<PAGE>
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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 30, 1997
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)
DELAWARE 77-0019522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 PARK AVENUE, SAN JOSE, CALIFORNIA 95110-2704
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 536-6000
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 30, 1997
----- ------------
Common stock, $0.0001 par value 72,881,490
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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 13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 32
Signature 36
Summary of Trademarks 37
EXHIBITS
Exhibit 2.1 Agreement and Plan of Merger
Exhibit 3.1 Certificate of Incorporation
Exhibit 3.2.10 Bylaws
Exhibit 10.25.1 Form of Idemnity Agreement
Exhibit 10.41 Amended and Restated Limited Partnership Agreement of Adobe
Incentive Partners, L.P.
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 30, 1997 and May 31, 1996
and Six Months Ended May 30, 1997 and May 31, 1996 4
- - Condensed Consolidated Balance Sheets
May 30, 1997 and November 29, 1996 5
- - Condensed Consolidated Statements of Cash Flows
Six Months Ended May 30, 1997 and May 31, 1996 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>
QUARTERS ENDED SIX MONTHS ENDED
------------------------- -------------------------
MAY 30 MAY 31 MAY 30 MAY 31
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing $ 53,261 $ 49,287 $ 104,721 $ 96,198
Application products 175,003 155,050 350,002 301,781
---------- ---------- ---------- -----------
Total revenue 228,264 204,337 454,723 397,979
Direct costs 32,658 36,078 66,947 71,286
---------- ---------- ---------- -----------
Gross margin 195,606 168,259 387,776 326,693
---------- ---------- ---------- -----------
Operating expenses:
Software development costs:
Research and development 41,253 37,664 79,450 74,871
Amortization of capitalized
software development costs -- 626 -- 1,252
Sales, marketing and
customer support 75,179 65,738 147,217 128,342
General and administrative 21,106 16,429 38,602 32,080
Write-off of acquired in-
process research and
development 3,157 14,699 3,157 14,699
Other non-recurring items -- -- (2,359) --
---------- ---------- ---------- -----------
Total operating expenses 140,695 135,156 266,067 251,244
---------- ---------- ---------- -----------
Operating income 54,911 33,103 121,709 75,449
Nonoperating income, net:
Investment gain/(loss) 34 297 (590) 3,029
Interest and other income 8,259 6,387 15,252 15,170
---------- ---------- ---------- -----------
Total nonoperating income 8,293 6,684 14,662 18,199
---------- ---------- ---------- -----------
Income before income taxes 63,204 39,787 136,371 93,648
Provision for income taxes 23,098 17,778 49,781 37,976
---------- ---------- ---------- -----------
Net income $ 40,106 $ 22,009 $ 86,590 $ 55,672
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Net income per share $ .54 $ .29 $ 1.17 $ . 73
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Shares used in computing net
income per share 74,416 75,638 74,178 76,016
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 30 NOVEMBER 29
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 185,587 $ 110,745
Short-term investments 461,874 453,371
Receivables, net of allowances
of $4,825 and $5,196, respectively 130,984 115,823
Other current assets 49,232 45,875
----------- -----------
Total current assets 827,677 725,814
Property and equipment 82,917 80,231
Other assets 169,785 195,348
----------- -----------
$ 1,080,379 $ 1,001,393
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade and other payables $ 61,601 $ 43,056
Accrued expenses 102,296 83,065
Accrued restructuring costs 8,931 10,854
Income taxes payable 40,454 67,210
Deferred revenue 19,964 15,537
----------- -----------
Total current liabilities 233,246 219,722
----------- -----------
Deferred income taxes -- 3,809
Put warrants -- 71,348
Stockholders' equity:
Preferred stock, $0.0001 par value;
2,000 shares authorized; none issued -- --
Common stock, $0.0001 par value;
200,000 shares authorized;
72,881 and 71,476 shares issued
and outstanding, respectively 7 7
Additional paid-in capital 246,882 148,595
Retained earnings 587,310 529,546
Unrealized gains on investments 18,306 33,514
Cumulative translation adjustment (5,372) (5,148)
----------- -----------
Total stockholders' equity 847,133 706,514
----------- -----------
$ 1,080,379 $ 1,001,393
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
-----------------------
MAY 30 MAY 31
1997 1996
---------- ----------
Cash flows from operating activities:
Net income $ 86,590 $ 55,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense 3,711 5,502
Depreciation and amortization 21,649 12,865
Deferred income taxes (2,651) (7,722)
Provision for losses on accounts receivable 308 (687)
Equity in net income of Adobe Ventures 658 --
Write-off of acquired in-process
research and development 3,157 14,699
Changes in operating assets and liabilities:
Receivables (15,121) 17,117
Other current assets (5,144) 1,242
Trade and other payables 18,739 5,775
Accrued expenses (247) 3,588
Accrued restructuring costs (1,826) (17,191)
Income taxes payable (26,832) 12,492
Deferred revenue 4,014 326
---------- ----------
Net cash provided by operating activities 87,005 103,678
---------- ----------
Cash flows from investing activities:
Purchases of short-term investments (1,748,497) (648,925)
Maturities and sales of short-term investments 1,761,554 656,176
Acquisitions of property and equipment (16,610) (16,867)
Additions to other assets (22,487) (33,494)
Acquisitions, net of cash acquired (2,121) (4,527)
---------- ----------
Net cash used for investing activities (28,161) (47,637)
---------- ----------
(Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
SIX MONTHS ENDED
-------------------------
MAY 30 MAY 31
1997 1996
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock $ 60,185 $ 13,092
Repurchase of common stock (36,957) (41,971)
Payment of dividends (7,249) (7,319)
---------- ----------
Net cash provided (used) by financing activities 15,979 (36,198)
---------- ----------
Effect of foreign currency exchange rates on
cash and cash equivalents 19 (620)
---------- ----------
Net increase in cash and cash equivalents 74,842 19,223
Cash and cash equivalents at beginning of period 110,745 58,493
---------- ----------
---------- ----------
Cash and cash equivalents at end of period $ 185,587 $ 77,716
---------- ----------
---------- ----------
Supplemental disclosures:
Cash paid during the period for income taxes $ 56,844 $ 21,278
---------- ----------
---------- ----------
Noncash investing and financing activities:
Dividends declared but not paid $ 3,660 $ 3,632
---------- ----------
---------- ----------
Dividend in-kind declared but not issued $ 21,560 $ --
---------- ----------
---------- ----------
Put warrants written $ 43,767 $ 29,483
---------- ----------
---------- ----------
Issuance of notes for acquisition $ -- $ 9,473
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
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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 30, 1997, and the
condensed consolidated statements of income and cash flows for the interim
periods ended May 30, 1997 and May 31, 1996.
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 November 29, 1996, December 1, 1995 and November 25,
1994, in the Company's 1996 Form 10-K.
The results of operations for the interim periods ended May 30, 1997 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. Fully diluted earnings per share
for the quarters ended May 30, 1997 and May 31, 1996 were not materially
different from primary earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No.128, "Earnings Per Share." SFAS
No.128 establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS No.128, the Company will be required to present both basic
net income per share and diluted net income per share. Basic net income per
share is expected to be higher than the currently presented net income per
share as the effect of dilutive stock options will not be considered in
computing basic net income per share. Diluted net income per share is expected
to be comparable or slightly lower than the currently presented net income per
share.
8
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE (CONTINUED)
The Company plans to adopt SFAS No.128 in its fiscal quarter ending
February 27, 1998 and at that time all historical net income per share data
presented will be restated to conform to the provisions of SFAS No.128.
RECLASSIFICATIONS
Certain reclassifications have been made to the November 29, 1996 balances
to conform to the presentation at May 30, 1997.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
MAY 30 NOVEMBER 29
1997 1996
--------- ---------
Land $ 782 $ 782
Building 4,478 4,615
Equipment 128,675 121,044
Furniture and Fixtures 20,520 18,126
Leasehold improvements 19,641 13,036
--------- ---------
174,096 157,603
Less accumulated depreciation and amortization 91,179 77,372
--------- ---------
$ 82,917 $ 80,231
--------- ---------
--------- ---------
9
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 3. OTHER ASSETS
Other assets consisted of the following:
MAY 30 NOVEMBER 29
1997 1996
----------- -----------
Equity investments $ 52,254 $ 97,679
Purchased technology and licensing
agreements 32,636 32,211
Restricted funds and security deposits 81,775 69,443
Miscellaneous other assets 48,996 35,470
----------- -----------
207,066 234,803
Less accumulated amortization 45,876 39,455
----------- -----------
$ 169,785 $ 195,348
----------- -----------
----------- -----------
Included above in other assets, as equity investments, at May 30, 1997, are
equity securities and related unrealized gains and losses thereon. Equity
investments included an investment in Netscape Communications Corporation
("Netscape") at November 26, 1996. However, during the second quarter of fiscal
1997, the investment in Netscape was reclassified to short-term investments when
Adobe announced the dividend of most of the Netscape shares.
NOTE 4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
MAY 30 NOVEMBER 29
1997 1996
---------- ----------
Accrued compensation and benefits $ 32,340 $ 24,673
Sales and marketing allowances 13,582 13,753
Other 56,374 44,639
---------- ----------
$ 102,296 $ 83,065
---------- ----------
---------- ----------
10
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ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 5. ACCRUED RESTRUCTURING COSTS
In 1995 and 1994, the Company acquired Frame Technology Corporation
("Frame") and Aldus Corporation ("Aldus"), respectively, and initiated a plan to
combine the operations of the companies. In connection with these acqusitions,
in 1995 and 1994 the Company recorded charges of $31.5 million and $72.2
million, respectively, to operating expenses related to merger transaction and
restructuring costs. In addition, Frame undertook certain restructuring measures
in 1993 due to lower than anticipated revenues.
As of May 30, 1997 and November 29, 1996, $8.9 million and $10.9 million,
respectively, remained accrued and primarily relates to lease and third-party
contract termination payments, resulting from the planned closure of duplicate
offices in Europe and the United States. These payments are expected to continue
through the contract terms or negotiated early termination date, if applicable.
NOTE 6. CAPITAL STOCK
RECAPITALIZATION
In May 1997, the Company was reincorporated in the State of Delaware. As
part of this reincorporation, each outstanding share of the old California
Corporation preferred stock and common stock was converted automatically to one
share of the new Delaware Corporation $0.0001 par value preferred stock and
common stock. This change resulted in a transfer from the common stock account
to the additional paid-in capital account totaling $246.9 million in the period
ending May 30, 1997. All prior periods presented have been restated to reflect
this change.
NOTE 7. COMMITMENTS AND CONTINGENCIES
REAL ESTATE DEVELOPMENT AGREEMENT
During 1994, the Company entered into a real estate development agreement
and an operating lease agreement in connection with the construction of an
office facility in San Jose, California. In August 1996, the construction was
completed and the operating lease commenced. The Company has 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
11
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
REAL ESTATE DEVELOPMENT AGREEMENT (CONTINUED)
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 $57.3
million. During the construction period, the Company was required to pledge
certain interest bearing financial investments to the lessor as collateral to
secure the performance of its obligations under the lease. As of May 30,
1997, the Company's deposits under this agreement totaled approximately $68.2
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.
During the third quarter of 1996, the Company exercised its option under
the development agreement to begin a second phase of development for an
additional office facility. In August 1996, the Company entered into a
construction agreement and an operating lease agreement for this facility. The
operating lease will commence on completion of construction in 1998. 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
$64.3 million. The Company also is required, periodically during the
construction period, to deposit funds with the lessor as an interest bearing
security deposit to secure the performance of its obligations under the lease.
During the second quarter of 1997, the Company deposited approximately $5.2
million, and as of May 30, 1997, the Company's deposits under this agreement
totaled approximately $13.6 million. These deposits are included in "Other
assets" in the Condensed Consolidated Balance Sheets.
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 that
the ultimate outcome of these actions will not have a material effect on the
Company's financial position and results of operations.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION (PRESENTED IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO.
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT ON FORM 10-Q
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS." READERS SHOULD CAREFULLY REVIEW THE RISKS DESCRIBED IN OTHER
DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE QUARTERLY REPORTS ON FORM 10-Q TO BE FILED BY THE
COMPANY IN 1997AND THE 1996 ANNUAL REPORT ON FORM 10-K . READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY
AS OF THE DATE OF THIS QUARTERLY REPORT ON FORM 10-Q. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THE FORWARD-LOOKING STATEMENTS
OR REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS DOCUMENT.
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, assemble and communicate images and documents in electronic and
printed formats. The Company licenses its technology to major computer,
printing, and publishing suppliers, and markets application software products
and type products for authoring, editing, distributing and printing 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 North America, Europe, Japan, Asia-Pacific and Latin America
regions.
13
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The following table sets forth for the quarters and six months ended May
30, 1997, and May 31, 1996, the Company's condensed consolidated statements of
income expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
------------------------- -------------------------
MAY 30 MAY 31 MAY 30 MAY 31
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Licensing 23.3% 24.1% 23.0% 24.2%
Application products 76.7 75.9 77.0 75.8
---------- ---------- ---------- ----------
Total revenue 100.0 100.0 100.0 100.0
Direct costs 14.3 17.7 14.7 17.9
---------- ---------- ---------- ----------
Gross margin 85.7 82.3 85.3 82.1
---------- ---------- ---------- ----------
Operating expenses:
Software development costs:
Research and development 18.1 18.4 17.5 18.8
Amortization of capitalized
software development
costs -- 0.3 -- 0.3
Sales, marketing and
customer support 32.9 32.2 32.4 32.2
General and administrative 9.2 8.0 8.5 8.1
Write-off of acquired in-
process research and
development 1.4 7.2 0.7 3.7
Other non-recurring items -- -- (0.5) --
---------- ---------- ---------- ----------
Total operating expenses 61.6 66.1 58.5 63.1
---------- ---------- ---------- ----------
Operating income 24.1 16.2 26.8 19.0
Nonoperating income:
Investment gain (loss) -- 0.2 (0.1) 0.7
Interest and other income 3.6 3.1 3.4 3.8
---------- ---------- ---------- ----------
Total nonoperating income 3.6 3.3 3.2 4.5
---------- ---------- ---------- ----------
Income before income taxes 27.7 19.5 30.0 23.5
Provision for income taxes 10.1 8.7 10.9 9.5
---------- ---------- ---------- ----------
Net income 17.6% 10.8% 19.0% 14.0%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
14
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REVENUE
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Total revenue $228.3 $204.3 11.7%
Six month period:
Total revenue $454.7 $398.0 14.3%
Revenue increased significantly from last year due to the release of new
products. Product unit volume (as opposed to price) increase was the principal
factor in the Company's revenue growth.
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Product group revenue -- Licensing $53.3 $49.3 8.1%
Percentage of total revenue 23.3% 24.1%
Six month period:
Product group revenue -- Licensing $104.7 $96.2 8.9%
Percentage of total revenue 23.0% 24.2%
Licensing revenue is derived from shipments by OEM customers of products
containing the Adobe PostScript interpreter, Adobe PrintGear software and the
Display PostScript system. Such PostScript products include: (1) standard
roman printers as well as printers that work with Japanese, Chinese, and
Korean languages; (2) imagesetters; and (3) 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. Adobe PostScript products sell to the small office/home office
("SOHO") market, as well as the corporate enterprise and high-end imagesetter
markets. PrintGear software is targeted to the SOHO and home computer market.
The number of units shipped by OEMs continued to grow 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. In the second quarters and six month periods of 1997 and 1996,
licensing revenue was driven by increased demand for CPSI and by increased
demand for color capability, shipments of PrintGear products, as well as greater
penetration into the Japanese market.
15
<PAGE>
The Company has seen year-to-year increases in the number of OEM
customers from which it is receiving licensing revenue and believes that such
increases are attributable to the continued acceptance of PostScript
software, as well as to the diversification of the Company's customer base
across multiple platforms. In 1997, Adobe expects additional customers to
introduce new PrintGear products that will serve the SOHO market. Also in
1997, one of Adobe's largest PostScript customers, Hewlett-Packard Company
("HP"), plans to introduce monochrome laser printer products that will not
contain Adobe PostScript software. These products are expected to contain a
non-Adobe clone version of PostScript and are expected to reach the market in
the fall of 1997. While the Company expects overall licensing revenue growth
to continue over the longer term, the anticipated loss of such revenue from
HP will impact the Company's revenue growth during the short term.
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Product group revenue --
Application products $175.0 $155.1 12.9%
Percentage of total revenue 76.7% 75.9%
Six month period:
Product group revenue --
Application products $350.0 $301.8 16.0%
Percentage of total revenue 77.0% 75.8%
Application products revenue is derived predominantly from shipments of
application software programs marketed through retail distribution channels;
however, Adobe PageMill, Adobe SiteMill, Adobe FrameMaker, and Adobe Acrobat
products are becoming more widely distributed through VARs and systems
integrators. Adobe PhotoDeluxe is primarily distributed through OEM bundling
agreements with digital camera, scanner, and personal computer manufacturers.
During the second quarter and first six months of 1997, application
products revenue was significantly higher than that of the same periods in 1996.
This increase reflected continued demand for Adobe Photoshop 4.0, Acrobat 3.0,
and PhotoDeluxe which were all released in the second half of 1996. In addition,
the Company released Adobe Illustrator 7.0 in multiple languages on both the
Macintosh and Windows platforms late in the second quarter of 1997. Also during
the second quarter of 1997, the Company began shipping new versions of Adobe
Type Manager Deluxe 4.0 for Windows NT, Adobe Dimensions 3.0, Adobe Streamline
4.0, and Acrobat Capture 2.0 for Windows. These increases were partially offset
by decreased revenue for Adobe PageMaker, FrameMaker, Adobe Premiere, SiteMill
and PageMill.
In general, the Company's application products on the Windows platform have
experienced greater growth than those on the Macintosh platform during the
second
16
<PAGE>
quarter and first six months of 1997. During the second quarter of 1997,
revenue from Windows-based products exceeded that from Macintosh-based
products for the first time. Total Macintosh applications revenue decreased
12 percent year over year, all of which was related to new unit sales as
opposed to sale of upgrades.
DIRECT COSTS
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Direct costs $32.7 $36.1 (9.5)%
Percentage of total revenue 14.3% 17.7%
Six month period:
Direct costs $66.9 $71.3 (6.1)%
Percentage of total revenue 14.7% 17.9%
Direct costs include royalties; amortization of acquired technologies; and
direct product, localization, 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. Direct costs were lower in the second quarter and first
six months of 1997 compared with the same periods last year due to the
distribution of more application products via CD-ROM media and lower royalty
payments on licensing related to products being shipped.
Gross margins for application products are expected to vary for the
remainder of 1997 depending on the product mix sold during the period.
OPERATING EXPENSES
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Software development costs --
Research and development $41.3 $37.7 9.5%
Percentage of total revenue 18.1% 18.4%
Six month period:
Software development costs --
Research and development $79.5 $74.9 6.1%
Percentage of total revenue 17.5% 18.8%
17
<PAGE>
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 increased in absolute dollars 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.
The Company continues to make significant investments in development of all of
its software products, including those targeted for the Internet and
professional and personal publishing markets.
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.
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Software development costs --
Amortization of capitalized
software development costs $ -- $0.6 --
Percentage of total revenue -- 0.3%
Six month period:
Software development costs --
Amortization of capitalized
software development costs $ -- $1.3 --
Percentage of total revenue -- 0.3%
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 products had been
capitalized and were being amortized over the lives of the respective products.
Full amortization of all Frame products was achieved by the end of 1996. In the
second quarter and first six months of 1997, software development expenditures
on all products, after reaching technological feasibility, were immaterial and
the Company expects this trend to continue in the future.
18
<PAGE>
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Sales, marketing and
customer support $75.2 $65.7 14.4%
Percentage of total revenue 32.9% 32.2%
Six month period:
Sales, marketing and
customer support $147.2 $128.3 14.7%
Percentage of total revenue 32.4% 32.2%
Sales, marketing, and customer support expenses generally include salaries
and benefits, sales commissions, travel expenses, and related facility 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 revenue, 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 1997 compared with the same periods of 1996. The
increases are due to increased advertising and promotional expenditures for
upgrades of existing products and further development of customer and technical
support services to support a growing base of customers.
The increase in absolute dollars for the remainder of 1997 will be due to
new product releases, increased investment in the Windows market and programs
related to furthering worldwide recognition of the Adobe brand.
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
General and administrative $21.1 $16.4 28.5%
Percentage of total revenue 9.2% 8.0%
Six month period:
General and administrative $38.6 $32.1 20.3%
Percentage of total revenue 8.5% 8.1%
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
19
<PAGE>
associated with computer equipment and software used in the administration of
the business.
General and administrative expenses increased in absolute dollars for the
second quarter and first six months of 1997 compared with the same periods last
year. The increase resulted primarily from higher information systems costs,
legal costs, employee benefits costs, and costs associated with the
implementaion of a more comprehensive administrative infrastructure.
Because of the investments the Company is making in product development,
marketing and sales efforts and in infrastructure development, operating
expenses are expected to increase in absolute terms and may increase as a
percentage of revenues, depending on the revenue levels achieved in any
particular quarter.
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Write-off of acquired in-
process research and
development $3.2 $14.7 (78.5)%
Percentage of total revenue 1.4% 7.2%
Six month period:
Write-off of acquired in-
process research and
development $3.2 $14.7 (78.5)%
Percentage of total revenue 0.7% 3.7%
During the second quarter of 1997, the Company acquired two software
companies and accounted for the transactions by the purchase method. The
aggregate purchase price was principally allocated to in-process research and
development and, accordingly, $3.2 million was expensed at the time of the
acquisitions.
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.
20
<PAGE>
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Other non-recurring items $ -- $ -- --
Percentage of total revenue -- --
Six month period:
Other non-recurring items $(2.4) $ -- --
Percentage of total revenue (0.5)% --
The non-recurring item which occurred during the first quarter of 1997
represents proceeds on the divestiture of a product line.
NONOPERATING INCOME
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Investment gain/(loss) $ -- $0.3 --
Percentage of total revenue -- 0.2%
Six month period
Investment gain/(loss) $(0.6) $3.0 (119.5)%
Percentage of total revenue (0.1)% 0.8%
Investment gain (loss) consists principally of realized gains or losses
from direct investments as well as mark-to-market valuation adjustments for
Adobe Ventures L.P. investments.
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Interest and other income $8.3 $6.4 29.3%
Percentage of total revenue 3.6% 3.1%
Six month period
Interest and other income $15.3 $15.2 0.5%
Percentage of total revenue 3.4% 3.8%
Interest and other income consists principally of interest earned on cash,
cash equivalents, and short-term investments.
In the second quarter of 1997, interest and other income was higher than
the second
21
<PAGE>
quarter of 1996 as a result of a significantly higher cash and short term
investments base. Interest and other income for the first six months of 1997 was
consistent with the same period of 1996 primarily as a result of a gain realized
in the first quarter of 1996 on the disposition of a part of the Company's
short-term portfolio.
PROVISION FOR INCOME TAXES
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Provision for income taxes $23.1 $17.8 29.9%
Percentage of total revenue 10.1% 8.7%
Effective tax rate 36.5% 44.7%
Six month period:
Provision for income taxes $49.8 $38.0 31.1%
Percentage of total revenue 10.9% 9.5%
Effective tax rate 36.5% 40.6%
The effective tax rate for the second quarter and first six months of 1997
was lower than the same periods in 1996 as a result of the absence of
significant non-deductible one-time charges in 1997.
NET INCOME AND NET INCOME PER SHARE
1997 1996 CHANGE
---------- --------- -----------
Second quarter period: (Dollars in millions)
Net income $40.1 $22.0 82.2%
Percentage of total revenue 17.6% 10.8%
Net income per share $0.54 $0.29 86.2%
Weighted shares (In thousands) 74,416 75,638 (1.6)%
Six month period:
Net income $86.6 $55.7 55.5%
Percentage of total revenue 19.0% 14.0%
Net income per share $1.17 $0.73 60.3%
Weighted shares (In thousands) 74,178 76,016 (2.4)%
Net income for the second quarter of 1997 increased 82.2 percent from the
second quarter of 1996. Earnings per share were $.54, a 86.2 percent increase
from the second
22
<PAGE>
quarter of 1996. Net income for the six months ended May 30, 1997 increased 55.5
percent from the same period in 1996 and earnings per share increased 60.3
percent for the same period. The increase was caused primarily by higher
revenues and improved operating margins.
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: delays in shipment of the Company's new
products and major new versions of existing products; market acceptance of new
products and upgrades; renegotiation of royalty arrangements; 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; adverse changes in general economic
conditions in any of the countries in which the Company does business; the
introduction of new competitive products; and the prices of new or existing
competitive products.
The markets for the Company's products are characterized by rapidly
changing technology and customer needs, evolving industry standards and
frequent new product introductions. The Company's success will depend upon
its ability to develop and market products, including upgrades of currently
shipping products, that successfully adapt to changing customer needs. The
Company's ability to extend its core technologies into new applications and
to anticipate or respond to technological changes could affect its ability to
develop these products. A portion of the Company's future revenue will come
from these products. Delays in product introductions, including delays in
providing localized products for international customers, could have an
adverse 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.
The Company generally offers its application products on Windows,
Macintosh and for some products, Unix platforms. In the second quarter of
fiscal 1997, Windows-based application revenue exceeded that for the
Macintosh platform for the first time. Total Macintosh-based applications
revenue decreased 12 percent year over year, all of which occurred in new
unit sales. Upgrade revenue on the Macintosh platform increased 34% year over
year. If there is a continued or accelerated slowdown of Macintosh
applications revenue and if the Company is unable to continue to increase its
revenue from Windows customers, the Company's operating results could be
materially adversely affected. Also, as the Company broadens its customer
base to achieve greater penetration in the corporate business, consumer or
personal publishing markets, the Company may need to adapt its application
software distribution channels. The Company could experience decreases in
average selling prices and some loss of revenues in its distribution channel
which could materially adversely affect its operating results. 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.
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
23
<PAGE>
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 fall of
1997, Hewlett-Packard plans not to incorporate Adobe PostScript software in
some of its Hewlett-Packard LaserJet printers. The Company estimates the
revenue impact of this action will be approximately $6.0 million per quarter.
The Company expects to continue working with Hewlett-Packard printer
operations to incorporate Adobe PostScript and other technologies in other
Hewlett-Packard products. The Company expects to increase its overall
licensing revenue in the second half of 1997, but if it is unsuccessful, the
loss of the HP revenue from monochrome laser printers would adversely affect
its licensing revenue.
Prior to 1996, the Company experienced significant revenue and headcount
growth. The Company's ability to effectively manage its revenue and headcount
growth will require it to continue to plan and manage its operational and
financial controls and management information systems, and to attract,
retain, motivate and manage employees effectively. The Company is investing
significantly in upgrading its management information systems worldwide. The
failure of the Company to effectively manage growth could have a material
adverse effect on its results of operations.
The internet and intranet markets are rapidly evolving and are
characterized by an increasing number of market entrants who have introduced
or developed products addressing authoring and communication over the
internet and intranet. 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. In addition, new models for
licensing software to accommodate new information delivery practices will be
needed. 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 this market together
with the software standards and electronic media employed in such markets.
The Company derives a significant portion of its revenue and operating
income from its subsidiaries located in Europe, Japan, Asia-Pacific and Latin
America. 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.
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
24
<PAGE>
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.
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
MAY 30 NOVEMBER 29
1997 1996 CHANGE
------ ----------- ------
(Dollars in millions)
Cash, cash equivalents and
short-term investments $647.5 $564.1 14.8%
The Company's cash balances and short term investments have increased
due to profitable operations, partially offset by expenditures for the
repurchase of stock, capital outlays, other investments, and deposits
required under real estate development agreements. Short-term investments
also increased due to a $20.7 million reclassification, from other assets, of
a significant portion of the Company's investment in Netscape Communications
Corporation ("Netscape"). This amount was reclassified because, during the
second quarter of fiscal 1997, the Company announced the dividend of a
portion of its investment in Netscape under the Company's venture stock
dividend program. The Company plans to dividend one share of Netscape common
stock on August 27, 1997, for every one hundred shares of Adobe common stock
held by stockholders' of record on July 31, 1997.
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, auction rate certificate 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, "Accounting for Certain
Investments in Debt and Securities." The securities are carried at fair value
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity.
25
<PAGE>
OTHER ASSETS
MAY 30 NOVEMBER 29
1997 1996 CHANGE
------ ----------- ------
(Dollars in millions)
Other assets $169.8 $195.3 (13.1)%
Included above in other assets at May 30, 1997 are purchased technology
and licensing agreements, restricted funds and security deposits, equity
securities and unrealized gains and losses thereon. The decline in other
assets is primarily due to the reclassification of the Netscape common stock
to short-term investments.
NONCURRENT LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 30 NOVEMBER 29
1997 1996 CHANGE
------ ----------- ------
(Dollars in millions)
Noncurrent liabilities and
stockholders' equity $847.1 $781.7 8.4%
At November 29, 1996, deferred income taxes related to unrealized gains
and losses on equity investments and obligations for put warrants are
included in noncurrent liabilities and stockholders' equity. The Company has
no long-term debt. The increase from November 29, 1996 to May 30, 1997
results from net income and the issuances of common stock under the Company's
stock option and employee stock purchase plans partially offset by a decrease
in the unrealized gain on the equity investment in Netscape and the
repurchase of stock. Also, as a result of changes made during the second
quarter of 1997 to settlement terms in option contracts, the Company no
longer reclassifies the potential obligations for put warrants as a reduction
of stockholders' equity.
Under its stock repurchase program, the Company repurchased 3,321,500
shares at a cost of $124.5 million in 1996. During the second quarter and
first six months of 1997, the Company repurchased 500,000 shares at a cost of
$20.8 million and 977,000 shares at a cost of $36.9 million, respectively.
The Company intends to continue to directly repurchase common shares and
arrange options to purchase common shares to partially offset the effects of
the Company's employee stock purchase and stock option plans.
The Board of Directors of the Company declared a cash dividend on the
Company's common stock of $.05 per common share on June 16, 1997, for the
second quarter of 1997. The dividend will be for stockholders of record as of
July 7, 1997, and will be paid on July 21, 1997. 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. In addition, on April
24, 1997, the Company announced the first dividend of venture investment
stock under the venture stock dividend program. Adobe plans to dividend one
share of Netscape
26
<PAGE>
common stock on August 27, 1997 for each one hundred shares of Adobe common
stock held by stockholders of record on July 31, 1997; an equivalent cash
dividend will be paid for holdings of less than twenty-five hundred Adobe
shares and for odd lots less than one hundred Adobe shares, based on the
Netscape closing price on July 31, 1997.
WORKING CAPITAL
MAY 30 NOVEMBER 29
1997 1996 CHANGE
------ ----------- ------
(Dollars in millions)
Working capital $594.2 $506.1 17.4%
Net working capital grew to $594.2 million as of May 30, 1997, compared
to $506.1 million as of November 29, 1996. Cash flow provided by operations
during the first six months of 1997 was $87.0 million.
Expenditures during the first six months of 1997 for property and
equipment totaled $16.6 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 1997 was $16.0 million primarily resulting from the issuance of common
stock under employee stock plans partially offset by repurchase of common
stock and payment of dividends.
The Company's principal commitments as of May 30, 1997 consisted of
obligations under operating leases, venture investing activities, real estate
development agreements, and various service and lease guarantee agreements
with a related party.
REAL ESTATE DEVELOPMENT
During 1994, the Company entered into a real estate development
agreement and an operating lease agreement in connection with the
construction of an office facility. In August 1996, the construction was
completed and the operating lease commenced. The Company has 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
$57.3 million. During the construction period, the Company was required to
pledge certain interest bearing intruments to the lessor as collateral to
secure the performance of its obligations under the lease. As of May 30,
1997, the Company's deposits under this agreement totaled approximately $68.2
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.
During the third quarter of 1996, the Company exercised its option under
the development agreement to begin a second phase of development for an
additional office facility. In August 1996, the Company entered into a
construction agreement and an
27
<PAGE>
operating lease agreement for this facility. The operating lease will
commence on completion of construction in 1998. 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
$64.3 million. The Company also is required, periodically during the
construction period, to deposit funds with the lessor as an interest bearing
security deposit to secure the performance of its obligations under the
lease. During the second quarter of 1997, the Company deposited approximately
$5.2 million, and as of May 30, 1997 the Company's deposits under this
agreement totaled approximately $13.6 million. These deposits are included in
"Other assets" in the Condensed Consolidated Balance Sheets.
SERVICE AND LEASE GUARANTEES
The Company holds a 14 percent equity interest in McQueen Holdings
Limited ("McQueen"), a U.K. Company, and accounts for the investment at cost.
During 1994, the Company entered into various agreements with McQueen,
whereby the Company contracted with McQueen to perform product localization
and technical support functions and to provide printing, assembly, and
warehousing services.
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.
28
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Quantel Limited, a U.K. corporation, filed and served on the Company in
January 1996 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. The case is currently in
the discovery phase.
On February 6, 1996, a securities class action complaint was filed
against Adobe, certain of its officers and directors, certain former officers
of Adobe and 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. The case is currently in
the discovery phase.
On April 17, 1997, a derivative action was filed in the Superior Court
of the State of California, County of Santa Clara, against the current
members of Adobe's Board of Directors and Paul Brainerd, a former member of
the Board. The suit was filed by a shareholder purporting to assert on behalf
of the Company claims for alleged breach of the Directors' fiduciary duty and
mismanagement related to the Company's acquisition of Frame in October 1995.
The Company has moved for dismissal of the suit on the ground that the
shareholder was required to make a demand on the Board to bring this
litigation before the shareholder proceeded with his own lawsuit on behalf of
Adobe, and he failed to make such a demand.
Management believes that the ultimate resolution of these matters will
not have a material impact on the Company's financial position or results of
operations.
29
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on April 9, 1997.
A proposal to elect four (4) Class II directors of the Company to serve
for a two-year term expiring at the Annual Meeting of Stockholders in 1999
was approved by the shareholders. This proposal received the following votes:
For Withheld
---------- ---------
John E. Warnock 64,105,752 2,314,499
Gene P. Carter 64,460,643 1,959,608
Robert Sedgewick 64,460,643 1,959,608
William J. Spencer 64,459,783 1,960,468
Incumbent Class I directors Charles M. Geschke, William R. Hambrecht,
and Delbert W. Yocam are currently serving for a term expiring at the Annual
Meeting of Stockholders in 1998.
Introduced was a proposal to approve the reincorporation of the Company
in the State of Delaware and related changes to the rights of stockholders.
This proposal received the following votes:
For: 36,866,839
Against: 15,737,065
Abstain: 952,533
Introduced was a proposal to approve an increase in the Company's share
reserve under the 1994 Stock Option Plan by 5,600,000 shares to a total of
29,200,000 shares and a decrease in the option term period to eight years
from ten years for all options granted after approval of this proposal. This
proposal received the following votes:
For: 37,479,997
Against: 15,520,571
Abstain: 555,868
Also, there was a proposal to approve the 1997 Employee Stock Purchase
Plan. This proposal received the following votes:
For: 44,117,138
Against: 10,533,352
Abstain: 217,905
(Continued)
30
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(Continued)
In addition, shareholders ratified the appointment of KPMG Peat Marwick
LLP as independent public accountants of the Company for fiscal 1997. This
proposal received the following votes:
For: 66,262,620
Against: 77,150
Abstain: 80,481
Abstentions and broker non-votes were each 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 stockholders. Each
was tabulated separately. Abstentions were included in tabulations of the
votes cast for purposes of determining whether a proposal had been approved.
Broker non-votes however, were not counted for purposes of determining the
number of votes cast for a proposal.
31
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
EXHIBIT -------------------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
------- ------------------- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
2.1 Agreement and Plan of X
Merger effective 5/30/97
(by virtue of a reincorp-
oration), by and between
Adobe Systems Incorpor-
ated, a California Corp-
oration and Adobe Systems
(Delaware) Incorporated,
a Delaware corporation.
3.1 The Registrant's (as successor- X
in-interest to Adobe Systems
Incorporation by virtue of a
reincorporation effective
5/30/97), Certificate of
of Incorporation, as filed with
the Secretary of State of the
State of Delaware on 5/9/97.
3.2.10 The Registrant's, (as X
(successor-in-interest
to Adobe Systems
(Delaware) Incorporated
by virtue of a
reincorporation) Bylaws as
currently in effect.
4.1 Shareholders Rights 10-Q 05/31/96 4.1
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
10.1.8 1994 Stock Option Plan, S-8 05/30/97 10.1.8
as amended*
10.12.1 1988 Employee Stock 10-Q 07/06/94 10.12.1
Purchase Plan, as
amended*
</TABLE>
(Continued)
32
<PAGE>
3. Index to Exhibits (Continued)
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
EXHIBIT ----------------------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
------- ------------------- ---- -------- ------- --------
<S> <C> <C> <C> <C> <C>
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)
10.21.3 Revised Bonus Plan* 10-Q 02/28/97 10.21.3
10.24.1 1994 Performance and S-4 07/27/94 10.1
Restricted Stock Plan*
10.25.0 Form of Indemnity 10-K 11/30/90 10.17.2
Agreement*
10.25.1 Form of Indemnity X
Agreement*
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
(Phase 1)
</TABLE>
(Continued)
33
<PAGE>
3. Index to Exhibits (Continued)
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
EXHIBIT ----------------------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
------- ------------------- ---- -------- ------- --------
<S> <C> <C> <C> <C> <C>
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 10-Q 05/31/96 10.36
Stock Option plan*
10.37 Confidential Resignation 10-Q 05/31/96 10.37
Agreement*
10.38 Sublease of the Land and 10-Q 08/30/96 10.38
Lease of the Improvements
By and Between
Sumitomo Bank Leasing
and Finance Inc. and
Adobe Systems Incorporated
(Phase 2)
10.39 1997 Employee Stock Purchase S-8 05/30/97 10.39
Plan
10.40 Amended and Restated X
Limited Partnership
Agreement of Adobe
Incentive Partners, L.P.
</TABLE>
(Continued)
34
<PAGE>
3. Index to Exhibits (Continued)
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
EXHIBIT ----------------------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH
------- ------------------- ---- -------- ------- --------
<S> <C> <C> <C> <C> <C>
11 Computation of Net Income 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 30, 1997.
</TABLE>
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 14, 1997
By /s/ P. JACKSON BELL
------------------------------
P. Jackson Bell,
Executive Vice President,
Chief Financial Officer,
Chief Administrative 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
Capture
Dimensions
Illustrator
FrameMaker
PageMaker
PageMill
PhotoDeluxe
Photoshop
PostScript
Premiere
PrintGear
SiteMill
Streamline
Type Manager
All other brand or product names are trademarks or
registered trademarks of their respective holders.
37
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of May 30, 1997, by and between ADOBE SYSTEMS
INCORPORATED, a California corporation ("Adobe California"), and ADOBE
(DELAWARE) INCORPORATED, a Delaware corporation ("Adobe Delaware"). Adobe
California and Adobe Delaware are sometimes referred to as the "Constituent
Corporations."
The authorized capital stock of Adobe California consists of two
hundred million (200,000,000) shares of Common Stock, no par value, and two
million (2,000,000) shares of Preferred Stock, no par value. The authorized
capital stock of Adobe Delaware, upon effectuation of the transactions set
forth in this Merger Agreement, will consist of two hundred million
(200,000,000) shares of Common Stock, each having a par value of
one-hundredth of one cent ($0.0001), and two million (2,000,000) shares of
Preferred Stock, each having a par value of
one-hundredth of one cent ($0.0001).
The directors of the Constituent Corporations deem it advisable and to the
advantage of the Constituent Corporations that Adobe California merge into Adobe
Delaware upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that Adobe California
shall merge into Adobe Delaware on the following terms, conditions and other
provisions:
I. TERMS AND CONDITIONS.
1.1 MERGER. Adobe California shall be merged with and into Adobe Delaware
(the "Merger"), and Adobe Delaware shall be the surviving corporation (the
"Surviving Corporation") effective upon the date when this Merger Agreement is
filed with the Secretary of State of Delaware (the "Effective Date").
1.2 NAME CHANGE. On the Effective Date, the name of Adobe Delaware shall
be Adobe Systems Incorporated.
1.3 SUCCESSION. On the Effective Date, Adobe Delaware shall continue its
corporate existence under the laws of the State of Delaware, and the separate
existence and corporate organization of Adobe California, except insofar as it
may be continued by operation of law, shall be terminated and cease.
1.4 TRANSFER OF ASSETS AND LIABILITIES. On the Effective Date, the rights,
privileges, powers and franchises, both of a public as well as of a private
nature, of each of the Constituent Corporations shall be vested in and possessed
by the Surviving Corporation, subject to all of the disabilities, duties and
restrictions of or upon each of the Constituent Corporations; and all and
singular rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, of each of the
Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; provided, however, that the liabilities of the Constituent
Corporations and of their shareholders, directors and officers shall not be
affected and all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgment as if the Merger had not taken place
except as they may be modified with the consent of such creditors and all debts,
liabilities and duties of or upon each of the Constituent Corporations shall
attach to the Surviving
1
<PAGE>
Corporation, and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
1.5 COMMON STOCK OF ADOBE CALIFORNIA AND ADOBE DELAWARE. On the Effective
Date, by virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, each share of Common Stock of
Adobe California issued and outstanding immediately prior thereto shall be
converted into one (1) fully paid and nonassessable share of the Common Stock of
Adobe Delaware and each share of Common Stock of Adobe Delaware issued and
outstanding immediately prior thereto shall be canceled and returned to the
status of authorized but unissued shares.
1.6 STOCK CERTIFICATES. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock or of the Preferred Stock of Adobe California shall be deemed for
all purposes to evidence ownership of and to represent the shares of Adobe
Delaware into which the shares of Adobe California represented by such
certificates have been converted as herein provided and shall be so registered
on the books and records of the Surviving Corporation or its transfer agents.
The registered owner of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
any dividend and other distributions upon the shares of Adobe Delaware evidenced
by such outstanding certificate as above provided.
1.7 OPTIONS. On the Effective Date, the Surviving Corporation will assume
and continue Adobe California's [Stock Option Plan, Restricted Stock Option Plan
and 1996 Outside Directors Stock Option Plan] and the outstanding and
unexercised portions of all options to purchase Common Stock of Adobe
California, including without limitation all options outstanding under such
stock plans and any other outstanding options, shall be converted into options
of Adobe Delaware, such that an option for one (1) share of Adobe California
shall be converted into an option for one (1) share of Adobe Delaware, with no
change in the exercise price of the Adobe Delaware option. No other changes in
the terms and conditions of such options will occur. Effective on the Effective
Date, Adobe Delaware hereby assumes the outstanding and unexercised portions of
such options and the obligations of Adobe California with respect thereto.
1.8 EMPLOYEE BENEFIT PLANS. On the Effective Date, the Surviving
Corporation shall assume all obligations of Adobe California under any and all
employee benefit plans in effect as of such date. On the Effective Date, the
Surviving Corporation shall adopt and continue in effect all such employee
benefit plans upon the same terms and conditions as were in effect immediately
prior to the Merger and shall reserve that number of shares of Adobe Delaware
Common Stock with respect to each such employee benefit plan as is proportional
to the number of shares of Adobe California Common Stock (if any) so reserved on
the Effective Date.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.
2.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Adobe Delaware in effect on the Effective Date shall
continue to be the Certificate of Incorporation and Bylaws of the Surviving
Corporation, except that Article I of the Certificate of Incorporation and
Bylaws of the Surviving Corporation shall, effective upon the filing of this
Merger Agreement with the Secretary of State of the State of Delaware, be
amended to read in its entirety as follows: "The name of this corporation is
Adobe Systems Incorporated."
2.2 DIRECTORS. The directors of Adobe California immediately preceding the
Effective Date shall become the directors of the Surviving Corporation on and
after the Effective Date to serve until the expiration of their terms and until
their successors are elected and qualified.
2
<PAGE>
2.3 OFFICERS. The officers of Adobe California immediately preceding the
Effective Date shall become the officers of the Surviving Corporation on and
after the Effective Date to serve at the pleasure of its Board of Directors.
III. MISCELLANEOUS.
3.1 FURTHER ASSURANCES. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Adobe California such deeds and other instruments,
and there shall be taken or caused to be taken by it such further and other
action, as shall be appropriate or necessary in order to vest or perfect in or
to conform of record or otherwise, in the Surviving Corporation the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Adobe California and otherwise
to carry out the purposes of this Merger Agreement, and the officers and
directors of the Surviving Corporation are fully authorized in the name and on
behalf of Adobe California or otherwise to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
3.2 AMENDMENT. At any time before or after approval by the shareholders of
Adobe California, this Merger Agreement may be amended in any manner (except
that, after the approval of the Merger Agreement by the shareholders of Adobe
California, the principal terms may not be amended without the further approval
of the shareholders of Adobe California) as may be determined in the judgment of
the respective Board of Directors of Adobe Delaware and Adobe California to be
necessary, desirable, or expedient in order to clarify the intention of the
parties hereto or to effect or facilitate the purpose and intent of this Merger
Agreement.
3.3 CONDITIONS TO MERGER. The obligations of the Constituent Corporations
to effect the transactions contemplated hereby is subject to satisfaction of the
following conditions (any or all of which may be waived by either of the
Constituent Corporations in its sole discretion to the extent permitted by law):
(a) the Merger shall have been approved by the shareholders of Adobe
California in accordance with applicable provisions of the General
Corporation Law of the State of California; and
(b) Adobe California, as sole stockholder of Adobe Delaware, shall have
approved the Merger in accordance with the General Corporation Law of the
State of Delaware; and
(c) any and all consents, permits, authorizations, approvals, and orders
deemed in the sole discretion of Adobe California to be material to
consummation of the Merger shall have been obtained.
3.4 ABANDONMENT OR DEFERRAL. At any time before the Effective Date, this
Merger Agreement may be terminated and the Merger may be abandoned by the Board
of Directors of either Adobe California or Adobe Delaware or both,
notwithstanding the approval of this Merger Agreement by the shareholders of
Adobe California or Adobe Delaware, or the consummation of the Merger may be
deferred for a reasonable period of time if, in the opinion of the Boards of
Directors of Adobe California and Adobe Delaware, such action would be in the
best interest of such corporations. In the event of termination of this Merger
Agreement, this Merger Agreement shall become void and of no effect and there
shall be no liability on the part of either Constituent Corporation or its Board
of Directors or shareholders with respect thereto, except that Adobe California
shall pay all expenses incurred in connection with the Merger or in respect of
this Merger Agreement or relating thereto.
3.5 COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
3
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by the Board of Directors of Adobe California and Adobe Delaware, is hereby
executed on behalf of each said corporation and attested by their respective
officers thereunto duly authorized.
ADOBE SYSTEMS INCORPORATED
A California corporation
By ___________________________________
John E. Warnock
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
ATTEST:
______________________________________
Colleen M. Pouliot
VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY
ADOBE (DELAWARE) INCORPORATED
A Delaware corporation
By ___________________________________
John E. Warnock
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ATTEST:
______________________________________
Colleen M. Pouliot
VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY
4
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ADOBE (DELAWARE) INCORPORATED
The undersigned, a natural person (the "Sole Incorporator"), for the purpose
of organizing a corporation to conduct the business and promote the purposes
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is Adobe (Delaware) Incorporated.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
and the name of the registered agent of the corporation in the State of Delaware
at such address is Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is two hundred
two million (202,000,000) shares. Two hundred million (200,000,000) shares
shall be Common Stock, each having a par value of one-hundredth of one cent
($0.0001) and two million (2,000,000) shares shall be Preferred Stock, each
having a par value of one-hundredth of one cent ($0.0001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of the
corporation, and in further definition, limitation and regulation of the powers
of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
(1) The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
1
<PAGE>
(2) Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the directors shall be
divided into two classes designated as Class I and Class II, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following November 28, 1997, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
two years. At the second annual meeting of stockholders following November 28,
1997, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of two years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
two years to succeed the directors of the class whose terms expire at such
annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(3) Subject to the rights of the holders of any series of Preferred Stock,
the Board of Directors or any individual director may be removed from office at
any time with or without cause by the affirmative vote of the holders of a
majority of the voting power of all the then-outstanding shares of voting stock
of the corporation, entitled to vote at an election of directors (the "Voting
Stock").
(4) Subject to the rights of the holders of any series of Preferred Stock,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors, shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by the stockholders, except as otherwise provided
by law, be filled only by the affirmative vote of a majority of the directors
then in office, even though less than a quorum of the Board of Directors, and
not by the stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
B.
(1) Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of a majority
of the voting power of all of the then outstanding shares of the Voting Stock.
The Board of Directors shall also have the power to adopt, amend or repeal the
Bylaws.
(2) The directors of the corporation need not be elected by written ballot
unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of stockholders called in accordance with the
Bylaws.
(4) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
the President, (iii) the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (iv) by the
holders of the shares entitled to cast not less that ten percent (10%) of the
votes at the meeting, and shall be held at such place, on such date, and at such
time as the Board of Directors shall fix.
(5) Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
2
<PAGE>
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of a majority of the voting power of all of the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal Articles V, VI, and VII.
VIII.
The name and the mailing address of the Sole Incorporator are as follows:
<TABLE>
<S> <C>
NAME MAILING ADDRESS
A. PAUL RIMAS Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
</TABLE>
IN WITNESS WHEREOF, this Certificate has been subscribed this 8th day of
May, 199 by the undersigned who affirms that the statements made herein
are true and correct.
______________________________________
A. PAUL RIMAS
Sole Incorporator
3
<PAGE>
Exhibit 3.2.10
BYLAWS
OF
ADOBE (DELAWARE) INCORPORATED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I OFFICES.................................................................................. 1
Section 1. Registered Office........................................................................ 1
Section 2. Other Offices............................................................................ 1
ARTICLE II CORPORATE SEAL........................................................................... 1
Section 3. Corporate Seal........................................................................... 1
ARTICLE III STOCKHOLDERS' MEETINGS................................................................... 1
Section 4. Place of Meetings........................................................................ 1
Section 5. Annual Meeting........................................................................... 1
Section 6. Special Meetings......................................................................... 3
Section 7. Notice of Meetings....................................................................... 3
Section 8. Quorum................................................................................... 3
Section 9. Adjournment and Notice of Adjourned Meetings............................................. 4
Section 10. Voting Rights............................................................................ 4
Section 11. Joint Owners of Stock.................................................................... 4
Section 12. List of Stockholders..................................................................... 4
Section 13. Action Without Meeting................................................................... 4
Section 14. Organization............................................................................. 4
ARTICLE IV DIRECTORS................................................................................ 5
Section 15. Number and Term of Office................................................................ 5
Section 16. Powers................................................................................... 5
Section 17. Classes of Directors..................................................................... 5
Section 18. Vacancies................................................................................ 5
Section 19. Resignation.............................................................................. 6
Section 20. Removal.................................................................................. 6
Section 21. Meetings................................................................................. 6
(a) Annual Meetings.......................................................................... 6
(b) Regular Meetings......................................................................... 6
(c) Special Meetings......................................................................... 6
(d) Telephone Meetings....................................................................... 6
(e) Notice of Meetings....................................................................... 6
(f) Waiver of Notice......................................................................... 6
Section 22. Quorum and Voting........................................................................ 7
Section 23. Action Without Meeting................................................................... 7
Section 24. Fees and Compensation.................................................................... 7
Section 25. Committees............................................................................... 7
(a) Executive Committee...................................................................... 7
(b) Other Committees......................................................................... 7
(c) Term..................................................................................... 8
(d) Meetings................................................................................. 8
Section 26. Organization............................................................................. 8
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE V OFFICERS................................................................................. 8
Section 27. Officers Designated...................................................................... 8
Section 28. Tenure and Duties of Officers............................................................ 9
(a) General.................................................................................. 9
(b) Duties of Chairman of the Board of Directors............................................. 9
(c) Duties of Chief Executive Officer........................................................ 9
(d) Duties of President...................................................................... 9
(e) Duties of Vice Presidents................................................................ 9
(f) Duties of Secretary...................................................................... 9
(g) Duties of Chief Financial Officer........................................................ 9
Section 29. Delegation of Authority.................................................................. 10
Section 30. Resignations............................................................................. 10
Section 31. Removal.................................................................................. 10
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION..... 10
Section 32. Execution of Corporate Instruments....................................................... 10
Section 33. Voting of Securities Owned by the Corporation............................................ 10
ARTICLE VII SHARES OF STOCK.......................................................................... 11
Section 34. Form and Execution of Certificates....................................................... 11
Section 35. Lost Certificates........................................................................ 11
Section 36. Transfers................................................................................ 11
Section 37. Fixing Record Dates...................................................................... 11
Section 38. Registered Stockholders.................................................................. 12
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION...................................................... 12
Section 39. Execution of Other Securities............................................................ 12
ARTICLE IX DIVIDENDS................................................................................ 12
Section 40. Declaration of Dividends................................................................. 12
Section 41. Dividend Reserve......................................................................... 12
ARTICLE X FISCAL YEAR.............................................................................. 13
Section 42. Fiscal Year.............................................................................. 13
ARTICLE XI INDEMNIFICATION.......................................................................... 13
Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other 13
Agents.................................................................................
(a) Directors and Executive Officers......................................................... 13
(b) Other Officers, Employees and Other Agents............................................... 13
(c) Expenses................................................................................. 13
(d) Enforcement.............................................................................. 13
(e) Non-Exclusivity of Rights................................................................ 14
(f) Survival of Rights....................................................................... 14
(g) Insurance................................................................................ 14
(h) Amendments............................................................................... 14
(i) Saving Clause............................................................................ 14
(j) Certain Definitions...................................................................... 14
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE XII NOTICES.................................................................................. 15
Section 44. Notices.................................................................................. 15
(a) Notice to Stockholders................................................................... 15
(b) Notice to Directors...................................................................... 15
(c) Affidavit of Mailing..................................................................... 15
(d) Time Notices Deemed Given................................................................ 15
(e) Methods of Notice........................................................................ 15
(f) Failure to Receive Notice................................................................ 16
(g) Notice to Person with Whom Communication Is Unlawful..................................... 16
(h) Notice to Person with Undeliverable Address.............................................. 16
ARTICLE XIII AMENDMENTS............................................................................... 16
Section 45. Amendments............................................................................... 16
ARTICLE XIV LOANS TO OFFICERS........................................................................ 16
Section 46. Loans to Officers........................................................................ 16
ARTICLE XV MISCELLANEOUS............................................................................ 17
Section 47. Annual Report............................................................................ 17
</TABLE>
iii
<PAGE>
BYLAWS
OF
ADOBE (DELAWARE) SYSTEMS INCORPORATED
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of , County of
.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (A) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that 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, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the
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date of such annual meeting is first made by the corporation fewer than seventy
(70) days prior to the date of such annual meeting, the close of business on the
tenth (10th) day following the day on which public announcement of the date of
such meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder 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 stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). 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 (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) 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 stockholders by or at the direction of the Board of
Directors or by any stockholder 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 (c). 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 (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder 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 stockholder 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 stockholder, 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 stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder'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 (c). 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
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "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.
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SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
the President, (iii) the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (iv) by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting, and shall be held at such place, on such date, and at such time
as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) days nor more than sixty (60) days before
the date of the meeting to each stockholder entitled to vote at such meeting,
such notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; PROVIDED, HOWEVER, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes
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cast, including abstentions, by the holders of shares of such class or classes
or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his or her act binds all; (b) if more than one (1) votes, the act
of the majority so voting binds all; (c) if more than one (1) votes, but the
vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in the General Corporation Law of Delaware,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of subsection (c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the Chief
Executive Officer, or if the Chief Executive has not been appointed or is
absent, the President, or, if the President is absent, a chairman of the meeting
chosen by a majority in interest of the stockholders entitled to vote, present
in person or by proxy, shall act as
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chairman. The Secretary, or, in his or her absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such
rules or regulations for the conduct of meetings of stockholders as it shall
deem necessary, appropriate or convenient. Subject to such rules and regulations
of the Board of Directors, if any, the chairman of the meeting shall have the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, the directors shall be divided into two classes designated as
Class I and Class II, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following November 28, 1997, the
term of office of the Class I directors shall expire and Class I directors shall
be elected for a full term of two years. At the second annual meeting of
stockholders following November 28, 1997, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of two years. At each succeeding annual meeting of stockholders, directors shall
be elected for a full term of two years to succeed the directors of the class
whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy
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was created or occurred and until such director's successor shall have been
elected and qualified. A vacancy in the Board of Directors shall be deemed to
exist under this Bylaw in the case of the death, removal or resignation of any
director.
SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time with or without cause by the affirmative vote of
the holders of a majority of the voting power of all the then-outstanding shares
of voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be
held immediately before or after the annual meeting of stockholders and may be
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, electronic mail, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of the
Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
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SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number and
except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is present,
all questions and business shall be determined by the affirmative vote of a
majority of the directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. 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.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution passed by
a majority of the whole Board of Directors appoint an Executive Committee to
consist of one (1) or more members of the Board of Directors. The Executive
Committee, to the extent permitted by law and provided in the resolution of the
Board of Directors shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, including without limitation the power or authority to declare a
dividend, to authorize the issuance of stock and to adopt a certificate of
ownership and merger, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board of Directors, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall consist of one (1) or more members of the Board of
Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
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(c) TERM. Each member of a committee of the Board of Directors shall serve
at the pleasure of the Board of Directors and until his or her successors shall
have been duly elected, unless sooner removed. The Board of Directors, subject
to the provisions of subsections (a) or (b) of this Bylaw may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation from the committee or from the
Board of Directors. The Board of Directors may at any time for any reason remove
any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the Chief Executive Officer, or if the Chief Executive Officer is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his or her absence, an Assistant Secretary directed to do
so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, and the Chief Financial Officer, all of whom shall be
appointed at the annual organizational meeting of the Board of Directors. The
Board of Directors (or if so empowered in accordance with this Section 27) may
also appoint other officers and agents with such powers and duties as it shall
deem necessary. 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. The Board of Directors
may assign such additional titles to one or more of the officers as it shall
deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law. The
salaries and other compensation of the officers of the
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corporation shall be fixed by or in the manner designated by the Board of
Directors or a designated committee of the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the Board of
Directors and until their successors shall have been duly elected and qualified,
unless sooner removed. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors. If the office of
any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors, when present, shall preside at all meetings of the stockholders
and the Board of Directors. The Chairman of the Board of Directors shall perform
other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time. If there is no Chief Executive Officer or President, then the
Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 28.
(c) DUTIES OF 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 by 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 stockholders 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.
(d) DUTIES OF 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.
(e) DUTIES OF VICE PRESIDENTS. 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.
(f) DUTIES OF 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 stockholders. 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 Bylaws or the Delaware General
Corporation Law. 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 stockholders, giving the name and addresses of all
stockholders 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 stockholders and
of the Board of Directors required by these Bylaws 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.
(g) DUTIES OF 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
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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 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 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, the Chief Executive Officer, or the President, Chief
Financial Officer or any Vice President. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, the Chief
Executive Officer, or the President or any Vice President and by the Treasurer
or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the corporation. Any or all of the signatures
on the certificate may be facsimiles. 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 with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as otherwise
required by law, set forth on the face or back a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix, in advance, 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 record date shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting. If no
record date is fixed by the Board of Directors, the
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record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
Chief Executive Officer, the President or any Vice President, or such other
person as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature, or where permissible facsimile signature, of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and attesting
the corporate seal on such bond, debenture or other corporate security may be
the imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Chief Financial
Officer, Treasurer or an Assistant Treasurer of the corporation or such other
person as may be authorized by the Board of Directors, or bear imprinted thereon
the facsimile signature of such person. In case any officer who shall have
signed or attested any bond, debenture or other corporate security, or whose
facsimile signature shall appear thereon or on any such interest coupon, shall
have ceased to be such officer before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its
directors and executive officers (for the purposes of this Article XI,
"executive officers shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; PROVIDED, HOWEVER, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; 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 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, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its other officers, employees and other agents as set forth
in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any
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court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. The claimant in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also the
expense of prosecuting his claim. In connection with any claim for
indemnification, the corporation shall be entitled to raise as a defense to any
such action that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law for the corporation to
indemnify the claimant for the amount claimed. In connection with any claim by
an executive officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such executive officer is or was a director of the corporation)
for advances, the corporation shall be entitled to raise a defense as to any
such action clear and convincing evidence that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct. In
any suit brought by a director or executive officer to enforce a right to
indemnification or to an advancement of expenses hereunder, the burden of
proving that the director or executive officer is not entitled to be
indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each director and executive officer to the full extent
not prohibited by any applicable portion of this Bylaw that shall not have been
invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall include,
without limitation, the investigation, preparation, prosecution, defense,
settle-ment, arbitration and appeal of, and the giving
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of testimony in, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of
any nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Bylaw with respect
to the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation
as, respectively, a director, executive officer, officer, employee, trustee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
(v) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to
be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws,
notice is required to be given to any stockholder, it shall be given in writing,
timely and duly deposited in the United States mail, postage prepaid, and
addressed to his last known post office address as shown by the stock record of
the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any director
may be given by the method stated in subsection (a), or by facsimile, telex or
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
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(e) METHODS OF NOTICE. It shall not be necessary that the same method of
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice
is required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of a majority of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal the Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be
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unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the Board of
Directors shall cause an annual report to be sent to each stockholder of the
corporation not later than one hundred twenty (120) days after the close of the
corporation's fiscal year. Such report shall include a balance sheet as of the
end of such fiscal year and an income statement and statement of changes in
financial position for such fiscal year, 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 from the books and records of the corporation.
When there are more than one hundred (100) stockholders of record of the
corporation's shares, as determined by Section 605 of the California
Corporations Code, additional information as required by Section 1501(b) of the
California Corporations Code shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the 1934 Act, that Act shall take precedence. Such report shall be sent to
stockholders at least fifteen (15) days prior to the next annual meeting of
stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record of the
corporation's shares, the requirement of sending of an annual report to the
stockholders of the corporation is hereby expressly waived.
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Exhibit 10.25.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this day of , 199 by
and between ADOBE (DELAWARE) INCORPORATED, a Delaware corporation (the
"Corporation"), and ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
of the Corporation or as a director, officer or other fiduciary of
an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than the Bylaws or the Code permitted prior to
adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in
the right of the Corporation) to which Agent is, was or at any time becomes
a party, or is threatened to be made a party, by reason of the fact that
Agent is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the
request of the Corporation as a director, officer, employee or other
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agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by the
Corporation under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section 3
hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of profits
made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act
of 1934 and amendments thereto or similar provisions of any federal, state
or local statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of Agent's
duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment
under such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or 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, (iii) such indemnification is
provided by the Corporation, in its sole discretion, pursuant to the powers
vested in the Corporation under the Code, or (iv) the proceeding is
initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have
2
<PAGE>
to Agent otherwise than under this Agreement. With respect to any such action,
suit or proceeding as to which Agent notifies the Corporation of the
commencement thereof:
(a) the Corporation will be entitled to participate therein at its own
expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent
of its election to assume the defense thereof, the Corporation will not be
liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except
for reasonable costs of investigation or otherwise as provided below. Agent
shall have the right to employ separate counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at
the expense of Agent unless (i) the employment of counsel by Agent has been
authorized by the Corporation, (ii) Agent shall have reasonably concluded
that there is a conflict of interest between the Corporation and Agent in
the conduct of the defense of such action or (iii) the Corporation shall not
in fact have employed counsel to assume the defense of such action, in each
of which cases the fees and expenses of Agent's separate counsel shall be at
the expense of the Corporation. The Corporation shall not be entitled to
assume the defense of any action, suit or proceeding brought by or on behalf
of the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final disposition
of any proceeding, promptly following request therefor, all expenses incurred by
Agent in connection with such proceeding upon receipt of an undertaking by or on
behalf of Agent to repay said amounts if it shall be determined ultimately that
Agent is not entitled to be indemnified under the provisions of this Agreement,
the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
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<PAGE>
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue after
Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of the Corporation, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform if no such succession had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page hereof.
(b)If to the Corporation, to
Adobe Systems Incorporated
345 Park Avenue
P.O. Box 2704
San Jose, CA 95110-2704
or to such other address as may have been furnished to Agent by the Corporation.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
ADOBE (DELAWARE) INCORPORATED
By: __________________________________
Title: _______________________________
AGENT
______________________________________
Address:
______________________________________
______________________________________
5
<PAGE>
THE SECURITIES EVIDENCED BY THIS PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT COVERING SUCH SECURITIES OR THE GENERAL PARTNER RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE GENERAL PARTNER, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE 1933 ACT.
THE INTERESTS IN THE PARTNERSHIP OF THE CLASS B LIMITED PARTNERS ARE SUBJECT TO
AN OPTION SET FORTH IN AN AGREEMENT BETWEEN THE PARTNERSHIP AND EACH CLASS B
LIMITED PARTNER, OR THE PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS PARTNERSHIP. ANY TRANSFER OR ATTEMPTED TRANSFER OF
ANY UNITS SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN
CONSENT OF THE ISSUER OF THESE UNITS.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
ADOBE INCENTIVE PARTNERS, L.P.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Accounting Period . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Adjusted Asset Value. . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Capital Account . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Capital Contribution. . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Deemed Gain or Deemed Loss. . . . . . . . . . . . . . . . . . . . 2
1.8 Excluded Investment.. . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Majority in Interest of the Class A Limited Partners. . . . . . . 3
1.10 Marketable; Marketable Securities; Marketability. . . . . . . . . 3
1.11 Nonmarketable Securities. . . . . . . . . . . . . . . . . . . . . 3
1.12 Profit or Loss. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.13 Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.14 Securities Act. . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.15 Short Term Income . . . . . . . . . . . . . . . . . . . . . . . . 4
1.16 Treasury Regulations. . . . . . . . . . . . . . . . . . . . . . . 4
1.17 Units.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 2
NAME, PURPOSE AND OFFICES OF PARTNERSHIP. . . . . . . . . . . . . . . . . . 4
2.1 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Principal Office. . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3
TERM OF PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Events Affecting a Limited Partner of the Partnership.. . . . . . 5
3.3 Events Affecting the General Partner of the Partnership . . . . . 5
ARTICLE 4
NAME AND ADMISSION OF PARTNERS. . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Name, Address and Units . . . . . . . . . . . . . . . . . . . . . 5
4.2 Admission of Additional Partners. . . . . . . . . . . . . . . . . 6
<PAGE>
TABLE OF CONTENTS
Continued
ARTICLE 5 Page
CAPITAL ACCOUNTS AND CAPITAL CONTRIBUTIONS. . . . . . . . . . . . . . . . . 6
5.1 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Initial Capital Contributions.. . . . . . . . . . . . . . . . . . 6
5.3 Capital Contributions of the General Partner. . . . . . . . . . . 7
5.4 Additional Capital Contributions. . . . . . . . . . . . . . . . . 7
ARTICLE 6
PARTNERSHIP ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Allocation of Profit or Loss. . . . . . . . . . . . . . . . . . . 7
6.2 Other Allocations . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Income Tax Allocations. . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 7
PARTNERSHIP EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 8
WITHDRAWALS BY AND DISTRIBUTIONS TO THE PARTNERS. . . . . . . . . . . . . . 10
8.1 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.2 Withdrawals by the Partners . . . . . . . . . . . . . . . . . . . 10
8.3 Partners' Obligation to Repay or Restore. . . . . . . . . . . . . 10
8.4 Cash Distributions. . . . . . . . . . . . . . . . . . . . . . . . 10
8.5 In Kind Distributions . . . . . . . . . . . . . . . . . . . . . . 11
8.6 Withdrawal of Class B Limited Partners. . . . . . . . . . . . . . 11
ARTICLE 9
MANAGEMENT DUTIES AND RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . 12
9.1 Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2 No Control by the Limited Partners; No Withdrawal . . . . . . . . 12
9.3 Class A Limited Partner Approval Rights . . . . . . . . . . . . . 13
9.4 Investment Opportunities. . . . . . . . . . . . . . . . . . . . . 13
9.5 Compliance with Partnership Agreement; Detrimental Acts . . . . . 14
<PAGE>
TABLE OF CONTENTS
Continued
ARTICLE 10 Page
INVESTMENT REPRESENTATION AND TRANSFER
OF PARTNERSHIP INTERESTS. . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.1 Investment Representation of the Limited Partners . . . . . . . . 14
10.2 Qualifications of the Limited Partner . . . . . . . . . . . . . . 14
10.3 Transfer by the General Partner . . . . . . . . . . . . . . . . . 15
10.4 Transfer by a Limited Partner . . . . . . . . . . . . . . . . . . 15
10.5 Requirements for Transfer . . . . . . . . . . . . . . . . . . . . 15
10.6 Substitution as a Limited Partner . . . . . . . . . . . . . . . . 15
10.7 Expenses of Transfer. . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 11
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP. . . . . . . . . . . . . . . 16
11.1 Early Termination of the Partnership. . . . . . . . . . . . . . . 16
11.2 Winding Up Procedures . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 12
FINANCIAL ACCOUNTING,
REPORTS, MEETINGS AND VOTING. . . . . . . . . . . . . . . . . . . . . . . . 17
12.1 Financial Accounting; Fiscal Year . . . . . . . . . . . . . . . . 17
12.2 Supervision; Inspection of Books. . . . . . . . . . . . . . . . . 17
12.3 Partnership Reports; Financial Statements of the Partnership. . . 18
12.4 Tax Returns and Tax Information . . . . . . . . . . . . . . . . . 18
12.5 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . . . 18
12.6 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 13
VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.1 Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 14
OTHER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.2 Limitation of Liability of the Limited Partners . . . . . . . . . 20
<PAGE>
TABLE OF CONTENTS
Continued
Page
14.3 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.5 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.6 Execution and Filing of Documents . . . . . . . . . . . . . . . . 21
14.7 Other Instruments and Acts. . . . . . . . . . . . . . . . . . . . 21
14.8 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . 21
14.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.10 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.11 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 22
14.12 Titles; Subtitles . . . . . . . . . . . . . . . . . . . . . . . . 22
14.13 Partnership Name. . . . . . . . . . . . . . . . . . . . . . . . . 22
<PAGE>
ADOBE INCENTIVE PARTNERS, L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
THIS AGREEMENT is made and entered into as of the ____ day of
, 1997, by and among ADOBE SYSTEMS INCORPORATED, a California corporation
("Adobe"), and each of the persons listed on Exhibit A hereto, who hereby amend
and restate the March 17, 1997 Limited Partnership Agreement of ADOBE INCENTIVE
PARTNERS, L.P. (the "Partnership"), to reflect the admission of the Class B
Limited Partners listed on Exhibit A hereto, pursuant to the provisions of the
California Revised Limited Partnership Act (the "Act"), as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 ACCOUNTING PERIOD. An Accounting Period shall be (i) the Fiscal Year
if there are no changes in the Partners' respective interests in the Profits or
Losses of the Partnership during such period except on the first day thereof, or
(ii) any other period beginning on the first day of the Fiscal Year, or any
other day during the Fiscal Year upon which occurs a change in such respective
interests, and ending on the last day of the Fiscal Year, or on the day
preceding an earlier day upon which any change in such respective interest shall
occur.
1.2 ADJUSTED ASSET VALUE. The Adjusted Asset Value with respect to any
asset shall be the asset's adjusted basis for federal income tax purposes,
except as follows:
(a) The initial Adjusted Asset Value of any asset contributed by a
Partner to the Partnership shall be the lesser of (i) the gross fair market
value of such asset or (ii) the asset's adjusted basis for federal income tax
purposes at the time of contribution, as determined by the contributing Partner
and the General Partner.
(b) In the discretion of the General Partner, the Adjusted Asset
Values of all Partnership assets may be adjusted to equal their respective gross
fair market values, as determined by the General Partner, and the resulting
unrealized profit or loss allocated to the Capital Accounts of the Partners
pursuant to Article 6, as of the following times: (i) the acquisition of an
additional interest in the Partnership by any new or existing Partner in
exchange for more than a DE MINIMIS capital contribution, and (ii) the
distribution by the Partnership to a Partner of more than a DE MINIMIS amount of
Partnership assets, unless all Partners receive simultaneous distributions of
either undivided interests in the distributed property or identical Partnership
assets in proportion to their interests in Partnership distributions as provided
in paragraphs 7.4 and 7.5.
1.
<PAGE>
(c) The Adjusted Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined by
the General Partner, and the resulting unrealized profit or loss allocated to
the Capital Accounts of the Partners pursuant to Article 6, as of the following
times: (i) the termination of the Partnership for federal income tax purposes
pursuant to Code Section 708(b)(1)(B); and (ii) the termination of the
Partnership either by expiration of the Partnership's term or the occurrence of
an event described in paragraph 10.1.
1.3 AFFILIATE. An Affiliate of any person shall mean any person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with the person specified.
1.4 CAPITAL ACCOUNT. The Capital Account of each Partner shall consist of
its original capital contribution (in kind contributions shall be credited at
their Adjusted Asset Value), (i) increased by any additional capital
contributions, its share of income or gain that is allocated to it pursuant to
this Agreement, any Capital Account shift in favor of such Partner, and (ii)
decreased by the amount of any distributions to or withdrawals by it, its share
of expense or loss that is allocated to it pursuant to this Agreement, the
amount of any Capital Account shift away from the Capital Account of such
Partner. The foregoing provision and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704 1(b)(2)(iv), and shall, except as otherwise
expressly provided herein, be interpreted and applied in a manner consistent
with such Regulations. In the event the General Partner shall determine that it
is prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto, are computed in order to comply with such Regulations, the
General Partner may make such modification, provided that it is not likely to
have more than an insignificant effect on the total amounts distributable to any
Partner pursuant to Article VIII and Article XI.
1.5 CAPITAL CONTRIBUTION. A Partner's Capital Contribution shall mean the
amount that such Partner has contributed to the capital of the Partnership as
set forth opposite such Partner's name on Exhibit A hereto, as from time to time
amended.
1.6 CODE. The Code is the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law).
1.7 DEEMED GAIN OR DEEMED LOSS. The Deemed Gain from any in kind
distribution of Securities shall be equal to the excess, if any, of the fair
market value of the Securities distributed (valued as of the date of
distribution in accordance with paragraph 13.1), over the aggregate Adjusted
Asset Value of the Securities distributed. The Deemed Loss from any in kind
distribution of Securities shall be equal to the excess, if any, of the
aggregate Adjusted Asset Value of the Securities distributed over the fair
market value of the Securities distributed (valued as of the date of
distribution in accordance with paragraph 13.1).
1.8 EXCLUDED INVESTMENT. Excluded Investment means a Security of the
Partnership
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that one or more Partners does not share in because (i) he or she is an officer,
director or five percent or greater shareholder of the issuer of the Security or
(ii) the Investment Committee of the Board of Directors of Adobe otherwise
determines that it is inappropriate for such Partner to participate in the
investment because of the Partner's involvement with the issuer of the Security.
An Excluded Investment shall be designated as such at the time of its
acquisition.
1.9 MAJORITY IN INTEREST OF THE CLASS A LIMITED PARTNERS. Majority in
Interest of the Class A Limited Partners means one or more Class A Limited
Partners who own in the aggregate a majority of the Class A Units.
1.10 MARKETABLE; MARKETABLE SECURITIES; MARKETABILITY. These terms shall
refer to Securities that are (a) traded on a national securities exchange or
over the counter or (b) currently the subject of an effective Securities Act
registration statement. Notwithstanding the foregoing, a Security shall not be
deemed to be a Marketable Security if, in the good faith judgment of the General
Partner, the market on which such Security trades is not adequate to permit an
orderly sale of all shares of such Security held by the Partnership within a
reasonable time period or if the Securities cannot be sold because of lock-up
restrictions or other contractual restrictions on transfer.
1.11 NONMARKETABLE SECURITIES. Nonmarketable Securities are all Securities
other than Marketable Securities.
1.12 PROFIT OR LOSS. Profit or Loss shall be an amount computed separately
for each Security for each Accounting Period as of the last day thereof that is
equal to the Partnership's taxable income or loss for each Security for such
Accounting Period, determined in accordance with Section 703(a) of the Code (for
this purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profit or Loss pursuant to
this paragraph shall be added to such taxable income or loss;
(b) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulation Section 1.704 1(b)(2)(iv)(i) and not otherwise taken into
account in computing Profit or Loss pursuant to this paragraph shall be
subtracted from such taxable income or loss;
(c) Gain or loss resulting from any disposition of a Partnership
asset with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Adjusted Asset Value of the asset
disposed of rather than its adjusted tax basis;
(d) The difference between the gross fair market value of all
Partnership assets and their respective Adjusted Asset Values shall be added to
such taxable income or loss in
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the circumstances described in paragraph 1.2;
(e) Items which are specially allocated pursuant to paragraph 6.3
hereof shall not be taken into account in computing Profit or Loss; and
(f) Short Term Income shall not be taken into account in computing
Profit or Loss.
1.13 SECURITIES. Securities shall mean securities of every kind and nature
and rights and options with respect thereto, including stock, notes, bonds,
debentures, evidences of indebtedness and other business interests of every
type, including partnerships, joint ventures, proprietorships, limited liability
companies and other business entities.
1.14 SECURITIES ACT. Securities Act is the Securities Act of 1933, as
amended.
1.15 SHORT TERM INCOME. Short Term Income shall mean gross income realized
by the Partnership from investments of funds pending their investment or
distribution, including amounts earned from investments in commercial paper,
securities of the United States government, certificates of deposit and cash
deposits in banks and other financial institutions.
1.16 TREASURY REGULATIONS. Treasury Regulations shall mean the Income Tax
Regulations promulgated under the Code, as such Regulations may be amended from
time to time (including corresponding provisions of succeeding Regulations).
1.17 UNITS. Units means the ownership interests in the Partnership
designated as Class A Units and Class B Units and such other classes of units as
may from time to time be issued with the consent of the General Partner and a
Majority in Interest of the Class A Limited Partners.
ARTICLE 2
NAME, PURPOSE AND OFFICES OF PARTNERSHIP
2.1 NAME. The name of the Partnership is ADOBE INCENTIVE PARTNERS, L.P.
The affairs of the Partnership shall be conducted under the Partnership name.
2.2 PURPOSE. The primary purpose of the Partnership is to (i) invest in,
and receive and hold capital contributions of, Securities of private companies
(either directly or indirectly through Adobe's interest in Adobe Ventures, L.P.,
a California limited partnership) which either (a) operate or are expected to
operate in any industry related to the business operations of Adobe, including
companies which possess or may possess technologies, sales and services
capabilities, operations or content related to any Adobe product, or (b) have
been identified by Adobe as candidates for a strategic relationship with Adobe
and (ii) invest as a limited partner in Adobe
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Ventures II, L.P., a California limited partnership ("AVII") and any successor
Adobe Ventures investment fund. The general purposes of the Partnership are to
buy, sell, hold, and otherwise invest in securities of such companies of every
kind and nature and rights and options with respect thereto, including, without
limitation, stock, notes, bonds, debentures, partnership interests, interests in
limited liability companies and evidences of indebtedness; to exercise all
rights, powers, privileges, and other incidents of ownership or possession with
respect to Securities held or owned by the Partnership; to enter into, make, and
perform all contracts and other undertakings; and to engage in all activities
and transactions as may be necessary, advisable, or desirable to carry out the
foregoing.
2.3 PRINCIPAL OFFICE. The principal office of the Partnership shall be at
345 Park Avenue, San Jose, California 95110-2704, or such other place or places
in California as the General Partner may from time to time designate.
ARTICLE 3
TERM OF PARTNERSHIP
3.1 TERM. The term of the Partnership shall commence upon the later of
the date hereof or the date of the filing of the Certificate of Limited
Partnership of the Partnership with the office of the Secretary of State of the
State of California (the "Formation Date") and shall continue until the
fifteenth anniversary of the Formation Date unless extended by consent of the
General Partner and a Majority in Interest of the Class A Limited Partners or
sooner dissolved as provided in paragraph 11.1 below.
3.2 EVENTS AFFECTING A LIMITED PARTNER OF THE PARTNERSHIP. The death,
temporary or permanent incapacity, insanity, incompetency, bankruptcy,
liquidation, dissolution, reorganization, merger, sale of all or substantially
all the equity interests or assets of, or other change in the ownership or
nature of a Limited Partner shall not dissolve the Partnership.
3.3 EVENTS AFFECTING THE GENERAL PARTNER OF THE PARTNERSHIP. Except as
specifically provided in paragraph 11.1, the bankruptcy, liquidation,
dissolution, reorganization, merger, sale of all or substantially all the equity
interests or assets of, or other change in the ownership or nature of the
General Partner shall not dissolve the Partnership.
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ARTICLE 4
NAME AND ADMISSION OF PARTNERS
4.1 NAME, ADDRESS AND UNITS. The name and address of the General Partner
and each Limited Partner (hereinafter the General Partner and Limited Partners
shall be referred to collectively as the "Partners" and individually as a
"Partner") and the amount of such Partner's Capital Contribution (and a
description of such Capital Contribution if other than cash) to and number of
Units in the Partnership are set forth on Exhibit A hereto. The Partnership
shall initially have two classes of limited partnership interests which are
designated Class A Units and Class B Units and shall have the rights,
preferences and privileges set forth in this Agreement. Each Limited Partner
owning Class A Units is sometimes referred to herein as a Class A Limited
Partner and each Limited Partner owning Class B Units is sometimes referred to
herein as a Class B Limited Partner. The Class A Limited Partners and Class B
Limited Partners are collectively referred to as the Limited Partners. The
ownership of the Class A Units and Class B Units is set forth on Exhibit A
hereto. The General Partner shall cause Exhibit A to be amended from time to
time to reflect the admission of any new Partner, the withdrawal or substitution
of any Partner, receipt by the Partnership of notice of any change of address of
a Partner, or the change in any Partner's Capital Contribution or Units. An
amended Exhibit A shall supersede any prior Exhibit A and become a part of this
Agreement. A copy of the most recent amended Exhibit A shall be kept on file at
the principal office of the Partnership.
4.2 ADMISSION OF ADDITIONAL PARTNERS.
(a) Except as provided in paragraph 10.6, an additional person may be
admitted as a Partner only with the consent of, and on such terms as are
approved by, the General Partner and a Majority in Interest of the Class A
Limited Partners. At the time an additional person is admitted as a Limited
Partner, the General Partner shall determine whether such person shall
participate in investments made prior to the date of admission.
(b) Each additional person admitted as a Partner shall execute and
deliver to the Partnership a counterpart of this Agreement or otherwise become
bound by the terms of this Agreement.
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ARTICLE 5
CAPITAL ACCOUNTS AND CAPITAL CONTRIBUTIONS
5.1 CAPITAL ACCOUNTS. An individual Capital Account shall be maintained
for each Partner and shall be divided into subaccounts for each Security owned
by the Partnership. At the time each Class B Limited Partner is admitted to the
Partnership, and thereafter whenever the Class A Limited Partner makes an
additional Capital Contribution to the Partnership, there shall be a deemed
Capital Account shift from the Class A Limited Partner in favor of the Class B
Limited Partners. The total amount of Capital Account shift shall be the
product of the "Shift Percentage" times the amount of the Capital Contributions
of the Class A Limited Partner (with in kind contributions valued at their
Adjusted Asset Value) times a fraction, the numerator of which is the number of
Class B Units then outstanding and the denominator of which is the total number
of Class A Units and Class B Units outstanding. The Shift Percentage shall be
ten percent (10%) unless the General Partner determines another percentage is
more appropriate.
5.2 INITIAL CAPITAL CONTRIBUTIONS. The initial Capital Contributions of
the Partners is set forth on Exhibit A. Securities contributed by the Class A
Limited Partner are shown at their agreed fair market values on Exhibit A. No
Capital Contribution shall be required of any Class B Limited Partner.
5.3 CAPITAL CONTRIBUTIONS OF THE GENERAL PARTNER. The General Partner
shall contribute capital to the Partnership in cash in an amount equal to one
percent (1%) of the amount contributed by the Limited Partners and the General
Partner on each date on which a Limited Partner makes a contribution.
5.4 ADDITIONAL CAPITAL CONTRIBUTIONS. A Partner may make additional
Capital Contributions only with the consent of the General Partner and a
Majority in Interest of the Class A Limited Partners. No Partner shall be
required to make any additional Capital Contributions to the Partnership except
as provided in paragraph 5.3.
ARTICLE 6
PARTNERSHIP ALLOCATIONS
6.1 ALLOCATION OF PROFIT OR LOSS. Except as hereinafter provided in this
Article 6:
(a) Profit of the Partnership for each Security for each Accounting
Period shall be separately allocated among the Partners as follows:
(i) First, to the General Partner to and to the extent of Loss
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allocations respecting such Security previously made to it pursuant to paragraph
6.1(b)(iv);
(ii) Second, to the Class A Limited Partner and General Partner
pro rata in proportion to and to the extent of Loss allocation respecting such
Security previously allocated to them pursuant to paragraph 6.1(b)(iii);
(iii) Third, to the Class B Limited Partners and General Partner
pro rata in proportion to and to the extent of Loss allocations respecting such
Security previously made to them pursuant to paragraph 6.1(b)(ii); and
(iv) Then, 99% to the Limited Partners (pro rata among them in
accordance with their respective number of Units) and 1% to the General Partner.
(b) Loss of the Partnership for each Accounting Period shall be
allocated as follows:
(i) First, to the Partners pro rata in proportion to and to
the extent of income allocations previously made to them pursuant to paragraph
6.1(a)(iv);
(ii) Second, 99% to the Class B Limited Partners (pro rata
among them in accordance with their respective number of Units) and 1% to the
General Partner;
(iii) Then, 1% to the General Partner and 99% to the Class A
Limited Partner until their Capital Accounts are reduced to zero; and
(iv) Then, to the General Partner.
(c) Short Term Income shall be allocated to the Partners pro rata in
proportion to their respective Capital Contributions.
6.2 OTHER ALLOCATIONS. Notwithstanding the foregoing, the allocations
provided in this Article 6 shall be subject to the following exceptions:
(a) (i) Any loss or expense otherwise allocable to a Limited
Partner that exceeds the balance in such Limited Partner's Capital Account
subaccount for a Security shall instead be allocated first to all Partners who
have positive balances in their Capital Accounts subaccounts for such Security
in proportion to such positive balances, and when all Partners' Capital Accounts
subaccounts for such Security have been reduced to zero (0), then to the General
Partner.
(ii) In the event the Limited Partner unexpectedly receives any
adjustments, allocations, or distributions described in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d)(4) through (d)(6), that causes the balance in such
Partner's Capital Account to be reduced below zero (0), items of Partnership
income and gain shall be specially allocated to such
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Limited Partner in an amount and manner sufficient to eliminate the deficit
balance in its Capital Account created by such adjustments, allocations, or
distributions as quickly as possible.
(iii) For purposes of this subparagraph (a), the balance in a
Partner's Capital Account shall take into account the adjustments provided in
Treasury Regulation Section 1.704 1(b)(2)(ii)(d)(4) through (d)(6).
(iv) Any special allocations of items of profit, income, gain,
loss or expense pursuant to this subparagraph (a) shall be taken into account in
computing subsequent allocations, so that the net amount of any items so
allocated and the profit, gain, loss, income, expense, and all other items
allocated to each Partner shall, to the extent possible, be equal to the net
amount that would have been allocated to each such Partner if such special
allocations pursuant to this subparagraph (a) had not occurred.
(b) To the extent the Partnership has taxable interest income or
expense with respect to any promissory note between any Partner and the
Partnership as holder and maker or maker and holder pursuant to Section 483,
Sections 1271 through 1288, or Section 7872 of the Code, such interest income or
expense shall be specially allocated to the Partner to whom such promissory note
relates, and such Partner's Capital Account adjusted if appropriate.
(c) No Partner shall be allocated Profit or Loss of a Security (i)
which is designated an Excluded Investment with respect to that Partner or (ii)
which was acquired by the Partnership prior to such Partner's admission to the
Partnership, unless otherwise agreed by the Partnership and such Partner at the
time of such Partner's admission..
6.3 INCOME TAX ALLOCATIONS.
(a) Except as otherwise provided in this paragraph or as otherwise
required by the Code and the rules and Treasury Regulations promulgated
thereunder, a Partner's distributive share of Partnership income, gain, loss,
deduction, or credit for income tax purposes shall be the same as is entered in
the Partner's Capital Account pursuant to this Agreement.
(b) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss and deduction with respect to any
asset contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any variation
between the adjusted basis of such property to the Partnership for federal
income tax purposes and its initial Adjusted Asset Value.
(c) In the event the Adjusted Asset Value of any Partnership asset is
adjusted pursuant to the terms of this Agreement, subsequent allocations of
income, gain, loss and deduction with respect to such asset shall take account
of any variation between the adjusted basis of such asset for federal income tax
purposes and its Adjusted Asset Value in the same manner as under Code Section
704(c) and the Treasury Regulations thereunder.
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ARTICLE 7
PARTNERSHIP EXPENSES
7.1 EXPENSES. The General Partner shall bear (i) all normal operating
expenses incurred in the investigation of investment opportunities and the
monitoring and management of investments; (ii) all costs and expenses incurred
in the holding, purchase, sale or exchange of Securities (whether or not
ultimately consummated), including, but not by way of limitation, private
placement fees, finder's fees, interest, taxes, brokerage fees, legal fees,
audit and accounting fees, consulting fees, and all expenses incurred in
connection with the registration of the Partnership's Securities under
applicable securities laws or regulations; (iii) all expenses incurred by the
General Partner in serving as the tax matters partner, the cost of liability and
other insurance premiums, all out-of-pocket expenses of preparing and
distributing reports to Partners, all legal and accounting fees relating to the
Partnership and its activities, all costs and expenses arising out of the
Partnership's indemnification obligation pursuant to this Agreement and all
other operating expenses of the Partnership; (iv) all organizational and
syndication costs, fees, and expenses incurred by or on behalf of the General
Partner or the Partnership in connection with the formation and organization of
the Partnership, including legal and accounting fees and expenses incident
thereto with respect to the formation and organization of the Partnership; and
(v) all liquidation costs, fees, and expenses incurred by the General Partner
(or its designee) or the Partnership in connection with the liquidation of the
Partnership at the end of the Partnership's term, specifically including but not
limited to legal and accounting fees and expenses.
ARTICLE 8
WITHDRAWALS BY AND DISTRIBUTIONS TO THE PARTNERS
8.1 INTEREST. No interest shall be paid to any Partner on account of its
interest in the capital of or on account of its investment in the Partnership.
8.2 WITHDRAWALS BY THE PARTNERS. No Partner may withdraw any amount from
its Capital Account unless such withdrawal is made pursuant to this Article 8,
Article 11 or, in the case of the Class B Limited Partners, the Restricted Units
Agreement between such Partner and the Partnership.
8.3 PARTNERS' OBLIGATION TO REPAY OR RESTORE. Except as required by law
or the terms of this Agreement, no Partner shall be obligated at any time to
repay or restore to the Partnership all or any part of any distribution made to
it from the Partnership in accordance with the terms of this Article 8.
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8.4 CASH DISTRIBUTIONS. Subject to the following mandatory distribution
provisions, the General Partner may, but shall not be obligated to, distribute
cash as it may from time to time deem advisable.
(a) TAX DISTRIBUTIONS. Within 90 days following the end of each
fiscal year, the General Partner shall distribute to each Partner cash in an
amount equal to 50% of the Partnership's taxable income allocated to such
Partner for such year. The General Partner shall have the discretion to adjust
the rate of distribution provided for in this paragraph 8.4(a) to reflect any
increases made to the rates of taxation of ordinary income or capital gains, or
both, under the Code or California law.
(b) DISTRIBUTIONS OF DISTRIBUTABLE CASH. The Partnership shall
distribute cash in excess of $200,000 arising from the disposition of portfolio
company investments as soon as reasonably practicable. Such cash distributions
shall be made one percent (1%) to the General Partner and ninety-nine percent
(99%) to the Limited Partners as follows (provided, no Partner shall receive
distributions from the disposition of a Security which is an Excluded Investment
with respect to such Partner):
(i) first, to the extent of the Limited Partners' unreturned
capital investment respecting the Security disposed of, among the Limited
Partners in proportion to their respective unreturned capital investment
respecting such Security (unreturned capital investment shall take account of
any Capital Account shifts under paragraph 5.1); and
(ii) then, to the extent of previously undistributed Profit
respecting such Security, among the Partners in proportion to the allocation of
such profit pursuant to Article 6.
8.5 IN KIND DISTRIBUTIONS. The General Partner may, but shall not be
obligated to (except as provided in subparagraph 8.5(a) and paragraph 8.6
below), distribute Securities as it may from time to time deem advisable,
PROVIDED, HOWEVER, that except with the consent of a Majority in Interest of the
Class A Limited Partners, the General Partner shall not distribute Securities
which are not Marketable Securities, other than distributions pursuant to the
dissolution and winding up of the Partnership.
(a) TIMING.
(i) Marketable Securities acquired by the Partnership in
exchange for the transfer of Nonmarketable Securities shall be distributed
within 90 days of the date on which such Securities become Marketable
Securities.
(ii) Nonmarketable Securities which become Marketable
Securities as a result of a public offering or otherwise shall be distributed
within 90 days after the date on which such Securities become Marketable
Securities.
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(b) APPORTIONMENT.
(i) Distributions of Securities shall be made among the
Partners in accordance with paragraph 8.4(b).
(c) Immediately prior to any distribution in kind, the Deemed Gain or
Deemed Loss of any Securities distributed shall be allocated to the Capital
Accounts of the Partners as a Profit or Loss pursuant to Article 6.
(d) Securities distributed in kind shall be subject to such
conditions and restrictions as the General Partner determines are legally or
contractually required. Whenever classes of Securities are distributed in kind,
each Partner shall receive its ratable portion of each class of Securities
distributed in kind.
8.6 WITHDRAWAL OF CLASS B LIMITED PARTNERS.
(a) DEFINITIONS.
(i) WITHDRAWAL. For purposes of this Agreement, a Class B
Limited Partner shall be deemed to have withdrawn from the Partnership (a
"Withdrawal") if such Class B Limited Partner dies, retires, withdraws or
becomes bankrupt, incompetent, insane or permanently incapacitated.
(ii) BANKRUPT. A person shall be deemed bankrupt if (i) any
proceeding is commenced against such person for any relief under bankruptcy or
insolvency laws, or laws relating to the relief of debtors, reorganizations,
arrangements, compositions, or extensions and is not dismissed within ninety
(90) days after such proceedings have been commenced, or (ii) if such person
commences any proceeding for relief under bankruptcy or insolvency laws or law
relating to the relief of debtors, reorganizations, arrangements, compositions,
or extensions.
(iii) INCOMPETENT. A person shall be deemed incompetent if such
person shall be adjudged incompetent by a decree of a court of competent
jurisdiction or if a conservator is appointed for such person.
(iv) INSANE. A person shall be deemed insane if such person
shall be adjudged insane by a decree of a court of competent jurisdiction.
(v) PERMANENTLY INCAPACITATED. A person shall be deemed
permanently incapacitated whenever such person is determined by competent
medical authority selected by the General Partner to be permanently incapable of
carrying out his functions as a Class A Limited Partner hereunder.
(vi) FORMER PARTNER. Any Class B Limited Partner who withdraws
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from the Partnership, or the estate or legal representative of any such Member
shall be deemed a "Former Partner" on the date of such withdrawal.
(b) EFFECT OF WITHDRAWAL OF A CLASS B LIMITED PARTNER. In the event
of the Withdrawal of a Class B Limited Partner, the interest of such Former
Partner in the Partnership shall terminate and the Former Member, or his or her
personal representative, shall be entitled only to the payments and
distributions provided for in such Former Partner's Restricted Units Agreement,
all on the terms and conditions set forth in such agreement. Any reduction in
the Units of a Class B Limited Partner caused by his or her Withdrawal shall
increase, pro tanto, the Class A Units of the Class A Limited Partner.
ARTICLE 9
MANAGEMENT DUTIES AND RESTRICTIONS
9.1 MANAGEMENT. Except as otherwise provided in this Agreement, the
General Partner shall have the sole and exclusive right to manage, control, and
conduct the affairs of the Partnership and to do any and all acts on behalf of
the Partnership.
9.2 NO CONTROL BY THE LIMITED PARTNERS; NO WITHDRAWAL. The Limited
Partners shall take no part in the control or management of the affairs of the
Partnership nor shall the Limited Partners have any authority to act for or on
behalf of the Partnership or to vote on any matter relative to the Partnership
and its affairs except as is specifically permitted by this Agreement. Except
as specifically set forth in this Agreement or in the Restricted Units
Agreements between the Partnership and each Class B Limited Partner, no Limited
Partner shall withdraw or be required to withdraw from the Partnership.
9.3 CLASS A LIMITED PARTNER APPROVAL RIGHTS. Notwithstanding paragraph
9.2, the prior written approval of a Majority in Interest of the Class A Limited
Partners shall be required for the General Partner or the Partnership to carry
out any of the following activities:
(a) Elect or admit a new General Partner;
(b) Dissolve, wind up or liquidate the Partnership, other than in
accordance with the terms of this Agreement;
(c) Amend this Agreement, except as otherwise provided herein;
(d) Invest in or acquire Securities of any one company in an amount
in excess of $3,000,000;
(e) Acquire more than fifty percent (50%) of the outstanding voting
Securities of any one company;
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(f) Borrow funds, or pledge, encumber or hypothecate any assets of
the Partnership as security for a loan;
(g) Commence or defend any litigation pertaining to the Partnership
or its assets, prosecute, settle or compromise claims against third parties,
settle or compromise claims against the Partnership, other than with respect to
any litigation pertaining to the obligations of the Limited Partners under this
Agreement, and
(h) Make or revoke any election pursuant to the Code, including an
election pursuant to Section 754 of the Code, or any comparable federal or state
law regarding taxation.
9.4 INVESTMENT OPPORTUNITIES.
(a) Each Limited Partner acknowledges that the General Partner may
make venture capital investments other than through the Partnership. Each
Limited Partner hereby consents and agrees to such activities and investments
and further consents and agrees that neither the Partnership nor any of its
Partners shall have, pursuant to this Agreement, any rights in or to such
activities or investments or any profits derived therefrom.
(b) Each Limited Partner hereby agrees that the General Partner may
offer the right to participate in investment opportunities of the Partnership to
other private investors, groups, partnerships, or corporations whenever the
General Partner, in its discretion, so determines.
(c) During the term of this Agreement, each Limited Partner may
engage in any activity whatsoever for its own profit or advantage, whether or
not such activity may be in direct or indirect competition with the Partnership,
subject to any restrictions imposed on such Limited Partner outside this
Agreement.
(d) Any investment by the Partnership shall first be approved by the
Investment Committee of the Board of Directors of Adobe.
9.5 COMPLIANCE WITH PARTNERSHIP AGREEMENT; DETRIMENTAL ACTS. No Partner
shall do any act in contravention of this Agreement or that would be detrimental
to the best interests of this Partnership, or that would make it impossible to
carry on the affairs of the Partnership.
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ARTICLE 10
INVESTMENT REPRESENTATION AND TRANSFER
OF PARTNERSHIP INTERESTS
10.1 INVESTMENT REPRESENTATION OF THE LIMITED PARTNERS. This Agreement is
made with each Limited Partner in reliance upon the Limited Partner's
representation to the Partnership, which by executing this Agreement the Limited
Partner hereby confirms, that its interest in the Partnership is to be acquired
for investment, and not with a view to the sale or distribution of any part
thereof, and that it has no present intention of selling, granting participation
in, or otherwise distributing the same, and the Limited Partner understands that
its interest in the Partnership has not been registered under the Securities Act
and that any transfer or other disposition of the interest may not be made
without registration under the Securities Act or pursuant to an applicable
exemption therefrom. Each Limited Partner further represents that it does not
have any contract, undertaking, agreement, or arrangement with any person to
sell, transfer, or grant participations to such person, or to any third person,
with respect to its interest in the Partnership.
10.2 QUALIFICATIONS OF THE LIMITED PARTNERS. Each Limited Partner
represents that it is an "accredited investor" within the meaning of that term
as defined in Regulation D promulgated under the Securities Act as set forth
below or elsewhere in Regulation D as amended from time to time:
(a) An individual who has a net worth or joint net worth with that
person's spouse exceeding $1,000,000 at the time of becoming a Limited Partner;
or
(b) An individual who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and who reasonably expects reaching
the same income level in the current year.
The term "net worth" means the excess of total assets over total
liabilities. In computing net worth for the purposes of paragraph 10.2(a)
above, the principal residence of the investor must be valued at cost, including
cost of improvements, or at a recently appraised value by an institutional
lender making a secured loan, net of encumbrances.
10.3 TRANSFER BY THE GENERAL PARTNER. The General Partner may not sell,
assign, pledge, mortgage or otherwise dispose of its interest in the Partnership
or in its capital assets or property without the prior written approval of a
Majority in Interest of the Class A Limited Partners.
10.4 TRANSFER BY A LIMITED PARTNER. No Limited Partner may sell, assign,
pledge,
15.
<PAGE>
mortgage, or otherwise dispose of or transfer its interest in the Partnership
without the prior written approval of the General Partner.
10.5 REQUIREMENTS FOR TRANSFER. No transfer or other disposition of the
interest of a Limited Partner shall be permitted until the General Partner is
reasonably satisfied that the effect of such transfer or disposition would not:
(a) result in the termination of the Partnership's tax year under
Section 708(b)(1)(B) of the Code;
(b) result in violation of the Securities Act or any comparable state
law;
(c) require the Partnership to register as an investment company
under the Investment Company Act of 1940, as amended;
(d) require the Partnership or the General Partner to register as an
investment adviser under the Investment Advisers Act of 1940, as amended;
(e) result in a termination of the Partnership's status as a
partnership for federal income tax purposes;
(f) result in a violation of any law, rule, or regulation by a
Limited Partner, the Partnership or the General Partner; or
(g) cause the Partnership to be deemed to be a "publicly traded
partnership" as such term is defined in Section 7704(b) of the Code.
10.6 SUBSTITUTION AS A LIMITED PARTNER. A transferee of a Limited
Partner's interest pursuant to this Article 10 shall become a substituted
Limited Partner only with the consent of the General Partner (which consent may
be withheld by the General Partner for any reason or for no reason) and only if
such transferee (a) elects to become a substituted Limited Partner and (b)
executes, acknowledges and delivers to the Partnership such other instruments as
the General Partner may deem necessary or advisable to effect the admission of
such transferee as a substituted Limited Partner, including, without limitation,
the written acceptance and adoption by such transferee of the provisions of this
Agreement.
10.7 EXPENSES OF TRANSFER. Any costs or expenses (including but not
limited to reasonable attorneys fees) incurred by the Partnership in connection
with the transfer of a Partnership interest hereunder shall be borne by the
transferring Partner.
16.
<PAGE>
ARTICLE 11
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
11.1 EARLY TERMINATION OF THE PARTNERSHIP.
(a) The Partnership shall dissolve, and the affairs of the
Partnership shall be wound up prior to the expiration of its term set forth in
paragraph 3.1 upon the occurrence of any of the following events:
(i) One hundred eighty (180) days after the withdrawal,
bankruptcy, or dissolution of the General Partner of the Partnership, unless
within ninety (90) days of such event, a Majority in Interest of the Class A
Limited Partners elect to continue the business of the Partnership and to the
appointment, effective as of the date of such withdrawal, bankruptcy or
dissolution, of a new general partner. In the event that a new general partner
is elected pursuant to the foregoing sentence, the interest of the General
Partner shall be determined in accordance with paragraph 11.1(c) below;
(ii) Sale or other transfer of substantially all of the assets
of the Partnership; or
(iii) Mutual consent of the General Partner and a Majority in
Interest of the Class A Limited Partners.
(b) In the event that the Partnership is dissolved pursuant to the
provisions of this paragraph, the General Partner (or, if the dissolution occurs
because of an event described in paragraph 11.1(a)(i), a Majority in Interest of
the Class A Limited Partners) shall elect one or more liquidators to manage the
liquidation of the Partnership in the manner described in this Article 11.
(c) If the Limited Partners elect to continue the Partnership
pursuant to its right under paragraph 11.1(a), the former General Partner*s
interest in the Partnership shall become a limited partner interest and such
former General Partner shall have no powers of a General Partner under this
Agreement or the Act. The former General Partner*s interest in Short Term Income
shall remain unchanged. The former General Partner*s interest in Profit and Loss
shall limited to those allocations arising from assets acquired by the
Partnership (i) prior to the date on which the former General Partner ceased to
serve as General Partner (the "Cessation Date") or (ii) by use of the uninvested
portion of the General Partner*s capital contributions made prior to the
Cessation Date. The former General Partner shall have no obligation to make
additional capital contributions pursuant to Article 4 after the Cessation Date.
To the extent reasonably practicable, distributions of amounts allocable to the
former General Partner shall be made in a manner consistent with the foregoing.
17.
<PAGE>
11.2 WINDING UP PROCEDURES.
(a) Promptly upon dissolution of the Partnership (unless the
Partnership is continued in accordance with this Agreement or the provisions of
the Act), the affairs of the Partnership shall be wound up and the Partnership
liquidated. The closing Capital Accounts and subaccounts of all the Partners
shall be computed as of the date of dissolution as if the date of dissolution
were the last day of an Accounting Period in accordance with Article 6, and then
adjusted in the following manner:
(i) All assets and liabilities of the Partnership shall be
valued as of the date of dissolution.
(ii) The Partnership's assets as of the date of dissolution
shall be deemed to have been sold at their fair market values and the resulting
Profit or Loss shall be allocated to the Partners' Capital Accounts in
accordance with the provisions of Article 6.
The result for each Partner shall be its closing Capital Account.
(b) Distributions during the winding up period may be made in cash or
in kind or partly in cash and partly in kind. The General Partner or the
liquidator shall use its best judgment as to the most advantageous time for the
Partnership to sell Securities or to make distributions in kind. All cash and
each Security distributed in kind after the date of dissolution of the
Partnership shall be distributed ratably in accordance with the distribution
provisions of Article 8. Each Security so distributed shall be subject to
reasonable conditions and restrictions necessary or advisable in order to
preserve the value of such Security or for legal reasons.
ARTICLE 12
FINANCIAL ACCOUNTING,
REPORTS, MEETINGS AND VOTING
12.1 FINANCIAL ACCOUNTING; FISCAL YEAR. The books and records of the
Partnership shall be kept in accordance with the provisions of this Agreement
and otherwise in accordance with generally accepted accounting principles
consistently applied, and shall be reviewed at the end of each fiscal year by an
independent public accountant of recognized national standing selected by the
General Partner. The Partnership's fiscal year shall be a fifty-two/fifty-three
week period ending on the Friday closest to November 30 of each year (the
"Fiscal Year").
12.2 SUPERVISION; INSPECTION OF BOOKS. Proper and complete books of
account of the Partnership, copies of the Partnership's federal, state and local
tax returns for each fiscal year, the Schedule of Partners set forth in Exhibit
A, this Agreement and the Partnership's Certificate of Limited Partnership shall
be kept under the supervision of the General Partner at the principal
18.
<PAGE>
office of the Partnership. Such books and records shall be open to inspection
by the Limited Partner, or their accredited representatives, at any reasonable
time during normal business hours after reasonable advance notice.
12.3 PARTNERSHIP REPORTS; FINANCIAL STATEMENTS OF THE PARTNERSHIP. The
General Partner shall deliver to the Limited Partners the following:
(a) Within 120 days after the close of the Partnership's Fiscal Year,
audited financial statements of the Partnership prepared in accordance with the
terms of this Agreement and otherwise in accordance with generally accepted
accounting principles, including an income statement for the year then ended and
balance sheet as of the end of such year, a statement of changes in the
Partners' Capital Accounts, and a list of investments then held.
(b) Within 60 days after the close of each fiscal quarter, unaudited
financial statements.
(c) Within 10 days after the end of each fiscal quarter, a report
from the General Partner which shall include a status report on cash reserves,
investments then held, a summary of acquisitions and dispositions of investments
made by the Partnership during the preceding period and a valuation of each such
investment.
12.4 TAX RETURNS AND TAX INFORMATION. The Partnership shall use the method
of accounting for tax purposes that is selected by the General Partner after
consultation with the Partnership's independent public accountants. The General
Partner shall cause the Partnership's federal, state and local tax returns and
IRS Form 1065, Schedule K 1, to be prepared and delivered to the Limited
Partners within sixty (60) days after the close of the Partnership's fiscal
year. During such period, the General Partner shall also cause the Partnership
to furnish to any Limited Partner any other tax information reasonably requested
by such Limited Partner.
12.5 TAX MATTERS PARTNER. The General Partner shall be the Partnership's
tax matters partner under the Code and under any comparable provision of state
law. The General Partner shall have the right to resign as tax matters partner
by giving thirty (30) days' written notice to each Partner. Upon such
resignation a successor tax matters partner shall be elected by a Majority In
Interest of the Class A Limited Partners. The tax matters partner shall employ
experienced tax counsel to represent the Partnership in connection with any
audit or investigation of the Partnership by the Internal Revenue Service and in
connection with all subsequent administrative and judicial proceedings arising
out of such audit. If the tax matters partner is required by law or regulation
to incur fees and expenses in connection with tax matters not affecting all the
Partners, then the Partnership shall be entitled to reimbursement from those
Partners on whose behalf such fees and expenses were incurred. The tax matters
partner shall keep the Partners informed of all administrative and judicial
proceedings, as required by Section 6223(g) of the Code, and shall furnish to
each Partner, if such Partner so requests in writing, a copy of each notice or
other communication received by the tax matters partner from the Internal
Revenue Service, except such notices or communications as are sent directly to
such requesting
19.
<PAGE>
Partner by the Internal Revenue Service. The relationship of the tax matters
partner to the Limited Partners is that of a fiduciary, and the tax matters
partner has fiduciary obligations to perform its duties as tax matters partner
in such manner as will serve the best interests of the Partnership and all of
the Partnership's Partners. To the fullest extent permitted by law, but subject
to the limitations and exclusions of paragraph 14.4 below, the Partnership
agrees to indemnify the tax matters partner and its agents and save and hold
them harmless, from and in respect to all (i) fees, costs and expenses in
connection with or resulting from any claim, action, or demand against the tax
matters partner, the General Partner or the Partnership that arise out of or in
any way relate to the tax matters partner's status as tax matters partner for
the Partnership, and (ii) all such claims, actions, and demands and any losses
or damages therefrom, including amounts paid in settlement or compromise of any
such claim, action, or demand.
12.6 SPECIAL MEETINGS. Subject to the provisions of the Act, each Partner
may call a special meeting of the Partnership at any reasonable time on not less
than ten (10), nor more than sixty (60), days* written notice.
ARTICLE 13
VALUATION
13.1 VALUATION. Subject to the specific standards set forth below, the
valuation of Securities and other assets and liabilities under this Agreement
shall be at fair market value. Except as may be required under applicable
Treasury Regulations, no value shall be placed on the goodwill or the name of
the Partnership in determining the value of the interest of any Partner or in
any accounting among the Partners.
(a) The following criteria shall be used for determining the fair
market value of Securities:
(i) Securities not subject to investment letter or other
similar restrictions on free Marketability:
(1) If traded on one or more securities exchanges or
the Nasdaq National Market, the value shall be deemed to be the Securities'
highest closing price on such exchange(s) on the valuation date.
(2) If actively traded over the counter (other than on
the Nasdaq National Market), the value shall be deemed to be the average of the
closing bid and ask prices of such Securities on the valuation date.
(3) If there is no active public market, the value
shall be the fair market value thereof, as determined by the General Partner,
taking into consideration the purchase price of the Securities, developments
concerning the investee company subsequent to
20.
<PAGE>
the acquisition of the Securities, any financial data and projections of the
investee company provided to the General Partner, and such other factor or
factors as the General Partner may deem relevant. If a Majority in Interest of
the Class A Limited Partners objects to the valuation of any Nonmarketable
Security within fifteen (15) days of receipt of the valuation, the fair market
value of such Security shall be determined by an appraiser selected by the
senior ranking officer of the Western Association of Venture Capitalists (or any
successor organization) who is not associated with any of the Partners. The
Partnership shall bear the expense of any such appraisal.
(ii) Securities subject to investment letter or other
restrictions on free Marketability shall be valued by making an appropriate
adjustment from the value determined under (1), (2), or (3) above to reflect the
effect of the restrictions on transfer.
(iii) The valuation of the Partnership's interest in AVII shall
be based on the valuation of the securities owned by AVII determined in
accordance with AVII's limited partnership agreement.
(b) If the General Partner in good faith determines that, because of
special circumstances, the valuation methods set forth in this paragraph do not
fairly determine the value of a Security, the General Partner shall make such
adjustments or use such alternative valuation method as it deems appropriate.
ARTICLE 14
OTHER PROVISIONS
14.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among the
residents of such state made and to be performed entirely within such state.
14.2 LIMITATION OF LIABILITY OF THE LIMITED PARTNERS. Except as required
by law, no Limited Partner shall be bound by, nor be personally liable for, the
expenses, liabilities, or obligations of the Partnership in excess of its
capital commitment to the Partnership.
14.3 EXCULPATION. Neither the General Partner, nor its members or
Affiliates shall be liable to any Limited Partner or the Partnership for honest
mistakes of judgment, or for action or inaction, taken in good faith for a
purpose that was reasonably believed to be in the best interests of the
Partnership, or for losses due to such mistakes, action, or inaction, or to the
negligence, dishonesty, or bad faith of any employee, broker, or other agent of
the Partnership, provided that such employee, broker, or agent was selected,
engaged, or retained with reasonable care. The General Partner and such persons
may consult with counsel and accountants in respect of Partnership affairs and
be fully protected and justified in any action or inaction that is taken in
21.
<PAGE>
accordance with the advice or opinion of such counsel or accountants, provided
that they shall have been selected with reasonable care. Notwithstanding any of
the foregoing to the contrary, the provisions of this paragraph and the
immediately following paragraph shall not be construed so as to relieve (or
attempt to relieve) any person of any liability by reason of fraud, willful
misconduct or gross negligence or to the extent (but only to the extent) that
such liability may not be waived, modified, or limited under applicable law, but
shall be construed so as to effectuate the provisions of such paragraphs to the
fullest extent permitted by law.
14.4 INDEMNIFICATION. The Partnership agrees to indemnify, out of the
assets of the Partnership only, the General Partner and its members and their
agents (the "Indemnified Parties") to the fullest extent permitted by law and to
save and hold them harmless from and in respect of all (a) reasonable fees,
costs, and expenses, including legal fees, paid in connection with or resulting
from any claim, action, or demand against any Indemnified Party that arises out
of or in any way relate to the Partnership, its properties, business, or affairs
and (b) such claims, actions, and demands and any losses or damages resulting
from such claims, actions, and demands, including amounts paid in settlement or
compromise (if recommended by attorneys for the Partnership) of any such claim,
action or demand; provided, however, that this indemnity shall not extend to
conduct not undertaken in good faith to promote the best interests of the
Partnership or the portfolio companies of the Partnership, nor to any conduct
which constitutes fraud, willful misconduct or gross negligence. Expenses
incurred by any Indemnified Party in defending a claim or proceeding covered by
this paragraph shall be paid by the Partnership in advance of the final
disposition of such claim or proceeding provided the indemnified person
undertakes to repay such amount if it is ultimately determined that such person
was not entitled to be indemnified. The provisions of this paragraph 14.4 shall
remain in effect as to each Indemnified Party whether or not such Indemnified
Party continues to serve in the capacity that entitled such person to be
indemnified.
14.5 ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, except with respect to the valuation of
Partnership assets, shall be settled by arbitration in San Jose, California in
accordance with the rules, then obtaining, of the American Arbitration
Association, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
14.6 EXECUTION AND FILING OF DOCUMENTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
14.7 OTHER INSTRUMENTS AND ACTS. The Partners agree to execute any other
instruments or perform any other acts that are or may be reasonably necessary to
effectuate and carry on the partnership created by this Agreement.
14.8 BINDING AGREEMENT. This Agreement shall be binding upon the
transferees, successors, assigns, and legal representatives of the Partners.
22.
<PAGE>
14.9 NOTICES. Any notice or other communication that one Partner desires
to give to another Partner shall be in writing, and shall be deemed effectively
given upon personal delivery or three (3) days after deposit in any United
States mail box, by registered or certified mail, postage prepaid, upon
confirmed transmission by facsimile, or upon confirmed delivery by overnight
commercial courier service, addressed to the other Partner at the address shown
on Exhibit A or at such other address as a Partner may designate by ten (10)
days' advance written notice to the other Partners; provided, however, that any
notice to a Partner with an address outside the United States shall be deemed
effectively given only upon personal delivery or upon transmission by facsimile
with a confirmation copy sent by air mail, or upon confirmed delivery by
international commercial courier service.
14.10 AMENDMENT. This Agreement may be amended only with the written
consent of the General Partner and a Majority in Interest of the Class A Limited
Partners.
14.11 ENTIRE AGREEMENT. This Agreement constitutes the full, complete,
and final agreement of the Partners and supersedes all prior written or oral
agreements between the Partners with respect to the Partnership.
14.12 TITLES; SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and shall not be considered in the interpretation
of this Agreement.
14.13 PARTNERSHIP NAME. The Partnership shall have the exclusive right to
use the Partnership name as long as the Partnership continues. Upon termination
of the Partnership, the Partnership shall assign whatever rights it may have in
such name to the General Partner. No value shall be placed upon the name or the
goodwill attached to it for the purpose of determining the value of any
Partner's Capital Account or interest in the Partnership.
23.
<PAGE>
IN WITNESS WHEREOF, the Partners have executed this Agreement as of the
date first written above.
GENERAL PARTNER: CLASS A LIMITED PARTNER:
ADOBE SYSTEMS INCORPORATED ADOBE SYSTEMS INCORPORATED
By: By:
-------------------------------- --------------------------------
CLASS B LIMITED PARTNERS:
By: By:
-------------------------------- --------------------------------
John Warnock P. Jackson Bell
By: By:
-------------------------------- --------------------------------
Charles Geschke Colleen Pouliot
By:
--------------------------------
David Pratt
24.
<PAGE>
EXHIBIT A
SCHEDULE OF PARTNERS
<TABLE>
<CAPTION>
NAME AND ADDRESS CAPITAL CLASS A UNITS CLASS B UNITS
CONTRIBUTION
<S> <C> <C> <C>
GENERAL PARTNER: (1) 0 0
Adobe Systems Incorporated
345 Park Avenue
San Jose, CA 95110-2704
CLASS A LIMITED PARTNER: (2) 800,000 30,000
Adobe Systems Incorporated
345 Park Avenue
San Jose, CA 95110-2704
CLASS B LIMITED PARTNERS:
John Warnock(3) $0.00 0 50,000
Charles Geschke(3) $0.00 0 50,000
David Pratt(3) $0.00 0 30,000
P. Jackson Bell(3) $0.00 0 30,000
Colleen Pouliot $0.00 0 10,000
Totals 800,000 200,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------
(1) 1% of total capital contributions (in cash)
(2) cash and securities described on Schedule A-1 to this Exhibit A with an
agreed value as set forth on Schedule A-1
(3) c/o Adobe Systems Incorporated, 345 Park Avenue, San Jose, CA 95110-2704
<PAGE>
ADOBE SYSTEMS INCORPORATED
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
---------------------- ---------------------
MAY 30 MAY 31 MAY 30 MAY 31
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 40,106 $ 22,009 $ 86,590 $ 55,672
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary shares outstanding:
Weighted average shares
outstanding during the
period 72,259 73,137 71,953 73,145
Common stock equivalent
shares 2,157 2,501 2,225 2,871
--------- --------- --------- ---------
74,416 75,638 74,178 76,016
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted shares outstanding:
Weighted average shares
outstanding during the
period 72,259 73,137 71,953 73,145
Common stock equivalent
shares 2,529 2,533 2,733 2,884
--------- --------- --------- ---------
74,788 75,670 74,686 76,029
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary net income per
common stock and
common stock equivalent
share $ .54 $ .29 $ 1.17 $ .73
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted net income per
common stock and common
stock equivalent share $ .54 $ .29 $ 1.17 $ .73
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MAY 30, 1997, AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE SIX MONTHS ENDED MAY 30, 1997, 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> DEC-01-1997
<PERIOD-START> NOV-30-1996
<PERIOD-END> MAY-30-1997
<CASH> 185,587
<SECURITIES> 461,874
<RECEIVABLES> 135,809
<ALLOWANCES> 4,825
<INVENTORY> 9,155
<CURRENT-ASSETS> 827,677
<PP&E> 174,096
<DEPRECIATION> 91,179
<TOTAL-ASSETS> 1,080,379
<CURRENT-LIABILITIES> 233,246
<BONDS> 0
0
0
<COMMON> 246,889
<OTHER-SE> 600,244
<TOTAL-LIABILITY-AND-EQUITY> 1,080,379
<SALES> 104,721
<TOTAL-REVENUES> 454,723
<CGS> 66,947
<TOTAL-COSTS> 66,947
<OTHER-EXPENSES> 265,643
<LOSS-PROVISION> 424
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 136,071
<INCOME-TAX> 49,781
<INCOME-CONTINUING> 86,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,400
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
