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
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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
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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
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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
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(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
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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
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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
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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
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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
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(a) FRACTAL PUT. Fractal may deliver to MetaTools a written notice (a
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"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
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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
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MetaTools Shares acquired pursuant to the Option minus (z) any amounts paid to
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Fractal by MetaTools pursuant to Section 7.3(c) of the Merger Agreement.
(b) REDELIVERY OF FRACTAL SHARES. If Fractal has acquired MetaTools
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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,
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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
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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
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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,
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MetaTools shall not sell, transfer or otherwise dispose of any Fractal Shares
acquired by it pursuant to this Agreement.
8. REGISTRATION RIGHTS
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(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
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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
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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,
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however, that the Registrant shall not be required to qualify to do business in,
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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
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(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.
0000 Xxxxxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attn: President and Chief Executive Officer
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attn Xxxxxxx X. Xxxxx, Esq.
Xxxxx Xxxxxx, Esq.
(b) if to Fractal, to:
Fractal Design Corporation
0000 Xxxxxx Xxxxxx Xxxxx
Xxxxxx Xxxxxx, Xxxxxxxxxx 00000
Attn: President and Chief Executive Officer
with a copy to:
Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxx Xxxxx, 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)
