES") equal to 19.9% of the issued and outstanding shares as of the first date, if any, upon which an Exercise Event (as defined in Section 2(a) below) shall occur (the "OPTION SHARES"), in the manner set forth below (i) by paying cash at a price of $11.235 per share (the "EXERCISE PRICE") and/or, at MetaTools' election, (ii) by exchanging therefor shares of the Common Stock, par value $0.001 per share, of MetaTools ("METATOOLS SHARES") at a rate (the "EXERCISE RATIO"), for each Option Share, of a number of MetaTools Shares equal to the Exercise Price divided by the closing sale price of MetaTools Shares on the Nasdaq National Market for the trading day immediately preceding the date of the Closing (as defined below) of the particular Option exercise. Capitalized terms used in this Agreement but not defined herein shall have the meanings ascribed thereto in the Merger Agreement. 2. EXERCISE OF OPTION; MAXIMUM PROCEEDS ------------------------------------ (a) For all purposes of this Agreement, an "EXERCISE EVENT" shall have occurred (i) immediately prior to the earlier of (x) the consummation of, or (y) the record date, if any, for a meeting of Fractal's shareholders with regard to, an Acquisition Proposal with respect to Fractal with any party other than MetaTools (or an affiliate of MetaTools) if the Board of Directors of Fractal shall have withheld, withdrawn or modified in a manner adverse to MetaTools its recommendation in favor of adoption and approval of the Merger Agreement and approval of the Merger (and at that time there shall not have occurred a Material Adverse Effect on MetaTools) after receipt of and in connection with an Acquisition Proposal with respect to Fractal, (ii) immediately prior to the consummation of a tender or exchange offer for 25% or more of any class of Fractal's capital stock, or (iii) immediately prior to the time at which all of the events specified in clauses (x), (y) and either (z)(i) or (z)(ii) of Section 7.3(b)(ii) of the Merger Agreement shall have occurred. (b) MetaTools may deliver to Fractal a written notice (an "EXERCISE NOTICE") specifying that it wishes to exercise and close a purchase of Option Shares upon the occurrence of an Exercise Event and specifying the total number of Option Shares it wishes to acquire and the form of consideration to be paid (i) at any time following such time as the Board of Directors of Fractal shall have withheld, withdrawn or modified in a manner adverse to MetaTools its recommendation in favor of adoption and approval of the Merger Agreement and approval of the Merger (and at that time there shall not have occurred a Material Adverse Effect on MetaTools) after receipt of and in connection with an Acquisition Proposal with respect to Fractal, (ii) upon the commencement of a tender or exchange offer for 25% or more of any class of Fractal's capital stock (and/or during any time which such a tender or exchange offer remains open or has been consummated) or (iii) at any time following the occurrence of each of the events specified in Section 7.3(b)(ii)(x) and 7.3(b)(ii)(y) of the Merger Agreement (the events specified in clauses (i), (ii) or (iii) of this sentence being referred to herein as a "CONDITIONAL EXERCISE EVENTS"). At any time after delivery of an Exercise Notice, unless such Exercise Notice is withdrawn by MetaTools, the closing of a purchase of Option Shares (a "CLOSING") specified in such Exercise Notice shall take place at the principal offices of Fractal upon the occurrence of an Exercise Event or at such later date prior to the termination of the Option as may be designated by MetaTools in writing. In the event that no Exercise Event shall occur prior to termination of the Option, such Exercise Notice shall be void and of no further force and effect. (c) The Option shall terminate upon the earliest of (i) the Effective Time, (ii) 12 months following the termination of the Merger Agreement pursuant to Article VII thereof if a Conditional Exercise Event shall have occurred on or prior to the date of such termination, and (iii) the date on which the Merger Agreement is terminated if no Conditional Exercise Event shall have occurred on or prior to such date of termination; provided, however, that if the Option is -------- ------- exercisable but cannot be exercised by reason of any applicable government order or because the waiting period related to the issuance of the Option Shares under the HSR Act shall not have expired or been terminated, then the Option shall not terminate until the tenth business day after such impediment to exercise shall have been removed or shall have become final and not subject to appeal. Notwithstanding the foregoing, the Option may not be exercised if (i) MetaTools shall have breached in any material respect any of its covenants or agreements contained in the Merger Agreement or (ii) the representations and warranties of MetaTools contained in the Merger Agreement shall not have been true and correct in all material respects on and as of the date when made. (d) If MetaTools receives in the aggregate pursuant to Section 7.3(b) of the Merger Agreement together with proceeds in connection with any sales or other dispositions of Option Shares and any dividends received by MetaTools declared on Option Shares, more than the sum of (x) $4,000,000 plus (y) the Exercise Price multiplied by the number of Fractal Shares purchased by MetaTools pursuant to the Option, then all proceeds to MetaTools in excess of such sum shall be remitted by MetaTools to Fractal. 3. CONDITIONS TO CLOSING --------------------- The obligation of Fractal to issue Option Shares to MetaTools hereunder is subject to the conditions that (a) any waiting period under the HSR Act applicable to the issuance of the Option Shares hereunder shall have expired or been terminated; (b) all material consents, approvals, orders or authorizations of, or registrations, declarations or filings with, any Federal, state or local administrative agency or commission or other Federal state or local governmental authority or instrumentality, if any, required in connection with the issuance of the Option Shares hereunder shall have been obtained or made, as the case may be; and (c) no preliminary or permanent injunction or other order by any court of competent jurisdiction prohibiting or otherwise restraining such issuance shall be in effect. It is understood and agreed that at any time during which MetaTools shall be entitled to deliver to Fractal an Exercise Notice, the parties will use their respective best efforts to satisfy all conditions to Closing, so that a Closing may take place as promptly as practicable, and in any event, upon the occurrence of an Exercise Event; provided that neither Fractal nor MetaTools nor any subsidiary or affiliate thereof will be required to agree to any divestiture by itself or any of its affiliates of shares of capital stock or of any business, assets or property, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. 4. CLOSING ------- At any Closing, (a) Fractal shall deliver to MetaTools a single certificate in definitive form representing the number of Fractal Shares designated by MetaTools in its Exercise Notice, such certificate to be registered in the name of MetaTools and to bear the legend set forth in Section 10 hereof, against delivery of (b) payment by MetaTools to Fractal of the aggregate purchase price for the Fractal Shares so designated and being purchased by delivery of (i) a certified check or bank check and/or, at MetaTools' election, (ii) a single certificate in definitive form representing the number of MetaTools Shares being issued by MetaTools in consideration therefor (based on the Exercise Ratio), such certificate to be registered in the name of Fractal and to bear the legend set forth in Section 10 hereof. 5. REPRESENTATIONS AND WARRANTIES OF FRACTAL ----------------------------------------- Fractal represents and warrants to MetaTools that (a) Fractal is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder; (b) the execution and delivery of this Agreement by Fractal and consummation by Fractal of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Fractal and no other corporate proceedings on the part of Fractal are necessary to authorize this Agreement or any of the transactions contemplated hereby; (c) this Agreement has been duly executed and delivered by Fractal and constitutes a legal, valid and binding obligation of Fractal and, assuming this Agreement constitutes a legal, valid and binding obligation of MetaTools, is enforceable against Fractal in accordance with its terms, except as enforceability may be limited by bankruptcy and other laws affecting the rights and remedies of creditors generally and general principles of equity; (d) except for any filings required under the HSR Act, Fractal has taken all necessary corporate and other action to authorize and reserve for issuance and to permit it to issue upon exercise of the Option, and at all times from the date hereof until the termination of the Option will have reserved for issuance, a sufficient number of unissued Fractal Shares for MetaTools to exercise the Option in full and will take all necessary corporate or other action to authorize and reserve for issuance all additional Fractal Shares or other securities which may be issuable pursuant to Section 9(a) upon exercise of the Option, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable; (e) upon delivery of the Fractal Shares and any other securities to MetaTools upon exercise of the Option, MetaTools will acquire such Fractal Shares or other securities free and clear of all material claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, excluding those imposed by MetaTools; (f) the execution and delivery of this Agreement by Fractal do not, and the performance of this Agreement by Fractal will not, (i) violate the Articles of Incorporation or By-Laws of Fractal, (ii) conflict with or violate any order applicable to Fractal or any of its subsidiaries or by which they or any of their property is bound or affected or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the property or assets of Fractal or any of its subsidiaries pursuant to, any contract or agreement to which Fractal or any of its subsidiaries is a party or by which Fractal or any of its subsidiaries or any of their property is bound or affected, except, in the case of clauses (ii) and (iii) above, for violations, conflicts, breaches, defaults, rights of termination, amendment, acceleration or cancellation, liens or encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect on Fractal; (g) the execution and delivery of this Agreement by Fractal does not, and the performance of this Agreement by Fractal will not, require any consent, approval, authorization or permit of, or filing with, or notification to, any Governmental Entity except pursuant to the HSR Act; and (h) any MetaTools Shares acquired pursuant to this Agreement will not be acquired by Fractal with a view to the public distribution thereof and Fractal will not sell or otherwise dispose of such shares in violation of applicable law or this Agreement. 6. REPRESENTATIONS AND WARRANTIES OF METATOOLS ------------------------------------------- MetaTools represents and warrants to Fractal that (a) MetaTools is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder; (b) the execution and delivery of this Agreement by MetaTools and the consummation by MetaTools of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of MetaTools and no other corporate proceedings on the part of MetaTools are necessary to authorize this Agreement or any of the transactions contemplated hereby; (c) this Agreement has been duly executed and delivered by MetaTools and constitutes a legal, valid and binding obligation of MetaTools and, assuming this Agreement constitutes a legal, valid and binding obligation of Fractal, is enforceable against MetaTools in accordance with its terms, except as enforceability may be limited by bankruptcy and other laws affecting the rights and remedies of creditors generally and general principles of equity; (d) except for any filings required under the HSR Act, MetaTools has taken (or will in a timely manner take) all necessary corporate and other action to authorize and reserve for issuance and to permit it to issue upon exercise of the Option and will take all necessary corporate or other action to authorize and reserve for issuance all additional MetaTools Shares or other securities which may be issuable pursuant to Section 9(b) upon exercise of the Option, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable; (e) upon delivery of MetaTools Shares to Fractal in consideration of any acquisition of Fractal Shares pursuant hereto, Fractal will acquire such MetaTools Shares free and clear of all material claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, excluding those imposed by Fractal; (f) the execution and delivery of this Agreement by MetaTools do not, and the performance of this Agreement by MetaTools will not, (i) violate the Certificate of Incorporation or By-Laws of MetaTools, (ii) conflict with or violate any order applicable to MetaTools or any of its subsidiaries or by which they or any of their property is bound or affected or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the property or assets of MetaTools or any of its subsidiaries pursuant to, any contract or agreement to which MetaTools or any of its subsidiaries is a party or by which MetaTools or any of its subsidiaries or any of their property is bound or affected, except, in the case of clauses (ii) and (iii) above, for violations, conflicts, breaches, defaults, rights of termination, amendment, acceleration or cancellation, liens or encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect on MetaTools; (g) the execution and delivery of this Agreement by MetaTools does not, and the performance of this Agreement by MetaTools will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity except pursuant to the HSR Act; and (h) any Fractal Shares acquired upon exercise of the Option will not be acquired by MetaTools with a view to the public distribution thereof and MetaTools will not sell or otherwise dispose of such shares in violation of applicable law or this Agreement. 7. CERTAIN RIGHTS -------------- (a) METATOOLS PUT. MetaTools may deliver to Fractal a written notice ------------- (a "PUT NOTICE") at any time during which MetaTools may deliver an Exercise Notice specifying that it wishes to sell the Option, to the extent not previously exercised, at the price set forth in subparagraph (i) below (as limited by subparagraph (iii) below), and the Option Shares, if any, acquired by MetaTools pursuant thereto, at the price set forth in subparagraph (ii) below (as limited by subparagraph (iii) below) (the "PUT"). At any time after delivery of a Put Notice, unless such Put Notice is withdrawn by MetaTools, the closing of the Put (the "PUT CLOSING") shall take place at the principal offices of Fractal upon the occurrence of an Exercise Event or at such later date prior to the termination of the Option as may be designated by MetaTools in writing. In the event that no Exercise Event shall occur prior to termination of the Option, such Put Notice shall be void and of no further force and effect.: (i) The difference between the "MARKET/TENDER OFFER PRICE" for Fractal Shares as of the date MetaTools gives notice of its intent to exercise its rights under this Section 7(a) (defined as the higher of (A) the highest price per share offered as of such date pursuant to any Acquisition Proposal which was made prior to such date and not terminated or withdrawn as of such date and (B) the highest closing sale price of Fractal Shares on the Nasdaq National Market during the twenty (20) trading days ending on the trading day immediately preceding such date) and the Exercise Price, multiplied by the number of Fractal Shares purchasable pursuant to the Option, but only if the Market/Tender Offer Price is greater than the Exercise Price. For purposes of determining the highest price offered pursuant to any Acquisition Proposal which involves consideration other than cash, the value of such consideration shall be equal to the higher of (x) if securities of the same class of the proponent as such consideration are traded on any national securities exchange or by any registered securities association, a value based on the closing sale price or asked price for such securities on their principal trading market on such date and (y) the value ascribed to such consideration by the proponent of such Acquisition Proposal, or if no such value is ascribed, a value determined in good faith by the Board of Directors of Fractal. (ii) The Exercise Price paid by MetaTools for Fractal Shares acquired pursuant to the Option plus the difference between the Market/Tender ---- Offer Price and such Exercise Price (but only if the Market/Tender Offer Price is greater than the Exercise Price) multiplied by the number of Fractal Shares so purchased. If MetaTools issued MetaTools Shares in connection with any exercise of the Option, the Exercise Price in connection with such exercise shall be calculated as set forth in the last sentence of Section 4 as if MetaTools had exercised its right to pay cash instead of issuing MetaTools Shares. (iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant to this Section 7 Fractal shall not be required to pay MetaTools in excess of an aggregate of (x) $4,000,000 plus (y) the Exercise Price paid by MetaTools for ---- Fractal Shares acquired pursuant to the Option minus (z) any amounts paid to ----- MetaTools by Fractal pursuant to Section 7.3(b) of the Merger Agreement. (b) REDELIVERY OF METATOOLS SHARES. If MetaTools has acquired Fractal ------------------------------ Shares pursuant to exercise of the Option by the issuance and delivery of MetaTools Shares, then Fractal shall, if so requested by MetaTools, in fulfillment of its obligation pursuant to the first clause of Section 7(a)(ii) with respect to the Exercise Price paid in the form of MetaTools Shares only, redeliver the certificate(s) for such MetaTools Shares to MetaTools, free and clear of all claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, other than those imposed by MetaTools. (c) PAYMENT AND REDELIVERY OF OPTION OR SHARES. At the Put Closing, ------------------------------------------ Fractal shall pay the required amount to MetaTools in immediately available funds (and MetaTools Shares, if applicable) and MetaTools shall surrender to Fractal the Option and the certificates evidencing the Fractal Shares purchased by MetaTools pursuant thereto, and MetaTools shall represent and warrant that such shares are then free and clear of all claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, other than those imposed by Fractal. (d) FRACTAL CALL. If MetaTools has acquired Option Shares pursuant to ------------ exercise of the Option (the date of any Closing relating to any such exercise herein referred to as an "EXERCISE DATE") and no Acquisition Proposal with respect to Fractal has been consummated at any time after the date of this Agreement and prior to the date one year following such Exercise Date (nor has Fractal entered into a definitive agreement or letter of intent with respect to such an Acquisition Proposal which agreement or letter of intent remains in effect at the end of such year), then, at any time after the date one year following such Exercise Date and prior to the date eighteen months following such Exercise Date, Fractal may require MetaTools, upon delivery to MetaTools of written notice, to sell to Fractal any Fractal Shares held by MetaTools as of the day that is ten business days after the date of such notice, up to a number of shares equal to the number of Option Shares acquired by MetaTools pursuant to exercise of the Option in connection with such Exercise Date. The per share purchase price for such sale (the "FRACTAL CALL PRICE") shall be equal to the Exercise Price, plus an amount equal to six percent (6.0%) of the Exercise Price per annum, compounded annually, since the applicable Exercise Date, less any dividends paid on the Fractal Shares to be purchased by Fractal pursuant to this Section 7(d). The closing of any sale of Fractal Shares pursuant to this Section 7(d) shall take place at the principal offices of Fractal at a time and on a date designated by Fractal in the aforementioned notice to MetaTools, which date shall be no more than 20 and no less than 12 business days from the date of such notice. The Fractal Call Price shall be paid in immediately available funds, provided that, in the event MetaTools has acquired Option Shares pursuant -------- to exercise of the Option by issuance and delivery of MetaTools Shares, at the option of Fractal, the Fractal Call Price for part or all of any purchase of Fractal Shares pursuant to this Section 7(d), up to a number of such shares equal to the number of Option Shares acquired by MetaTools by issuance and delivery of MetaTools Shares, shall be paid by delivery of a number of MetaTools Shares equal to the Fractal Call Price divided by the closing sale price of MetaTools Shares on the Nasdaq National Market for the trading day immediately preceding the date of the Exercise Date on which the Option Shares to be purchased by Fractal pursuant to this Section 7(d) were originally issued to MetaTools. (e) RESTRICTIONS ON TRANSFER. Until the termination of the Option, ------------------------ Fractal shall not sell, transfer or otherwise dispose of any MetaTools Shares acquired by it pursuant to this Agreement. 8. REGISTRATION RIGHTS ------------------- (a) Following the termination of the Merger Agreement, each party hereto (a "HOLDER") may by written notice (a "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request the Registrant to register under the Securities Act all or any part of the shares acquired by such Holder pursuant to this Agreement (the "REGISTRABLE SECURITIES") in order to permit the sale or other disposition of such shares pursuant to a bona fide firm commitment underwritten public offering in which the Holder and the underwriters shall effect as wide a distribution of such Registrable Securities as is reasonably practicable and shall use reasonable efforts to prevent any person or group from purchasing through such offering shares representing more than 1% of the outstanding shares of Common Stock of the Registrant on a fully diluted basis (a "PERMITTED OFFERING"); provided, however, that any such Registration Notice must relate to -------- ------- a number of shares equal to at least 2% of the outstanding shares of Common Stock of the Registrant on a fully diluted basis and that any rights to require registration hereunder shall terminate with respect to any shares that may be sold pursuant to Rule 144(k) under the Securities Act. The Registration Notice shall include a certificate executed by the Holder and its proposed managing underwriter, which underwriter shall be an investment banking firm of nationally recognized standing (the "MANAGER"), stating that (i) the Holder and the Manager have a good faith intention to commence a Permitted Offering and (ii) the Manager in good faith believes that, based on the then prevailing market conditions, it will be able to sell the Registrable Securities at a per share price equal to at least 80% of the per share average of the closing sale prices of the Registrant's Common Stock on the Nasdaq National Market for the twenty trading days immediately preceding the date of the Registration Notice. The Registrant shall thereupon have the option exercisable by written notice delivered to the Holder within ten business days after the receipt of the Registration Notice, irrevocably to agree to purchase all or any part of the Registrable Securities for cash at a price (the "OPTION PRICE" equal to the product of (i) the number of Registrable Securities so purchased and (ii) the per share average of the closing sale prices of the Registrant's Common Stock on the Nasdaq National Market for the twenty trading days immediately preceding the date of the Registration Notice. Any such purchase of Registrable Securities by the Registrant hereunder shall take place at a closing to be held at the principle executive offices of the Registrant or its counsel at any reasonable date and time designated by the Registrant in such notice within 10 business days after delivery of such notice. The payment for the shares to be purchased shall be made by delivery at the time of such closing of the Option Price in immediately available funds. (b) If the Registrant does not elect to exercise its option to purchase pursuant to Section 8(a) with respect to all Registrable Securities, the Registrant shall use all reasonable efforts to effect, as promptly as practicable, the registration under the Securities Act of the unpurchased Registrable Securities requested to be registered in the Registration Notice; provided, however, that (i) neither party shall be entitled to more than an - -------- ------- aggregate of two effective registration statements hereunder and (ii) the Registrant will not be required to file any such registration statement during any period of time (not to exceed 40 days after a Registration Notice in the case of clause (A) below or 90 days after a Registration Notice in the case of clauses (B) and (C) below) when (A) the Registrant is in possession of material non-public information which it reasonably believes would be detrimental to be disclosed at such time and, in the written opinion of counsel to such Registrant, such information would have to be disclosed if a registration statement were filed at that time; (B) such Registrant is required under the Securities Act to include audited financial statements for any period in such registration statement and such financial statements are not yet available for inclusion in such registration statement; or (C) such Registrant determines, in its reasonable judgment, that such registration would interfere with any financing, acquisition or other material transaction involving the Registrant. If consummation of the sale of any Registrable Securities pursuant to a registration hereunder does not occur within 180 days after the filing with the SEC of the initial registration statement therefor, the provisions of this Section 8 shall again be applicable to any proposed registration, it being understood that neither party shall be entitled to more than an aggregate of two effective registration statements hereunder. The Registrant shall use all reasonable efforts to cause any Registrable Securities registered pursuant to this Section 8 to be qualified for sale under the securities or blue sky laws of such jurisdictions as the Holder may reasonably request and shall continue such registration or qualification in effect in such jurisdictions; provided, -------- however, that the Registrant shall not be required to qualify to do business in, - ------- or consent to general service of process in, any jurisdiction by reason of this provision. (c) The registration rights set forth in this Section 8 are subject to the condition that the Holder shall provide the Registrant with such information with respect to such Holder's Registrable Securities, the plan for distribution thereof, and such other information with respect to such Holder as, in the reasonable judgment of counsel for the Registrant, is necessary to enable the Registrant to include in a registration statement all material facts required to be disclosed with respect to a registration thereunder. (d) A registration effected under this Section 8 shall be effected at the Registrant's expense, except for underwriting discounts and commissions and the fees and expenses of counsel to the Holder, and the Registrant shall provide to the underwriters such documentation (including certificates, opinions of counsel and "comfort" letters from auditors) as are customary in connection with underwritten public offerings and as such underwriters may reasonably require. In connection with any registration, the Holder and the Registrant agree to enter into an underwriting agreement reasonably acceptable to each such party, in form and substance customary for transactions of this type with the underwriters participating in such offering. (e) Indemnification --------------- (i) The Registrant will indemnify the Holder, each of its directors and officers and each person who controls the Holder within the meaning of Section 15 of the Securities Act, and each underwriter of the Registrant's securities, with respect to any registration, qualification or compliance which has been effected pursuant to this Agreement, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Registrant of any rule or regulation promulgated under the Securities Act applicable to the Registrant in connection with any such registration, qualification or compliance, and the Registrant will reimburse the Holder and, each of its directors and officers and each person who controls the Holder within the meaning of Section 15 of the Securities Act, and each underwriter for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Registrant will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Registrant by such Holder or director or officer or controlling person or underwriter seeking indemnification. (ii) The Holder will indemnify the Registrant, each of its directors and officers and each underwriter of the Registrant's securities covered by such registration statement and each person who controls the Registrant within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Holder of any rule or regulation promulgated under the Securities Act applicable to the Holder in connection with any such registration, qualification or compliance, and will reimburse the Registrant, such directors, officers or control persons or underwriters for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Registrant by the Holder for use therein, provided that in no event shall any indemnity under this Section 8(e) exceed the gross proceeds of the offering received by the Holder. (iii) Each party entitled to indemnification under this Section 8(e) (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party -------- ------- shall pay such expense if representation of the Indemnified Party by counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding, and provided further that the failure of any Indemnified Party to -------- ------- give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 8(e) unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be required to indemnify any Indemnified Party with respect to any settlement entered into without such Indemnifying Party's prior consent (which shall not be unreasonably withheld). 9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION; RIGHTS PLANS ------------------------------------------------------- (a) In the event of any change in the Fractal Shares by reason of stock dividends, stock splits, reverse stock splits, mergers (other than the Merger), recapitalizations, combinations, exchanges of shares and the like, the type and number of shares or securities subject to the Option, the Exercise Ratio and the Exercise Price shall be adjusted appropriately, and proper provision shall be made in the agreements governing such transaction so that MetaTools shall receive, upon exercise of the Option, the number and class of shares or other securities or property that MetaTools would have received in respect of the Fractal Shares if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. (b) At any time during which the Option is exercisable, and at any time after the Option is exercised (in whole or in part, if at all), neither Fractal nor MetaTools shall adopt a shareholders rights plan (a so-called "poison pill") that contains provisions for the distribution of rights thereunder as a result of the other party being the beneficial owner of shares of the first party by virtue of the Option being exercisable or having been exercised (or as a result of such other party beneficially owning shares issuable in respect of any Option Shares). It is understood, however, that following termination (if any) of the Merger Agreement, a party may adopt a shareholders rights plan, that contains provisions for the distribution of rights thereunder as a result of the other party being the beneficial owner of shares of the first party in addition to those that may be beneficially owned by virtue of the Option being exercisable or having been exercised (or as a result of such other party beneficially owning shares issuable in respect of any Option Shares). 10. RESTRICTIVE LEGENDS ------------------- Each certificate representing Option Shares issued to MetaTools hereunder, and each certificate representing MetaTools Shares delivered to Fractal at a Closing, shall include a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF FEBRUARY 11, 1997, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER. 11. LISTING AND HSR FILING ---------------------- Fractal, upon the request of MetaTools, shall promptly file an application to list the Fractal Shares to be acquired upon exercise of the Option for quotation on the Nasdaq National Market and shall use its best efforts to obtain approval of such listing as soon as practicable. MetaTools, upon the request of Fractal, shall promptly file an application to list the MetaTools Shares issued and delivered to Fractal pursuant to Section 4 for quotation on the Nasdaq National Market and shall use its best efforts to obtain approval of such listing as soon as practicable. Promptly after the date hereof, each of the parties hereto shall promptly file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice all required premerger notification and report forms and other documents and exhibits required to be filed under the HSR Act to permit the acquisition of the Fractal Shares subject to the Option at the earliest possible date. 12. BINDING EFFECT -------------- This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Nothing contained in this Agreement, express or implied, is intended to confer upon any person other than the parties hereto and their respective successors and permitted assigns any rights or remedies of any nature whatsoever by reason of this Agreement. Any shares sold by a party in compliance with the provisions of Section 8 shall, upon consummation of such sale, be free of the restrictions imposed with respect to such shares by this Agreement and any transferee of such shares shall not be entitled to the rights of such party. Certificates representing shares sold in a registered public offering pursuant to Section 8 shall not be required to bear the legend set forth in Section 10. 13. SPECIFIC PERFORMANCE -------------------- The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that in addition to other remedies the other party shall be entitled to an injunction restraining any violation or threatened violation of the provisions of this Agreement. In the event that any action shall be brought in equity to enforce the provisions of the Agreement, neither party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 14. ENTIRE AGREEMENT ---------------- This Agreement and the Merger Agreement (including the appendices thereto) constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 15. FURTHER ASSURANCES ------------------ Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 16. VALIDITY -------- The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. In the event any Governmental Entity of competent jurisdiction holds any provision of this Agreement to be null, void or unenforceable, the parties hereto shall negotiate in good faith and shall execute and deliver an amendment to this Agreement in order, as nearly as possible, to effectuate, to the extent permitted by law, the intent of the parties hereto with respect to such provision. 17. NOTICES ------- All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via telecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or at such other address or telecopy numbers for a party as shall be specified by like notice): (a) if to Fractal, to: Fractal Design Corporation 5550 Scotts Valley Drive Scotts Valley, California 95066 Attn: President and Chief Executive Officer with a copy to: Venture Law Group 2800 Sand Hill Road Menlo Park, California 94025 Attn: James Brock, Esq. (b) if to MetaTools, to: MetaTools, Inc. 6303 Carpinteria Avenue Carpinteria, California 93013 Attn: President and Chief Executive Officer with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attn: Jeffrey D. Saper, Esq. Marty Korman, Esq. 18. GOVERNING LAW ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to agreements made and to be performed entirely within such State. 19. COUNTERPARTS ------------ This Agreement may be executed in two counterparts, each of which shall be deemed to be an original, but both of which, taken together, shall constitute one and the same instrument. 20. EXPENSES -------- Except as otherwise expressly provided herein or in the Merger Agreement, all costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. 21. AMENDMENTS; WAIVER ------------------ This Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of the party waiving compliance. 22. ASSIGNMENT ---------- Neither of the parties hereto may sell, transfer, assign or otherwise dispose of any of its rights or obligations under this Agreement or the Option created hereunder to any other person, without the express written consent of the other party, except that the rights and obligations hereunder shall inure to the benefit of and be binding upon any successor of a party hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. FRACTAL DESIGN CORPORATION By:____________________________________________ Name: Title: METATOOLS, INC. By:_____________________________________________ Name: Title: ***STOCK OPTION AGREEMENT*** (Fractal option to MetaTools) EX-5 6 STOCK OPTION AGMT FROM METATOOLS TO FRACTAL EXHIBIT 5 [Option from MetaTools to Fractal] STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT dated as of February 11, 1997 (the "AGREEMENT") is entered into by and between MetaTools, Inc., a Delaware corporation ("METATOOLS"), and Fractal Design Corporation, a California corporation ("FRACTAL"). RECITALS -------- WHEREAS, concurrently with the execution and delivery of this Agreement, MetaTools, Fractal and Rook Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of MetaTools ("SUB"), are entering into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT"), which provides that, among other things, upon the terms and subject to the conditions thereof, MetaTools and Fractal will enter into a business combination transaction to pursue their long-term business strategies (the "MERGER"); and WHEREAS, as a condition to Fractal's willingness to enter into the Merger Agreement, Fractal has requested that MetaTools agree, and MetaTools has so agreed, to grant to Fractal an option to acquire shares of MetaTools' Common Stock, $0.001 par value, upon the terms and subject to the conditions set forth herein; AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein and in the Merger Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION --------------- MetaTools hereby grants to Fractal an irrevocable option (the "OPTION") to acquire up to a number of shares of the Common Stock, $0.001 par value, of MetaTools ("METATOOLS SHARES") equal to 19.9% of the issued and outstanding shares as of the first date, if any, upon which an Exercise Event (as defined in Section 2(a) below) shall occur (the "OPTION SHARES"), in the manner set forth below (i) by paying cash at a price of $15.00 per share (the "EXERCISE PRICE") and/or, at Fractal's election, (ii) by exchanging therefor shares of the Common Stock, par value $0.001 per share, of Fractal ("FRACTAL SHARES") at a rate (the "EXERCISE RATIO"), for each Option Share, of a number of Fractal Shares equal to the Exercise Price divided by the closing sale price of Fractal Shares on the Nasdaq National Market for the trading day immediately preceding the date of the Closing (as defined below) of the particular Option exercise. Capitalized terms used in this Agreement but not defined herein shall have the meanings ascribed thereto in the Merger Agreement. 2. EXERCISE OF OPTION; MAXIMUM PROCEEDS ------------------------------------ (a) For all purposes of this Agreement, an "EXERCISE EVENT" shall have occurred (i) immediately prior to the earlier of (x) the consummation of, or (y) the record date, if any, for a meeting of MetaTools' stockholders with regard to, an Acquisition Proposal with respect to MetaTools with any party other than Fractal (or an affiliate of Fractal) if the Board of Directors of MetaTools shall have withheld, withdrawn or modified in a manner adverse to Fractal its recommendation in favor of approving the issuance of the MetaTools Shares by virtue of the Merger (and at that time there shall not have occurred a Material Adverse Effect on Fractal) after receipt of and in connection with an Acquisition Proposal with respect to MetaTools, (ii) immediately prior to the consummation of a tender or exchange offer for 25% or more of any class of MetaTools' capital stock, or (iii) immediately prior to the time at which all of the events specified in clauses (x), (y) and either (z)(i) or (z)(ii) of Section 7.3(c)(ii) of the Merger Agreement shall have occurred. (b) Fractal may deliver to MetaTools a written notice (an "EXERCISE NOTICE") specifying that it wishes to exercise and close a purchase of Option Shares upon the occurrence of an Exercise Event and specifying the total number of Option Shares it wishes to acquire and the form of consideration to be paid (i) at any time following such time as the Board of Directors of MetaTools shall have withheld, withdrawn or modified in a manner adverse to Fractal its recommendation in favor of approving the issuance of the MetaTools Shares by virtue of the Merger (and at that time there shall not have occurred a Material Adverse Effect on Fractal) after receipt of and in connection with an Acquisition Proposal with respect to MetaTools, (ii) upon the commencement of a tender or exchange offer for 25% or more of any class of MetaTools' capital stock (and/or during any time which such a tender or exchange offer remains open or has been consummated) or (iii) at any time following the occurrence of each of the events specified in Section 7.3(c)(ii)(x) and 7.3(c)(ii)(y) of the Merger Agreement (the events specified in clauses (i), (ii) or (iii) of this sentence being referred to herein as a "CONDITIONAL EXERCISE EVENTS"). At any time after delivery of an Exercise Notice, unless such Exercise Notice is withdrawn by Fractal, the closing of a purchase of Option Shares (a "CLOSING") specified in such Exercise Notice shall take place at the principal offices of MetaTools upon the occurrence of an Exercise Event or at such later date prior to the termination of the Option as may be designated by Fractal in writing. In the event that no Exercise Event shall occur prior to termination of the Option, such Exercise Notice shall be void and of no further force and effect. (c) The Option shall terminate upon the earliest of (i) the Effective Time, (ii) 12 months following the termination of the Merger Agreement pursuant to Article VII thereof if a Conditional Exercise Event shall have occurred on or prior to the date of such termination, and (iii) the date on which the Merger Agreement is terminated if no Conditional Exercise Event shall have occurred on or prior to such date of termination; provided, however, that if the Option is -------- ------- exercisable but cannot be exercised by reason of any applicable government order or because the waiting period related to the issuance of the Option Shares under the HSR Act shall not have expired or been terminated, then the Option shall not terminate until the tenth business day after such impediment to exercise shall have been removed or shall have become final and not subject to appeal. Notwithstanding the foregoing, the Option may not be exercised if (i) Fractal shall have breached in any material respect any of its covenants or agreements contained in the Merger Agreement or (ii) the representations and warranties of Fractal contained in the Merger Agreement shall not have been true and correct in all material respects on and as of the date when made. (d) If Fractal receives in the aggregate pursuant to Section 7.3(c) of the Merger Agreement together with proceeds in connection with any sales or other dispositions of Option Shares and any dividends received by Fractal declared on Option Shares, more than the sum of (x) $4,000,000 plus (y) the Exercise Price multiplied by the number of MetaTools Shares purchased by Fractal pursuant to the Option, then all proceeds to Fractal in excess of such sum shall be remitted by Fractal to MetaTools. 3. CONDITIONS TO CLOSING --------------------- The obligation of MetaTools to issue Option Shares to Fractal hereunder is subject to the conditions that (a) any waiting period under the HSR Act applicable to the issuance of the Option Shares hereunder shall have expired or been terminated; (b) all material consents, approvals, orders or authorizations of, or registrations, declarations or filings with, any Federal, state or local administrative agency or commission or other Federal state or local governmental authority or instrumentality, if any, required in connection with the issuance of the Option Shares hereunder shall have been obtained or made, as the case may be; and (c) no preliminary or permanent injunction or other order by any court of competent jurisdiction prohibiting or otherwise restraining such issuance shall be in effect. It is understood and agreed that at any time during which Fractal shall be entitled to deliver to MetaTools an Exercise Notice, the parties will use their respective best efforts to satisfy all conditions to Closing, so that a Closing may take place as promptly as practicable, and in any event, upon the occurrence of an Exercise Event; provided that neither MetaTools nor Fractal nor any subsidiary or affiliate thereof will be required to agree to any divestiture by itself or any of its affiliates of shares of capital stock or of any business, assets or property, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. 4. CLOSING ------- At any Closing, (a) MetaTools shall deliver to Fractal a single certificate in definitive form representing the number of MetaTools Shares designated by Fractal in its Exercise Notice, such certificate to be registered in the name of Fractal and to bear the legend set forth in Section 10 hereof, against delivery of (b) payment by Fractal to MetaTools of the aggregate purchase price for the MetaTools Shares so designated and being purchased by delivery of (i) a certified check or bank check and/or, at Fractal's election, (ii) a single certificate in definitive form representing the number of Fractal Shares being issued by Fractal in consideration therefor (based on the Exercise Ratio), such certificate to be registered in the name of MetaTools and to bear the legend set forth in Section 10 hereof. 5. REPRESENTATIONS AND WARRANTIES OF METATOOLS ------------------------------------------- MetaTools represents and warrants to Fractal that (a) MetaTools is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder; (b) the execution and delivery of this Agreement by MetaTools and consummation by MetaTools of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of MetaTools and no other corporate proceedings on the part of MetaTools are necessary to authorize this Agreement or any of the transactions contemplated hereby; (c) this Agreement has been duly executed and delivered by MetaTools and constitutes a legal, valid and binding obligation of MetaTools and, assuming this Agreement constitutes a legal, valid and binding obligation of Fractal, is enforceable against MetaTools in accordance with its terms, except as enforceability may be limited by bankruptcy and other laws affecting the rights and remedies of creditors generally and general principles of equity; (d) except for any filings required under the HSR Act, MetaTools has taken all necessary corporate and other action to authorize and reserve for issuance and to permit it to issue upon exercise of the Option, and at all times from the date hereof until the termination of the Option will have reserved for issuance, a sufficient number of unissued MetaTools Shares for Fractal to exercise the Option in full and will take all necessary corporate or other action to authorize and reserve for issuance all additional MetaTools Shares or other securities which may be issuable pursuant to Section 9(a) upon exercise of the Option, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable; (e) upon delivery of the MetaTools Shares and any other securities to Fractal upon exercise of the Option, Fractal will acquire such MetaTools Shares or other securities free and clear of all material claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, excluding those imposed by Fractal; (f) the execution and delivery of this Agreement by MetaTools do not, and the performance of this Agreement by MetaTools will not, (i) violate the Articles of Incorporation or By-Laws of MetaTools, (ii) conflict with or violate any order applicable to MetaTools or any of its subsidiaries or by which they or any of their property is bound or affected or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the property or assets of MetaTools or any of its subsidiaries pursuant to, any contract or agreement to which MetaTools or any of its subsidiaries is a party or by which MetaTools or any of its subsidiaries or any of their property is bound or affected, except, in the case of clauses (ii) and (iii) above, for violations, conflicts, breaches, defaults, rights of termination, amendment, acceleration or cancellation, liens or encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect on MetaTools; (g) the execution and delivery of this Agreement by MetaTools does not, and the performance of this Agreement by MetaTools will not, require any consent, approval, authorization or permit of, or filing with, or notification to, any Governmental Entity except pursuant to the HSR Act; and (h) any Fractal Shares acquired pursuant to this Agreement will not be acquired by MetaTools with a view to the public distribution thereof and MetaTools will not sell or otherwise dispose of such shares in violation of applicable law or this Agreement. 6. REPRESENTATIONS AND WARRANTIES OF FRACTAL ----------------------------------------- Fractal represents and warrants to MetaTools that (a) Fractal is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder; (b) the execution and delivery of this Agreement by Fractal and the consummation by Fractal of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Fractal and no other corporate proceedings on the part of Fractal are necessary to authorize this Agreement or any of the transactions contemplated hereby; (c) this Agreement has been duly executed and delivered by Fractal and constitutes a legal, valid and binding obligation of Fractal and, assuming this Agreement constitutes a legal, valid and binding obligation of MetaTools, is enforceable against Fractal in accordance with its terms, except as enforceability may be limited by bankruptcy and other laws affecting the rights and remedies of creditors generally and general principles of equity; (d) except for any filings required under the HSR Act, Fractal has taken (or will in a timely manner take) all necessary corporate and other action to authorize and reserve for issuance and to permit it to issue upon exercise of the Option and will take all necessary corporate or other action to authorize and reserve for issuance all additional Fractal Shares or other securities which may be issuable pursuant to Section 9(b) upon exercise of the Option, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable; (e) upon delivery of Fractal Shares to MetaTools in consideration of any acquisition of MetaTools Shares pursuant hereto, MetaTools will acquire such Fractal Shares free and clear of all material claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, excluding those imposed by MetaTools; (f) the execution and delivery of this Agreement by Fractal do not, and the performance of this Agreement by Fractal will not, (i) violate the Certificate of Incorporation or By-Laws of Fractal, (ii) conflict with or violate any order applicable to Fractal or any of its subsidiaries or by which they or any of their property is bound or affected or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the property or assets of Fractal or any of its subsidiaries pursuant to, any contract or agreement to which Fractal or any of its subsidiaries is a party or by which Fractal or any of its subsidiaries or any of their property is bound or affected, except, in the case of clauses (ii) and (iii) above, for violations, conflicts, breaches, defaults, rights of termination, amendment, acceleration or cancellation, liens or encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect on Fractal; (g) the execution and delivery of this Agreement by Fractal does not, and the performance of this Agreement by Fractal will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity except pursuant to the HSR Act; and (h) any MetaTools Shares acquired upon exercise of the Option will not be acquired by Fractal with a view to the public distribution thereof and Fractal will not sell or otherwise dispose of such shares in violation of applicable law or this Agreement. 7. CERTAIN RIGHTS -------------- (a) FRACTAL PUT. Fractal may deliver to MetaTools a written notice (a ----------- "PUT NOTICE") at any time during which Fractal may deliver an Exercise Notice specifying that it wishes to sell the Option, to the extent not previously exercised, at the price set forth in subparagraph (i) below (as limited by subparagraph (iii) below), and the Option Shares, if any, acquired by Fractal pursuant thereto, at the price set forth in subparagraph (ii) below (as limited by subparagraph (iii) below) (the "PUT"). At any time after delivery of a Put Notice, unless such Put Notice is withdrawn by Fractal, the closing of the Put (the "PUT CLOSING") shall take place at the principal offices of MetaTools upon the occurrence of an Exercise Event or at such later date prior to the termination of the Option as may be designated by Fractal in writing. In the event that no Exercise Event shall occur prior to termination of the Option, such Put Notice shall be void and of no further force and effect.: (i) The difference between the "MARKET/TENDER OFFER PRICE" for MetaTools Shares as of the date Fractal gives notice of its intent to exercise its rights under this Section 7(a) (defined as the higher of (A) the highest price per share offered as of such date pursuant to any Acquisition Proposal which was made prior to such date and not terminated or withdrawn as of such date and (B) the highest closing sale price of MetaTools Shares on the Nasdaq National Market during the twenty (20) trading days ending on the trading day immediately preceding such date) and the Exercise Price, multiplied by the number of MetaTools Shares purchasable pursuant to the Option, but only if the Market/Tender Offer Price is greater than the Exercise Price. For purposes of determining the highest price offered pursuant to any Acquisition Proposal which involves consideration other than cash, the value of such consideration shall be equal to the higher of (x) if securities of the same class of the proponent as such consideration are traded on any national securities exchange or by any registered securities association, a value based on the closing sale price or asked price for such securities on their principal trading market on such date and (y) the value ascribed to such consideration by the proponent of such Acquisition Proposal, or if no such value is ascribed, a value determined in good faith by the Board of Directors of MetaTools. (ii) The Exercise Price paid by Fractal for MetaTools Shares acquired pursuant to the Option plus the difference between the Market/Tender Offer Price ---- and such Exercise Price (but only if the Market/Tender Offer Price is greater than the Exercise Price) multiplied by the number of MetaTools Shares so purchased. If Fractal issued Fractal Shares in connection with any exercise of the Option, the Exercise Price in connection with such exercise shall be calculated as set forth in the last sentence of Section 4 as if Fractal had exercised its right to pay cash instead of issuing Fractal Shares. (iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant to this Section 7 MetaTools shall not be required to pay Fractal in excess of an aggregate of (x) $4,000,000 plus (y) the Exercise Price paid by Fractal for ---- MetaTools Shares acquired pursuant to the Option minus (z) any amounts paid to ----- Fractal by MetaTools pursuant to Section 7.3(c) of the Merger Agreement. (b) REDELIVERY OF FRACTAL SHARES. If Fractal has acquired MetaTools ---------------------------- Shares pursuant to exercise of the Option by the issuance and delivery of Fractal Shares, then MetaTools shall, if so requested by Fractal, in fulfillment of its obligation pursuant to the first clause of Section 7(a)(ii) with respect to the Exercise Price paid in the form of Fractal Shares only, redeliver the certificate(s) for such Fractal Shares to Fractal, free and clear of all claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, other than those imposed by Fractal. (c) PAYMENT AND REDELIVERY OF OPTION OR SHARES. At the Put Closing, ------------------------------------------ MetaTools shall pay the required amount to Fractal in immediately available funds (and Fractal Shares, if applicable) and Fractal shall surrender to MetaTools the Option and the certificates evidencing the MetaTools Shares purchased by Fractal pursuant thereto, and Fractal shall represent and warrant that such shares are then free and clear of all claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, other than those imposed by MetaTools. (d) METATOOLS CALL. If Fractal has acquired Option Shares pursuant to -------------- exercise of the Option (the date of any Closing relating to any such exercise herein referred to as an "EXERCISE DATE") and no Acquisition Proposal with respect to MetaTools has been consummated at any time after the date of this Agreement and prior to the date one year following such Exercise Date (nor has MetaTools entered into a definitive agreement or letter of intent with respect to such an Acquisition Proposal which agreement or letter of intent remains in effect at the end of such year), then, at any time after the date one year following such Exercise Date and prior to the date eighteen months following such Exercise Date, MetaTools may require Fractal, upon delivery to Fractal of written notice, to sell to MetaTools any MetaTools Shares held by Fractal as of the day that is ten business days after the date of such notice, up to a number of shares equal to the number of Option Shares acquired by Fractal pursuant to exercise of the Option in connection with such Exercise Date. The per share purchase price for such sale (the "METATOOLS CALL PRICE") shall be equal to the Exercise Price, plus an amount equal to six percent (6.0%) of the Exercise Price per annum, compounded annually, since the applicable Exercise Date, less any dividends paid on the MetaTools Shares to be purchased by MetaTools pursuant to this Section 7(d). The closing of any sale of MetaTools Shares pursuant to this Section 7(d) shall take place at the principal offices of MetaTools at a time and on a date designated by MetaTools in the aforementioned notice to Fractal, which date shall be no more than 20 and no less than 12 business days from the date of such notice. The MetaTools Call Price shall be paid in immediately available funds, provided that, in the event Fractal has acquired Option Shares -------- pursuant to exercise of the Option by issuance and delivery of Fractal Shares, at the option of MetaTools, the MetaTools Call Price for part or all of any purchase of MetaTools Shares pursuant to this Section 7(d), up to a number of such shares equal to the number of Option Shares acquired by Fractal by issuance and delivery of Fractal Shares, shall be paid by delivery of a number of Fractal Shares equal to the MetaTools Call Price divided by the closing sale price of Fractal Shares on the Nasdaq National Market for the trading day immediately preceding the date of the Exercise Date on which the Option Shares to be purchased by MetaTools pursuant to this Section 7(d) were originally issued to Fractal. (e) RESTRICTIONS ON TRANSFER. Until the termination of the Option, ------------------------ MetaTools shall not sell, transfer or otherwise dispose of any Fractal Shares acquired by it pursuant to this Agreement. 8. REGISTRATION RIGHTS ------------------- (a) Following the termination of the Merger Agreement, each party hereto (a "HOLDER") may by written notice (a "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request the Registrant to register under the Securities Act all or any part of the shares acquired by such Holder pursuant to this Agreement (the "REGISTRABLE SECURITIES") in order to permit the sale or other disposition of such shares pursuant to a bona fide firm commitment underwritten public offering in which the Holder and the underwriters shall effect as wide a distribution of such Registrable Securities as is reasonably practicable and shall use reasonable efforts to prevent any person or group from purchasing through such offering shares representing more than 1% of the outstanding shares of Common Stock of the Registrant on a fully diluted basis (a "PERMITTED OFFERING"); provided, however, that any such Registration Notice must relate to -------- ------- a number of shares equal to at least 2% of the outstanding shares of Common Stock of the Registrant on a fully diluted basis and that any rights to require registration hereunder shall terminate with respect to any shares that may be sold pursuant to Rule 144(k) under the Securities Act. The Registration Notice shall include a certificate executed by the Holder and its proposed managing underwriter, which underwriter shall be an investment banking firm of nationally recognized standing (the "MANAGER"), stating that (i) the Holder and the Manager have a good faith intention to commence a Permitted Offering and (ii) the Manager in good faith believes that, based on the then prevailing market conditions, it will be able to sell the Registrable Securities at a per share price equal to at least 80% of the per share average of the closing sale prices of the Registrant's Common Stock on the Nasdaq National Market for the twenty trading days immediately preceding the date of the Registration Notice. The Registrant shall thereupon have the option exercisable by written notice delivered to the Holder within ten business days after the receipt of the Registration Notice, irrevocably to agree to purchase all or any part of the Registrable Securities for cash at a price (the "OPTION PRICE" equal to the product of (i) the number of Registrable Securities so purchased and (ii) the per share average of the closing sale prices of the Registrant's Common Stock on the Nasdaq National Market for the twenty trading days immediately preceding the date of the Registration Notice. Any such purchase of Registrable Securities by the Registrant hereunder shall take place at a closing to be held at the principle executive offices of the Registrant or its counsel at any reasonable date and time designated by the Registrant in such notice within 10 business days after delivery of such notice. The payment for the shares to be purchased shall be made by delivery at the time of such closing of the Option Price in immediately available funds. (b) If the Registrant does not elect to exercise its option to purchase pursuant to Section 8(a) with respect to all Registrable Securities, the Registrant shall use all reasonable efforts to effect, as promptly as practicable, the registration under the Securities Act of the unpurchased Registrable Securities requested to be registered in the Registration Notice; provided, however, that (i) neither party shall be entitled to more than an - -------- ------- aggregate of two effective registration statements hereunder and (ii) the Registrant will not be required to file any such registration statement during any period of time (not to exceed 40 days after a Registration Notice in the case of clause (A) below or 90 days after a Registration Notice in the case of clauses (B) and (C) below) when (A) the Registrant is in possession of material non-public information which it reasonably believes would be detrimental to be disclosed at such time and, in the written opinion of counsel to such Registrant, such information would have to be disclosed if a registration statement were filed at that time; (B) such Registrant is required under the Securities Act to include audited financial statements for any period in such registration statement and such financial statements are not yet available for inclusion in such registration statement; or (C) such Registrant determines, in its reasonable judgment, that such registration would interfere with any financing, acquisition or other material transaction involving the Registrant. If consummation of the sale of any Registrable Securities pursuant to a registration hereunder does not occur within 180 days after the filing with the SEC of the initial registration statement therefor, the provisions of this Section 8 shall again be applicable to any proposed registration, it being understood that neither party shall be entitled to more than an aggregate of two effective registration statements hereunder. The Registrant shall use all reasonable efforts to cause any Registrable Securities registered pursuant to this Section 8 to be qualified for sale under the securities or blue sky laws of such jurisdictions as the Holder may reasonably request and shall continue such registration or qualification in effect in such jurisdictions; provided, -------- however, that the Registrant shall not be required to qualify to do business in, - ------- or consent to general service of process in, any jurisdiction by reason of this provision. (c) The registration rights set forth in this Section 8 are subject to the condition that the Holder shall provide the Registrant with such information with respect to such Holder's Registrable Securities, the plan for distribution thereof, and such other information with respect to such Holder as, in the reasonable judgment of counsel for the Registrant, is necessary to enable the Registrant to include in a registration statement all material facts required to be disclosed with respect to a registration thereunder. (d) A registration effected under this Section 8 shall be effected at the Registrant's expense, except for underwriting discounts and commissions and the fees and expenses of counsel to the Holder, and the Registrant shall provide to the underwriters such documentation (including certificates, opinions of counsel and "comfort" letters from auditors) as are customary in connection with underwritten public offerings and as such underwriters may reasonably require. In connection with any registration, the Holder and the Registrant agree to enter into an underwriting agreement reasonably acceptable to each such party, in form and substance customary for transactions of this type with the underwriters participating in such offering. (e) Indemnification --------------- (i) The Registrant will indemnify the Holder, each of its directors and officers and each person who controls the Holder within the meaning of Section 15 of the Securities Act, and each underwriter of the Registrant's securities, with respect to any registration, qualification or compliance which has been effected pursuant to this Agreement, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Registrant of any rule or regulation promulgated under the Securities Act applicable to the Registrant in connection with any such registration, qualification or compliance, and the Registrant will reimburse the Holder and, each of its directors and officers and each person who controls the Holder within the meaning of Section 15 of the Securities Act, and each underwriter for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Registrant will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Registrant by such Holder or director or officer or controlling person or underwriter seeking indemnification. (ii) The Holder will indemnify the Registrant, each of its directors and officers and each underwriter of the Registrant's securities covered by such registration statement and each person who controls the Registrant within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Holder of any rule or regulation promulgated under the Securities Act applicable to the Holder in connection with any such registration, qualification or compliance, and will reimburse the Registrant, such directors, officers or control persons or underwriters for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Registrant by the Holder for use therein, provided that in no event shall any indemnity under this Section 8(e) exceed the gross proceeds of the offering received by the Holder. (iii) Each party entitled to indemnification under this Section 8(e) (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party -------- ------- shall pay such expense if representation of the Indemnified Party by counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding, and provided further that the failure of any Indemnified Party -------- ------- to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 8(e) unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be required to indemnify any Indemnified Party with respect to any settlement entered into without such Indemnifying Party's prior consent (which shall not be unreasonably withheld). 9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION; RIGHTS PLANS ------------------------------------------------------- (a) In the event of any change in the MetaTools Shares by reason of stock dividends, stock splits, reverse stock splits, mergers (other than the Merger), recapitalizations, combinations, exchanges of shares and the like, the type and number of shares or securities subject to the Option, the Exercise Ratio and the Exercise Price shall be adjusted appropriately, and proper provision shall be made in the agreements governing such transaction so that Fractal shall receive, upon exercise of the Option, the number and class of shares or other securities or property that Fractal would have received in respect of the MetaTools Shares if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. (b) At any time during which the Option is exercisable, and at any time after the Option is exercised (in whole or in part, if at all), neither MetaTools nor Fractal shall adopt a stockholders rights plan (a so-called "poison pill") that contains provisions for the distribution of rights thereunder as a result of the other party being the beneficial owner of shares of the first party by virtue of the Option being exercisable or having been exercised (or as a result of such other party beneficially owning shares issuable in respect of any Option Shares). It is understood, however, that following termination (if any) of the Merger Agreement, a party may adopt a stockholders rights plan, that contains provisions for the distribution of rights thereunder as a result of the other party being the beneficial owner of shares of the first party in addition to those that may be beneficially owned by virtue of the Option being exercisable or having been exercised (or as a result of such other party beneficially owning shares issuable in respect of any Option Shares). 10. RESTRICTIVE LEGENDS ------------------- Each certificate representing Option Shares issued to Fractal hereunder, and each certificate representing Fractal Shares delivered to MetaTools at a Closing, shall include a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF FEBRUARY 11, 1997, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER. 11. LISTING AND HSR FILING ---------------------- MetaTools, upon the request of Fractal, shall promptly file an application to list the MetaTools Shares to be acquired upon exercise of the Option for quotation on the Nasdaq National Market and shall use its best efforts to obtain approval of such listing as soon as practicable. Fractal, upon the request of MetaTools, shall promptly file an application to list the Fractal Shares issued and delivered to MetaTools pursuant to Section 4 for quotation on the Nasdaq National Market and shall use its best efforts to obtain approval of such listing as soon as practicable. Promptly after the date hereof, each of the parties hereto shall promptly file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice all required premerger notification and report forms and other documents and exhibits required to be filed under the HSR Act to permit the acquisition of the MetaTools Shares subject to the Option at the earliest possible date. 12. BINDING EFFECT -------------- This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Nothing contained in this Agreement, express or implied, is intended to confer upon any person other than the parties hereto and their respective successors and permitted assigns any rights or remedies of any nature whatsoever by reason of this Agreement. Any shares sold by a party in compliance with the provisions of Section 8 shall, upon consummation of such sale, be free of the restrictions imposed with respect to such shares by this Agreement and any transferee of such shares shall not be entitled to the rights of such party. Certificates representing shares sold in a registered public offering pursuant to Section 8 shall not be required to bear the legend set forth in Section 10. 13. SPECIFIC PERFORMANCE -------------------- The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that in addition to other remedies the other party shall be entitled to an injunction restraining any violation or threatened violation of the provisions of this Agreement. In the event that any action shall be brought in equity to enforce the provisions of the Agreement, neither party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 14. ENTIRE AGREEMENT ---------------- This Agreement and the Merger Agreement (including the appendices thereto) constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 15. FURTHER ASSURANCES ------------------ Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 16. VALIDITY -------- The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. In the event any Governmental Entity of competent jurisdiction holds any provision of this Agreement to be null, void or unenforceable, the parties hereto shall negotiate in good faith and shall execute and deliver an amendment to this Agreement in order, as nearly as possible, to effectuate, to the extent permitted by law, the intent of the parties hereto with respect to such provision. 17. NOTICES ------- All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via telecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or at such other address or telecopy numbers for a party as shall be specified by like notice): (a) if to MetaTools, to: MetaTools, Inc. 6303 Carpinteria Avenue Carpinteria, California 93013 Attn: President and Chief Executive Officer with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attn Jeffrey D. Saper, Esq. Marty Korman, Esq. (b) if to Fractal, to: Fractal Design Corporation 5550 Scotts Valley Drive Scotts Valley, California 95066 Attn: President and Chief Executive Officer with a copy to: Venture Law Group 2800 Sand Hill Road Menlo Park, California 94025 Attn: James Brock, Esq. 18. GOVERNING LAW ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to agreements made and to be performed entirely within such State. 19. COUNTERPARTS ------------ This Agreement may be executed in two counterparts, each of which shall be deemed to be an original, but both of which, taken together, shall constitute one and the same instrument. 20. EXPENSES -------- Except as otherwise expressly provided herein or in the Merger Agreement, all costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. 21. AMENDMENTS; WAIVER ------------------ This Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of the party waiving compliance. 22. ASSIGNMENT ---------- Neither of the parties hereto may sell, transfer, assign or otherwise dispose of any of its rights or obligations under this Agreement or the Option created hereunder to any other person, without the express written consent of the other party, except that the rights and obligations hereunder shall inure to the benefit of and be binding upon any successor of a party hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. METATOOLS, INC. By: ------------------------------------------------ Name: Title: FRACTAL DESIGN CORPORATION By: ------------------------------------------------ Name: Title: ***STOCK OPTION AGREEMENT*** (MetaTools option to Fractal) EX-6 7 METATOOLS AFFILIATE AGMT EXHIBIT 6 METATOOLS, INC. AFFILIATE AGREEMENT This METATOOLS, INC. AFFILIATE AGREEMENT ("AGREEMENT") is dated as of February 11, 1997, between MetaTools, Inc., a Delaware corporation ("METATOOLS"), Fractal Design Corporation, a California corporation ("FRACTAL"), and the undersigned affiliate ("AFFILIATE") of MetaTools. WHEREAS, MetaTools and Fractal have entered into an Agreement and Plan of Reorganization ("MERGER AGREEMENT") pursuant to which Fractal and MetaTools intend to enter into a business combination transaction to pursue their long term business strategies (the "MERGER") (capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Merger Agreement); WHEREAS, Affiliate has been advised that Affiliate may be deemed to be an "affiliate" of MetaTools, as the term "affiliate" is used in Accounting Series Releases 130 and 135, as amended, although nothing contained herein shall be construed as an admission by Affiliate that Affiliate is in fact an affiliate of MetaTools; WHEREAS, it will be a condition to effectiveness of the Merger pursuant to the Merger Agreement that the independent accounting firms that audit the annual financial statements of Fractal and MetaTools will have delivered their written concurrences with the conclusions of management of Fractal and MetaTools to the effect that the Merger will be accounted for as a pooling of interests under Accounting Principles Board Opinion No. 16; WHEREAS, the execution and delivery of this Agreement by Affiliate is a material inducement to MetaTools to enter into the Merger Agreement. NOW, THEREFORE, intending to be legally bound, the parties hereby agree as follows: 1. Acknowledgments by Affiliate. Affiliate acknowledges and understands ---------------------------- that the representations, warranties and covenants by Affiliate set forth herein will be relied upon by MetaTools, Fractal, and their respective affiliates, counsel and accounting firms, and that substantial losses and damages may be incurred by these persons if Affiliate's representations, warranties or covenants are breached. Affiliate has carefully read this Agreement and the Merger Agreement and has discussed the requirements of this Agreement with Affiliate's professional advisors, who are qualified to advise him with regard to such matters. 2. Covenants Related to Pooling of Interests. In accordance with SAB 65, ----------------------------------------- until the second day after the day that MetaTools publicly announces financial results covering at least 30 days of combined operations of MetaTools and Fractal, Affiliate will not sell, exchange, transfer, pledge, distribute, make any gift or otherwise dispose of or grant any option, establish any "short" or put-equivalent position with respect to or enter into any similar transaction (through derivatives or otherwise) intended or having the effect, directly or indirectly, to reduce Affiliate's risk relative to any shares of MetaTools Common Stock. MetaTools may, at its discretion, place a stock transfer notice consistent with the foregoing with its transfer agent with respect to Affiliate's shares. Notwithstanding the foregoing, Affiliate will not be prohibited by the foregoing from selling or disposing of shares so long as such sale or disposition is in accordance with the "de minimis" test set forth in SEC Staff Accounting Bulletin No. 76. 3. Beneficial Ownership of Stock. Except for the MetaTools Common Stock ----------------------------- and options to purchase MetaTools Common Stock set forth on the last page of this Agreement, Affiliate does not beneficially own any shares of MetaTools Common Stock or any other equity securities of MetaTools or any options, warrants or other rights to acquire any equity securities of MetaTools. 4. Miscellaneous. ------------- (a) For the convenience of the parties hereto, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. (b) This Agreement shall be enforceable by, and shall inure to the benefit of and be binding upon, the parties hereto and their respective successors and assigns. As used herein, the term "successors and assigns" shall mean, where the context so permits, heirs, executors, administrators, trustees and successor trustees, and personal and other representatives. (c) This Agreement shall be governed by and construed, interpreted and enforced in accordance with the internal laws of the State of California (without regard to the principles of conflict of laws thereof). (d) If a court of competent jurisdiction determines that any provision of this Agreement is not enforceable or enforceable only if limited in time and/or scope, this Agreement shall continue in full force and effect with such provision stricken or so limited. (e) Counsel to and accountants for the parties to the Agreement shall be entitled to rely upon this Agreement as needed. (f) This Agreement shall not be modified or amended, or any right hereunder waived or any obligation excused, except by a written agreement signed by both parties. -2- Executed as of the date shown on the first page of this Agreement. METATOOLS, INC. By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- FRACTAL DESIGN CORPORATION By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- AFFILIATE By: -------------------------------------------- Name of Affiliate: ------------------------------- Name of Signatory (if different from name of Affiliate): -------------------------------------- Title of Signatory (if applicable): --------------------------------- Number of shares of MetaTools Common Stock beneficially owned by Affiliate: - -------------------------------------------- Number of shares MetaTools Common Stock subject to options beneficially owned by Affiliate: - -------------------------------------------- ***METATOOLS, INC. AFFILIATE AGREEMENT*** -3- EX-7 8 FRACTAL AFFILIATE AGMT EXHIBIT 7 FRACTAL DESIGN CORPORATION AFFILIATE AGREEMENT This FRACTAL DESIGN CORPORATION AFFILIATE AGREEMENT ("AGREEMENT") is dated as of February 11, 1997, between MetaTools, Inc., a Delaware corporation ("METATOOLS"), Fractal Design Corporation, a California corporation ("FRACTAL") and the undersigned affiliate ("AFFILIATE") of Fractal. WHEREAS, Fractal and MetaTools have entered into an Agreement and Plan of Reorganization ("MERGER AGREEMENT") pursuant to which Fractal and MetaTools intend to enter into a business combination transaction to pursue their long term business strategies (the "MERGER") (capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Merger Agreement); WHEREAS, pursuant to the Merger, at the Effective Time outstanding shares of Fractal Capital Stock, including any shares owned by Affiliate, will be converted into the right to receive shares of MetaTools Common Stock as set forth in the Merger Agreement; WHEREAS, Affiliate has been advised that Affiliate may be deemed to be an "affiliate" of Fractal, as the term "affiliate" is used (i) for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations of the Securities and Exchange Commission (the "SEC") and (ii) in the SEC's Accounting Series Releases 130 and 135, as amended, although nothing contained herein shall be construed as an admission by Affiliate that Affiliate is in fact an affiliate of Fractal; WHEREAS, it will be a condition to consummation of the Merger pursuant to the Merger Agreement that (i) the attorneys for each of MetaTools and Fractal will have delivered written opinions that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), and (ii) the independent accounting firms that audit the annual financial statements of Fractal and MetaTools will have delivered their written concurrences with the conclusions of management of Fractal and MetaTools to the effect that the Merger will be accounted for as a pooling of interests under Accounting Principles Board Opinion No. 16; WHEREAS, the execution and delivery of this Agreement by Affiliate is a material inducement to MetaTools to enter into the Merger Agreement. NOW, THEREFORE, intending to be legally bound, the parties hereby agree as follows: 1. Acknowledgments by Affiliate. Affiliate acknowledges and understands ---------------------------- that the representations, warranties and covenants by Affiliate set forth herein will be relied upon by MetaTools, Fractal, and their respective affiliates, counsel and accounting firms, and that substantial losses and damages may be incurred by these persons if Affiliate's representations, warranties or covenants are breached. Affiliate has carefully read this Agreement and the Merger Agreement and has discussed the requirements of this Agreement with Affiliate's professional advisors, who are qualified to advise Affiliate with regard to such matters. 2. Compliance with Rule 145 and the Act. ------------------------------------ (a) Affiliate has been advised that (i) the issuance of shares of MetaTools Common Stock in connection with the Merger is expected to be effected pursuant to a Registration Statement on Form S-4 under the Securities Act of 1933, as amended (the "ACT"), and as such will not be deemed "restricted securities" within the meaning of Rule 144 promulgated thereunder and resale of such shares will not be subject to any restrictions other than as set forth in Rule 145 of the Act unless otherwise transferred pursuant to an effective registration statement under the Act or an appropriate exemption from registration, (ii) Affiliate may be deemed to be an affiliate of Fractal, and (iii) no sale, transfer or other disposition by Affiliate of any MetaTools Common Stock received by Affiliate will be registered under the Act. Affiliate accordingly agrees not to sell, transfer or otherwise dispose of any MetaTools Common Stock issued to Affiliate in the Merger unless (x) such sale, transfer or other disposition is made in conformity with the requirements of Rule 145(d) promulgated under the Act, or (y) Affiliate delivers to MetaTools a written opinion of counsel, reasonably acceptable to MetaTools in form and substance, that such sale, transfer or other disposition is otherwise exempt from registration under the Act. (b) MetaTools will give stop transfer instructions to its transfer agent with respect to any MetaTools Common Stock received by Affiliate pursuant to the Merger and there will be placed on the certificates representing such MetaTools Common Stock, or any substitutions therefor, a legend stating in substance: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE 145(d) UNDER SUCH ACT OR IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN THE FORM AND SUBSTANCE THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED." The legend set forth above shall be removed (by delivery of a substitute certificate without such legend) and MetaTools shall so instruct its transfer agent, if Affiliate delivers to MetaTools (i) satisfactory written evidence that the shares have been sold in compliance with Rule 145 (in which case, the substitute certificate will be issued in the name of the transferee), or (ii) an opinion of counsel, in form and substance reasonably satisfactory to the effect that public sale of the shares by the holder thereof is no longer subject to Rule 145. (c) To the extent required by applicable securities laws, MetaTools agrees, for a period of two years from the date of this Agreement, to file with the SEC in a timely manner all reports -2- and other documents required of MetaTools under the Act and the Securities Exchange Act of 1934, as amended. 3. Covenants Related to Pooling of Interests. In accordance with SAB 65, ----------------------------------------- until the second day after the day that MetaTools publicly announces financial results covering at least 30 days of combined operations of MetaTools and Fractal, Affiliate will not sell, exchange, transfer, pledge, distribute, or otherwise dispose of or grant any option, establish any "short" or put- equivalent position with respect to or enter into any similar transaction (through derivatives or otherwise) intended or having the effect, directly or indirectly, to reduce its risk relative to any securities, or shares of MetaTools Common Stock received by Affiliate in connection with the Merger. MetaTools may, at its discretion, cause a restrictive legend to the foregoing effect to be placed on MetaTools Common Stock certificates issued to Affiliate in the Merger and place a stock transfer notice consistent with the foregoing with its transfer agent with respect to the certificates, provided that such restrictive legend shall be removed and/or such notice shall be countermanded promptly upon expiration of the necessity therefor at the request of Affiliate. Notwithstanding the foregoing, Affiliate will not be prohibited by the foregoing from selling or disposing of shares, so long as such sale or disposition is in accordance with the "de minimis" test set forth in SEC Staff Accounting Bulletin No. 76 and so long as Affiliate has obtained MetaTools's prior written approval of such sale or disposition. 4. Representations, Warranties and Covenants Related to Tax Effects of ------------------------------------------------------------------- the Merger. - ---------- (a) Affiliate is the beneficial owner of the number of shares of Fractal Common Stock (including shares issuable upon exercise of stock options) set forth on the last page of this Agreement and did not acquire any of the Fractal Common Stock in contemplation of the Merger; (b) Affiliate has not engaged in a Sale (as defined below) of any shares of Fractal Common Stock in contemplation of the Merger; (c) Affiliate has no plan or intention (a "PLAN") to engage in a sale, exchange, transfer, redemption or reduction in any way of Affiliate's risk of ownership by short sale or otherwise, or other disposition, directly or indirectly (such actions being collectively referred to herein as a "SALE") of more than 50% of the shares of MetaTools Common Stock to be received by Affiliate in the Merger; (d) If Affiliate is a partnership, then the term "sale" as used in paragraph (c) above shall be deemed to include any distribution to the partners of the undersigned unless no recipient of any such distribution will receive shares of Fractal Common Stock representing 1% or more of the shares of Fractal Common Stock presently outstanding; (e) Affiliate is not aware of, or participating in, any Plan on the part of the Affiliates of Fractal to engage in a Sale or Sales of the MetaTools Common Stock to be received in the Merger such that the aggregate fair market value, as of the Effective Date of the Merger, of the shares subject to such Sales would exceed 50% of the aggregate fair market value of all shares of outstanding Fractal Common Stock immediately prior to the Merger; and -3- (f) Affiliate understands that Fractal, MetaTools and their respective affiliates, as well as legal counsel to Fractal and MetaTools (in connection with rendering their opinions that the Merger will be a "reorganization" within the meaning of Section 368(a) of the Code) will be relying on (a) the truth and accuracy of the representations contained herein and (b) Affiliate's performance of the obligations set forth herein. 5. Miscellaneous. ------------- (a) For the convenience of the parties hereto, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. (b) This Agreement shall be enforceable by, and shall inure to the benefit of and be binding upon, the parties hereto and their respective successors and assigns. As used herein, the term "successors and assigns" shall mean, where the context so permits, heirs, executors, administrators, trustees and successor trustees, and personal and other representatives. (c) This Agreement shall be governed by and construed, interpreted and enforced in accordance with the internal laws of the State of California (without regard to the principles of conflict of laws thereof. (d) If a court of competent jurisdiction determines that any provision of this Agreement is not enforceable or enforceable only if limited in time and/or scope, this Agreement shall continue in full force and effect with such provision stricken or so limited. (e) Counsel to and accountants for the parties to the Agreement shall be entitled to rely upon this Agreement as needed. (f) This Agreement shall not be modified or amended, or any right hereunder waived or any obligation excused, except by a written agreement signed by both parties. -4- Executed as of the date shown on the first page of this Agreement. METATOOLS, INC. By: _____________________________________ Name: ___________________________________ Title: __________________________________ FRACTAL DESIGN CORPORATION By: _____________________________________ Name: ___________________________________ Title: __________________________________ AFFILIATE By: _____________________________________ Name of Affiliate: ______________________ Name of Signatory (if different from name of Affiliate): __________________________ Title of Signatory (if applicable): ________________________ Number of shares of Fractal Common Stock beneficially owned by Affiliate: ______________________________________ Number of shares of Fractal Common Stock subject to options beneficially owned by Affiliate: ______________________________________ ***FRACTAL DESIGN CORPORATION AFFILIATE AGREEMENT*** -5- -----END PRIVACY-ENHANCED MESSAGE-----