EXHIBIT 2.3
[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.
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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
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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
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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,
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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
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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
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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).
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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.
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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
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.
(b) 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.
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.
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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
/s/ Xxxx Xxxxxx
By: _________________________________
Name: Xxxx Xxxxxx
Title: President and Chief
Executive Officer
MetaTools, Inc.
/s/ Xxxx X. Xxxxxxx
By: _________________________________
Name: Xxxx X. Xxxxxxx
Title: President, Chief Executive
Officer and Chairman of the
Board of Directors
***STOCK OPTION AGREEMENT***
(Fractal option to MetaTools)
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