-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AMQr20ci9zeQ29Wuf6f0E61GDyBasKm+Snd3sLwDCIoznMgK0FMt/7pY4ETTntxP 8LV92Wy+KuJ5t1h5avNyUg== 0000912057-97-024131.txt : 19970715 0000912057-97-024131.hdr.sgml : 19970715 ACCESSION NUMBER: 0000912057-97-024131 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970530 FILED AS OF DATE: 19970714 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADOBE SYSTEMS INC CENTRAL INDEX KEY: 0000796343 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770019522 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15175 FILM NUMBER: 97640069 BUSINESS ADDRESS: STREET 1: 345 PARK AVE CITY: SAN JOSE STATE: CA ZIP: 95110-2704 BUSINESS PHONE: 4159614400 MAIL ADDRESS: STREET 1: P.O. BOX 7900 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94039-7900 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 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 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTERS ENDED SIX MONTHS ENDED ------------------------- ------------------------- MAY 30 MAY 31 MAY 30 MAY 31 1997 1996 1997 1996 ---------- ---------- ---------- ----------- 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 ---------- ---------- ---------- ----------- ---------- ---------- ---------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MAY 30 NOVEMBER 29 1997 1996 ----------- ----------- ASSETS 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 ----------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 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 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 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 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 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 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 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 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 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:
QUARTERS ENDED NINE MONTHS ENDED ------------------------- ------------------------- MAY 30 MAY 31 MAY 30 MAY 31 1997 1996 1997 1996 ---------- ---------- ---------- ---------- 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% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
14 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Index to Exhibits
INCORPORATED BY REFERENCE EXHIBIT -------------------------- FILED NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH ------- ------------------- ---- ---- ------ -------- 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*
(Continued) 32 3. Index to Exhibits (Continued)
INCORPORATED BY REFERENCE EXHIBIT ----------------------------- FILED NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH ------- ------------------- ---- -------- ------- -------- 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)
(Continued) 33 3. Index to Exhibits (Continued)
INCORPORATED BY REFERENCE EXHIBIT ----------------------------- FILED NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH ------- ------------------- ---- -------- ------- -------- 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.
(Continued) 34 3. Index to Exhibits (Continued)
INCORPORATED BY REFERENCE EXHIBIT ----------------------------- FILED NUMBER EXHIBIT DESCRIPTION FORM DATE NUMBER HEREWITH ------- ------------------- ---- -------- ------- -------- 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.
35 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 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 EX-2.1 2 EXHIBIT 2.1 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 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 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 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 EX-3.1 3 EXHIBIT 3.1 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 (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 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: NAME MAILING ADDRESS A. PAUL RIMAS Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306-2155
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 EX-3.2 4 EXHIBIT 3.2.10 Exhibit 3.2.10 BYLAWS OF ADOBE (DELAWARE) INCORPORATED TABLE OF CONTENTS
PAGE ----- 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
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PAGE ----- 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
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PAGE ----- 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
iii 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 1 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. 2 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 3 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 4 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 5 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. 6 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. 7 (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 8 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 9 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. 10 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 11 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. 12 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 13 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 14 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. 15 (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 16 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. 17 EX-10.25 5 EXHIBIT 10.25.1 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 1 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 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. 3 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 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 EX-10.41 6 EXHIBIT 10.41 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. 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 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 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 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 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. (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 2. 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 3. 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 4. 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. 5. 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. 6. 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 7. 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 8. 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. 9. 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. 10. 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. 11. (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 12. 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; 13. (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. 14. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. EXHIBIT A SCHEDULE OF PARTNERS
NAME AND ADDRESS CAPITAL CLASS A UNITS CLASS B UNITS CONTRIBUTION 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
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------- (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 EX-11 7 EXHIBIT 11 ADOBE SYSTEMS INCORPORATED EXHIBIT 11 COMPUTATION OF NET INCOME PER COMMON SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTERS ENDED SIX MONTHS ENDED ---------------------- --------------------- MAY 30 MAY 31 MAY 30 MAY 31 1997 1996 1997 1996 --------- --------- --------- --------- 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 --------- --------- --------- --------- --------- --------- --------- ---------
EX-27 8 EXHIBIT 27
5 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. 1,000 6-MOS DEC-01-1997 NOV-30-1996 MAY-30-1997 185,587 461,874 135,809 4,825 9,155 827,677 174,096 91,179 1,080,379 233,246 0 0 0 246,889 600,244 1,080,379 104,721 454,723 66,947 66,947 265,643 424 0 136,071 49,781 86,590 0 0 0 86,400 1.17 1.17
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