<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------- ------------
COMMISSION FILE NUMBER: 33-6885
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0019522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1585 CHARLESTON ROAD, MOUNTAIN VIEW, CALIFORNIA 94043-1225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 961-4400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Shares Outstanding
Class May 31, 1996
----- -------------
Common stock, no par value 72,542,581
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<PAGE>
TABLE OF CONTENTS
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 6. Exhibits and Reports on Form 8-K 33
Signature 36
Summary of Trademarks 37
EXHIBITS
Exhibit 3.2.9 Restated Bylaws
Exhibit 4.1 Shareholders Rights Plan as Amended
Exhibit 10.36 Outside Directors Stock Option Plan
Exhibit 10.37 Confidential Resignation Agreement
Exhibit 11 Computation of Earnings per Common Share
Exhibit 27 Financial Data Schedules
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included under this item are as
follows:
SEQUENTIALLY
NUMBERED
FINANCIAL STATEMENT DESCRIPTION PAGE
- - ------------------------------------------------------------- ------------
- - - Condensed Consolidated Statements of Income
Quarters Ended May 31, 1996 and June 2, 1995
and Six Months Ended May 31, 1996 and June 2, 1995 4
- - - Condensed Consolidated Balance Sheets
May 31, 1996 and December 1, 1995 5
- - - Condensed Consolidated Statements of Cash Flows
Six Months Ended May 31, 1996 and June 2, 1995 6
- - - Notes to Condensed Consolidated Financial Statements 8
3
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
-------------------------- -----------------------
MAY 31 JUNE 2 MAY 31 JUNE 2
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing $ 49,287 $ 45,032 $ 96,198 $ 91,345
Application products 155,050 144,466 301,781 286,998
----------- ----------- ----------- -----------
Total revenue 204,337 189,498 397,979 378,343
Direct costs 36,078 32,310 71,286 66,164
----------- ----------- ----------- -----------
Gross margin 168,259 157,188 326,693 312,179
----------- ----------- ----------- -----------
Operating expenses:
Software development costs:
Research and development 37,664 32,755 74,871 64,245
Amortization of capitalized
software development
costs 626 2,938 1,252 5,811
Sales, marketing and
customer support 65,738 59,311 128,342 114,663
General and administrative 16,429 13,986 32,080 27,717
Write-off of acquired in-
process research and
development 14,699 -- 14,699 --
----------- ----------- ----------- -----------
Total operating expenses 135,156 108,990 251,244 212,436
----------- ----------- ----------- -----------
Operating income 33,103 48,198 75,449 99,743
Nonoperating income:
Interest, investment and
other income 6,684 7,715 18,199 13,416
----------- ----------- ----------- -----------
Income before income taxes 39,787 55,913 93,648 113,159
Provision for income taxes 17,778 20,668 37,976 41,770
----------- ----------- ----------- -----------
Net income $ 22,009 $ 35,245 $ 55,672 $ 71,389
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $ .29 $ .47 $ .73 $ .96
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computing net
income per share 75,638 75,321 76,016 74,105
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MAY 31 DECEMBER 1
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 77,716 $ 58,493
Short-term investments 445,602 457,547
Receivables 117,652 133,208
Inventories 8,538 7,277
Other current assets 10,657 11,924
Deferred income taxes 24,666 24,338
------------ ------------
Total current assets 684,831 692,787
Property and equipment 59,131 51,708
Other assets 277,291 135,735
Deferred income taxes -- 4,502
------------ ------------
$ 1,021,253 $ 884,732
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables $ 42,877 $ 25,639
Accrued expenses 98,094 94,848
Accrued restructuring costs 11,002 28,151
Income taxes payable 31,645 19,420
Deferred revenue 19,668 18,257
------------ ------------
Total current liabilities 203,286 186,315
------------ ------------
Deferred income taxes 34,334 --
Put warrants 29,483 --
Shareholders' equity:
Preferred stock, no par value;
2,000,000 shares authorized;
none issued -- --
Common stock, no par value;
200,000,000 shares authorized;
72,542,581 and 72,834,444 shares issued
and outstanding as of May 31, 1996,
and December 1, 1995, respectively 241,037 293,258
Unrealized gains on investments 79,381 18,831
Retained earnings 439,146 390,793
Cumulative foreign currency translation adjustments (5,414) (4,465)
------------ ------------
Total shareholders' equity 754,150 698,417
------------ ------------
$ 1,021,253 $ 884,732
------------ ------------
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
MAY 31 JUNE 2
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 55,672 $ 71,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense 1,893 1,481
Depreciation and amortization 12,865 25,960
Deferred income taxes (7,722) (920)
Provision for losses on accounts receivable (687) 954
Tax benefit from employee stock plans 3,609 16,775
Write-off of acquired in-process
research and development 14,699 --
Changes in operating assets and liabilities:
Receivables 17,117 3,599
Inventories (1,335) 2,708
Other current assets 2,577 (3,214)
Trade and other payables 5,775 (7,884)
Accrued expenses 3,588 1,675
Accrued restructuring costs (17,191) (17,381)
Income taxes payable 12,492 (9,625)
Deferred revenue 326 1,749
------------ ------------
Net cash provided by operating activities 103,678 87,266
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments (648,925) (1,969,541)
Maturities and sales of short-term investments 656,176 1,863,190
Acquisitions of property and equipment (16,867) (18,027)
Capitalization of software development costs -- (819)
Additions to other assets (33,494) (54,380)
Acquisition, net of cash acquired (4,527) --
------------ ------------
Net cash used for investing activities (47,637) (179,577)
------------ ------------
(Continued)
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
MAY 31 JUNE 2
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ 13,092 $ 47,959
Repurchase of common stock (41,971) (13,631)
Payment of dividends (7,319) (6,333)
Payment of Subchapter S distributions of Mastersoft -- (1,499)
------------ ------------
Net cash provided (used) by financing activities (36,198) 26,496
------------ ------------
Effect of foreign currency exchange rates on
cash and cash equivalents (620) 1,972
------------ ------------
Net increase/(decrease) in cash and cash equivalents 19,223 (63,843)
Adjustment for change in Frame Technology
Corporation's fiscal year-end -- (3,591)
Cash and cash equivalents at beginning of period 58,493 204,120
------------ ------------
Cash and cash equivalents at end of period $ 77,716 $ 136,686
------------ ------------
------------ ------------
Supplemental disclosures:
Cash paid during the period for income taxes $ 21,278 $ 32,033
------------ ------------
------------ ------------
Noncash investing and financing activities:
Dividends declared but not paid $ 3,632 $ 3,185
------------ ------------
------------ ------------
Reclassification of put warrants $ 29,483 $ 3,447
------------ ------------
------------ ------------
Issuance of notes for acquisition $ 9,473 $ --
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated balance sheets and
statements of income, and cash flows reflect all normal recurring adjustments
which are, in the opinion of management, necessary to present a fair statement
of the condensed consolidated financial position at May 31, 1996, and the
condensed consolidated statements of income and cash flows for the interim
periods ended May 31, 1996 and June 2, 1995.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q and, therefore,
do not include all information and footnotes necessary for a complete
presentation of the results of operations, the financial position, and cash
flows, in conformity with generally accepted accounting principles. Adobe
Systems Incorporated ("Adobe" or the "Company") filed audited consolidated
financial statements which included all information and footnotes necessary for
such a presentation of the results of operations, financial position and cash
flows for the years ended December 1, 1995, November 25, 1994 and November 26,
1993, in the Company's 1995 Form 10-K.
The results of operations for the interim periods ended May 31, 1996, are
not necessarily indicative of the results to be expected for the full year.
NET INCOME PER SHARE
Net income per share is based upon weighted average common and dilutive
common equivalent shares outstanding using the treasury stock method. Dilutive
common equivalent shares include stock options and restricted stock. Fully
diluted earnings per share for the quarters and six month periods ended May 31,
1996 and June 2, 1995 were not materially different from primary earnings per
share.
8
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. ACQUISITIONS
POOLINGS OF INTERESTS
On October 28, 1995, the Company issued approximately 8.5 million shares of
its common stock in exchange for all of the common stock of Frame Technology
Corporation ("Frame"). Prior to its acquisition by the Company, on July 28,
1995, Frame acquired all of the common stock of Mastersoft, Inc. ("Mastersoft"),
in exchange for approximately 0.6 million equivalent shares of Adobe common
stock. These business combinations have been accounted for as poolings of
interests, and, accordingly, the consolidated financial statements for periods
prior to the combinations have been restated to include the results of
operations, financial position, and cash flows of Frame and Mastersoft.
Prior to the combinations, Frame's fiscal year ended on December 31. In
recording the business combination, Frame's financial statements for the 12
months ended December 1, 1995 were combined with the Company's consolidated
financial statements for the same period. Frame's financial statements for the
year ended December 31, 1994 were combined with the Company's consolidated
financial statements for the year ended November 25, 1994. Revenue and net
income of Frame for the month ended December 31, 1994 were $8.6 million and $2.3
million, respectively. Net income, Subchapter S distributions of Mastersoft, the
issuance of common stock, and the net decrease in cash and cash equivalents were
adjusted to eliminate the effect of including Frame's results of operations,
financial position, and cash flows for the month ended December 31, 1994 in the
years ended December 1, 1995 and November 25, 1994.
PURCHASE
In May 1996, the Company acquired Ares Software Corporation ("Ares") for
approximately $15.5 million and accounted for the transaction by the purchase
method. Of this amount, the Company paid approximately $4.5 million in cash,
assumed $1.5 million of liabilities, and issued notes payable for $9.5 million.
Approximately $14.7 million was allocated to in-process research and
development, and was expensed at the time of the acquisition. The remainder of
the purchase price was allocated to current assets and goodwill. The operating
results of Ares have been included in the accompanying consolidated financial
statements from the date of acquisition. The operating results are not
considered material to the consolidated financial statements and accordingly,
pro forma information has not been presented.
9
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. RECEIVABLES
Receivables consisted of the following:
<TABLE>
<CAPTION>
MAY 31 DECEMBER 1
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Trade receivables $ 68,902 $ 91,296
Royalty receivables 36,679 34,017
Interest and other receivables 15,460 11,593
------------ ------------
121,041 136,906
Less allowance for doubtful accounts 3,389 3,698
------------ ------------
$ 117,652 $ 133,208
------------ ------------
------------ ------------
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
MAY 31 DECEMBER 1
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Land $ 782 $ 782
Building 4,615 4,615
Equipment 100,644 122,794
Furniture and Fixtures 13,189 18,962
Leasehold improvements 9,437 8,790
------------ ------------
128,667 155,943
Less accumulated depreciation and amortization 69,536 104,235
------------ ------------
$ 59,131 $ 51,708
------------ ------------
------------ ------------
</TABLE>
10
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
MAY 31 DECEMBER 1
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Licensing agreements $ 10,316 $ 16,319
Goodwill 13,921 13,753
Purchased technology 36,526 35,626
Software development costs 9,789 36,988
Equity investments 170,196 53,091
Restricted funds 63,142 35,634
Miscellaneous other assets 19,928 11,363
------------ ------------
323,818 202,774
Less accumulated amortization 46,527 67,039
------------ ------------
$ 277,291 $ 135,735
------------ ------------
------------ ------------
</TABLE>
Included above in gross other assets at May 31, 1996, are unrealized gains
and losses on equity investments. The equity investment in Netscape Corporation
was marked-to-market for an unrealized gain of approximately $117.0 million in
the second quarter of 1996.
NOTE 6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
MAY 31 DECEMBER 1
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Royalties $ 6,462 $ 7,194
Accrued compensation and benefits 25,714 26,730
Sales and marketing allowances 21,672 24,586
Other 44,246 36,338
------------ ------------
$ 98,094 $ 94,848
------------ ------------
------------ ------------
</TABLE>
11
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7. ACCRUED RESTRUCTURING COSTS
On October 28, 1995, the Company acquired Frame, described in "Note 2 --
Acquisitions," and initiated a plan to combine the operations of the two
companies. On this date, the Company recorded a $32.5 million charge to
operating expenses related to merger transaction and restructuring costs. On
August 31, 1994, the Company merged with Aldus Corporation ("Aldus") and
initiated a plan to combine the operations of the two companies. On this date,
the Company recorded a $72.2 million charge to operating expenses related to
merger transaction and restructuring costs.
Merger transaction costs consist principally of transaction fees for
investment bankers, attorneys, accountants, financial printing, and other
related charges. Restructuring costs include the elimination of redundant
equipment, the write-off of certain intangible assets, severance and
outplacement of terminated employees, and cancellation of certain contractual
agreements.
Merger transaction and restructuring costs (in thousands) are summarized in
the table below:
<TABLE>
<CAPTION>
ACCRUED AS OF SIX MONTHS ENDED MAY 31, 1996 ACCRUED AS OF
-----------------------------
DECEMBER 1 CASH MAY 31
1995 WRITE-OFFS PAYMENTS 1996
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
FRAME:
Merger transaction
costs $ 5,058 $ -- $ 4,535 $ 523
Restructuring costs:
Severance and
outplacement 9,612 -- 9,253 359
Cancellation of
facility leases
and other
contracts 5,402 -- 563 4,839
------------- -------------- ------------ -------------
$ 20,072 $ -- $ 14,351 $ 5,721
------------- -------------- ------------ -------------
------------- -------------- ------------ -------------
ALDUS:
Restructuring costs:
Cancellation of
facility leases
and other
contracts 6,983 -- 2,692 4,291
------------- -------------- ------------ -------------
$ 6,983 $ -- $ 2,692 $ 4,291
------------- -------------- ------------ -------------
------------- -------------- ------------ -------------
</TABLE>
12
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7. ACCRUED RESTRUCTURING COSTS (CONTINUED)
In addition, Frame undertook certain restructuring measures in 1993
due to lower than anticipated revenues. As of May 31, 1996 and December 1,
1995, $1.0 million and $1.1 million, respectively, remained accrued and
represented anticipated future cash outflows related to lease payments on
vacated facilities.
The nature, timing, and extent of restructuring costs follow:
SEVERANCE AND OUTPLACEMENT
As a result of the merger, certain technical support, customer service,
distribution, and administrative functions were combined and reduced.
Restructuring included severance and outplacement charges related to
approximately 200 terminated employees for Frame. Affected employees had
received notification of their termination by November 8, 1995, and final
assignments have been substantially completed as of May 31, 1996 .
CANCELLATION OF FACILITY LEASES AND OTHER CONTRACTS
The Company has consolidated duplicate offices in Europe, Japan, Canada,
and the United States. Lease and third-party contract termination payments,
resulting from the planned closure of these facilities, are expected to continue
through the lease term or negotiated early termination date, if applicable.
NOTE 8. COMMITMENTS AND CONTINGENCIES
REAL ESTATE DEVELOPMENT AGREEMENT
The Company has entered into a real estate development agreement for the
construction of an office facility and in 1996 will enter into an operating
lease agreement for this facility. The Company will have the option to purchase
the facility at the end of the lease term. In the event the Company chooses not
to exercise this option, the Company is obligated to arrange for the sale of the
facility to an unrelated party and is required to pay the lessor any difference
between the net sales proceeds and the lessor's net investment in the facility,
in an amount not to exceed that which would preclude classification of the lease
as an operating lease, approximately $52.0 million. The Company also is
required, periodically during the construction period, to deposit funds with the
lessor to secure the performance of its obligations under the lease. During the
second quarter of 1996, the Company increased its deposits by approximately
$13.7 million, and as of May 31, 1996, the Company's deposits under this
agreement totaled approximately $63.1 million in United States government
treasury notes and money market mutual funds. These deposits are included in
"Other assets" in the Condensed Consolidated Balance Sheets. Also, the Company
exercised its option under the
13
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
development agreement to begin a second phase of development. The Company
expects to enter into a financial arrangement in the third quarter of 1996 for
approximately $75.0 million in order to complete the second phase development.
LEGAL ACTIONS
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes it has adequate legal defenses and
believes that the ultimate outcome of these actions will not have a material
effect on the Company's financial position and results of operations.
NOTE 9. CAPITAL STOCK
PUT WARRANTS
In a series of private placements during the second quarter of 1996, the
Company sold put warrants entitling the holder of each warrant to sell one share
of common stock to the Company at a specified price. The Company's $29.5
million potential buyback obligation, as of May 31, 1996, was removed from
shareholders' equity and recorded as put warrants.
STOCK OPTION REPRICING
On March 22, 1996, the Company offered its employees a stock option
repricing program which allowed the employees to exchange on a two for three
share basis any options priced above the March 29, 1996 closing price of Adobe
stock, which was $32.25. As a result, approximately 1,252,000 options were
surrendered by eligible employees for approximately 834,000 repriced options.
The repriced options may not be exercised for six months commencing on May 1,
1996.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS REPORT ON FORM
10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THE SECTION ENTITLED "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S SEC REPORTS
(INCLUDING WITHOUT LIMITATION, ITS REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 1, 1995).
RESULTS OF OPERATIONS
OVERVIEW
Adobe Systems Incorporated ("Adobe" or the "Company") develops, markets,
and supports computer software products and technologies that enable users to
create, display, manage, communicate, and print electronic documents. The
Company licenses its technology to major computer, printing, and publishing
suppliers, and markets a line of application software products and type products
for authoring and editing visually rich documents. The Company distributes its
products through a network of original equipment manufacturer ("OEM") customers,
distributors and dealers, and value-added resellers ("VARs") and system
integrators. The Company has operations in the Americas, Europe, and the Pacific
Rim.
In October 1995, the Company acquired Frame Technology Corporation
("Frame"). Frame, established in 1986, developed, marketed, and supported
writing and publishing software for the creation and distribution of critical
business and technical documents. To effect the combination, approximately 8.5
million shares of Adobe's common stock were issued in exchange for all of the
outstanding common stock of Frame. The merger was accounted for by the pooling
of interests method, and accordingly, all annual and interim financial
information prior to the merger has been restated to combine the results of the
Company and Frame.
In January 1996, the Company divested its prepress applications product
business to a newly established company, Luminous Corporation ("Luminous").
Under the terms of the agreement, Luminous has acquired or licensed and will
continue to develop, market, and distribute Adobe's prepress application
products. Adobe will retain a minority equity interest in Luminous and will
maintain ownership of certain core technologies for Adobe prepress products.
Luminous will pay royalties to Adobe based on a percentage of revenue from
certain products for the next two years. Revenue from prepress application
products was approximately $10.4 million in fiscal year 1995.
Effective March 2, 1996, the Company sold its investment in Datalogics, a
business unit previously owned by Frame, to a newly established company. This
business primarily involved consulting and development of high-end customized
publishing software. Adobe will retain a minority equity interest in the new
company. Revenue from this business unit was approximately $8.9 million in
fiscal year 1995.
15
<PAGE>
The following table sets forth for the quarter and six months ended May 31,
1996, and June 2, 1995, the Company's condensed consolidated statements of
income expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------- -------------------
MAY 31 JUNE 2 MAY 31 JUNE 2
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Licensing 24.1% 23.8% 24.2% 24.1%
Application products 75.9 76.2 75.8 75.9
------ ------ ------ ------
Total revenue 100.0 100.0 100.0 100.0
Direct costs 17.7 17.1 17.9 17.5
------ ------ ------ ------
Gross margin 82.3 82.9 82.1 82.5
------ ------ ------ ------
Operating expenses:
Software development costs:
Research and development 18.4 17.3 18.8 17.0
Amortization of capitalized
software development
costs 0.3 1.6 0.3 1.5
Sales, marketing and
customer support 32.2 31.2 32.2 30.3
General and administrative 8.0 7.4 8.1 7.3
Write-off of acquired in-
process research and
development 7.2 -- 3.7 --
------ ------ ------ ------
Total operating expenses 66.1 57.5 63.1 56.1
------ ------ ------ ------
Operating income 16.2 25.4 19.0 26.4
Nonoperating income:
Interest, investment and
other income 3.3 4.1 4.5 3.5
------ ------ ------ ------
Income before income taxes 19.5 29.5 23.5 29.9
Provision for income taxes 8.7 10.9 9.5 11.0
------ ------ ------ ------
Net income 10.8% 18.6% 14.0% 18.9%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
16
<PAGE>
REVENUE
1996 1995 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Total revenue $204.3 $189.5 8%
Six month period:
Total revenue $398.0 $378.3 5%
Revenue growth for the quarter and six month periods was due to increases
in both licensing activity and shipments of application products. Product unit
volume (as opposed to price) growth was the principal factor in the Company's
revenue growth in application product revenue.
1996 1995 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Product group revenue -- Licensing $49.3 $45.0 9%
Percentage of total revenue 24.1% 23.8%
Six month period:
Product group revenue -- Licensing $96.2 $91.3 5%
Percentage of total revenue 24.2% 24.1%
Licensing revenue is derived from shipments by OEMs of products containing
the Adobe PostScript interpreter and the Display PostScript system. Such
products include printers in both roman and Japanese languages, imagesetters and
workstations. Licensing revenue is also derived from shipments of products
containing the Configurable PostScript Interpreter ("CPSI") by OEM customers.
CPSI is a fully functional PostScript interpreter that resides on the host
computer system rather than in a dedicated controller integrated into an output
device. The configuration flexibility of CPSI allows OEMs and software
developers to create and market a variety of PostScript products independently
of controller hardware development.
The number of units shipped by OEMs remained flat on a quarterly basis.
Royalty per unit is generally calculated as a percentage of the end user list
price of a printer, although there are some components of licensing revenue
based on a flat dollar amount per unit which typically do not change with list
price changes. Some OEMs continued to reduce list prices on their lower-end
printers, which resulted in lower royalties per unit on such printers. However,
in the second quarter and first six months of 1996, this trend was offset by
increased demand for CPSI and color capability, as well as increased products
shipping into the Japanese market, all of which have higher royalties per unit.
In addition, the Company has seen year-to-year increases in the number of OEM
customers from which it is receiving licensing revenue.
17
<PAGE>
1996 1995 CHANGE
-------- ------ -------
Second quarter period: (Dollars in millions)
Product group revenue --
Application products $155.1 $144.5 7%
Percentage of total revenue 75.9% 76.2%
Six month period:
Product group revenue --
Application products $301.8 $287.0 5%
Percentage of total revenue 75.8% 75.9%
Application products revenue is derived from shipments of application
software programs marketed through retail and distribution channels; however,
Adobe PageMill, Adobe SiteMill, and Adobe Acrobat products are being more widely
distributed through VARs and systems integrators.
During the second quarter and first six months of 1996, application revenue
was higher than that of the same periods in 1995. The increase from quarter to
quarter resulted from increased demand for Adobe Photoshop, Adobe Illustrator,
Adobe PageMaker, and Acrobat products, partially offset by a decrease in Adobe
FrameMaker revenue. The increase for the first six months of 1996 compared to
the same period last year resulted from increased demand for Adobe Illustrator,
Adobe PageMaker, and Acrobat products, partially offset by decreases in Adobe
FrameMaker and Adobe Photoshop and revenue. In addition, PageMill and SiteMill
which were both released in late 1995 added revenue in both the second quarter
and first six months of 1996.
The Company expects 1996 to be a transition year for application products,
as customers determine which computer platform to use and as the Internet market
develops. In general, the Company's application products on the Windows
platform have experienced greater growth than those on the Macintosh platform
during the first six months of 1996.
18
<PAGE>
DIRECT COSTS
1996 1995 CHANGE
-------- ------ -------
Second quarter period: (Dollars in millions)
Direct costs $36.1 $32.3 12%
Percentage of total revenue 17.7% 17.1%
Six month period:
Direct costs $71.3 $66.2 8%
Percentage of total revenue 17.9% 17.5%
Direct costs include royalties; amortization of acquired technologies; and
direct product, packaging and shipping costs.
Gross margins, in general, are affected by the mix of licensing revenue
versus application products revenue, as well as the product mix within
application products. In addition, direct costs increased in the second quarter
and first six months of 1996 compared to the same periods last year due to a
change in geographic product mix towards higher sales in Japan which have a
higher direct cost.
19
<PAGE>
OPERATING EXPENSES
1996 1995 CHANGE
-------- ------ -------
Second quarter period: (Dollars in millions)
Software development costs --
Research and development $37.7 $32.8 15%
Percentage of total revenue 18.4% 17.3%
Six month period:
Software development costs --
Research and development $74.9 $64.2 17%
Percentage of total revenue 18.8% 17.0%
Research and development expenses consist principally of salaries and
benefits for software developers, contracted development efforts, related
facilities costs, and expenses associated with computer equipment used in
software development.
Research and development expense has increased as the Company invested in
new technologies, new product development, and the infrastructure to support
such activities. The increase reflects the expansion of the Company's
engineering staff and related costs required to support its continued emphasis
on developing new products and enhancing existing products. Many of these
engineers are working with OEM customers to design and implement PostScript
Level 2 devices. The Company continued working with many of its OEM customers in
a co-development program. This allows customers to be more self-sufficient in
new device development by taking on more of the implementation tasks themselves
rather than relying so heavily on the Company's engineers. While this mitigates
certain costs, the Company continues to make significant investments in
development of its PostScript and application software products, including those
targeted for the emerging internet market.
The Company believes that continued investments in research and development
are necessary to remain competitive in the marketplace, and are directly related
to continued, timely development of new and enhanced products. Accordingly, the
Company intends to continue recruiting and hiring experienced software
developers. While the Company expects that research and development expenditures
in 1996 will continue to increase in absolute dollars, such expenditures for the
remainder of 1996 will approximate current spending levels as a percentage of
revenue.
20
<PAGE>
1996 1995 CHANGE
------- ------ -------
Second quarter period: (Dollars in millions)
Software development costs --
Amortization of capitalized
software development costs $0.6 $2.9 (79)%
Percentage of total revenue 0.3% 1.6%
Six month period:
Software development costs --
Amortization of capitalized
software development costs $1.3 $5.8 (78)%
Percentage of total revenue 0.3% 1.5%
In the implementation of Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," software development expenditures on Adobe
products, after achieving technological feasibility, were deemed to be
immaterial. Certain software development expenditures on Frame and Aldus
products have been capitalized and are being amortized over the lives of the
respective products. In the second quarter and first six months of 1996,
software development expenditures on all products, after reaching technological
feasibility, were immaterial and the Company expects this trend to continue in
the future.
Amortization of capitalized software development costs decreased in the
second quarter and first six months of 1996 as a result of achieving full
amortization of all Aldus products by the end of 1995. Amortization of software
development costs are expected to remain relatively constant during the
remainder of 1996 as the software products acquired with Frame become fully
amortized.
21
<PAGE>
1996 1995 CHANGE
------- ------ -------
Second quarter period: (Dollars in millions)
Sales, marketing and
customer support $65.7 $59.3 11%
Percentage of total revenue 32.2% 31.3%
Six month period:
Sales, marketing and
customer support $128.3 $114.7 12%
Percentage of total revenue 32.2% 30.3%
Sales, marketing and customer support expenses generally include salaries
and benefits, sales commissions, travel expenses and related facilities costs
for the Company's sales, marketing, customer support and distribution personnel.
Sales, marketing and customer support expenses also include the costs of
programs aimed at increasing revenues, such as advertising, trade shows and
other market development programs.
Sales, marketing and customer support expenses increased in the second
quarter and first six months of 1996 compared with the same periods of 1995.
The increase resulted primarily from Frame integration costs in the first
quarter of 1996 and a higher headcount entering fiscal 1996, focal compensation
increases, and higher rent expense. In addition, more trade show and product
launch activity, particularly in Japan and Europe, increased expenditures during
the second quarter of 1996. Costs related to continuing efforts to expand
markets and increase penetration into targeted software markets, as well as
responding to increased competition in the software industry, will be partially
offset by decreased costs expected to result from the restructuring of the
combined company after the acquisition of Frame. As a result, for all of 1996,
sales, marketing, and customer support expenditures are expected to increase in
absolute dollars and increase slightly from 1995 spending levels as a percentage
of revenue.
22
<PAGE>
1996 1995 CHANGE
------- ------ -------
Second quarter period: (Dollars in millions)
General and administrative $16.4 $14.0 17%
Percentage of total revenue 8.0% 7.4%
Six month period:
General and administrative $32.1 $27.7 16%
Percentage of total revenue 8.1% 7.3%
General and administrative expenses consist principally of salaries and
benefits, travel expenses, and related facility costs for the finance, human
resources, legal, information services and administrative personnel of the
Company. General and administrative expenses also include outside legal and
accounting fees, bad debts and expenses associated with computer equipment and
software used in the administration of the business.
In the second quarter and first six months of 1996, general and
administrative expenses increased compared with the same periods of 1995. The
increase resulted primarily from Frame integration costs in the first quarter of
1996 and a higher headcount entering fiscal 1996 as well as higher systems and
legal costs. While the Company expects that general and administrative
expenditures in 1996 will continue to increase in absolute dollars, such
expenditures are expected to remain approximately the same as 1995 as a
percentage of revenue.
1996 1995 CHANGE
------- ------ -------
Second quarter period: (Dollars in millions)
Write-off of acquired in-
process research and
development $14.7 $-- 100%
Percentage of total revenue 7.2% --
Six month period:
Write-off of acquired in-
process research and
development $14.7 $-- 100%
Percentage of total revenue 3.7% --
In May 1996, the Company acquired Ares Software Corporation ("Ares") for
approximately $15.5 million and accounted for the transaction by the purchase
method. Of this amount, the Company paid approximately $4.5 million in cash,
assumed $1.5 million of liabilities, and issued notes payable for $9.5 million.
Approximately $14.7 million was allocated to in-process research and
development, and was expensed at the time of the acquisition. The remainder of
the purchase price was allocated to current assets and goodwill.
23
<PAGE>
NONOPERATING INCOME
1996 1995 CHANGE
------- ------ -------
Second quarter period: (Dollars in millions)
Interest, investment and
other income $6.7 $7.7 (13)%
Percentage of total revenue 3.3% 4.1%
Six month period:
Interest, investment and
other income $18.2 $13.4 36%
Percentage of total revenue 4.5% 3.5%
In the second quarter of 1996, interest, investment and other income
decreased compared with the same quarter of 1995. The decrease is primarily the
result of a foreign exchange gain realized in the second quarter of 1995. In
addition, the Company made a significant shift into tax exempt municipal bonds
during the second quarter of 1996 which have lower interest rates. In the first
six months of 1996, interest, investment and other income increased compared
with the same period of 1995. The increase is primarily due to a significantly
larger investment base and a realized gain of approximately $2.8 million on the
sale of an equity investment which was recognized in the first quarter of 1996.
PROVISION FOR INCOME TAXES
1996 1995 CHANGE
------- ------ -------
Second quarter period: (Dollars in millions)
Provision for income taxes $17.8 $20.7 (14)%
Percentage of total revenue 8.7% 10.9%
Effective tax rate 44.7% 37.0%
Six month period:
Provision for income taxes $38.0 $41.8 (9)%
Percentage of total revenue 9.5% 11.0%
Effective tax rate 40.6% 36.9%
The effective tax rate for the second quarter and first six months of 1996
was higher than the same periods in 1995 as a result of the nondeductible write-
off of acquired in-process research and development associated with the
acquisition of Ares in the second quarter of 1996. In addition, the Company was
not able to utilize the federal research and experimentation tax credit in 1996.
It remains unclear whether the research and experimentation credit will be
renewed. Non-renewal would continue to adversely impact the Company's 1996
effective tax rate.
24
<PAGE>
NET INCOME AND NET INCOME PER SHARE
1996 1995 CHANGE
------- ------ -------
Second quarter period: (Dollars in millions)
Net income $22.0 $35.2 (38)%
Percentage of total revenue 10.8% 18.6%
Net income per share $.29 $.47 (38)%
Weighted shares (In thousands) 75,638 75,321 ----
Six month period:
Net income $55.7 $71.4 (22)%
Percentage of total revenue 14.0% 18.9%
Net income per share $.73 $.96 (24)%
Weighted shares (In thousands) 76,016 74,105 3%
Net income for the second quarter of 1996 decreased 38% from the second
quarter of 1995. Earnings per share were $.29, an 38% decrease from the second
quarter of 1995. Net income for the six months ended May 31, 1996 decreased 22%
from the same period in 1995 and earnings per share decreased 24% for the same
period. The decrease was caused primarily by the write-off of in-process
research and development costs associated with the acquisition of Ares and
increased operating expenses.
25
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company believes that in the future its results of operations could be
affected by various factors such as the ability of the Company to integrate
Adobe and Frame product lines; renegotiation of royalty arrangements; delays in
shipment of the Company's new products and major new versions of existing
products; market acceptance of new products and upgrades; growth in worldwide
personal computer and printer sales and sales price adjustments; consolidation
in the OEM printer business; industry transitions to new business and
information delivery models; and adverse changes in general economic conditions
in any of the countries in which the Company does business.
In connection with the merger with Frame, the Company has sought to reduce
combined expenses by the elimination of duplicate or unnecessary facilities,
employees, marketing programs, and other expenses. The Company believes that the
major impact of such reductions has occurred in the first six months of 1996.
The Company expects that these reductions will benefit future operating results,
but the reductions could adversely impact the earnings of the combined company.
In addition, the integration of the product lines of the two companies could
have a material adverse effect on the results of operations, including the
potential for charges for certain discontinued business components.
The Company's OEM customers on occasion seek to renegotiate their royalty
arrangements. The Company evaluates these requests on a case-by-case basis. If
an agreement is not reached, a customer may decide to pursue other options,
including licensing a PostScript language compatible interpreter from a third
party, which could result in lower licensing revenue for the Company. During
the first quarter of 1996, there was a change in part of the Company's business
relationship with Hewlett-Packard Company (Hewlett-Packard). Beginning in the
second half of 1997, Hewlett-Packard plans not to incorporate PostScript
software in some Hewlett-Packard LaserJet printers. The Company expects to
continue working with Hewlett-Packard printer operations to incorporate
PostScript and other technologies in other Hewlett-Packard products.
The Company derives a significant portion of its revenue and operating
income from its subsidiaries located in Europe and the Pacific Rim. While most
of the revenue of these subsidiaries is denominated in U.S. dollars, the
majority of their expense transactions are denominated in foreign currencies,
including the Japanese yen and most major European currencies. As a result, the
Company's operating results are subject to fluctuations in foreign currency
exchange rates. To date the impact of such fluctuations has been insignificant
and the Company has not engaged in any significant activities to hedge its
exposure to foreign currency exchange rate fluctuations. In addition, the
Company generally experiences lower revenue from its European operations in the
third quarter because many customers reduce their business activities in the
summer months.
The Company's ability to develop and market products, including upgrades of
currently shipping products, that successfully adapt to current market needs may
also have an impact on the results of operations. A portion of the Company's
future revenue will come from these products. Delays in product introductions
could have an adverse
26
<PAGE>
effect on the Company's revenue, earnings, or stock price. The Company cannot
determine the ultimate effect that these new products or upgrades will have on
its sales or results of operations.
Although the Company generally offers its application products on
Macintosh, Windows, and UNIX platforms, a majority of the overall sales of these
products to date has been for the Macintosh platform, particularly for the
higher end Macintosh computers. To the extent that there is a slowdown of
customer purchases in the higher end Macintosh market or if other operating
systems, such as Windows 95 or NT, become more prevalent among the Company's
customers, the Company's operating results could be materially adversely
affected. In addition, to the extent that there is a slowdown of customer
purchases of personal computers in general, the Company's operating results
could be materially adversely affected.
During 1995, the Company entered the Internet market, which has only
recently begun to develop. The Internet market is rapidly evolving and is
characterized by an increasing number of market entrants who have introduced or
developed products addressing authoring and communication over the Internet. As
is typical in the case of a new and evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty. The software industry addressing the authoring and
electronic publishing requirements of the Internet is young and has few proven
products. Moreover, critical issues concerning the commercial use of the
Internet (including security, reliability, ease of use and access, cost, and
quality of service) remain unresolved and may impact the growth of Internet use,
together with the software standards and electronic media employed in such
markets.
Through its acquisitions in 1994 and 1995, the Company has experienced
significant growth. The Company's ability to manage its growth and the industry
transition to the Internet effectively will require it to continue to improve
its operational and financial controls and information management systems, to
develop new models for licensing its software to accommodate new information
delivery practices, and to attract, retain, motivate and manage employees
effectively. The failure of the Company to manage effectively growth and
transition in multiple areas of its business could have a material adverse
effect on its results of operations.
Due to the factors noted above, the Company's future earnings and stock
price may be subject to significant volatility, particularly on a quarterly
basis. Any shortfall in revenue or earnings from levels expected by securities
analysts could have an immediate and significant adverse effect on the trading
price of the Company's common stock in any given period. Additionally, the
Company may not learn of such shortfalls until late in the fiscal quarter, which
could result in an even more immediate and adverse effect on the trading price
of the Company's common stock. Finally, the Company participates in a highly
dynamic industry. In addition to factors specific to the Company, changes in
analysts' earnings estimates for the Company or its industry and factors
affecting the corporate environment or the securities markets in general will
often result in significant volatility of the Company's common stock price.
27
<PAGE>
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
MAY 31 DECEMBER 1
1996 1995 CHANGE
------ ---------- ------
(Dollars in millions)
Cash, cash equivalents and
short-term investments $523.3 $516.0 1%
The Company's cash balances and short term investments have increased due
to profitable operations, partially offset by the repurchase of stock, capital
outlays, other investments and deposits required under a real estate development
agreement.
Cash equivalents consist of highly liquid money market instruments. All of
the Company's cash equivalents and short-term investments, consisting
principally of municipal bonds, commercial paper, auction rate securities,
United States government and government agency securities, and asset-backed
securities, are classified as available-for-sale under the provisions of
Statement of Financial Accounting Standards No. 115. The securities are carried
at fair value with the unrealized gains and losses, net of tax, reported as a
separate component of shareholders' equity.
OTHER ASSETS
MAY 31 DECEMBER 1
1996 1995 CHANGE
------ ---------- -------
(Dollars in millions)
Other assets (gross) $323.8 $202.8 60%
Included above at May 31, 1996 are unrealized gains and losses on equity
investments. The Company's equity investment in Netscape Corporation was
marked-to-market for an unrealized gain of approximately $117.0 million in the
second quarter of 1996.
28
<PAGE>
NONCURRENT LIABILITIES AND SHAREHOLDERS' EQUITY
MAY 31 DECEMBER 1
1996 1995 CHANGE
------ ---------- ------
(Dollars in millions)
Noncurrent liabilities and
shareholders' equity $818.0 $698.4 17%
Included above is shareholders' equity and at May 31,1996, deferred income
taxes related to unrealized gains and losses on equity investments and
obligations for put warrants. The Company has no long-term debt. A significant
portion of the increase in shareholders' equity is attributable to the
unrealized gain on the equity investment in Netscape Corporation.
The Board of Directors of the Company declared a cash dividend on the
Company's common stock of $.05 per common share on June 24, 1996, for the second
quarter of 1996. The dividend will be for shareholders of record as of July 8,
1996, and will be paid on July 22, 1996. The declaration of future dividends
is within the discretion of the Board of Directors of the Company and will
depend upon business conditions, results of operations, the financial condition
of the Company and other factors.
Under its stock repurchase program, the Company repurchased approximately
1,000,000 shares at a cost of $42.0 million in the second quarter of 1996.
These share repurchases are intended to fund the Companys' employee stock
purchase and stock option plans.
WORKING CAPITAL
MAY 31 DECEMBER 1
1996 1995 CHANGE
----- ---------- ------
(Dollars in millions)
Working capital $481.5 $506.5 (5)%
Net working capital decreased to $481.5 million as of May 31, 1996,
compared to $506.5 million as of December 1, 1995. The decline was due to a
decrease in accounts receivable and an increase in trade and other payables.
Cash flow provided by operations during the first six months of 1996 was $103.7
million. This was offset by cash used for investing and financing activities.
Expenditures during the first six months of 1996 for property and equipment
totaled $16.9 million. Such expenditures are expected to continue, including
computer systems for development, sales and marketing, product support, and
administrative staff. In the future, additional cash may be used to acquire
software products or technologies complementary to the Company's business. Net
cash used by financing activities during the first six months of 1996 was $36.2
million primarily resulting from the repurchase of common stock and payment of
dividends partially offset by issuance of common stock under employee stock
plans.
29
<PAGE>
The Company's principal commitments as of May 31, 1996 consisted of
obligations under operating leases, a real estate development agreement, and
various service and lease guarantee agreements with a related party.
The Company has entered into a real estate development agreement for the
construction of an office facility and in 1996 will enter into an operating
lease agreement for this facility. The Company will have the option to purchase
the facility at the end of the lease term. In the event the Company chooses not
to exercise this option, the Company is obligated to arrange for the sale of the
facility to an unrelated party and is required to pay the lessor any difference
between the net sales proceeds and the lessor's net investment in the facility,
in an amount not to exceed that which would preclude classification of the lease
as an operating lease, approximately $52.0 million. The Company also is
required, periodically during the construction period, to deposit funds with the
lessor to secure the performance of its obligations under the lease. During the
second quarter of 1996, the Company increased its deposits by approximately
$13.7 million, and as of May 31, 1996, the Company's deposits under this
agreement totaled approximately $63.1 million in United States government
treasury notes and money market mutual funds. These deposits are included in
"Other assets" in the Condensed Consolidated Balance Sheets. Also, the Company
exercised its option under the development agreement to begin a second phase of
development. The Company expects to enter into a financial arrangement in the
third quarter of 1996 for approximately $75.0 million in order to complete the
second phase development.
The Company has also entered into various agreements with McQueen Holdings
Limited ("McQueen"), a European operating entity, whereby the Company has agreed
to guarantee obligations under operating leases for certain European facilities
utilized by McQueen, and to guarantee certain levels of business between Adobe
and McQueen. The Company owns 16% of the outstanding stock in McQueen.
During the second quarter of 1996, the Company repurchased approximately
1,000,000 shares of its common stock. In addition, the Company arranged options
to purchase an additional 740,000 shares in the third quarter of 1996, which
represented the remaining shares authorized for repurchase. In June of 1996, the
Board of Directors authorized the Company to repurchase up to 5,000,000 more
shares of stock in order to fund shares needed for issuance under its employee
stock plans. The Company intends to continue to directly repurchase common
shares and to arrange options to purchase common shares.
The Company believes that existing cash, cash equivalents, and short-term
investments, together with cash generated from operations, will provide
sufficient funds for the Company to meet its operating cash requirements in the
foreseeable future.
30
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Quantel Limited, a U.K. corporation, has filed and served on the Company a
complaint alleging that the Adobe Photoshop program infringes five U.S. patents
held by Quantel. The complaint was filed in the United States District Court for
the District of Delaware. The complaint seeks a permanent injunction and
unspecified damages. The Company has analyzed the patents and believes it has
adequate legal defenses to the major causes of action and intends to vigorously
defend the lawsuit.
On February 6, 1996, a securities class action complaint was filed against
Adobe, certain of its officers and directors, certain former officers of Frame,
Hambrecht & Quist, LLP ("H&Q"), investment banker for Frame, and certain H&Q
employees, in connection with the drop in the price of Adobe stock following its
announcement of financial results for the quarter ended December 1, 1995. The
complaint was filed in the Superior Court of the State of California, County of
Santa Clara. The complaint alleges that the defendants misrepresented material
adverse information regarding Adobe and Frame and engaged in a scheme to defraud
investors. The complaint seeks unspecified damages for alleged violations of
California law. Adobe believes that the allegations against it and its officers
and directors are without merit and intends to vigorously defend the lawsuit.
Adobe has filed a demurrer in the Superior Court seeking to dismiss the
complaint in its entirety.
31
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on April 10, 1996.
A proposal to elect three (3) Class I directors of the Company to serve for
a two-year term expiring at the Annual Meeting of Shareholders in 1998 was
approved by shareholders. This proposal received the following votes:
For Withheld
---------- ---------
Charles M. Geschke 65,019,548 1,655,188
William R Hambrecht 65,023,056 1,651,680
Delbert W. Yocam 65,020,098 1,654,638
Incumbent Class II directors John E. Warnock, Robert Sedgewick, William J.
Spencer, and Gene P. Carter are currently serving for a term expiring at the
Annual Meeting of Shareholders in 1997.
Introduced was a proposal to approve an increase in the Company's share
reserve under the Company's 1994 Stock Option Plan by 3,600,000 to a total of
23,600,000. This proposal received the following votes:
For: 37,892,253
Against: 26,928,065
Abstain: 420,546
Also, there was a proposal to approve the new stock option plan for the
Company's Outside Directors, to be known as the 1996 Outside Directors Option
Plan. This proposal received the following votes:
For: 46,943,987
Against: 17,705,525
Abstain: 591,352
In addition, shareholders ratified the appointment of KPMG Peat Marwick LLP
as independent public accountants of the Company for fiscal 1996. This proposal
received the following votes:
For: 66,297,956
Against: 53,959
Abstain: 313,321
Broker non-votes are included in the determination of the number of shares
present and voting for purposes of determining the presence of a quorum at the
Company's annual meeting of shareholders. They are not, however, counted for
purposes of determining the number of votes cast for a proposal.
32
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Incorporated by Reference
Exhibit ------------------------- Filed
Number Exhibit Description Form Date Number Herewith
- - -------- ----------------------- ---- -------- ------ --------
3.2.9 Restated Bylaws X
4.1 Shareholders Rights X
Plan, as amended*
10.1.6 1984 Stock Option Plan, 10-Q 07/02/93 10.1.6
as amended*
10.1.7 1994 Stock Option Plan* 10-Q 05/27/94 10.1.7
10.12.1 1988 Employee Stock 10-Q 07/06/94 10.12.1
Purchase Plan, as
amended*
10.17.1 License Agreement 10-K 11/30/88 10.17.1
Restatement between the
Company and Apple
Computer, Inc., dated
April 1, 1987
(confidential treatment
granted)
10.17.2 Amendment No. 1 to the 10-K 11/30/90 10.17.2
License Agreement
Restatement between the
Company and Apple
Computer, Inc., dated
November 27, 1990
(confidential treatment
granted)
10.18 Lease Agreement dated S-1 07/01/86 10.18
November 11, 1983,
between Mozart Family
Trust and Epson
America Inc.
10.19 Assignment of Lease S-1 07/01/86 10.19
dated November 11,
1983, between Epson
America Inc. and the
Company dated February
1, 1986
(Continued)
33
<PAGE>
3. Index to Exhibits (Continued)
Incorporated by Reference
Exhibit ------------------------- Filed
Number Exhibit Description Form Date Number Herewith
- - -------- ----------------------- ---- -------- ------ --------
10.20 Lease Agreement between S-1 07/01/86 10.20
Mozart Family Trust and
the Company dated
November 30, 1983
10.21.2 Revised Bonus Plan* 10-K 11/26/93 10.21.2
10.22.4 Restricted Stock Option 10-Q 07/06/94 10.22.4
Plan, as amended*
10.24.1 1994 Performance and S-4 07/27/94 10.1
Restricted Stock Plan*
10.25 Form of Indemnity 10-K 11/30/88 10.25
Agreement*
10.26 Lease Agreement by 10-K 11/30/88 10.26
and between Charleston
Place Associates and
Adobe Systems Incorporated
dated April 14, 1987
10.26.1 Amendment One to Lease 10-K 11/30/88 10.26.1
Agreement dated March
1, 1988
10.26.2 Amendment Two to Lease 10-K 11/30/88 10.26.2
Agreement dated
September 1, 1988
10.27 Lease Agreement by and 10-K 11/30/88 10.27
between John Mozart and
Adobe Systems Incorporated
dated July 20, 1988
10.31 Restated Agreement and S-4 07/13/94 10.31
Plan of Merger and
Reorganization By and
Among Adobe Systems
Incorporated, P
Acquisition Corp and
Aldus Corporation
(Continued)
34
<PAGE>
3. Index to Exhibits (Continued)
Incorporated by Reference
Exhibit ------------------------- Filed
Number Exhibit Description Form Date Number Herewith
- - -------- ----------------------- ---- -------- ------ --------
10.32 Sublease of the Land and 10-K 11/25/94 10.32
Lease of the Improvements
By and Between
Sumitomo Bank Leasing
and Finance Inc. and
Adobe Systems Incorporated
10.33 Sale of Rights under 10-Q 06/02/95 10.33
Software Development
and Acquisition Agreement
By and Between Adobe
Systems Incorporated and
Thomas Knoll and John
Knoll (confidential
treatment granted)
10.34 Agreement and Plan of S-4 08/18/95 2.1
Merger and Reorganization
By and Among Adobe
Systems Incorporated, J
Acquisition Corporation
and Frame Technology
Corporation
10.35 Form of Executive 10-K 12/01/95 10.35
Severance and Change
of Control Agreement*
10.36 1996 Outside Directors X
Stock Option plan*
10.37 Confidential Resignation X
Agreement*
11 Computation of Earnings X
Per Common Share
27 Financial Data Schedule X
- - --------------------------------------
*Compensatory plan or arrangement
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended May 31, 1996.
35
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADOBE SYSTEMS INCORPORATED
Date: July 11, 1996
By /s/ M. Bruce Nakao
--------------------------
M. Bruce Nakao,
Senior Vice President, Finance and
Administration, Chief Financial Officer,
and Assistant Secretary
(Principal Financial Officer)
36
<PAGE>
SUMMARY OF TRADEMARKS
The following trademarks of Adobe Systems Incorporated, which may be registered
in certain jurisdictions, are referenced in this Form 10-Q:
Acrobat
Adobe
Display PostScript
Illustrator
FrameMaker
PageMaker
PageMill
Photoshop
PostScript
SiteMill
All other brand or product names are trademarks or registered trademarks of
their respective holders.
37
<PAGE>
RESTATED
BY-LAWS
OF
ADOBE SYSTEMS INCORPORATED
APRIL 10, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1. OFFICES........................................................1
Section 1.1 Principal Executive Office.................................1
Section 1.2 Other Offices..............................................1
ARTICLE 2. MEETINGS OF SHAREHOLDERS......................................1
Section 2.1 Place of Meetings..........................................1
Section 2.2 Annual Meetings............................................1
Section 2.3 Special Meetings...........................................2
Section 2.4 Notice of Meetings or Reports..............................2
Section 2.5 Adjourned Meetings and Notice Thereof......................4
Section 2.6 Voting.....................................................4
Section 2.7 Quorum.....................................................5
Section 2.8 Consent of Absentees.......................................5
Section 2.9 Action Without Meeting.....................................6
Section 2.10 Proxies....................................................7
Section 2.11 Regulation of Conduct of Shareholders Meetings.............7
Section 2.12 Advance Notice of Shareholder Proposals and
Directors Nominations.............................................8
Section 2.13 Inspectors of Election....................................10
ARTICLE 3. DIRECTORS....................................................11
Section 3.1 Powers....................................................11
Section 3.2 Number of Directors.......................................11
Section 3.3 Election, Term of Office and Vacancies....................11
Section 3.4 Resignation...............................................12
Section 3.5 Removal...................................................12
Section 3.6 Organization Meeting......................................12
Section 3.7 Other Regular Meetings....................................13
Section 3.8 Calling Meetings..........................................13
Section 3.9 Place of Meetings.........................................13
Section 3.10 Telephonic Meetings.......................................13
Section 3.11 Waiver of Notice of Meetings..............................13
Section 3.12 Action Without Meeting....................................14
Section 3.13 Quorum....................................................14
Section 3.14 Adjournment...............................................14
Section 3.15 Inspection Rights.........................................15
Section 3.16 Fees and Compensation.....................................15
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE 4. EXECUTIVE COMMITTEE AND OTHER COMMITTEES.....................15
Section 4.1 Executive Committee.......................................15
Section 4.2 Other Committees..........................................15
Section 4.3 Minutes and Reports.......................................16
Section 4.4 Meetings..................................................16
Section 4.5 Term of Office of Committee Members.......................16
ARTICLE 5. OFFICERS.....................................................16
Section 5.1 Officers..................................................16
Section 5.2 Election..................................................16
Section 5.3 Subordinate Officers, etc.................................17
Section 5.4 Removal and Resignation...................................17
Section 5.5 Vacancies.................................................17
Section 5.6 Chairman of the Board.....................................17
Section 5.7 Chief Executive Officer...................................18
Section 5.8 President.................................................18
Section 5.9 Vice President............................................18
Section 5.10 Chief Financial Officer...................................18
Section 5.11 Secretary.................................................19
Section 5.12 Compensation..............................................19
ARTICLE 6. MISCELLANEOUS................................................19
Section 6.1 Record Date...............................................19
Section 6.2 Inspection of Corporate Records...........................20
Section 6.3 Execution of Corporate Instruments........................20
Section 6.4 Ratification by Shareholders..............................21
Section 6.5 Annual Report.............................................21
Section 6.6 Representations of Shares of Other Corporations...........22
Section 6.7 Inspection of By-Laws.....................................22
ARTICLE 7. SHARES OF STOCK...............................................22
Section 7.1 Form of Certificates......................................22
Section 7.2 Transfer of Shares........................................22
Section 7.3 Lost Certificates.........................................23
Section 7.4 Employee Stock Purchase Plan..............................23
ARTICLE 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS....................23
Section 8.1 Indemnification by Corporation............................23
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 8.2 Advancing Expenses........................................24
Section 8.3 Non-Exclusivity of Rights.................................24
Section 8.4 Indemnification Contracts.................................24
Section 8.5 Insurance.................................................25
Section 8.6 Effect of Amendment.......................................25
ARTICLE 9. AMENDMENTS...................................................25
Section 9.1 Power of Shareholders.....................................25
Section 9.2 Power of Directors........................................25
iii.
<PAGE>
RESTATED
BY-LAWS
OF
ADOBE SYSTEMS INCORPORATED
ARTICLE 1
OFFICES
SECTION 1.1 PRINCIPAL EXECUTIVE OFFICE
The principal executive office for the transaction of business of the
corporation is hereby fixed and located at 1585 Charleston Road, Mountain View,
County of Santa Clara, State of California. The Board of Directors is hereby
granted full power and authority to change said principal office from one
location to another.
SECTION 1.2 OTHER OFFICES
Branch or subordinate offices may at any time be established by the Board
of Directors at any place or places where the corporation is qualified to do
business.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
SECTION 2.1 PLACE OF MEETINGS.
All meetings of shareholders shall be held either at the principal
executive office or at any other place within or without the State of California
which may be designated either by the Board of Directors or by the written
consent of a majority of the shareholders entitled to vote thereat as determined
pursuant to Section 6.1 of these By-Laws given either before or after the
meeting.
SECTION 2.2 ANNUAL MEETINGS.
(A) The annual meetings of shareholders shall be held on such day and
at such hour as may be fixed by the Board of Directors. At such meeting,
Directors shall be elected, and any other proper business may be transacted.
(B) The Board of Directors and the President shall each have
authority to hold at an earlier date and/or time, or to postpone to a later date
and/or time, the annual meeting of shareholders.
1.
<PAGE>
SECTION 2.3 SPECIAL MEETINGS.
Special meetings of the shareholders may be called at any time by the Board
of Directors, the Chairman of the Board, the President, or by the holders of
shares entitled to cast not less than ten percent (10%) of the votes at the
meeting. Within five business days after receiving such a written request from
shareholders of the corporation, the Board of Directors shall determine whether
shareholders owning not less than ten percent (10%) of the shares entitled to
cast votes at the meeting support the call of a special meeting and notify the
requesting party of its finding. Notice of such special meeting shall be given
in the same manner as for the annual meeting of shareholders.
SECTION 2.4 NOTICE OF MEETINGS OR REPORTS.
Written notice of each meeting of shareholders shall be given not less than
ten (10) days (or, if sent by third-class mail, thirty (30)) nor more than sixty
(60) days before the date of the meeting to each shareholder entitled to vote
thereat. Such notice shall be given either personally or by mail or other means
of written communication, addressed to each shareholder entitled to vote at such
meeting at the address of such shareholder appearing on the books of the
corporation or given by him or her to the corporation for the purpose of such
notice. If no such address appears or is given, notice shall be deemed to have
been given if sent to that shareholder by mail or other means of written
communication addressed to the shareholder at the place where the principal
executive office of the corporation is located, or by publication, at least once
in a newspaper of general circulation in the county in which said office is
located. The notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand by the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
The same procedure for the giving of notice shall apply to the giving of
any report to shareholders.
All such notices shall state the place, the date and the hour of such
meeting, and shall state such matters, if any, as may be expressly required by
the California Corporations Code.
2.
<PAGE>
Upon written request by any person or persons entitled to call a special
meeting, the Chairman of the Board, President, Vice President or Secretary after
receipt of the request shall cause notice to be given to the shareholders
entitled to vote that a special meeting will be held at a time requested by the
person or persons calling the meeting, but not less than thirty-five (35) nor
more than sixty (60) days after receipt of the request. If such notice is not
given within twenty (20) days after receipt of such request, the person or
persons calling the meeting may give notice thereof in the manner provided by
law or in these By-Laws. Nothing contained in this Section 2.4 shall be
construed as limiting, fixing or affecting the time or date when a meeting of
shareholders called by action of the Board of Directors may be held.
Notice of any meeting of shareholders shall state the date, place and hour
of the meeting and,
(A) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted at such
meeting;
(B) in the case of an annual meeting, the general nature of matters
which the Board of Directors, at the time the notice is given, intends to
present for action by the shareholders;
(C) in the case of any meeting at which directors are to be elected,
the names of the nominees intended at the time of the notice to be presented by
management for election; and
(D) in the case of any meeting, if action is to be taken on any of
the following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 310 (relating to certain transactions in
which a director has a direct or indirect financial interest);
(2) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 902 (relating to amending the Articles of
Incorporation of the corporation);
(3) a proposal to approve a transaction within the provisions of
California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the provisions of
California Corporations Code, Section 1900 (winding up and dissolution);
3.
<PAGE>
(5) a proposal to approve a plan of distribution within the
provisions of California Corporations Code, Section 2007 (relating to certain
plans providing for distribution not in accordance with the liquidation rights
of preferred shares, if any).
At a special meeting, notice of which has been given in accordance with
this Section, action may not be taken with respect to business, the general
nature of which has not been stated in such notice. At an annual meeting,
action may be taken with respect to business stated in the notice of such
meeting, given in accordance with this Section, and, subject to paragraph (d)
above, with respect to any other business as may properly come before the
meeting.
All other notices shall be sent by the Secretary or an Assistant Secretary,
or if there be no such officer, or in the case of such person's neglect or
refusal to act, by any other officer, or by persons calling the meeting.
SECTION 2.5 ADJOURNED MEETINGS AND NOTICE THEREOF.
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of a majority of the
shares, represented either in person or by proxy, but in the absence of a
quorum, no other business may be transacted at such meeting, except as provided
in Section 2.7 of these By-Laws.
When a shareholders' meeting is adjourned to another time or place, notice
of the adjourned meeting need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken; except that if the
adjournment is for more than forty-five (45) days or if after the adjournment a
new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote thereat.
At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting.
SECTION 2.6 VOTING.
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 6.1 of these By-Laws,
subject to the provisions of Sections 702 through 704 of the California
Corporations Code (relating to voting shares held by a fiduciary, in the name of
a corporation, or in joint ownership).
Except as provided below or as otherwise provided by the Articles of
Incorporation or By-Laws, a shareholder shall be entitled to one vote for each
share held of record on the record date fixed for the determination of the
shareholders entitled to
4.
<PAGE>
vote at a meeting or, if no such date is fixed, the date determined in
accordance with law. Upon the demand of any shareholder made at a meeting
before the voting begins, the election of directors shall be by ballot. No
shareholder will be permitted to cumulate votes at any election of directors.
Any holder of shares entitled to vote on any matter may vote part of the
shares in favor of the proposal and refrain from voting the remaining shares or
vote them against the proposal, other than elections to office, but, if the
shareholder fails to specify the number of shares such shareholder is voting
affirmatively, it shall be conclusively presumed that the shareholder's
approving vote is with respect to all shares said shareholder is entitled to
vote.
No shareholder approval, other than unanimous approval of those entitled to
vote, will be valid as to proposals described in paragraph (d) of Section 2.4 of
these By-Laws unless the general nature of such business was stated in the
notice of meeting or in any written waiver of notice.
SECTION 2.7 QUORUM.
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at any meeting of shareholders. If a quorum is
present, the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote on any matter shall be the act of the shareholders,
unless otherwise required by the Articles of Incorporation.
The shareholders present at a duly called or held meeting at which a quorum
is present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
In the absence of a quorum, no business other than adjournment may be
transacted, except as described in the immediately preceding paragraph.
SECTION 2.8 CONSENT OF ABSENTEES.
Except as provided in the paragraph immediately following, the transactions
of any meeting of shareholders, if not duly called and noticed, and wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the shareholders entitled to vote, not
present in person or by proxy, signs a written waiver of notice, or a consent to
the holding of such meeting, or an approval of the minutes thereof.
5.
<PAGE>
All such waivers, consents, or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
A waiver of notice, consent to the holding of a meeting or approval of the
minutes thereof need not specify the business to be transacted or transacted at
nor the purpose of the meeting; provided that in the case of proposals described
in paragraph (d) of Section 2.4 of these By-Laws, the general nature of such
proposals must be described in any such waiver of notice and such proposals can
only be approved by waiver of notice, not by consent to holding of the meeting
or approval of the minutes.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person objects, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, including those matters described in paragraph (d) of Section 2.4 of
these By-Laws; provided, that attendance at a meeting is not a waiver of any
right to object to the consideration of matters required by law or these By-Laws
to be included in the notice but not so included if such objection is expressly
made at the meeting.
SECTION 2.9 ACTION WITHOUT MEETING.
Any action which may be taken at any meeting of shareholders may be taken
without a meeting and without prior notice, if a consent in writing, setting
forth the actions so taken, shall be signed by the holders of outstanding shares
having not less than the minimum number of votes which would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted; provided, that except to fill a vacancy as
provided in Section 3.3 of these By-Laws, Directors may not be elected by
written consent except by unanimous written consent of all shares entitled to
vote for the election of Directors. Within five business days after receiving
such a written consent from shareholders of the corporation, the Board of
Directors shall determine whether holders of outstanding shares having not less
than the minimum number of votes which would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted have properly consented thereto in writing and notify the
shareholder(s) submitting the consent of its finding.
Any written consent may be revoked pursuant to California Corporations Code
Section 603(c) prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
Such revocation must be in writing and will be effective upon its receipt by the
Secretary.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, notice of the following actions approved by shareholders
without a meeting by
6.
<PAGE>
less than unanimous written consent shall be given to those shareholders
entitled to vote who have not consented in writing at least ten (10) days before
the consummation of the action authorized by such approval: (i) a transaction
within the provisions of California Corporations Code, Section 310 (relating to
certain transactions in which a director has an interest), (ii) a transaction
within the provisions of California Corporations Code, Section 317 (relating to
indemnification of agents of the corporation), (iii) a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization), and (iv) a plan of distribution within the provisions of
California Corporations Code, Section 2007 (relating to certain plans providing
for distribution not in accordance with the liquidation rights of preferred
shares, if any).
Unless the consents of all shareholders entitled to vote have been
solicited in writing, prompt notice of the taking of any corporate action not
listed above which is approved by shareholders without a meeting by less than
unanimous written consent shall be given to those shareholders entitled to vote
who have not consented in writing.
Such notice shall be given as provided in Section 2.4 of these By-Laws.
SECTION 2.10 PROXIES.
Every person entitled to vote shares may authorize another person or
persons to act by proxy with respect to such shares. No proxy shall be valid
after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy.
SECTION 2.11 REGULATION OF CONDUCT OF SHAREHOLDERS MEETINGS
At every meeting of the shareholders, the Chairman, if there is such an
officer, or if not, the Chief Executive Officer, or in his or her absence, the
President of the corporation, or in his or her absence any Vice President
designated by the President or the Secretary, or in the absence of the Chief
Executive Officer, the President or any Vice President or the Secretary a
Chairman chosen by the majority of the voting shares represented in person or by
proxy, shall act as Chairman. The Secretary of the corporation or a person
designated by the Chairman shall act as Secretary of the meeting. Unless
otherwise approved by the Chairman, attendance at the shareholders' meeting is
restricted to shareholders of record, persons authorized in accordance with
Article II of these By-Laws to act by proxy, and officers of the corporation.
The Chairman shall call the meeting to order, establish the agenda and
conduct the business of the meeting in accordance therewith or, at the
Chairman's discretion, it may be conducted otherwise in accordance with the
wishes of the shareholders in attendance.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise
7.
<PAGE>
discretion with respect to such procedural matters with fairness and good faith
toward all those entitled to take part. The Chairman may impose reasonable
limits on the amount of time taken at the meeting on discussion in general or on
remarks by any one shareholder. Should any person in attendance become unruly
or obstruct the meeting proceedings, the Chairman shall have the power to have
such person removed from participation. Notwithstanding anything in the By-Laws
to the contrary, no business shall be conducted at a meeting except in
accordance with the procedures set forth in this Section 2.11. The Chairman of
a meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of these By-Laws, and if he or she should so determine, he or she
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
SECTION 2.12 ADVANCE NOTICE OF SHAREHOLDER PROPOSALS AND DIRECTORS NOMINATIONS
(A) At an annual or special meeting of the shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, (iii) otherwise
properly brought before an annual meeting by a shareholder, or (iv) otherwise
properly brought before a special meeting by a shareholder, but if, and only if,
the notice of a special meeting provides for business to be brought before the
meeting by shareholders. For business to be properly brought before a meeting
by a shareholder, the shareholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a shareholder
proposal to be presented at an annual meeting shall be received at the
corporation's principal executive offices not less than one hundred twenty (120)
calendar days in advance of the date that the corporation's (or the
corporation's predecessor's) proxy statement was released to shareholders in
connection with the previous year's annual meeting of shareholders; provided,
however, that in the event no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy statement.
A shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the shareholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the shareholder, (iv) any material interest of the
shareholder in such business, and (v) any other information that is required to
be provided by the shareholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his or her capacity as a
proponent to a shareholder proposal. Notwithstanding
8.
<PAGE>
the foregoing, in order to include information with respect to a shareholder
proposal in the proxy statement and form of proxy for a shareholders' meeting,
shareholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these By-Laws to the contrary,
no business shall be conducted at any annual meeting except in accordance with
the procedures set forth in this paragraph (a). The chairman of the annual
meeting shall, if the facts warrant, determine and declare at the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of this paragraph (a), and, if he or she should so determine, he or
she shall so declare at the meeting that any such business not properly brought
before the meeting shall not be transacted.
(B) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (b) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of shareholders by or at the direction of the Board of
Directors or by any shareholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (b). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (a) of this Section 2.12. Such shareholder's notice shall set
forth (i) as to each person, if any, whom the shareholder proposes to nominate
for election or re-election as a director: (A) the name, age, business address
and residence address of such person, (B) the principal occupation or employment
of such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the shareholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such shareholder giving notice, the
information required to be provided pursuant to paragraph (a) of this
Section 2.12. At the request of the Board of Directors, any person nominated by
a shareholder for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in the shareholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (b). The chairman of the
meeting shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
By-Laws, and if he
9.
<PAGE>
or she should so determine, he or she shall so declare at the meeting, and the
defective nomination shall be disregarded.
(C) For purposes of this Section 2.12, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press, Business Wire or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the Board of Directors may appoint
any persons, other than nominees for office, to act as inspectors of election at
the meeting or its adjournment. If no inspectors of election are so appointed,
the chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or proxy shall determine whether
one (1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
(A) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(B) Receive votes, ballots, or consents;
(C) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(D) Count and tabulate all votes or consents;
(E) Determine when the polls shall close;
(F) Determine the result; and
(G) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
10.
<PAGE>
ARTICLE 3
DIRECTORS
SECTION 3.1 POWERS.
Subject to the limitations stated in the Articles of Incorporation, these
By-Laws, and the California Corporations Code as to actions which shall be
approved by the shareholders or by the affirmative vote of a majority of the
outstanding shares entitled to vote, and subject to the duties of Directors as
prescribed by the California Corporations Code, all corporate powers shall be
exercised by, or under the direction of, and the business and affairs of the
corporation shall be managed by, the Board of Directors.
SECTION 3.2 NUMBER OF DIRECTORS.
The authorized number of Directors of the corporation shall not be less
than six (6) nor more than eight (8) and the exact number of Directors
authorized shall be seven (7). The exact number of Directors may be fixed
within the limits specified in this Section 3.2 by a By-Law duly adopted by the
shareholders or by resolution of the Board of Directors. The minimum or maximum
number of Directors provided in this Section 3.2 may be changed or a definite
number fixed without provision for an indefinite number, by a By-Law duly
adopted by the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) or by
the written consent of shareholders pursuant to Section 2.9 above. No reduction
of the authorized number of directors shall remove any director prior to the
expiration of such director's term of office.
Any amendment of these By-Laws changing the maximum or minimum number of
directors may be adopted only by the affirmative vote of a majority of the
outstanding shares entitled to vote; provided, an amendment reducing the minimum
number of directors to less than five (5), cannot be adopted if votes cast
against its adoption at a meeting or the shares not consenting to it in the case
of action by written consent are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote.
SECTION 3.3 ELECTION, TERM OF OFFICE AND VACANCIES.
The directors shall be divided into two classes, designated Class I and
Class II, as nearly equal in number as reasonably possible, with any overage
allocated in the discretion of the Board of Directors. The initial term of
office of the Class I directors will expire at the 1992 annual meeting of
shareholders and the initial term of office of the Class II directors will
expire at the 1993 annual meeting of shareholders. At the 1992 annual meeting
of shareholders and at each annual meeting of shareholders thereafter,
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directors shall be elected, to succeed directors of the class whose term
expires, for a term of office to expire at the second succeeding annual meeting
after their election. All directors, including directors elected to fill
vacancies, shall hold office until the expiration of the term for which elected
and until their successors are elected and qualified, except in the case of
death, resignation or removal of any director. The Board of Directors may
declare vacant the office of a director who has been declared to be of unsound
mind by court order or convicted of a felony. Vacancies on the Board of
Directors not caused by removal may be filled by a majority of the directors
then in office, regardless of whether they constitute a quorum, or by the sole
remaining director. The shareholders may elect a director at any time to fill
any vacancy not filled, or which cannot be filled, by the Board of Directors.
SECTION 3.4 RESIGNATION.
Any Director may resign effective upon giving written notice to the
Chairman of the Board, the Chief Executive Officer, the President, the Secretary
or the Board of Directors of the corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
SECTION 3.5 REMOVAL.
Except as described below, any or all of the directors may be removed
without cause if such removal is approved by the affirmative vote of the
majority of the outstanding shares entitled to vote. No director may be removed
if the votes cast against removal, or not consenting in writing to removal,
would be sufficient to elect a director if voted cumulatively at an election at
which (i) the same total number of votes were cast (or, if removal is sought
through action by written consent, all shares entitled to vote were voted) and
(ii) either the number of directors elected at the most recent annual meeting of
shareholders, or if greater, the number of directors for whom removal is being
sought, were then being elected.
SECTION 3.6 ORGANIZATION MEETING.
Immediately before or after each annual meeting of shareholders, the Board
of Directors shall hold a regular meeting for the purpose of organization, the
election of officers and the transaction of other business. No notice of such
meeting need be given.
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SECTION 3.7 OTHER REGULAR MEETINGS.
The Board of Directors may provide by resolution the time and place for the
holding of regular meetings of the Board; provided, however, that if the date so
designated falls upon a legal holiday, then the meeting shall be held at the
same time and place on the next succeeding day which is not a legal holiday. No
notice of such regular meetings of the Board need be given.
SECTION 3.8 CALLING MEETINGS.
Meetings of the Board of Directors for any purpose or purposes shall be
held whenever called by the Chairman of the Board, the President or the
Secretary or any two Directors of the corporation.
SECTION 3.9 PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at any place within or
without the State of California which may be designated in the notice of the
meeting, or, if not stated in the notice or there is no notice, designated by
resolution of the Board. In the absence of such designation, meetings of the
Board of Directors shall be held at the principal executive office of the
corporation.
SECTION 3.10 TELEPHONIC MEETINGS.
Members of the Board may participate in a regular or special meeting
through use of conference telephone or similar communications equipment, so long
as all members participating in such meeting can hear one another.
Participation in a meeting pursuant to this Section 3.10 constitutes presence in
person at such meeting.
SECTION 3.11 WAIVER OF NOTICE OF MEETINGS.
Notice of the date, time and place of all meetings of the Board of
Directors, other than regular meetings held pursuant to Section 3.7 above shall
be delivered personally, orally or in writing, or by telephone, including a
voice messaging system or other system of technology designed to record and
communicate messages, or telegraph, facsimile, electronic mail or other
electronic means to each director, at least forty-eight (48) hours before the
meeting, or sent in writing to each director by first-class mail, charges
prepaid, at least four (4) days before the meeting. Such notice may be given by
the Secretary of the corporation or by the person or persons who called a
meeting. Such notice need not specify the purpose of the meeting.
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Notice of a meeting need not be given to any Director who signs a waiver of
notice, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
Director.
The transactions of any meeting of the Board of Directors, if not duly
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the Directors not present signs a
written waiver of notice, a consent to holding the meeting or an approval of the
minutes thereof. All such waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
SECTION 3.12 ACTION WITHOUT MEETING.
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting, if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board. Such
action by written consent shall have the same force and effect as a unanimous
vote of such Directors.
SECTION 3.13 QUORUM.
A majority of the authorized number of Directors shall constitute a quorum
for the transaction of business. Every act or decision done or made by a
majority of the Directors present at a meeting duly held at which a quorum is
present shall be the act of the Board of Directors, unless the Articles of
Incorporation, or the California Corporations Code, specifically requires a
greater number. In the absence of a quorum at any meeting of the Board of
Directors, a majority of the Directors present may adjourn the meeting as
provided in Section 3.14 of these By-Laws. A meeting at which a quorum is
initially present may continue to transact business, notwithstanding the
withdrawal of enough Directors to leave less than a quorum, if any action taken
is approved by at least a majority of the required quorum for such meeting.
SECTION 3.14 ADJOURNMENT.
Any meeting of the Board of Directors, whether or not a quorum is present,
may be adjourned to another time and place by the vote of a majority of the
Directors present. Notice of the time and place of the adjourned meeting need
not be given to absent Directors if said time and place are fixed at the meeting
adjourned.
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SECTION 3.15 INSPECTION RIGHTS.
Every Director shall have the absolute right at any reasonable time to
inspect, copy and make extra copies of, in person or by agent or attorney, all
books, records and documents of every kind and to inspect the physical
properties of the corporation.
SECTION 3.16 FEES AND COMPENSATION.
Directors shall not receive any stated salary for their services as
Directors; however, by resolution of the Board, non-employee Directors may
receive a fixed annual retainer for their services as Directors and/or stock or
stock option compensation, as well as a fixed fee, with or without expenses of
attendance, for attendance at each Board meeting, and each Board Committee
meeting. Nothing herein contained shall be construed to preclude any Director
from serving the corporation in any other capacity as an officer, agent,
employee, or otherwise, and receiving compensation therefor.
ARTICLE 4
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
SECTION 4.1 EXECUTIVE COMMITTEE.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of Directors, appoint an executive committee, consisting of
two or more Directors. The Board may designate one or more Directors as an
alternate member of such committee, who may replace any absent member of any
meeting of the committee. The executive committee, subject to any limitations
imposed by the California Corporations Code, or by resolution adopted by the
affirmative vote of a majority of the authorized number of Directors, or imposed
by the Articles of Incorporation or by these By-Laws, shall have and may
exercise all of the powers of the Board of Directors.
SECTION 4.2 OTHER COMMITTEES.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of Directors, designate such other committees, each consisting
of two or more Directors, as it may from time to time deem advisable to perform
such general or special duties as may from time to time be delegated to any such
committee by the Board of Directors, subject to the limitations contained in the
California Corporations Code, or imposed by the Articles of Incorporation or by
these By-Laws. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent member at any meeting of
the committee.
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SECTION 4.3 MINUTES AND REPORTS.
Each committee shall keep regular minutes of its proceedings, which shall
be filed with the Secretary. All action by any committee shall be reported to
the Board of Directors at the next meeting thereof, and, insofar as rights of
third parties shall not be affected thereby, shall be subject to revision and
alteration by the Board of Directors.
SECTION 4.4 MEETINGS.
Except as otherwise provided in these By-Laws or by resolution of the Board
of Directors, each committee shall adopt its own rules governing the time and
place of holding and the method of calling its meetings and the conduct of its
proceedings and shall meet as provided by such rules, and it shall also meet at
the call of any member of the committee. Unless otherwise provided by such
rules or by resolution of the Board of Directors, committee meetings shall be
governed by Sections 3.8 through 3.14 of these By-Laws.
SECTION 4.5 TERM OF OFFICE OF COMMITTEE MEMBERS.
The term of office of any committee member shall be as provided in the
resolution of the Board of Directors designating him or her but shall not exceed
his or her term as a Director. Any member of a committee may be removed at any
time by resolution adopted by Directors holding a majority of the directorships,
either present at a meeting of the Board or by written approval thereof.
ARTICLE 5
OFFICERS
SECTION 5.1 OFFICERS.
The officers of the corporation shall be a Chief Executive Officer, a President,
a Vice President, a Secretary and a Chief Financial Officer. The corporation
may also have, at the discretion of the Board of Directors, a Chairman of the
Board, one or more additional Vice Presidents and such other officers as may be
appointed in accordance with the provisions of Section 5.3. One person may hold
two or more offices.
SECTION 5.2 ELECTION.
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 and 5.5, shall be chosen
annually by the Board of Directors and each such person shall hold office until
he or she shall resign or shall be removed or otherwise disqualified to serve,
or his or her successor shall be
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elected and qualified, subject to the right, if any, of an officer under a
contract of employment. Notwithstanding the foregoing, the Board of Directors
may empower the Chief Executive Officer of the corporation to appoint such
officers, other than Chairman of the Board, President, Secretary or Chief
Financial Officer, as the business of the corporation may require.
SECTION 5.3 SUBORDINATE OFFICERS, ETC.
The Board of Directors (or the Chief Executive Officer, if so empowered in
accordance with Section 5.2) may appoint such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in these By-Laws or
as the Board of Directors may from time to time determine. The Board of
Directors may designate whether or not any officers shall be executive officers
of the corporation.
SECTION 5.4 REMOVAL AND RESIGNATION.
Any officer may be removed, either with or without cause, by a majority of
the Directors at the time in office, at any regular or special meeting of the
Board, or, except in the case of the Chairman of the Board, an officer upon whom
such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 5.5 VACANCIES.
A vacancy in the office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these By-Laws for regular appointments to such office.
SECTION 5.6 CHAIRMAN OF THE BOARD.
The Chairman of the Board, if there shall be such an officer, shall, if
present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to him
or her by the Board of Directors as prescribed by these By-Laws. If no Chief
Executive Officer or President is appointed, the Chairman of the Board is the
general manager and chief executive officer of the corporation, and shall
exercise all powers of the President described in Section 5.7 below.
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SECTION 5.7 CHIEF EXECUTIVE OFFICER.
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, if there be such an officer, the Chief
Executive Officer shall be the general manager and chief executive officer of
the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction, and control of the business and officers of
the corporation. He or she shall preside at all meetings of the shareholders
and shall have the general powers and duties of management usually vested in the
office of chief executive officer of a corporation, and shall have other powers
and duties as may be prescribed by the Board of Directors.
SECTION 5.8 PRESIDENT.
In the absence or disability of the Chief Executive Officer, the President
shall perform the duties of the Chief Executive Officer and, when so acting,
shall have all the powers of, and be subject to all of the restrictions upon,
the Chief Executive Officer. The President shall have such other powers and
perform such other duties as from time to time may be prescribed for the
President by the Board of Directors or the Chief Executive Officer.
SECTION 5.9 VICE PRESIDENT.
In the absence or disability of the President, the Vice Presidents in order
of their rank as fixed by the Board of Directors, or if not ranked, the Vice
President designated by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors, the Chief Executive
Officer or the President.
SECTION 5.10 CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of account in written
form or any other form capable of being converted into written form.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. He or she shall disburse all funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President, Chief Executive Officer and Directors, whenever they request it, an
account of all of his or her transactions as Chief Financial Officer and of the
financial condition of the corporation, and shall have
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such other powers and perform such other duties as may be prescribed by the
Board of Directors, the Chief Executive Officer or the President.
SECTION 5.11 SECRETARY.
The Secretary shall keep, or cause to be kept, a book of minutes in written
form of the proceedings of the Board of Directors, committees of the Board, and
shareholders. Such minutes shall include all waivers of notice, consents to the
holding of meetings, or approvals of the minutes of meetings executed pursuant
to these By-Laws or the California Corporations Code. The Secretary shall keep,
or cause to be kept at the principal executive office or at the office of the
corporation's transfer agent or registrar, a record of its shareholders, giving
the name and addresses of all shareholders and the number and class of shares
held by each.
The Secretary shall give or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required by these By-Laws or by
law to be given, and shall keep the seal of the corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors, the Chief Executive Officer or the President.
SECTION 5.12 COMPENSATION.
The compensation of the officers shall be fixed from time to time by the
Board of Directors or a committee of the Board of Directors to which such
authority has been delegated, and no officer shall be prevented from receiving
such compensation by reason of the fact that he or she is also a Director of the
corporation.
ARTICLE 6
MISCELLANEOUS
SECTION 6.1 RECORD DATE.
The Board of Directors may fix, in advance, a time in the future as the
record date for the determination of shareholders entitled to notice of any
meeting or to vote or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any other lawful action. Shareholders on the record date are
entitled to notice and to vote or receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares in the books of the corporation after
the record date, except as otherwise provided by law. Said record date shall
not be more than sixty (60) or less than ten (10) days prior to the date of any
such meeting, nor more than sixty (60) days prior to any other action.
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A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board fixes a new record date for the adjourned meeting, but the
Board shall fix a new record date if the meeting is adjourned for more than
forty-five (45) days from the date set for the original meeting.
In order that the corporation may determine the shareholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. Any
shareholder of record seeking to have the shareholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. The Board of Directors
shall promptly, but in no event later than ten (10) days after the date on which
such request is received, adopt a resolution fixing the record date.
If no record date is fixed by the Board of Directors, the record date shall
be fixed pursuant to the California Corporations Code.
SECTION 6.2 INSPECTION OF CORPORATE RECORDS.
The accounting books and records, and minutes of proceedings of the
shareholders and the Board of Directors and committees of the Board shall be
open to inspection upon written demand made upon the corporation by any
shareholder or the holder of a voting trust certificate, at any reasonable time
during usual business hours, for a purpose reasonably related to his or her
interest as a shareholder, or as the holder of such voting trust certificate.
The record of shareholders shall also be open to inspection by any shareholder
or holder of a voting trust certificate at any time during usual business hours
upon written demand on the corporation, for a purpose reasonably related to such
holder's interest as a shareholder or holder of a voting trust certificate.
Such inspection may be made in person or by an agent or attorney, and shall
include the right to copy and to make extracts.
SECTION 6.3 EXECUTION OF CORPORATE INSTRUMENTS.
The Board of Directors may, in its discretion, determine the method and
designate the statutory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the corporation. Unless otherwise
specifically determined by the Board of Directors or the Chief Executive Officer
in accordance with the provisions of Section 5.2 formal contracts
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of the corporation, promissory notes, mortgages, evidences of indebtedness,
share certificates, conveyances or other instruments in writing, and any
assignment or endorsement thereof, executed or entered into between the
corporation and any person, shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President or any Vice President, Chief Financial
Officer or the Secretary or any subordinate officer appointed in accordance with
Section 5.3 and empowered to do so in accordance therewith.
SECTION 6.4 RATIFICATION BY SHAREHOLDERS.
The Board of Directors may, subject to applicable notice requirements, in
its discretion, submit any contract or act for approval or ratification of the
shareholders at any annual meeting of shareholders, or at any special meeting of
shareholders called for that purpose; and any contract or act which shall be
approved or ratified by the affirmative vote of a majority of the shares
entitled to vote represented at a duly held meeting at which a quorum is
present, or by the written consent of shareholders, shall be as valid and
binding upon the corporation and upon the shareholders thereof as though
approved or ratified by each and every shareholder of the corporation, unless a
greater vote is required by law for such purpose.
SECTION 6.5 ANNUAL REPORT.
For so long as the corporation has less than 100 holders of record of its
shares, the mandatory requirement of an annual report is hereby expressly
waived. The Board of Directors may, in its discretion, cause an annual report
to be sent to the shareholders. Such reports shall contain at least a balance
sheet as of the close of such fiscal year and an income statement and statement
of cash flow changes for such fiscal year, and shall be accompanied by any
report thereon of independent accountants, or if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit in the books and records of the corporation.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement and/or a balance sheet of the
corporation for the three-month, six-month or nine-month period of the current
fiscal year ended more that thirty (30) days prior to the date of the request,
and such statement shall be delivered or mailed to the person making the request
within thirty (30) days thereafter. Such statements shall be accompanied by the
report thereon, if any, of any independent accountants engaged by the
corporation or the certificates of an authorized officer of the corporation that
such financial statements were prepared without audit from the books and records
of the corporation.
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SECTION 6.6 REPRESENTATIONS OF SHARES OF OTHER CORPORATIONS.
The Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer or the Secretary of this corporation are authorized to vote,
represent and exercise on behalf of the corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority herein granted to said officers to vote or
represent on behalf of this corporation any and all shares held by this
corporation and any other corporation or corporations may be exercised either by
such officers in person or by any person authorized so to do by proxy or power
of attorney and duly executed by said officers.
SECTION 6.7 INSPECTION OF BY-LAWS.
The corporation shall keep in its principal executive office in this State
the original or a copy of the By-Laws as amended or otherwise altered to date,
which shall be open to inspection by the shareholders at all reasonable times
during office hours.
ARTICLE 7
SHARES OF STOCK
SECTION 7.1 FORM OF CERTIFICATES.
Certificates for shares of stock of the corporation shall be in such form
and design as the Board of Directors shall determine and shall be signed in the
name of the corporation by the Chairman of the Board or the President or any
Vice President, and by the Chief Financial Officer or an Assistant Treasurer or
the Secretary or any Assistant Secretary. Each certificate shall state the
certificate number, the date of issuance, the number, class or series and the
name of the record holder of the shares represented thereby, the name of the
corporation, and, if the shares of the corporation are classified or if any
class of shares has two or more series, there shall appear the statement
required by the California Corporations Code. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if such person were an officer, transfer agent or registrar at
the date of issue.
SECTION 7.2 TRANSFER OF SHARES.
Shares of stock may be transferred in any manner permitted or provided by
law. Before any transfer of stock is entered upon the books of the corporation,
or any new
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certificate issued therefor, the older certificate, properly endorsed, shall be
surrendered and canceled, except when a certificate has been lost, stolen or
destroyed.
SECTION 7.3 LOST CERTIFICATES.
The Board of Directors may order a new certificate for shares of stock to
be issued in the place of any certificate alleged to have been lost, stolen or
destroyed, but in every such case, the owner or the legal representative of the
owner of the lost, stolen or destroyed certificates may be required to give the
corporation a bond (or other adequate security) in such form and amount as the
Board may deem sufficient to indemnify it against any claim that may be made
against the corporation (including any expense or liability) on account of the
alleged loss, theft or destruction of any such certificate or issuance of such
new certificate.
SECTION 7.4 EMPLOYEE STOCK PURCHASE PLAN.
The Board of Directors shall have the authority, in its discretion, to
adopt and carry out an employee stock purchase plan or agreement, containing
such terms and conditions as the Board may prescribe, for the issue and sale of
unissued shares of the corporation, or of its issued shares acquired or to be
acquired, to the employees of the corporation or to the employees of its
subsidiary corporations or to a trustee on their behalf, and for the payment of
such shares in installments or at one time, and for such consideration as may be
fixed by the Board, and may provide for aiding any such employees in paying for
such shares by compensation for services rendered, promissory notes or
otherwise.
ARTICLE 8
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 8.1 INDEMNIFICATION BY CORPORATION.
The corporation shall indemnify any Director or executive officer of the
corporation against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in a proceeding (including a derivative action
on behalf of the corporation) to which that person was or is threatened to be
made a party by reason of the fact that he or she was or is an agent of the
corporation, to the maximum extent not prohibited under the California
Corporations Code; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its Directors and executive
officers in accordance with Section 8.4; and, provided, further, that the
corporation shall not be required to indemnify any Director or executive officer
in connection with any proceeding (or part thereof) initiated by such person or
any proceeding by such person against the corporation or its directors,
officers, employees or
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other agents unless (i) such indemnification is expressly required to be made by
law, (ii) the proceeding was authorized by the Board of Directors of the
corporation or (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
California Corporations Code. The corporation shall have the power to indemnify
its other officers, employees and other agents as set forth in the California
Corporations Code. Promptly after receipt of a request for indemnification
hereunder (and in any event within 90 days thereof) a reasonable, good faith
determination as to whether indemnification of the person is proper under the
circumstances because such person has met the applicable standard of care shall
be made by:
(A) a majority vote of a quorum consisting of Directors who are not
parties to such proceeding;
(B) if such quorum is not obtainable, by independent legal counsel in
a written opinion; or
(C) approval or ratification by the affirmative vote of a majority of
the shares of this corporation represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required quorum) or by written consent of a majority of
the outstanding shares entitled to vote; where in each case the shares owned by
the person to be indemnified shall not be considered entitled to vote thereon.
SECTION 8.2 ADVANCING EXPENSES.
The corporation shall advance to each Director or executive officer the
expenses incurred in defending any proceeding referred to in Section 8.1 of
these By-Laws prior to the final disposition of such proceeding as provided in
the California Corporations Code.
SECTION 8.3 NON-EXCLUSIVITY OF RIGHTS.
The rights conferred on any person in Sections 8.1 and 8.2 shall not be
exclusive of any other right which such persons may have or hereafter acquire
under any statute, provision of the Articles of Incorporation, By-Law,
agreement, vote of shareholders or disinterested Directors or otherwise.
SECTION 8.4 INDEMNIFICATION CONTRACTS.
The Board of Directors is authorized to enter into a contract with any
Director, officer, employee or agent of the corporation, or any person serving
at the request of the corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing for
24.
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indemnification rights equivalent to or, if the Board of Directors so
determines, less than or greater than, those provided for in this Article VIII.
SECTION 8.5 INSURANCE.
The corporation may maintain insurance to the extent reasonably available,
at its expense, to protect itself and any such Director, officer, employee or
agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss, whether
or not the corporation would have the power to indemnify such person against
such expense, liability or loss under the California Corporations Code.
SECTION 8.6 EFFECT OF AMENDMENT.
Any amendment, repeal or modification of any provision of this Article VIII
by the shareholders and the Directors of the corporation shall not adversely
affect any right or protection of a Director or officer of the corporation
existing at the time of such amendment, repeal or modification.
ARTICLE 9
AMENDMENTS
SECTION 9.1 POWER OF SHAREHOLDERS.
New By-Laws may be adopted or these By-Laws may be amended or repealed by
the affirmative vote of a majority of the outstanding shares entitled to vote or
by the written consent thereof, except as otherwise provided by law or by the
Articles of Incorporation.
SECTION 9.2 POWER OF DIRECTORS.
Subject to the right of shareholders as provided in Section 9.1 of these
By-Laws, By-Laws other than a By-Law or amendment thereof specifying or changing
the authorized number of Directors, or the minimum or maximum number of a
variable Board of Directors, or changing from a fixed to a variable Board of
Directors or vice versa, may be adopted, amended or repealed by the approval of
the Board of Directors.
25.
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Exhibit 4.1
AMENDED AND RESTATED RIGHTS AGREEMENT
This agreement ("Rights Agreement"), dated as of July 11, 1990, and
amended and restated as of April 10, 1996, between Adobe Systems Incorporated, a
California corporation (the "Company"), and Harris Trust Company of California
(the "Rights Agent").
W I T N E S S E T H :
WHEREAS, the Board of Directors of the Company on July 11, 1990 (i)
announced that it authorized the issuance and declared a dividend of one right
("Right") for each share of the common stock of the Company ("Common Stock")
outstanding as of the Close of Business (as defined herein) on July 24, 1990,
each Right representing the right to purchase one share of Common Stock of the
Company upon the terms and subject to the conditions hereinafter set forth, and
(ii) further authorized the issuance of one Right with respect to each share of
Common Stock of the Company that shall become outstanding between July 24, 1990,
and the Distribution Date (as defined herein); and
WHEREAS, pursuant to authorization of the Board of Directors at a
meeting properly noticed and convened on April 10, 1996, this Agreement has been
amended and restated as of the date set forth above in accordance with the
provisions of Section 27 hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement the
following terms shall have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as defined herein) who
or which, together with all Affiliates (as defined herein) and Associates (as
defined herein) of such Person, without the prior approval of the Board of
Directors, shall be the Beneficial Owner (as defined herein) of 20% or more of
the outstanding Common Stock; provided, however, that in no event shall a Person
who or which, together with all Affiliates and Associates of such Person, is the
Beneficial Owner (as defined herein) of less than 20% of the Company's
outstanding shares of Common Stock, become an Acquiring Person solely as a
result of a reduction of the number of shares of outstanding Common Stock,
including repurchases of outstanding shares of Common Stock by the Company,
which reduction increases the percentage of outstanding shares of Common Stock
beneficially owned by such
<PAGE>
Person, and provided further that an Acquiring Person shall not include an
Exempt Person (as defined herein).
(b) "Adjustment Shares" shall have the meaning set forth in
Section 11(a)(ii)(c) hereof.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended ("Exchange Act"), as currently
in effect.
(d) A Person shall be deemed the "Beneficial Owner" of any
securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially
own," securities tendered pursuant to a tender or exchange offer made
by such Person or any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange; or (B)
the right to vote pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own", any securities if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable
proxy or consent given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act and (2) is not also then
reportable by such Person on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of
acquiring, holding, voting [except as described in clause (B) of
subparagraph (ii) of this Section 1(d)] or disposing of any securities
of the Company.
(e) "Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of California are authorized
or obligated by law or executive order to close.
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(f) "Close of Business" on any given date shall mean 5:00 P.M.,
California time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., California time, on the next succeeding
Business Day.
(g) "Common Stock" when used with reference to the Company shall mean
the common stock of the Company. "Common Stock" when used with reference to any
Person other than the Company which shall be organized in corporate form shall
mean the capital stock or other equity security with the greatest per share
voting power of such Person or, if such Person is a Subsidiary (as defined
herein) of, or is controlled by another Person, the Person which ultimately
controls such first-mentioned Person. "Common Stock" when used with reference
to any Person other than the Company which shall not be organized in corporate
form shall mean units of beneficial interest which shall represent the right to
participate in profits, losses, deductions and credits of such Person and which
shall be entitled to exercise the greatest voting power per unit of such Person.
(h) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(i) "Current Market Price" shall have the meaning set forth in
Section 11(d) hereof.
(j) "Current Value" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(k) "Distribution Date" shall have the meaning set forth in
Section 3(a) hereof.
(l) "Equivalent Common Stock" shall have the meaning set forth in
Section 11(b) hereof.
(m) "Exchange Act" shall have the meaning set forth in Section 1(c)
hereof.
(n) "Exempt Person" shall mean the Company, any Subsidiary of the
Company, any employee benefit plan or employee stock plan of the Company or of
any Subsidiary of the Company, or any Person, organized, appointed, established
or holding Common Stock for, or pursuant to, the terms of any such plan.
(o) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(p) "Flip-In Event" shall mean any event described in
Section 11(a)(ii)(A), (B) or (C) hereof.
3
<PAGE>
(q) "Flip-In Exercise Payment" shall have the meaning set forth in
Section 11(a)(ii)(c).
(r) "Flip-In Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(s) "Flip-Over Event" shall mean any event described in clause (x),
(y) or (z) of Section 13(a) hereof.
(t) "Flip-Over Exercise Payment" shall have the meaning set forth in
Section 13(a) hereof.
(u) "NASDAQ" shall have the meaning set forth in Section 9(b) hereof.
(v) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(w) "Principle Party" shall have the meaning set forth in
Section 13(b) hereof.
(x) "Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.
(y) "Redemption Date" shall have the meaning set forth in Section
7(a) hereof.
(z) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(aa) "Right Certificate" shall have the meaning set forth in
Section 3(a) hereof.
(bb) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(cc) "Stock Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such or such earlier date as a majority of the directors shall become
aware of the existence of an Acquiring Person.
(dd) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(ee) "Subsidiary" of a Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary voting
power sufficient to elect
4
<PAGE>
a majority of the board of directors or other persons performing similar
functions, are beneficially owned, directly or indirectly, by such Person and
any corporation or other entity that is otherwise controlled by such Person.
(ff) "Summary of Rights" shall have the meaning set forth in
Section 3(b) hereof.
(gg) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
(hh) "Triggering Event" shall mean any event described in
Section 11(a)(ii)(A), (B), or (C) or Section 13 hereof.
(ii) "Voting Power" shall mean the voting power of all securities of
the Company then outstanding and generally entitled to vote for the election of
directors of the Company.
Any determination required by the definitions contained in this
Section 1 shall be made by the Board of Directors of the Company in its good
faith judgment, which determination shall be binding on the Rights Agent and the
holders of the Rights.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. With the consent of the Rights Agent, the Company may from time to
time appoint such Co-Rights Agents as it may deem necessary or desirable.
SECTION 3. ISSUANCE OF RIGHT CERTIFICATES.
(a) Until the earlier of (i) the Close of Business on the tenth day
after Stock Acquisition Date or (ii) the Close of Business on the tenth day (or
such later date as may be determined by action of the Board of Directors prior
to such time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intent of any Person (other than an Exempt Person) to
commence (which intention to commence remains in effect for five (5) business
days after such announcement), a tender or exchange offer upon the successful
consummation of which such Person, together with its Affiliates and Associates,
would be the Beneficial Owner of 20% or more of the outstanding Common Stock
(irrespective of whether any shares are actually purchased pursuant to any such
offer) (including any such date which is after the date of this Agreement and
prior to the issuance of the Rights; the earlier of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(c) hereof) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock and not
by separate Right certificates, and (y) each Right will be transferable only in
connection with the transfer of a share (subject to adjustment as hereinafter
provided) of
5
<PAGE>
Common Stock. As soon as practicable after the Distribution Date, the Rights
Agent will mail, by first-class, postage prepaid mail, to each record holder of
the Common Stock as of the Close of Business on the Distribution Date, as shown
by the records of the Company, to the address of such holder shown on such
records, a Right certificate in substantially the form of EXHIBIT A hereto
("Right Certificate") evidencing one Right for each share of Common Stock so
held. As of and after the Distribution Date the Rights will be evidenced solely
by such Right Certificates.
(b) On April 10, 1996 or as soon as practicable thereafter, the
Company sent a copy of a Summary of Rights to Purchase Common Stock,
substantially in the form (Exhibit B having been amended, however, to summarize
the terms of the Rights as amended as of April __, 1996) attached hereto as
EXHIBIT B ("Summary of Rights"), by first-class, postage prepaid mail, to each
record holder of Common Stock as of the Close of Business on July 24, 1990, at
the address of such holder shown on the records of the Company.
(c) With respect to certificates for Common Stock outstanding as of
July 24, 1990, until the Distribution Date (or, if earlier, the Redemption Date
or the Final Expiration Date), the Rights will be evidenced by such certificates
for Common Stock registered in the names of the holders thereof together with a
copy of the Summary of Rights. Until the Distribution Date (or, if earlier, the
Redemption Date or Final Expiration Date), the surrender for transfer of any
certificate for Common Stock outstanding on July 24, 1990, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the
surrender for transfer of the Rights associated with the Common Stock
represented thereby.
(d) (i) Certificates issued for Common Stock (including, without
limitation, certificates issued upon transfer or exchange of Common Stock) after
July 24, 1990 but prior to the earlier of the Distribution Date, the Redemption
Date or the Final Expiration Date, shall have impressed on, printed on, written
on, or otherwise affixed to them, the following legend:
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement between Adobe Systems
Incorporated and Manufacturers Hanover Trust Company, as Rights Agent,
dated as of July 11, 1990 (the "Rights Agreement"), the terms of which are
incorporated herein by reference and a copy of which is on file at the
principal executive office of Adobe Systems Incorporated. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. Adobe Systems Incorporated will mail to the holder of this
certificate a copy of the Rights Agreement without charge within five (5)
days after receipt by it of a written request therefor. Under certain
circumstances as provided in the Rights Agreement, Rights issued to or
beneficially owned by Acquiring Persons
6
<PAGE>
or their Associates or Affiliates (as defined in the Rights Agreement) or
any subsequent holder of such Rights may be limited as provided in
Section 11(a)(ii) and Section 24 of the Rights Agreement.
With respect to such certificates containing the foregoing legend, the Rights
associated with the Common Stock represented by such certificates shall, until
the Distribution Date, be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
surrender for transfer of the Rights associated with the Common Stock
represented thereby.
SECTION 4. FORM OF RIGHT CERTIFICATES.
(a) The Right Certificates (and the forms of election to purchase
shares and of assignment to be printed on the reverse thereof), when, as and if
issued, shall be substantially in the form set forth in EXHIBIT A hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to comply with any law or with any rule or regulation made pursuant to thereto,
or with any rule or regulation of any stock exchange on which the Rights may
from time to time be listed, or to conform to usage. Subject to the provisions
of Sections 11 and 22 hereof, the Right Certificates evidencing the Rights
issued on July 24, 1990, whenever such certificates are issued, shall be dated
as of July 24, 1990, and the Right Certificates evidencing Rights to holders of
record of Common Stock issued after July 24, 1990, shall be dated as of July 24,
1990, but shall also be dated to reflect the date of issuance of such Right
Certificate. On their face, Right Certificates shall entitle the holders
thereof to purchase, for each Right, one share of Common Stock, or other
securities or property as provided herein, as the same may from time to time be
adjusted after the date hereof as provided herein, at the price per share of
$115.00, as the same may from time to time be adjusted as provided herein (the
"Purchase Price").
(b) Notwithstanding any other provision of this Rights Agreement, any
Right Certificate that represents Rights that are or were at any time on or
after the earlier of the Stock Acquisition Date or the Distribution Date
beneficially owned by an Acquiring Person or any Affiliate or Associate thereof
(or any transferee of such Rights) shall have impressed on, printed on, written
on or otherwise affixed to it (if the Company or the Rights Agent has knowledge
that such Person is an Acquiring Person or an Associate or Affiliate thereof or
transferee of such Persons or a nominee of any of the foregoing) the following
legend:
The beneficial owner of the Rights represented by this Right Certificate is
an Acquiring Person or an Affiliate or Associate (as defined in the Rights
Agreement) of an Acquiring Person or a subsequent holder of such Right
Certificates beneficially owned by such Persons. Accordingly, under
certain circumstances as provided in the Rights
7
<PAGE>
Agreement, this Right Certificate and the Rights represented hereby may be
limited as provided in Section 11(a)(ii) and Section 24 of the Rights
Agreement.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Right Certificates shall be executed on behalf of the Company
by its President or any Vice President, either manually or by facsimile
signature, and have affixed thereto the Company's seal or a facsimile thereof
which shall be attested by the Secretary or an Assistant Secretary of the
Company, either manually or by facsimile signature. The Right Certificates
shall be manually countersigned by the Rights Agent and shall not be valid for
any purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Right Certificates shall cease to be such officer
of the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent, issued and delivered with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Company; and any Right Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at one of its offices designated for such purposes, books for
registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates, the date of each of the Right Certificates and the certificate
numbers for each of the Right Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Section 14(b) hereof, at any time
after the Close of Business on the Distribution Date and at or prior to the
Close of Business on the earlier of the Redemption Date or the Final Expiration
Date, any Right Certificate or Certificates may be (i) transferred or (ii) split
up, combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of shares of Common
Stock as the Right Certificate or Right Certificates surrendered then entitled
such holder to purchase. Any registered holder desiring to transfer any Right
Certificate shall surrender the Right Certificate at the office of the Rights
Agent designated for such purposes with the form of assignment on the reverse
side thereof duly endorsed (or enclose with such Right Certificate a written
instrument of transfer in form satisfactory to the Company and the Rights
Agent), duly executed by the registered holder thereof or his attorney, duly
authorized in writing, and with such signature duly guaranteed. Any
8
<PAGE>
registered holder desiring to split up, combine or exchange any Right
Certificate shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be split up,
combined or exchanged at the Corporate Agency Service Center of the Rights
Agent. Thereupon the Rights Agent shall countersign (by manual signature) and
deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, if requested by the Company,
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will execute and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered owner in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) The Rights shall become exercisable, and may be exercised to
purchase Common Stock, except as otherwise provided herein, in whole or in part
at any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed
(with such signature duly guaranteed), to the Rights Agent at 111 West Monroe
Street, 14th Floor, Chicago, Illinois 60606, Attention: Charles Zade, together
with payment of the Purchase Price with respect to each Right exercised, subject
to adjustment as hereinafter provided, at or prior to the Close of Business on
the earlier of (i) July 23, 2000 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (such date being
herein referred to as the "Redemption Date") or (iii) the time at which all such
Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price and the number of shares of Common Stock or
other securities or consideration to be acquired upon exercise of a Right shall
be subject to adjustment from time to time as provided in Sections 11 and 13
hereof. The Purchase Price shall be payable in lawful money of the United
States of America, in accordance with Section 7(c) hereof.
(c) Except as provided in Section 7(d) hereof, upon receipt of a
Right Certificate with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price or so much thereof as is necessary
for the shares to be purchased and an amount equal to any applicable transfer
tax, by cash, certified check or official bank check payable to the order of the
Company or the Rights Agent, the Rights Agent shall thereupon promptly (i)
requisition from any transfer agent of the Common Stock certificates for the
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<PAGE>
number of shares of Common Stock so elected to be purchased and the Company will
comply, and hereby authorizes and directs such transfer agent to comply, with
all such requests, (ii) requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with Section 14(b)
hereof, and (iii) promptly after receipt of such Common Stock certificates cause
the same to be delivered to, or upon the order of, the registered holder of such
Right Certificate, registered in such name or names as may be designated by such
holder, and, when appropriate, after receipt promptly deliver such case to, or
upon the order of, the registered holder of such Right Certificate; provided,
however, that in the case of a purchase of securities, other than Common Stock,
pursuant to Section 13 hereof, the Rights Agent shall promptly take the
appropriate actions corresponding to the foregoing clauses (i) through (iii).
In the event that the Company is obligated to issue other securities of the
Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the Provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Right Agent shall so
cancel and retire, any Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate or destruction thereof to the Company.
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SECTION 9. RESERVATION AND AVAILABILITY OF SHARES OF COMMON STOCK.
(a) The Company covenants and agrees that at all times it will cause
to be reserved and kept available, out of, and to the extent of, is authorized
and unissued shares of Common Stock not reserved for another purpose (and,
following the occurrence of a Triggering Event, other securities) or held in its
treasury, the number of shares of Common Stock (and, following the occurrence of
a Triggering Event, other securities) that, as provided in this Agreement,
including Section 11(a)(iii) hereof, will be sufficient to permit the exercise
in full of all outstanding Rights, provided, however, that the Company shall not
be required to reserve and keep available shares of Common Stock or other
securities sufficient to permit the exercise in full of all outstanding Rights
pursuant to the adjustments set forth Section 11(a)(ii), Section 11(a) (iii) or
Section 13 hereof unless, and only to the extent that, the Rights become
exercisable pursuant to such adjustments.
(b) The Company shall (i) use its best efforts to cause, from and
after such time as the Rights become exercisable, the Rights and all shares of
Common Stock (and following the occurrence by a Triggering Event, other
securities) issued or reserved for issuance upon exercise thereof to be
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use, and if the Common
Stock shall become listed on any national securities exchange, to cause, from
and after such time as the Rights become exercisable, the Rights and all shares
of Common Stock (and, following the occurrence of a Triggering Event, other
securities) issued or reserved for issuance upon exercise thereof to be listed
on such exchange upon official notice of issuance upon such exercise and (ii) if
then necessary, to permit the offer and issuance of such shares of Common Stock
(and, following occurrence of a Triggering Event, other securities), register
and qualify such share of Common Stock (and, following the occurrence of a
Triggering Event, other securities) under the Securities Act and any applicable
state securities or "blue sky" laws (to the extent exemptions therefrom are not
available), cause such registration, statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the Redemption Date or the Final
Expiration Date of the Rights. The Company may temporarily suspend, for a
period of time not to exceed ninety (90) days, the exercisability of the Rights
in order to prepare and file a registration statement under the Securities Act
and permit it to become effective. Upon any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained and until a registration statement under the Securities Act (if
required) shall have been declared effective.
(c) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock (and
following the occurrence of a Triggering Event, other securities) delivered upon
exercise of Rights shall, at the time of
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delivery of the certificates for such shares (subject to payment of the Purchase
Price in respect thereof), be duly and validly authorized and issued and fully
paid and nonassessable shares in accordance with applicable law.
(d) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any shares of Common Stock (or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or the issuance or delivery of
certificates for Common Stock (or other securities, as the case may be) upon
exercise of Rights in a name other than that of, the registered holder of the
Right Certificate, and the Company shall not be required to issue or deliver a
Right Certificate or certificate for Common Stock (or other securities, as the
case may be) to a person other than such registered holder until any such tax
shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
SECTION 10. COMMON STOCK RECORD DATE. Each Person in whose name any
certificate for shares of Common stock (or other securities, as the case may be)
is issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the Common Stock (or other securities, as the
case may be) represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made.
SECTION 11. ADJUSTMENTS TO NUMBER AND KIND OF SHARES, NUMBER OF
RIGHTS OR PURCHASE PRICE. The number and kind of shares subject to purchase
upon the exercise of each Right, the number of Rights outstanding and the
Purchase Price are subject to adjustment from time to time as provided in this
Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Rights Agreement (A) declare or pay any dividend on Common Stock payable in
shares of Common Stock, (B) subdivide or split the outstanding shares of Common
Stock into a greater number of shares, (C) combine or consolidate the
outstanding shares of Common Stock into a smaller number of shares or effect a
reverse split of the outstanding shares of Common Stock, or (D) issue any shares
of its capital stock in a reclassification of the Common Stock (including any
such reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a), the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of Common
Stock or capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive, upon payment of the Purchase Price then in
effect, the aggregate
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number and kind of shares of Common Stock or capital stock, as the case may be,
which, if such Right had been exercised immediately prior to such date, the
holder thereof would have owned upon such exercise and been entitled to receive
by virtue of such dividend, subdivision, combination or reclassification. If an
event occurs which would require an adjustment under both this Section 11(a)(i)
and Section 11(1)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to any adjustment
required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24, in the event
(A) any Acquiring Person or any Associate or Affiliate of
any Acquiring Person, at any time after the date of this Agreement,
directly or indirectly, (1) shall consolidate with or merge with and into
the Company or any of its Subsidiaries or otherwise combine with the
Company or any of its Subsidiaries, and the Company or such Subsidiary
shall be the continuing or surviving corporation of such consolidation,
merger or combination and the Common Stock of the Company shall remain
outstanding and no shares thereof shall be changed into or exchanged for
stock or other securities of the Company or any other property, or (2)
shall, in one or more transactions, other than in connection with the
exercise of a Right or Rights and other than in connection with the
exercise or conversion of securities exercisable for or convertible into
securities of the Company or of any Subsidiary of the Company, transfer any
assets or property to the Company or any of its Subsidiaries in exchange
(in whole or in part) for any shares of any class of capital stock of the
Company or any of its Subsidiaries or any securities exercisable for or
convertible into shares of any class of capital stock of the Company or any
of its Subsidiaries, or otherwise obtain from the Company or any of its
Subsidiaries, with or without consideration, any additional shares of any
class of capital stock of the Company or any of its Subsidiaries or any
securities exercisable for or convertible into shares of any class of
capital stock of the Company or any of its Subsidiaries (other than as part
of a pro rata offer or distribution by the Company or such Subsidiary to
all holders of such shares), or (3) shall sell, purchase, lease, exchange,
mortgage, pledge, transfer or otherwise acquire (other than as a pro rata
dividend) or dispose, to, from or with, as the case may be, in one
transaction or a series of transactions, the Company or any of its
Subsidiaries, assets (including securities) on terms and conditions less
favorable to the Company or such Subsidiary than the Company or such
Subsidiary would be able to obtain in arm's-length negotiation with an
unaffiliated third party, or (4) shall receive any compensation from the
Company or any of its Subsidiaries for services other than compensation for
employment as a regular or part-time employee, or fees for serving as a
director, at rates in accordance with the Company's (or its Subsidiary's)
past practices, or (5) shall receive the benefit, directly or indirectly
(except proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or tax
advantage provided by the Company or any of its Subsidiaries, or (6) shall
engage in any transaction with the Company (or any of its Subsidiaries)
involving the sale,
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license, transfer or grant of any right in, or disclosure of, any patents,
copyrights, trade secrets, trademarks, know-how or ny other intellectual or
industrial property rights recognized under any country's intellectual
property laws which the Company (including its Subsidiaries) owns or has
the right to use on terms and conditions not approved by the Board; or
(B) any Person, alone or together with its Affiliates and
Associates, shall become an Acquiring Person other than pursuant to any
transaction set forth in Section 13(a) hereof;
(C) during such time as there is an Acquiring Person, there
shall be any reclassification of securities (including any reverse stock
split), or any recapitalization of the Company, or any merger or
consolidation of the Company with any of its Subsidiaries or any other
transaction or series of transactions involving the Company or any of its
Subsidiaries (whether or not with or into or otherwise involving an
Acquiring Person or any Affiliate or Associate of such Acquiring Person)
which has the effect, directly or indirectly, of increasing by more than 1%
the proportionate share of the outstanding share of any class of equity
securities of the Company or any of its Subsidiaries, or securities
exercisable for or convertible into equity securities of the Company or any
of its Subsidiaries, which is directly or indirectly beneficially owned by
any Acquiring Person or any Affiliate or Associate of any Acquiring Person,
then, subject to the last sentence of Section 23(a)(i) and except as otherwise
provided in this Section 11, each holder of a Right shall thereafter have a
right to receive for each Right, upon payment of an amount equal to the product
of the then current Purchase Price and the then number of shares of Common Stock
for which a Rights was exercisable immediately prior to the first occurrence of
a Flip-In Event (the "Flip-In Exercise Payment") and exercise of a Right in
accordance with the terms of this Rights Agreement, such number of shares of
Common Stock as shall equal the result obtained by dividing the Flip-In Exercise
Payment by 50% of the Current Market Price per share of Common Stock on the date
of the first occurrence of a Flip-In Event (such number of shares is herein
called the "Adjustment Shares"); provided that the Purchase Price per share and
the number of Adjustment Shares shall be further adjusted as provided in this
Agreement to reflect any events occurring after the date of such first
occurrence; and provided further that if the transaction that would otherwise
give rise to the foregoing adjustment is also subject to the provisions of
Section 13 hereof, then only the provisions of Section 13 hereof shall apply and
no adjustment shall be made pursuant to this Section 11(a)(ii). Notwithstanding
the foregoing, the adjustment pursuant to this Section 11(a)(ii) shall not occur
with respect to any Rights that are or were at any time on or after the earlier
of the Stock Acquisition Date or the Distribution Date beneficially owned by the
Acquiring Person or any Associate or Affiliate of the Acquiring Person which is
or was involved in or which caused or facilitated, directly or indirectly, the
event or transaction or transactions listed above in this Section 11(a)(ii) in
respect of which such adjustment occurs (or any subsequent transferee of such
Rights), and upon exercise of
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such Rights, the holders thereof shall continue to receive upon exercise the
number of shares of Common Stock otherwise provided for herein without giving
effect to such adjustment.
(iii) To the extent permitted by applicable law and any agreements
in effect on the date hereof to which the Company is a party, the Company may:
(A) determine the value of the Adjustment Shares issuable upon the exercise of a
Right (the "Current Value") and (B) with respect to each Right, upon exercise of
such Right, make adequate provision to substitute for the Adjustment Shares not
received upon exercise of such Right (1) cash, (2) other equity securities of
the Company (including, without limitation, shares, or units of shares, of
preferred stock which, by virtue of having dividend, voting and liquidation
rights substantially comparable to those of the Common Stock, are deemed in good
faith by the Board of Directors of the Company to have substantially the same
value as shares of Common Stock (such shares or units of shares of preferred
stock are herein called "Common Stock Equivalents"), (3) debt securities of the
Company, (4) other assets, or (5) any combination of the foregoing, having a
value which, when added to the value of the shares of Common Stock actually
issued upon exercise of such Right, shall have an aggregate value equal to the
Current Value, where such aggregate value has been determined in good faith by
the Board of Directors of the Company based upon the advice of a nationally
recognized independent investment banking firm selected in good faith by the
Board of Directors of the Company; PROVIDED, HOWEVER, if the Company shall not
have made adequate provision to deliver value pursuant to clause (B) above
within thirty days following the later of (x) first occurrence of a Flip-In
Event and (y) the date of which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to herein as the
"Flip-In Trigger Date") (such thirty day period is herein called the
"Substitution Period"), then the Company shall be obligated to deliver, upon the
surrender for exercise of a Right and without requiring payment of the Purchase
Price, shares of Common Stock (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the excess of
the Current Value over the Purchase Price. To the extent that the Company
determines to take action pursuant to the first sentence of this
Section 11(a)(iii), the Company (x) shall provide, subject to the first sentence
of Section 11(a)(ii) hereof, that such action shall apply uniformly to all
outstanding Rights, and (y) may suspend the exercisability of the Rights until
the expiration of the Substitution Period in order to decide the appropriate
form of distribution to be made pursuant to such first sentence and to determine
the value thereof. In the event of any such suspension, the Company shall issue
a public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the Common Stock shall be the Current Market Price per share of the
Common Stock on Flip-In Trigger Date and the per share or per unit value of any
Common Stock Equivalent shall be deemed to equal the Current Market price per
share of the Common Stock on such date. The Board of Directors may, but shall
not be required to, establish procedures to allocate the right to receive Common
Stock upon the exercise of the Rights among holders of Rights pursuant to this
Section 11(a)(iii)..
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(b) In case the Company shall fix a record date for the issuance of
rights (other than the Rights), options or warrants to all holders of Common
Stock entitling them to subscribe for or purchase (for a period expiring within
forty-five calendar days after such record date) Common Stock, shares having the
same rights, privileges and preferences as the Common Stock ("Equivalent Common
Stock") or securities convertible into Common Stock or Equivalent Common Stock
at a price per share of Common Stock or Equivalent Common Stock (or having a
conversion price per share, if a security convertible into Common Stock or
Equivalent Common Stock) less than the Current Market Price per share of Common
Stock on such record date, the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on such record date, plus the
number of shares of Common Stock which the aggregate offering price of the total
number of shares of Common Stock and/or Equivalent Common Stock (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Current Market Price, and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date, plus the number of additional shares of Common Stock and/or Equivalent
Common Stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In case
such subscription price may be paid by delivery of consideration part or all of
which may be in a form other than cash, the value of such non-cash consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent. Shares of Common Stock owned, by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash, assets (other than a dividend
payable in Common Stock, but including any dividend payable in stock other than
Common Stock) or subscription rights or warrants (excluding those referred to in
Section 11(b) hereof), the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
Current Market Price per share of Common Stock on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the cash, assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to a
share of Common Stock and the denominator of which shall be such Current Market
Price per share of Common Stock. Such adjustments shall be made successively
whenever such a record date is fixed, and in the event that such distribution is
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<PAGE>
not so made, the Purchase Price shall be adjusted to be the Purchase Price which
would have been in effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "Current Market
Price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of the Common Stock for the thirty
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date, and for purpose of computations made pursuant to Section
11(a)(iii) hereof, the "Current Market Price" per share of the Common Stock on
any date shall be deemed to be the average of the daily closing Prices per share
of the Common Stock for the ten consecutive Trading Days immediately following
such date; provided, however, that in the event that the Current Market Price
per share of the Common Stock is determined during a period following the
announcement by the issuer of the Common Stock of (i) any dividend or
distribution on the Common Stock (other than a regular quarterly cash dividend
and other than the Rights), (ii) any subdivision, combination or
reclassification of the Common Stock, and prior to the expiration of the
requisite thirty Trading Day or ten Trading Day period, as set forth above, the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification occurs, then, and in each such
case, the Current Market Price shall be properly adjusted to take into account
ex-dividend trading. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the shares of Common Stock are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the last quoted sale price or, if
not so quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by NASDAQ or such other system then in use, or, if
on any such date the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Company. If on any such date no market maker is
making a market in the Common Stock, the fair value of such shares on such date
as determined in good faith by the Board of Directors of the Company shall be
used. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading is open for the transaction of business or, if the shares of Common
Stock are not listed or admitted to trading on any national securities exchange,
a Business Day. If the Common Stock is not publicly held or not so listed or
traded, "Current Market Price" per share shall mean the fair value per share as
determined in good faith by
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the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be conclusive of all purposes.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent in the Purchase Price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a share, as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which mandates such adjustment, or (ii)
the Redemption Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
any Right and the Purchase Price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares of Common Stock contained in Section
11(a), (b), (c), (g), (h), (i), (j), (k) and (m) hereof, and the provisions of
Sections 7, 9, 10, 13 and 14 hereof with respect to the Common Stock shall apply
on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of shares of Common Stock
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of shares of Common Stock
(calculated to the nearest ten-thousandth) obtained by (i) multiplying (x) the
number of shares covered by a Right immediately prior to this adjustment, by (y)
the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price, and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price or any adjustment to the number of shares of Common Stock for
which a Right may be exercised, to adjust the number of Rights, in lieu of any
adjustment in the
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number of shares of Common Stock purchasable upon the exercise of a Right. Each
of the Rights outstanding after the adjustment in the number of Rights shall be
exercisable for the number of shares of Common Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least ten days
later than the date of the public announcement. If Rights Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Rights Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Rights Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment. Rights Certificates
so to be distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Purchase Price) and shall be registered in the names of the holders of record of
Rights Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of shares of Common Stock issuable upon the exercise of the Rights,
the Rights Certificates theretofore and thereafter issued may continue to
express the Purchase Price per share and the number of shares which were
expressed in the initial Rights Certificate issued hereunder.
(k) In the event that shares of the Company's Common Stock have
hereafter par value, then, before taking any action that would cause an
adjustment reducing the Purchase Price below the then par value of the shares of
Common Stock issuable upon exercise of the Rights, the Company shall take any
corporate action, including using its best efforts to obtain any required
shareholder approvals, which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right
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exercised after such record date the shares of Common Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the shares of Common Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares of Common Stock and other
capital stock or securities upon the occurrence of the event requiring such
adjustments.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Common Stock, (ii) issuance for cash of any shares of Common
Stock at less than the current market price, (iii) issuance for cash of shares
of Common Stock or securities which by their terms are convertible into or
exchangeable for shares of Common Stock, (iv) stock dividends or (v) issuance of
rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Common Stock shall not be taxable to such
shareholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company), (ii) merge with or into any other Person (other than
a Subsidiary of the Company), or (iii) sell or transfer (or permit any
Subsidiary to sell or transfer), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person or Persons (other than the Company and/or any of its Subsidiaries),
if (x) at the time of, or immediately after, such consolidation, merger or sale
there are any rights, warrants or other instruments securities outstanding or
agreements in effect which substantially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights or (y) prior to, simultaneously
with, or immediately after, such consolidation, merger or sale, the shareholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(a) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23, Section 24 or Section 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or eliminate the benefits intended to be afforded by the Rights.
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SECTION 12. CERTIFICATION OF ADJUSTMENTS. Whenever an adjustment is
made as provided in Sections 11 and 13 hereof, the Company shall (a) promptly
prepare a certificate setting forth such adjustment and a brief statement of the
facts giving rise to such adjustment, (b) promptly file with the Rights Agent
and with each transfer agent for the Common Stock a copy of such certificate and
(c) mail a brief summary thereof to each holder of a Right Certificate (or, if
prior to the Distribution Date, to each holder of a certificate representing
shares of Common Stock) in accordance with Section 26 hereof. Notwithstanding
the foregoing sentence, the failure of the Company to give such notice shall not
affect the validity of, or the force or effect of, or the requirement for, such
adjustment. The Rights Agent shall be fully protected in relying on any
certificate prepared by the Company pursuant to Sections 11 and 13 and on any
adjustment therein contained and shall not be deemed to have knowledge of any
such adjustment unless and until it shall have received such certificate. Any
adjustment to be made pursuant to Sections 11 and 13 of this Rights Agreement
shall be effective as of the date of the event giving rise to such adjustment.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event that, at any time on or after the Distribution Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person or Persons and the Company shall not be the surviving
or continuing corporation of such consolidation or merger, or (y) any Person or
Persons shall consolidate with, or merge with and into, the Company, and the
Company shall be the continuing or surviving corporation of such consolidation
or merger and, in connection with such consolidation or merger, all or part of
the outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or of the Company or each or any
other property [other than, in the case of the transactions described in
subparagraphs (z) or (y), a merger or consolidation which would result in all of
the Voting Power represented by the securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into securities of the surviving entity) all
of the Voting Power represented by the securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation and
the holders of such securities not having changed as a result of such
transactions], or (z) the Company or one or more of its Subsidiaries shall sell,
mortgage or otherwise transfer to any other Person or any Affiliate or Associate
of such Person, in one transaction, or a series of related transactions, assets
or earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole), then, on the first occurrence
of any such event, proper provision shall be made so that (i) each holder of
record of a Right shall thereafter have the right to receive, upon payment of an
amount equal to the product of the then current Purchase Price per share and the
then number of shares of Common Stock for which a Right was exercisable
immediately prior to the first occurrence of a Flip-Over Event (or, if a Flip-In
Event hereof has occurred prior to the first occurrence
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of a Flip-Over Event, multiplying the Purchase Price per share in effect
immediately prior to the first occurrence of a Flip-In Event by the number of
shares of Common Stock for which a Right was exercisable immediately prior to
such first occurrence of a Flip-In Event (the "Flip-Over Exercise Payment") and
the exercise of a Right in accordance with the terms of this Rights Agreement,
such number of shares of validly issued, fully paid and nonassessable and freely
tradeable Common Stock of the Principal Party (as defined herein) not subject to
any liens, encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by dividing the Flip-Over Exercise Payment
by 50% of the Current Market Price (determined as provided in Section 11(d)
hereof with respect to the Common Stock) per share of the Common Stock of such
Principal Party on the date of consummation of such Flip-Over Event (or the fair
market value on such date of other securities or property of the Principal
Party, as provided for herein); PROVIDED that the Purchase Price per share and
the number of shares of Common Stock of such Principal Party issuable upon
exercise of each Right shall be further adjusted as provided in this Agreement
to reflect any events occurring after the date of the first occurrence of a
Flip-Over Event; (ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such Flip-Over Event, all the obligations and duties
of the Company pursuant to this Rights Agreement; (iii) the term "Company" for
all purposes of this Rights Agreement shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall only apply to such Principal Party following the first
occurrence of a Flip-Over Event; and (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock in accordance with Section 9 hereof) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; provided, however, that, upon the subsequent
occurrence of any merger, consolidation, sale of all or substantially all
assets, recapitalization, reclassification of shares, reorganization or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right, such
cash, shares, warrants and other property which such holder would have been
entitled to receive had he, at the time of such transaction, owned the shares of
Common Stock of the Principal Party purchasable upon the exercise of a Right,
and such Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the right in accordance with the terms hereof for such cash, shares,
rights, warrants and other property.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (x) or (y) of
the first sentence of Section 13(a) hereof; (A) the Person that is the
issuer of the securities into which shares of Common Stock of the Company
are converted in such merger or consolidation, or, if there is more than
one such issuer, the issuer the Common Stock
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of which has the greatest market value or (B) if no securities are so
issued, (x) the Person that is the other party to the merger or
consolidation and that survives said merger or consolidation, or, if there
is more than one such Person, the Person the Common Stock of which has the
greatest market value or (y) if the Person that is the other party to the
merger or consolidation does not survive the merger or consolidation, the
Person that does survive the merger or consolidation (including the Company
if it survives); and
(ii) in the case of any transaction described in (z) of the
first sentence in Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same portion of the
assets or earning power so transferred or if the Person receiving the
greatest portion of the assets or earning power cannot be determined,
whichever of such Persons as is the issuer of Common Stock having the
greatest market value of shares outstanding; provided, however, that in any
such case described in the foregoing (b)(i) or (b)(ii), if the Common Stock
of such Person is not at such time and has not been continuously over the
preceding 12-month period registered under Section 12 of the Exchange Act,
and such Person is a direct or indirect Subsidiary of another Person the
Common Stock of which is and has been so registered, the term "Principal
Party" shall refer to such other Person, or if such Person is a Subsidiary,
directly or indirectly, of more than one Person, the Common Stocks of all
of which are and have been so registered, the term "Principal Party" shall
refer to whichever of such Persons is the issuer of the Common Stock having
the greatest market value of shares outstanding.
(c) The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) unless prior thereto the Company and
the Principal Party involved therein shall have executed and delivered to the
Rights Agent an agreement confirming that the requirements of Sections 13(a) and
(b) hereof shall promptly be performed in accordance with their terms and that
such consolidation, merger, sale or transfer of assets shall not result in a
default by the Principal Party under this Rights Agreement as the same shall
have been assumed by the Principal Party pursuant to Sections 13(a) and (b)
hereof and further providing that, as soon as practicable after executing such
agreement pursuant to this Section 13, the Principal Party at its own expense
shall:
(i) prepare and file a registration statement under the Securities
Act, if necessary, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its
best efforts to cause such registration statement to become effective as
soon as practicable after such filing and use its best efforts to cause
such registration statement to remain effective (with a prospectus at
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all times meeting the requirements of the Act) until the date of expiration
of the rights, and similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the Principal Party
shall become listed on a national securities exchange, to list (or continue
the listing of) the Rights and the securities purchasable upon exercise of
the Rights on such securities exchange and, if the Common Stock of the
Principal Party shall not be listed on a national securities exchange, to
cause the Rights and the securities purchased upon exercise of the Rights
to be reported by NASDAQ or such other system then in use;
(iii) deliver to holders of the Rights historical financial statements
for the Principal Party which comply in all respects with the requirements
for registration on Form 10 (or any successor form) under the Exchange Act;
and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the shares of Common Stock of the Principal Party
subject to purchase upon exercise of outstanding Rights.
In the event that any of the transactions described in Section 13(a) hereof
shall occur at any time after the occurrence of a transaction described in
Section 11(a)(ii) hereof, the Rights which have not theretofore been exercised
shall thereafter be exercisable in the manner described in Section 13(a). The
provisions of this Section 13 shall similarly apply to all successive Flip-Over
Events.
(d) Furthermore, in case the Principal Party which is to be a party
to a transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or By-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue, in connection with, or as a
consequence of, the consummation of a transaction referred to in this Section
13, shares of Common Stock of such Principal Party at less than the then Current
Market Price per share (determined pursuant to Section 11(d) hereof) or
securities exercisable for, or convertible into, Common Stock of such Principal
Party at less than such then current market price (other than to holders of
Rights pursuant to this Section 13) or (ii) providing for any special payment,
tax or similar provisions in connection with the issuance of the Common Stock of
such Principal Party pursuant to the provisions of Section 13; then, in such
event, the Company hereby agrees with each holder of Rights that it shall not
consummate any such transaction unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
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SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the holders of record of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the then current
market value of a whole Right. For the purposes of this Section 14(a), the then
current market value of a Right shall be determined in the same manner as the
Current Market Price of a share of Common Stock shall be determined pursuant to
Section 11(d) hereof.
(b) The Company shall not be required to issue fractions of shares of
Common Stock upon exercise of the Rights or to distribute certificates which
evidence fractional shares. In lieu of issuing fractions of shares of Common
Stock, there shall be paid to the holder of record of Right Certificates at the
time such Right Certificates are exercised as herein provided an amount in cash
equal to the same fraction of the then current market value of a share of Common
Stock. For purposes of this Section 14(b), the then current market value of a
share of Common Stock shall be the Current Market Price thereof as determined
pursuant to Section 11(d) hereof.
(c) The holder of a Right by the acceptance of a Right expressly
waives his right to receive any fractional Right or any fractional shares upon
exercise of a Right.
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement, other than any rights of action vested in the Rights Agent
pursuant to Sections 18 and 20 below, are vested in the respective holders of
record of the Right Certificates (and, prior to the Distribution Date, the
holders of record of the Common Stock); and any holder of record of any Right
Certificate (or, prior to the Distribution Date, of the Common Stock), without
the consent of the Rights Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, of the Common Stock), may, in his own
behalf and for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company or any other Person to enforce,
or otherwise act in respect of, his right to exercise the Rights evidenced by
such Right Certificate in the manner provided in such Right Certificate and in
this Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and,
accordingly, that they will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement, Holders of Rights
shall be entitled to recover the reasonable costs and expenses, including
attorneys' fees, incurred by them in any action to enforce the provisions of
this Agreement.
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SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will not be evidenced
by a Right Certificate and will be transferable only in connection with the
transfer of Common Stock;
(b) after the Distribution Date, the Right Certificates will be
transferable only on the registry books of the Rights Agent if surrendered at
the principal offices of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificate or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent or the transfer agent
of the Common Stock) for all purposes whatsoever, and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No
holder of a Right, as such, shall be entitled to vote, receive dividends in
respect of or be deemed for any purpose to be the holder of Common Stock or any
other securities of the Company which may at any time be issuable upon the
exercise of the Rights, nor shall anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a shareholder of the Company or any right to vote in
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights
in respect of any such stock or securities, or otherwise, until the Right or
Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
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SECTION 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all service rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Rights
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent for anything done or omitted
to be done by the Rights Agent in connection with the acceptance and
administration of the Rights Agreement, including the cost and expenses of
defending against any claim of liability in the premises. The indemnity
provided herein shall survive the expiration of the Rights and the termination
of this Rights Agreement.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Rights Agreement in reliance upon any Right
Certificate, certificate for Common Stock or other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, guaranteed, verified or acknowledged, by the proper Person or
Persons.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGED NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent, under this
Rights Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Rights Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Rights Agreement.
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(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificate shall have the full
force provided in the Right Certificates and in this Rights Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Rights Agreement upon the following terms
and conditions, by all of which the Company and the holder of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted to be taken by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person) be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by certificate signed by the President or any Vice President and by
the Chief Financial Officer or the Secretary or any Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Rights Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Right Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any
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Right Certificate; nor shall it be responsible for any adjustment required under
the provisions of Sections 11, 13, 23 or 24 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Right Certificates after receipt of a
certificate furnished pursuant to Section 12 describing any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock to
be issued pursuant to this Rights Agreement or any Right Certificate or as to
whether any shares of Common Stock will, when issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President or any Vice President or the Secretary or
any Assistant Secretary or the Chief Financial Officer of the Company, and to
apply to such officers for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer. Any application
by the Rights Agent for written instructions from the Company may, at the option
of the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Rights Agreement and the date on and/or
after which such action shall be taken or such omission shall be effective.
Subject to Section 20(c) hereof, the Rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other entity.
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(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has either not been completed or indicates an affirmative
response to clause 1 and/or 2 thereof, the Rights Agent shall not take any
further action with respect to such requested exercise or transfer without first
consulting with the Company.
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days notice in writing, or such earlier period as shall
be agreed to in writing, mailed to the Company and to each transfer agent of the
Common Stock by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights Agent or
any successor Rights Agent (with or without cause) upon 30 days notice in
writing, or such earlier period as shall be agreed to in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock by registered or certified mail, and to the holders of
the Right Certificates by first-class mail. If the Rights Agent shall resign or
be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. Notwithstanding the foregoing
provisions of this Section 21, in no event shall the registration or removal of
a Rights Agent be effective until a successor Rights Agent shall have been
appointed and have accepted such appointment. If the Company shall fail to make
such appointment within a period of 30 days after such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the incumbent Rights Agent or the holder of record of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or
by such a court, shall be (a) a corporation organized and doing business under
the laws of the United States or any State thereof, in good standing, which is
authorized under such laws to
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exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an Affiliate controlled by a corporation described in clause
(a) of this sentence. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock, and mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any
of the provisions of this Rights Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the purchase price per share and the number or kind or class of
shares of stock or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Rights Agreement.
In addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; PROVIDED, HOWEVER, that (i) no such Right Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Right Certificate
would be issued, and (ii) no such Right Certificate shall be issued, if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.
SECTION 23. REDEMPTION.
(a) (i) The Board of Directors of the Company may, at its option, at
any time prior to the earlier of (x) the Close of Business on the tenth day
following a Stock Acquisition Date, subject to extension by the Board of
Directors as provided in Section 26 hereof or (y) the Close of Business on the
Final Expiration Date, redeem all but not less than
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all the then outstanding Rights at a redemption price of $.01 per Right, as such
amount may be appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"). Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable after the first occurrence of a Flip-In Event until such time as the
Board of Directors' right of redemption under this Section 23(a)(i) has expired.
(ii) Notwithstanding anything contained in this Agreement to the
contrary, the Board of Directors of the Company may redeem all but not less than
all of the then outstanding Rights at the Redemption Price following the
occurrence of a Stock Acquisition Date but prior to any Flip-Over Event in
connection with a Flip-Over Event in which all holders of Common Stock are
treated like and not involving (other than as a holder of Common Stock being
treated like all other such holders) an Acquiring Person or an Affiliate or
Associate of an Acquiring Person or any other Person in which such Acquiring
Person, Affiliate or Associate has an interest, or any other Person or Persons
acting directly or indirectly on behalf of or in association with any such
Acquiring Person, Affiliate or Associate.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights (the date of such action being the
"Redemption Date"), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter or the
holders of Rights shall be to receive the Redemption Price, without any interest
thereon. Within 10 days after the Redemption Date, the Company shall give
notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent of the
Common Stock. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of redemption will state the method by which the payment of the Redemption Price
will be made. The failure to give notice required by this Section 23(b) or any
defect therein shall not affect the legality or validity of the action taken by
the Company.
(c) In the case of a redemption permitted under Section 23(a), the
Company may, at its option, discharge all of its obligations with respect to the
Rights by (i) issuing a press release announcing the manner of redemption of the
Rights and (ii) mailing payment of the Redemption Price to the registered
holders of the Rights at their last addresses as they appear on the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent of the Common Stock, and upon such action, all
outstanding Right Certificates shall be null and void without any further action
by the Company.
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SECTION 24. EXCHANGE OF RIGHTS FOR COMMON STOCK.
(a) The Board of Directors of the Company may, at its option, at any
time after the occurrence of a Flip-In Event, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that do not
receive adjustments upon the occurrence of a Flip-In Event) for shares of Common
Stock at an exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio").
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any such exchange;
PROVIDED, HOWEVER, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the shares of Common Stock for
Rights will be effected and, in the event of any partial exchange, the number
of Rights which will be exchanged. Any partial exchange shall be effected pro
rata based on the number of Rights (other than Rights which do not receive
adjustments upon the occurrence of a Flip-In Event) held by each holder of
Rights.
(c) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, the Company
shall pay to the registered holders of the Right Certificates with regard to
which such fractional shares of Common Stock would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
share of Common Stock. For the purposes of this paragraph (d), the current
market value of a whole share of Common Stock shall be the Current Market Price
of a share of Common Stock (as defined in Section 11(d) hereof for the
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purposes of computations made other than pursuant to Section 11(a)(iii)) for the
Trading Day immediately prior to the date of exchange pursuant to this Section
24.
SECTION 25. NOTICE OF PROPOSED ACTIONS.
(a) In case the Company, after the Distribution Date, shall propose
(i) to effect any of the transactions referred to in Section 11(a)(i) or to pay
any dividend to the holders of record of its Common Stock payable in stock of
any class or to make any other distribution to the holders of record of its
Common Stock (other than a regular periodic cash dividend), or (ii) to offer to
the holders of record of its Common Stock or options, warrants, or other rights
to subscribe for or to purchase shares of Common Stock (including any security
convertible into or exchangeable for Common Stock) or shares of stock of any
class or any other securities, options, warrants, convertible or exchangeable
securities or other rights, or (iii) to effect any reclassification of its
Common Stock or any recapitalization or reorganization of the Company, or (iv)
to effect any consolidation or merger with or into, or to effect any sale or
other transfer (or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one or more transactions, of more than 50% of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person or Persons, or (v) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of record of a Right Certificate, in accordance with Section 26
hereof, notice of such proposed action, which shall specify the record date for
the purposes of such transaction referred to in Section 11(a)(i), or such
dividend or distribution, or the date on which such reclassification,
recapitalization, reorganization, consolidation, merger, sale or transfer of
assets, liquidation, dissolution or winding up is to take place and the record
date for determining participation therein by the holders of record of Common
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least 10 days prior to
the record date for determining holders of record of the Common Stock for
purposes of such action, and in the case of such other action, at least 10 days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of record of Common Stock, whichever shall
be the earlier.
(b) In case any of the transactions referred to in Section 11(a)(ii)
or Section 13 of this Rights Agreement are proposed, then, in any such case, the
Company shall give to each holder of Rights, in accordance with Section 26
hereof, notice of the proposal of such transaction at least 10 days prior to
consummating such transaction, which notice shall specify the proposed event and
the consequences of the event to the holders of Rights under Section 11(a)(ii)
or Section 13 hereof, as the case may be, and, upon consummating such
transaction, shall similarly give notice thereof to each holder of Rights.
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(c) The failure to give notice required by this Section 25 or any
defect therein shall not affect the legality or validity of the action taken by
the Company or the vote upon any such action.
SECTION 26. NOTICES. Notices or demands authorized by the Rights
Agreement to be given or made by the Rights Agent or by the holder of record of
any Right Certificate or Right to or on behalf of the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Rights Agent) as
follows:
Adobe Systems Incorporated
1585 Charleston Road
P.O. Box 7900
Mountain View, California 94039-7900
Attention: General Counsel
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Rights Agreement to be given or made by the Company or by the holder of
record of any Right Certificate or Right to or on behalf of the Rights Agent
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Company)
as follows:
Harris Trust Company of California
111 West Monroe Street, 14th Floor
Chicago, Illinois 60606
Attention: Charles Zade
Notices or demands authorized by this Rights Agreement to be given or made by
the Company of the Rights Agent to the holder of record of any Right Certificate
or Right shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as it
appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. The Company and the Rights
Agent may from time to time supplement or amend this Agreement without approval
of any holders of Right Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, (iii) prior to the Close of
Business on the tenth day following the Stock Acquisition Date and subject to
extension by the Board of Directors by amendment hereof, to change or supplement
any of the provisions herein which the Company may deem necessary or desirable
(including, but not limited to, an amendment that provides that the Rights shall
become exercisable or exchangeable for shares or fractions of shares of
Preferred Stock of
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<PAGE>
the Company that are economically Common Stock Equivalents), or (iv) following
the time at which the Board of Directors' right of redemption under Section
23(a)(i) has expired, to exchange or supplement the provisions hereunder in any
manner which the Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Right Certificates. Upon
delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment
unless the Rights Agent shall have determined in good faith that such supplement
or amendment would adversely affect its interests under this Agreement.
Notwithstanding anything contained in this Rights Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price. Prior
to the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock.
SECTION 28. SUCCESSORS. All of the covenants and provisions of this
Rights Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 29. BENEFITS OF THIS RIGHTS AGREEMENT. Nothing in this
Rights Agreement shall be construed to give to any person or corporation other
than the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, the Common Stock) any legal
or equitable right, remedy or claim under this Rights Agreement; but this Rights
Agreement shall be for the sole and exclusive benefit of the Company, the Rights
Agent and the holders of record of the Right Certificates (and, prior to the
Distribution Date, the Common Stock).
SECTION 30. GOVERNING LAW. This Rights Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of California (or the laws of the state of incorporation of
any successor of the Company) and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made solely by residents of such state and performed entirely within such
state.
SECTION 31. COUNTERPARTS. This Rights Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same Instrument.
SECTION 32. DESCRIPTIVE HEADINGS. Descriptive headings of the
several sections of this Rights Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
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SECTION 33. SEVERABILITY. If any term, provision, covenant or
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, illegal or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly amended and restated as of the day and year first above
written.
[SEAL]
ATTEST: ADOBE SYSTEMS INCORPORATED
By:_______________________________ By:_______________________________
Name: Name:
Title: Title:
[SEAL]
ATTEST: HARRIS TRUST
COMPANY OF CALIFORNIA
By:_______________________________ By:_______________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
[Form of Right Certificate]
Certificate No. ________ __________________Rights
NOT EXERCISABLE AFTER JULY 23, 2000, OR EARLIER IF REDEEMED OR EXCHANGED. AT
THE OPTION OF THE COMPANY, THE RIGHTS MAY BE REDEEMED AT $.01 PER RIGHT OR
EXCHANGED FOR COMMON STOCK ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. IN
THE EVENT THAT THE RIGHTS REPRESENTED BY THIS CERTIFICATE ARE ISSUED TO A PERSON
WHO IS AN ACQUIRING PERSON OR A TRANSFEREE OF THE RIGHTS PREVIOUSLY OWNED BY
SUCH PERSONS, THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BE
SUBJECT TO CERTAIN LIMITATIONS IN THE CIRCUMSTANCES SPECIFIED IN SECTION
11(a)(ii) OF THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
ADOBE SYSTEMS INCORPORATED
This certifies that __________________________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Amended and Restated Rights Agreement dated as of April -, 1996 ("Rights
Agreement") between Adobe Systems Incorporated, a California corporation
("Company"), and Harris Trust Company of California ("Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 p.m. (California time) on
July 23, 2000, at the office of the Rights Agents, or its successors as Rights
Agent, designated for such purposes, one fully paid and nonassessable share of
Common Stock of the Company ("Common Stock") at a purchase price of $115.00 per
share, as the same may
A-1
<PAGE>
from time to time after the date of the Rights Agreement be adjusted in
accordance with the Rights Agreement ("Purchase Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase duly
executed.
As provided in the Rights Agreement, the Purchase Price and the number
of shares of Common Stock which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events and, upon the happening of certain events,
securities other than shares of Common Stock, or other property, may acquired
upon exercise of the Rights evidenced by this Right Certificate, as provided by
the Rights Agreement.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Rights Agent,
the Company and the holders of record of the Right Certificates. Copies of the
Rights Agreement are on file at the principal executive office of the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the corporate agency service center of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder of record to purchase a like
aggregate number of shares of Common Stock as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder
shall
A-2
<PAGE>
be entitled to receive upon surrender hereof, another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, at any time prior
to the earlier of (i) the Close of Business on the tenth day following Stock
Acquisition Date and subject to extension by the Board of Directors by amendment
of the Rights Agreement or (ii) the Final Expiration Date, the Rights evidenced
by this Certificate may be redeemed by the Company at its option at a redemption
price of $.01 per Right if exchanged by the Company at its option in whole or in
part for shares of Common Stock.
No fractional shares of Common Stock shall be issued upon the exercise
or exchange of any Right or Rights evidenced hereby, and in lieu thereof, as
provided in the Rights Agreement, fractions of shares of Common Stock shall
receive an amount in cash equal to the same fraction of the then Current Market
Price (as such term is defined in the Rights Agreement) of a share of Common
Stock.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of Common
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote in the
election of directors; or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action or to
receive notice of meetings or other actions affecting shareholders (other than
certain actions specified in the
A-3
<PAGE>
Rights Agreement) or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Right Certificate shall have been
exercised or exchanged as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _____________________, 19____.
ATTEST: Adobe Systems Incorporated
By:_______________________________ By:_______________________________
Secretary Title:
COUNTERSIGNED:
Harris Trust Company of California,
As Rights Agent
By:_______________________________
Authorized Signature:
A-4
<PAGE>
EXHIBIT B
ADOBE SYSTEMS INCORPORATED
Summary of Terms of
Rights Agreement
Nature of Right: When exercisable, each Right (a "Right") will
initially entitle the holder to purchase one share
of the Common Stock ("Common Stock") of Adobe
Systems Incorporated (the "Company").
Means of Distribution: The Rights will be distributed to holders of the
Company's outstanding Common Stock as a dividend
of one Right for each share of Common Stock. The
Rights will also be attached to all future
issuances of Common Stock prior to the
Distribution Date (as defined below).
Exercisability: Rights become exercisable on the earlier of: (i)
the Close of Business on the tenth day following a
public announcement by the Company or any person
or group (an "Acquiring Person") that such person
or group has acquired, without the approval of the
Board of Directors, beneficial ownership of 20% or
more of the Company's outstanding Common Stock, or
(ii) the tenth day (unless extended by the Board
prior to the time a person becomes an Acquiring
Person) following the commencement, or
announcement of an intention to commence, by any
person or group, of a tender offer which would
result in such person owning 20% or more of the
outstanding Common Stock of the Company (the
earlier of such dates is referred to as the
"Distribution Date"). Rights may be traded
separately from the Common Stock once the Rights
become exercisable.
Exercise Price: $115.00 per share, which is the amount that in the
judgment of the Board of Directors represents the
long-term value of the Common Stock (the "Exercise
Price").
Term: The Rights will expire ten years after the date of
issuance, or July 23, 2000, unless earlier
redeemed by the Company as described below.
B-1
<PAGE>
Redemption of Rights: Rights are redeemable at a price of $0.01 per
Right, by the vote of the Company's Board of
Directors, at any time until the Close of Business
on the tenth day following the date on which a
person has become an Acquiring Person (the "Stock
Acquisition Date"). After the Stock Acquisition
Date, Rights are also redeemable prior to any
business combination in which all holders of
Common Stock are treated alike and not involving
(except as a holder of Common Stock treated like
all other holders) an Acquiring Person.
Rights in Event If the Company is acquired by any person in a
of Business Combination: merger or other business combination transaction
or 50% or more of its assets or earnings powers
are sold to any person after the Distribution
Date, each holder of a Right shall thereafter have
the right to purchase, upon payment of the then
current Exercise Price, such number of shares of
common stock of the acquiring company having a
current market value equal to twice the Exercise
Price.
Rights in Event of In the event that an Acquiring Person engages in
Self-Dealing Transaction certain self-dealing transactions with the
or Acquisition of Company, or a person becomes the beneficial owner
Substantial Amount of of 20% or more of the outstanding Common Stock,
Common Stock: each holder of a Right thereafter has the right to
purchase, upon payment of the then current
Exercise Price, such number of shares of Common
Stock having a market value at the time of the
transaction equal to twice the Exercise Price. If
insufficient authorized but unissued shares of
Common Stock are available for issuance, the
Company must deliver all the available shares of
Common Stock and an amount of cash or other
property of the Company, so that the aggregate
value received is equal to twice the Exercise
Price. Rights held by the Acquiring Person will
not be entitled to the benefit of such an
adjustment.
Self-dealing transactions are defined to include a
merger of an Acquiring Person into the Company in
which the Common Stock remains outstanding and
unchanged, the issuance of securities of the
Company to an Acquiring Person, the transfer of
assets to an Acquiring Person on other than an
arm's length basis, compensation to an
B-2
<PAGE>
Acquiring Person on a basis inconsistent with the
Company's past practice, a loan or provision of
other financial assistance (except proportionately
as a stockholder) to an Acquiring Person or the
licensing, sale or other transfer of proprietary
technology or know-how from the Company to the
Acquiring Person on terms not approved by the
Board of Directors.
Exchange Option: In the event (i) any person or group becomes an
Acquiring Person or (ii) any of the types of
transactions, acquisitions or other events
described above as self-dealing transactions
occurs, the Board may require all or any portion
of the outstanding Rights to be exchanged for
Common Stock on a pro rata basis at the rate of
one share of Common Stock per outstanding Right.
However, any rights held by an Acquiring Person
would not be entitled to participate in this
exchange.
Fractional Shares: No fractional shares of Common Stock will be
issued upon exercise of the Rights and, in lieu
thereof, a payment in cash will be made to the
holder of such Rights equal to the same fraction
of the current market value of a share of Common
Stock.
Adjustment: The Exercise Price payable, and the number of
Common Shares or other securities or property
issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on,
or a subdivision, combination or reclassification
of, the Common Stock, (ii) upon the grant to
holders of the Common Stock or convertible
securities at less than the current market price
of the Common Stock or (iii) upon the distribution
to holders of the Common Stock of evidences of
indebtedness or assets (excluding dividends
payable in Common Stock) or of subscription rights
or warrants (other than those referred to above).
Voting Power of Rights: The Rights themselves do not entitle the holder
thereof to any voting rights.
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Amendment of Rights: Until the Distribution Date, the Company may,
except with respect to the redemption price, amend
the Rights in any manner (including an amendment
that provides that the Rights shall become
exercisable for shares or fractions of shares of
preferred stock that are economically common stock
equivalents). After the Distribution Date, the
Company may amend the Rights in any manner that
does not adversely affect the interests of the
holders of the Rights.
A COPY OF THE RIGHTS AGREEMENT IS AVAILABLE, FREE OF CHARGE, FROM THE COMPANY,
1585 CHARLESTON ROAD, P.O. BOX 7900, MOUNTAIN VIEW, CALIFORNIA, 94039-7900,
ATTENTION: GENERAL COUNSEL. THIS SUMMARY DESCRIPTION OF THE RIGHTS AGREEMENT
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE RIGHTS AGREEMENT WHICH IS INCORPORATED IN THIS SUMMARY DESCRIPTION BY
REFERENCE.
B-4
<PAGE>
ADOBE SYSTEMS INCORPORATED
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Adobe Systems Incorporated Restricted Stock
Option Plan was initially established effective March 27, 1987 and amended from
time to time thereafter (the "INITIAL PLAN"). The Initial Plan is hereby
amended and restated in its entirety as the Adobe Systems Incorporated 1996
Outside Directors Stock Option Plan (the "PLAN") effective as of the date of its
approval by the shareholders of the Company (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its shareholders by providing an incentive
to attract and retain highly qualified persons to serve as Outside Directors of
the Company and by creating additional incentive for Outside Directors to
promote the growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means Adobe Systems Incorporated, a California
corporation, or any successor corporation thereto.
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(e) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(f) "DIRECTOR" means a member of the Board or the board of
directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is then
a public market for the Stock, the closing price of the Stock (or the mean of
the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on NASDAQ, the NASDAQ National Market System or other
national or regional securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date. If there is then no public market for
the Stock, the Fair Market Value on any relevant date shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(j) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan.
(k) "OPTIONEE" means a person who has been granted one or more
Options.
(l) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee.
(m) "OUTSIDE DIRECTOR" means a Director of the Company who is
not an officer of the Company, an Employee, or a Consultant.
(n) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
2
<PAGE>
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(q) "RULE 16B-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(r) "SERVICE" means the Optionee's service as a Director.
(s) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(t) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall not be exclusive.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board, including any duly appointed Committee of the Board. All questions
of interpretation of the Plan or of any Option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such Option. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election which is the responsibility
of or which is allocated to the Company herein, provided the officer has
apparent authority with respect to such matter, right, obligation, determination
or election.
3.2 LIMITATIONS ON AUTHORITY OF THE BOARD. Except as otherwise
provided herein, the Board shall have no authority, discretion, or power to
select the Outside Directors who will receive Options, to set the exercise price
of the Options, to determine the number of shares of Stock to be subject to an
Option or the time at which an Option shall be granted, to establish the
duration of an Option, or to alter any other terms or conditions specified in
the Plan, except in the sense of administering the Plan subject to the
provisions of the Plan.
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<PAGE>
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be five hundred thousand (500,000) and shall
consist of authorized but unissued shares or reacquired shares of Stock or any
combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan, to the "Initial Option" and "Annual Option" (as defined in
Section 6.1), and to any outstanding Options, and in the exercise price of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to a Transfer of Control as
defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares subject to, and the exercise price of, the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded down
to the nearest whole number, and in no event may the exercise price of any
Option be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
5. ELIGIBILITY AND TYPE OF OPTIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. An Option shall be granted only to
a person who, at the time of grant, is an Outside Director.
5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory stock options;
that is, options which are not treated as incentive stock options within the
meaning of Section 422(b) of the Code.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
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6.1 AUTOMATIC GRANT OF OPTIONS. Subject to execution by an Outside
Director of the appropriate Option Agreement, Options shall be granted
automatically and without further action of the Board, as follows:
(a) INITIAL OPTION. Each person who is first elected or
appointed as an Outside Director after the Effective Date shall be granted an
Option to purchase fifteen thousand (15,000) shares of Stock on the date of such
initial election or appointment (an "INITIAL OPTION"). Notwithstanding anything
herein to the contrary, a Director of the Company who previously did not qualify
as an Outside Director shall not receive an Initial Option in the event that
such Director subsequently becomes an Outside Director.
(b) ANNUAL OPTION. Each Outside Director (including any
Director of the Company who previously did not qualify as an Outside Director
but who subsequently becomes an Outside Director) shall be granted, on the day
immediately following the day of each annual meeting of the shareholders of the
Company (an "ANNUAL MEETING") following which such person remains an Outside
Director, an Option to purchase ten thousand (10,000) shares of Stock (an
"ANNUAL OPTION"). Notwithstanding the foregoing, an Outside Director who
received an Initial Option subsequent to the preceding year's Annual Meeting
shall not receive an Annual Option with respect to the current year's Annual
Meeting.
(c) RIGHT TO DECLINE OPTION. Notwithstanding the foregoing, any
person may elect not to receive an Option by delivering written notice of such
election to the Board no later than the day prior to the date such Option would
otherwise be granted. A person so declining an Option shall receive no payment
or other consideration in lieu of such declined Option. A person who has
declined an Option may revoke such election by delivering written notice of such
revocation to the Board no later than the day prior to the date such Option
would be granted pursuant to Section 6.1(a) or (b), as the case may be.
6.2 DISCRETION TO VARY OPTION SIZE. Notwithstanding any provision of
the Plan to the contrary, the Board may, in its sole discretion, increase or
decrease the number of shares of Stock that would otherwise be subject to one or
more Initial Options or Annual Options to be granted pursuant to Section 6.1 if,
at the time of such exercise of discretion, (a) the "disinterested
administration" provisions contained in paragraph (c)(2)(i) of Rule 16b-3 are no
longer applicable to any employee benefit plan maintained by a Participating
Company and (b) the exercise of such discretion would not otherwise preclude any
transaction in an equity security of the Company by an officer or Director of a
Participating Company from being exempt from Section 16(b) of the Exchange Act
pursuant to Rule 16b-3.
6.3 EXERCISE PRICE. The exercise price per share of Stock subject to
an Option shall be the Fair Market Value of a share of Stock on the date the
Option is granted.
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6.4 EXERCISE PERIOD. Each Option shall terminate and cease to be
exercisable on the date ten (10) years after the date of grant of the Option
unless earlier terminated pursuant to the terms of the Plan or the Option
Agreement.
6.5 RIGHT TO EXERCISE OPTIONS. Except as otherwise provided in the
Plan or in the Option Agreement and provided that the Optionee's Service has
been continuous from the date of Option grant until the relevant date set forth
below, each Option, whether an Initial Option or an Annual Option, shall become
vested and exercisable cumulatively for shares of Stock subject to the Option
(the "OPTION SHARES") as follows:
(a) 25% of the Option Shares shall vest and first become
exercisable on the day immediately preceding the day of the first Annual Meeting
following the date of Option grant.
(b) 25% of the Option Shares shall vest and first become
exercisable on the day immediately preceding the day of the second Annual
Meeting following the date of Option grant.
(c) 50% of the Option Shares shall vest and first become
exercisable on the day immediately preceding the day of the third Annual Meeting
following the date of Option grant.
6.6 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value not less than the exercise price, (iii) by
the assignment of the proceeds of a sale or loan with respect to some or all of
the shares being acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "CASHLESS EXERCISE"), or (iv) by any combination thereof.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
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decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
6.7 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value equal to all or any part of the federal,
state, local and foreign taxes, if any, required by law to be withheld by the
Participating Company Group with respect to such Option or the shares acquired
upon exercise thereof. Alternatively or in addition, in its sole discretion,
the Company shall have the right to require the Optionee to make adequate
provision for any such tax withholding obligations of the Participating Company
Group arising in connection with the Option or the shares acquired upon exercise
thereof. The Company shall have no obligation to deliver shares of Stock until
the Participating Company Group's tax withholding obligations have been
satisfied.
7. STANDARD FORM OF OPTION AGREEMENT.
7.1 INITIAL OPTION. Unless otherwise provided for by the Board at
the time an Initial Option is granted, each Initial Option shall comply with and
be subject to the terms and conditions set forth in the form of Nonstatutory
Stock Option Agreement for Outside Directors (Initial Option) adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 ANNUAL OPTION. Unless otherwise provided for by the Board at the
time an Annual Option is granted, each Annual Option shall comply with and be
subject to the terms and conditions set forth in the form of Nonstatutory Stock
Option Agreement for Outside Directors (Annual Option) adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.3 AUTHORITY TO VARY TERMS. Subject to the limitations set forth in
Section 3.2, the Board shall have the authority from time to time to vary the
terms of any of the standard forms of Option Agreement described in this
Section 7 either in connection with the grant or amendment of an individual
Option or in connection with the authorization of a new standard form or forms;
provided, however, that the terms and conditions of any such new, revised or
amended standard form or forms of Option Agreement are not inconsistent with the
terms of the Plan. Such authority shall include, but not by way of limitation,
the authority to grant Options which are immediately exercisable subject to the
Company's right to repurchase any unvested shares of Stock acquired by the
Optionee upon the exercise of an Option in the event such Optionee's Service is
terminated for any reason.
8. TRANSFER OF CONTROL.
8.1 DEFINITION. A "TRANSFER OF CONTROL" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
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(a) the direct or indirect sale or exchange by the shareholders
of the Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company;
(b) a merger or consolidation in which the shareholders of the
Company before such merger or consolidation do not retain, directly or
indirectly at least a majority of the beneficial interest in the voting stock of
the Company;
(c) the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer to one or
more corporations where the shareholders of the Company before such sale,
exchange or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporations to which the assets
were transferred); or
(d) a liquidation or dissolution of the Company.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, any unexercisable or unvested portion of the outstanding
Options shall be immediately exercisable and vested in full as of the date ten
(10) days prior to the date of the Transfer of Control. The exercise or vesting
of any Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Transfer of Control. In addition, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
10. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
shareholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), and (b) no expansion in the class of persons eligible to
receive Options. Furthermore, to the extent required by Rule 16b-3, provisions
of the Plan addressing eligibility to participate in the Plan and the amount,
price and timing of
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Options shall not be amended more than once every six (6) months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. In any event, no termination or
amendment of the Plan may adversely affect any then outstanding Option, or any
unexercised portion thereof, without the consent of the Optionee, unless such
termination or amendment is necessary to comply with any applicable law or
government regulation.
11. CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING OPTIONS. Any other
provision of the Plan to the contrary notwithstanding, the terms of the Initial
Plan shall remain in effect and apply to all Options granted pursuant to the
Initial Plan.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Adobe Systems Incorporated 1996 Outside Directors Stock Option
Plan was duly adopted by the Board on December 20, 1995.
--------------------------------------
Secretary
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PLAN HISTORY
December 20, 1995 Board amends and restates the Initial Plan as the Plan, with
a share reserve of 500,000 shares.
April 10, 1995 Shareholders approve amendment and restatement of Initial
Plan as the Plan, with a share reserve of 500,000 shares.
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STANDARD FORM OF
ADOBE SYSTEMS INCORPORATED
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL OPTION)
<PAGE>
ADOBE SYSTEMS INCORPORATED
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (INITIAL
OPTION) (the "OPTION AGREEMENT") is made and entered into as of ___________,
199_, by and between Adobe Systems Incorporated and ___________________________
(the "OPTIONEE").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means , 199_.
(b) "NUMBER OF OPTION SHARES" means fifteen thousand
(15,000) shares of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "INITIAL VESTING DATE" means the day immediately preceding
the day of the first annual meeting of the shareholders of the Company following
the Date of Option Grant.
(e) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
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11.1 "VESTED PERCENTAGE" means, on any relevant date, the percentage
determined as follows:
Vested Percentage
-----------------
Prior to Initial Vesting Date. 0%
On and after Initial 25%
Vesting Date, provided Optionee's
Service is continuous from Date
of Option Grant until Initial
Vesting Date.
On and after the day immediately 50%
preceding the day of the second annual
meeting of the shareholders of the
Company provided Optionee's Service is
continuous from Initial Vesting Date
until such date.
On and after the day immediately 100%
preceding the day of the third annual
meeting of the shareholders of the
Company provided Optionee's Service is
continuous from Initial Vesting Date
until such date.<PAGE>
(g) "BOARD" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "Board"
shall also mean such Committee(s).
(h) "CODE" means the Internal Revenue Code of 1986, as amended, and
any applicable regulations promulgated thereunder.
(i) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted in the Plan, including,
without limitation, the power to amend or terminate the Plan at any time,
subject to the terms of the Plan and any applicable limitations imposed by law.
(j) "COMPANY" means Adobe Systems Incorporated, a California
corporation, or any successor corporation thereto.
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(k) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(l) "DISABILITY" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, if there is then a
public market for the Stock, the closing price of the Stock (or the mean of the
closing bid and asked prices of the Stock if the Stock is so reported instead)
as reported on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on NASDAQ, the NASDAQ National Market System or other
national or regional securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date. If there is then no public market for
the Stock, the Fair Market Value on any relevant date shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(o) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(p) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(q) "PARTICIPATING COMPANY GROUP" means, at any point in time, all
corporations collectively which are then Participating Companies.
(r) "PLAN" means the Adobe Systems Incorporated 1996 Outside
Directors Stock Option Plan.
(s) "RULE 16B-3" means Rule 16b-3 as promulgated under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
(t) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(u) "SERVICE" means the Optionee's service as a Director.
(v) "STOCK" means the common stock of the Company, as adjusted from
time to time in accordance with Section 9.
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(w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and use of the term "or" shall not be exclusive.
2. TAX STATUS OF THE OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Vesting Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Percentage less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option
be exercisable for more shares than the Number of Option Shares.
(b) Notwithstanding the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's shareholders in order for the Plan or the grant of the Option to
comply with the requirements of Rule 16b-3, the Option shall not be exercisable
prior to such shareholder approval.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
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<PAGE>
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value not less than the
aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in
Section 4.3(c), or (iv) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
agrees to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Participating
Company Group, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, or (iii) the lapsing of any restriction
with respect to any shares acquired upon exercise of the Option.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which
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<PAGE>
the Option is exercised shall be registered in the name of the Optionee, or, if
applicable, the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date,
(b) the last date for exercising the Option following termination of the
Optionee's Service as described in Section 7, or (c) a Transfer of Control to
the extent provided in Section 8.
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<PAGE>
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death) at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding
the foregoing, if a sale, within the applicable time periods set forth in
Section 7.1, of shares acquired upon the exercise of the Option would subject
the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
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8. TRANSFER OF CONTROL.
8.1 DEFINITION. A "TRANSFER OF CONTROL" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
(a) the direct or indirect sale or exchange by the shareholders
of the Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company;
(b) a merger or consolidation in which the shareholders of the
Company before such merger or consolidation do not retain, directly or
indirectly at least a majority of the beneficial interest in the voting stock of
the Company;
(c) the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer to one or
more corporations where the shareholders of the Company before such sale,
exchange or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporations to which the assets
were transferred); or
(d) a liquidation or dissolution of the Company.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date thirty (30) days prior to the date
of the Transfer of Control. Any exercise of the Option that was permissible
solely by reason of this Section 8.2 shall be conditioned upon the consummation
of the Transfer of Control. In addition, the surviving, continuing, successor,
or purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may either assume the Company's rights and obligations
under the Option or substitute for the Option a substantially equivalent option
for the Acquiring Corporation's stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to a Transfer of
Control) shares of another corporation (the "NEW SHARES"), the Board may
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unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
10. RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section 9.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
12. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
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<PAGE>
15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
ADOBE SYSTEMS INCORPORATED
By:________________________________
Title:_______________________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:_______________________________ ____________________________________
10
<PAGE>
STANDARD FORM OF
ADOBE SYSTEMS INCORPORATED
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(ANNUAL OPTION)
<PAGE>
ADOBE SYSTEMS INCORPORATED
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(ANNUAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (ANNUAL
OPTION) (the "OPTION AGREEMENT") is made and entered into as of ___________,
199_, by and between Adobe Systems Incorporated and ___________________________
(the "OPTIONEE").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means , 199_.
(b) "NUMBER OF OPTION SHARES" means ten thousand (10,000) shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "INITIAL VESTING DATE" means the day immediately preceding
the day of the first annual meeting of the shareholders of the Company following
the Date of Option Grant.
(e) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
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(f) "VESTED PERCENTAGE" means, on any relevant date, the
percentage determined as follows:
Vested Percentage
-----------------
Prior to Initial Vesting Date. 0%
On and after Initial Vesting Date, 25%
provided Optionee's Service is continuous
from Date of Option Grant until
Initial Vesting Date.
On and after the day immediately 50%
preceding the day of the second
annual meeting of the shareholders of
the Company provided Optionee's Service
is continuous from Initial Vesting Date
until such date.
On and after the day immediately preceding 100%
the day of the third annual meeting of
the shareholders of the Company provided
Optionee's Service is continuous from
Initial Vesting Date until such date.
(g) "BOARD" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "Board"
shall also mean such Committee(s).
(h) "CODE" means the Internal Revenue Code of 1986, as amended, and
any applicable regulations promulgated thereunder.
(i) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted in the Plan, including,
without limitation, the power to amend or terminate the Plan at any time,
subject to the terms of the Plan and any applicable limitations imposed by law.
(j) "COMPANY" means Adobe Systems Incorporated, a California
corporation, or any successor corporation thereto.
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(k) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(l) "DISABILITY" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, if there is then a
public market for the Stock, the closing price of the Stock (or the mean of the
closing bid and asked prices of the Stock if the Stock is so reported instead)
as reported on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on NASDAQ, the NASDAQ National Market System or other
national or regional securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date. If there is then no public market for
the Stock, the Fair Market Value on any relevant date shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(o) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(p) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(q) "PARTICIPATING COMPANY GROUP" means, at any point in time, all
corporations collectively which are then Participating Companies.
(r) "PLAN" means the Adobe Systems Incorporated 1996 Outside
Directors Stock Option Plan.
(s) "RULE 16B-3" means Rule 16b-3 as promulgated under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
(t) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(u) "SERVICE" means the Optionee's service as a Director.
(v) "STOCK" means the common stock of the Company, as adjusted from
time to time in accordance with Section 9.
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<PAGE>
(w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and use of the term "or" shall not be exclusive.
2. TAX STATUS OF THE OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Vesting Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Percentage less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option
be exercisable for more shares than the Number of Option Shares.
(b) Notwithstanding the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's shareholders in order for the Plan or the grant of the Option to
comply with the requirements of Rule 16b-3, the Option shall not be exercisable
prior to such shareholder approval.
1.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
4
<PAGE>
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value not less than the
aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in
Section 4.3(c), or (iv) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
agrees to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Participating
Company Group, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, or (iii) the lapsing of any restriction
with respect to any shares acquired upon exercise of the Option.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which
5
<PAGE>
the Option is exercised shall be registered in the name of the Optionee, or, if
applicable, the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date,
(b) the last date for exercising the Option following termination of the
Optionee's Service as described in Section 7, or (c) a Transfer of Control to
the extent provided in Section 8.
6
<PAGE>
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death) at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding
the foregoing, if a sale, within the applicable time periods set forth in
Section 7.1, of shares acquired upon the exercise of the Option would subject
the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7
<PAGE>
8. TRANSFER OF CONTROL.
8.1 DEFINITION. A "TRANSFER OF CONTROL" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
(a) the direct or indirect sale or exchange by the shareholders
of the Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company;
(b) a merger or consolidation in which the shareholders of the
Company before such merger or consolidation do not retain, directly or
indirectly at least a majority of the beneficial interest in the voting stock of
the Company;
(c) the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer to one or
more corporations where the shareholders of the Company before such sale,
exchange or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporations to which the assets
were transferred); or
(d) a liquidation or dissolution of the Company.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date thirty (30) days prior to the date
of the Transfer of Control. Any exercise of the Option that was permissible
solely by reason of this Section 8.2 shall be conditioned upon the consummation
of the Transfer of Control. In addition, the surviving, continuing, successor,
or purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may either assume the Company's rights and obligations
under the Option or substitute for the Option a substantially equivalent option
for the Acquiring Corporation's stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to a Transfer of
Control) shares of another corporation (the "NEW SHARES"), the Board may
8
<PAGE>
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
10. RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section 9.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
12. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
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<PAGE>
15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
ADOBE SYSTEMS INCORPORATED
By:________________________________
Title:_______________________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:_______________________________ ____________________________________
10
<PAGE>
CONFIDENTIAL RESIGNATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
1. Stephen A. MacDonald ("Employee") was employed by Adobe Systems
Incorporated (the "Company") on May 16, 1983, and is currently employed by
the Company as its Senior Vice President and Co-Chief Operating Officer.
On or about September 22, 1995, the Company and Employee entered into a
Severance and Change of Control Agreement (the "Severance Agreement"). The
Severance Agreement provides, among other things, that Employee is not
entitled to receive any severance pay or benefits in the event that he
resigns from his employment with the Company. Employee has now decided to
resign from his employment with the Company effective as of April 30, 1996
(the "Resignation Date"). In order to provide Employee with severance pay
that he would not otherwise be entitled to receive upon his resignation,
and to settle and resolve any claims that he has or may have against the
Company, Employee and the Company agree as set forth below.
2. Employee hereby resigns from his position as the Company's Senior Vice
President and Co-Chief Operating Officer, and positions with any subsidiary
of the Company and also from his employment with the Company, effective as
of the Resignation Date.
3. Upon the effectiveness of this Agreement, and in exchange for the release
of claims below, the Company shall provide Employee with a lump sum
severance payment of $241,300 equal to six times his monthly base salary
plus six months of targeted bonuses at Employee's final salary rate, less
applicable withholding. Employee will be paid for all wages and accrued,
unused vacation that he earns through the Resignation Date. Employee shall
be entitled to exercise any of his Company-granted stock options to the
extent that they are vested as of the Resignation Date; such exercise(s),
if any, shall be in accordance with the terms of the applicable stock
option agreements between Employee and the Company. Following the
Resignation Date, Employee may elect to purchase continued group health
insurance coverage at his own expense in accordance with COBRA. Employee
understands and acknowledges that he shall not be entitled to any
compensation or benefits from the Company other than those described in
this paragraph 3.
4. Employee and his successors and assigns release and absolutely discharge
the Company and its current and former shareholders, directors, officers,
employees, agents, attorneys, legal successors and assigns of and from any
and all claims, actions and causes of action, whether now known or unknown,
which Employee
<PAGE>
now has, or at any other time had, or shall or may have against the Company
based upon or arising out of any matter, cause, fact, thing, act or
omission whatsoever occurring or existing at any time to and including the
effective date hereof, including, but not limited to, any claims of
wrongful termination, breach of contract, defamation or national origin,
race, age, sex, disability or other discrimination or harassment under the
Civil Rights Act of 1964, the Fair Employment and Housing Act, the Age
Discrimination in Employment Act of 1967, the Americans With Disabilities
Act or any other applicable law.
5. Employee acknowledges that he has read section 1542 of the Civil Code of
the State of California which states:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Employee waives any rights that he has or may have under section 1542 of
the Civil Code to the full extent that he may lawfully waive such rights
with respect to this general release of claims.
6. The Company and its successors and assigns release and absolutely discharge
the Employee and his legal successors and assigns of and from any and all
known claims, actions and causes of action which the Company now has
against the Employee as of the effective date hereof.
7. Employee acknowledges and agrees that he shall continue to be bound by and
comply with the terms of any proprietary rights, assignment of inventions
or confidentiality agreements between the Company and Employee. Employee
further agrees that on or before the Resignation Date, he shall return to
the Company any and all property of the Company which is in Employee's
possession or control, including, but not limited to, keys, computer
equipment, software, cellular phones, and all documents (and copies
thereof) that relate to or arise out of the Company's business.
8. Employee agrees to cooperate with the Company and its counsel (a) in any
investigations (including internal investigations) and audits of the
Company's and any subsidiary's current and past conduct and business and
accounting practices and (b) in the Company's defense of, or arising from
any charge, complaint or other action which has been or may be filed
relating to the period during which the Employee was engaged in employment
with the Company. Subject to documentation and itemization to the
Company's reasonable satisfaction, the Company agrees to pay all travel
expenses, attorney fees and other out-of-pocket expenses, actually,
necessarily and reasonably incurred by
<PAGE>
Employee in connection with the activities described in the preceding
sentence. Except as required by law or authorized in advance by the Board
of Directors, Employee shall not communicate, directly or indirectly, with
any third party concerning the management or governance, the operations, or
the financial status, of the Company or any of its subsidiaries. Employee
shall direct inquiries from third parties on these issues to the Company.
Employee acknowledges that any violation of this paragraph will result in
irreparable harm to the Company and will give rise to an immediate action
by the Company for injunctive relief.
9. The prevailing party shall be entitled to recover from the losing party its
attorneys' fees and costs incurred in any lawsuit or other action brought
to enforce any right arising out of this Agreement.
10. Employee agrees that he shall not directly or indirectly disclose any of
the terms of this Agreement to anyone other than his immediate family or
counsel, except as such disclosure may be required for accounting or tax
reporting purposes or as otherwise may be required by law.
11. Employee agrees that for a period of eighteen months after the effective
date of this Agreement, he shall not, either directly or indirectly,
solicit or encourage any employee of the Company to terminate his or her
employment with the Company.
12. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior negotiations
and agreements, whether written or oral, with the exception of (a) any
stock option plans/agreements between the parties, (b) the Severance
Agreement (c) any agreements described in paragraph 6, and (d) the
Indemnity Agreement dated June 9, 1988, all of which agreements shall
remain in full force and effect. This Agreement may not be modified or
amended except by a document signed by an authorized officer of the Company
and Employee.
EMPLOYEE ACKNOWLEDGES THAT HE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY PRIOR
TO SIGNING THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS
AGAINST THE RELEASED PARTIES BY SIGNING THIS AGREEMENT. EMPLOYEE UNDERSTANDS
THAT HE MAY HAVE UP TO 21 DAYS TO CONSIDER THIS AGREEMENT, THAT HE MAY REVOKE IT
AT ANY TIME DURING THE SEVEN DAYS AFTER HE SIGNS IT, AND THAT IT SHALL NOT
BECOME EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS PASSED. EMPLOYEE FURTHER
ACKNOWLEDGES THAT HE IS SIGNING THIS AGREEMENT KNOWINGLY, WILLINGLY AND
VOLUNTARILY IN EXCHANGE FOR THE SEVERANCE PAYMENT DESCRIBED IN PARAGRAPH 3.
<PAGE>
Date: March 15, 1996 ------------------------------------
Stephen A. MacDonald
Date: February 13, 1996 Adobe Systems Incorporated
By:
---------------------------------
John Warnock
<PAGE>
ADOBE SYSTEMS INCORPORATED
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
--------------------- ---------------------
MAY 31 JUNE 2 MAY 31 JUNE 2
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 22,009 $ 35,245 $ 55,672 $ 71,389
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary shares outstanding:
Weighted average shares
outstanding during the
period 73,137 71,361 73,145 70,610
Common stock equivalent
shares 2,501 3,960 2,871 3,495
----------- ----------- ----------- -----------
75,638 75,321 76,016 74,105
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully diluted shares outstanding:
Weighted average shares
outstanding during the
period 73,137 71,361 73,145 70,610
Common stock equivalent
shares 2,533 4,158 2,884 3,818
----------- ----------- ----------- -----------
75,670 75,519 76,029 74,428
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary net income per
common stock and
common stock equivalent
share $ .29 $ .47 $ .73 $ .96
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully diluted net income per
common stock and common
stock equivalent share $ .29 $ .47 $ .73 $ .96
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MAY 31, 1996, AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED MAY 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-29-1996
<PERIOD-START> DEC-02-1995
<PERIOD-END> MAY-31-1996
<CASH> 77,716
<SECURITIES> 445,602
<RECEIVABLES> 121,041
<ALLOWANCES> 3,389
<INVENTORY> 8,538
<CURRENT-ASSETS> 684,831
<PP&E> 128,667
<DEPRECIATION> 69,536
<TOTAL-ASSETS> 1,021,253
<CURRENT-LIABILITIES> 203,286
<BONDS> 0
0
0
<COMMON> 241,037
<OTHER-SE> 513,113
<TOTAL-LIABILITY-AND-EQUITY> 1,021,253
<SALES> 96,198
<TOTAL-REVENUES> 397,979
<CGS> 71,286
<TOTAL-COSTS> 71,286
<OTHER-EXPENSES> 250,119
<LOSS-PROVISION> 1,125
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 93,648
<INCOME-TAX> 37,976
<INCOME-CONTINUING> 55,672
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,672
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
