<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ADOBE SYSTEMS INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
ADOBE SYSTEMS INCORPORATED
345 PARK AVENUE
SAN JOSE, CALIFORNIA 95110-2704
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 8, 1998
TO THE STOCKHOLDERS OF ADOBE SYSTEMS INCORPORATED:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of Adobe
Systems Incorporated, a Delaware corporation (the "Company"), will be held on
April 8, 1998, at 1:30 p.m., local time, in the Regent Room at The Fairmont
Hotel, 170 South Market Street, San Jose, California 95113 for the following
purposes:
1. To elect three (3) Class I directors of the Company to serve for a
two-year term.
2. To approve the Company's Amended 1994 Performance and Restricted Stock
Plan (the "Performance Plan"), including an increase of 500,000 in the number of
shares reserved for issuance under the Performance Plan and increases in the
per-participant annual limits from 50,000 shares to 200,000 shares and from
$2,500,000 to $10,000,000. WHILE THE BOARD OF DIRECTORS DOES NOT EXPECT TARGET
AWARDS UNDER THE PERFORMANCE PLAN TO APPROACH THESE LIMITS, IT IS POSSIBLE THAT
MAXIMUM PAYOUTS TO PARTICIPANTS, WHICH WOULD BE MADE ONLY IF THE COMPANY
SIGNIFICANTLY EXCEEDS ITS TARGET CRITERIA, COULD APPROACH THESE INCREASED LIMITS
IN FUTURE YEARS. THE COMPANY EXPECTS THAT THE SHARE INCREASE WILL BE ADEQUATE TO
COVER THE ISSUANCE OF PERFORMANCE AND/OR RESTRICTED SHARES OVER A TWO-YEAR
PERIOD, AND THAT THE POTENTIAL DILUTIVE EFFECT OF THE SALE OF ADDITIONAL SHARES
UNDER THE PERFORMANCE PLAN WILL BE OFFSET BY THE COMPANY'S STOCK REPURCHASE
PROGRAM CURRENTLY IN EFFECT.
3. To ratify the appointment of KPMG Peat Marwick LLP as the independent
public accountants of the Company for the fiscal year ending November 27, 1998.
4. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on February 16, 1998 are
entitled to notice of and to vote at this Annual Meeting and at any adjournment
or postponement thereof. For ten days prior to the meeting, a complete list of
stockholders entitled to vote at the meeting will be available for examination
by any stockholder, for any purpose relating to the meeting, during ordinary
business hours at the Company's principal offices located at 345 Park Avenue,
San Jose, California.
By Order of the Board of Directors
/s/ COLLEEN M. POULIOT
Colleen M. Pouliot
SENIOR VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY
San Jose, California
March 4, 1998
IMPORTANT: PLEASE FILL-IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY IN
THE POST-PAID ENVELOPE TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO
EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
<PAGE>
ADOBE SYSTEMS INCORPORATED
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 8, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INFORMATION CONCERNING SOLICITATION AND VOTING............................................................. 1
PROPOSAL ONE--ELECTION OF DIRECTORS........................................................................ 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 6
EXECUTIVE COMPENSATION..................................................................................... 8
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE............................................................. 15
DIRECTOR COMPENSATION...................................................................................... 18
PERFORMANCE GRAPH.......................................................................................... 19
PROPOSAL TWO--APPROVAL OF THE AMENDED 1994 PERFORMANCE AND RESTRICTED STOCK PLAN........................... 20
PROPOSAL THREE--RATIFICATION OF APPOINTMENT OF AUDITORS.................................................... 23
OTHER BUSINESS............................................................................................. 23
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING............................................... 24
</TABLE>
<PAGE>
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
OF
ADOBE SYSTEMS INCORPORATED
------------------------
The accompanying proxy is solicited by the Management of Adobe Systems
Incorporated (the "Company") for use at its Annual Meeting of Stockholders to be
held on April 8, 1998, in the Regent Room at The Fairmont Hotel, 170 South
Market Street, San Jose, California 95113, at 1:30 p.m., local time, or at any
adjournment or postponement of the meeting, for the purposes described below and
in the accompanying Notice of Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The principal executive offices of the Company are at 345 Park Avenue, PO
Box 2704, San Jose, California 95110-2704. The Company's telephone number at
that location is (408) 536-6000. The date of this Proxy Statement is March 4,
1998, the approximate date on which these proxy solicitation materials and the
Annual Report to Stockholders for the fiscal year ended November 28, 1997,
including financial statements, were first sent or given to stockholders
entitled to vote at the meeting.
This solicitation of proxies is made on behalf of the Management of the
Company and the associated cost will be borne by the Company. The Company has
engaged Kissel-Blake Inc. to assist in the solicitation of proxies for the
meeting. The Company will pay $7,000 in fees for Kissel-Blake's services and
will reimburse Kissel-Blake for reasonable out-of-pocket expenses.
In addition to solicitation by mail and by Kissel-Blake, Management may use
the services of its directors, officers and others to solicit proxies,
personally or by telephone, telegram, facsimile or electronic mail. No
additional compensation will be paid to directors, officers or other regular
employees for such services. Arrangements may also be made with brokerage houses
and other custodians, nominees and fiduciaries to forward solicitation material
to the beneficial owners of the stock held of record by such persons, and the
Company may reimburse them for reasonable out-of-pocket and clerical expenses
they incur.
RECORD DATE, VOTING AND REVOCABILITY OF PROXIES
The Company had outstanding on February 16, 1998 (the "Record Date"),
66,347,711 shares of Common Stock, $.0001 par value, all of which are entitled
to vote on all matters to be acted upon at the meeting. The Company's Bylaws
provide that a majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum for transaction of business. Each
stockholder is entitled to one vote for each share held on the Record Date. If
no instructions are given on the executed Proxy, the Proxy will be voted for all
nominees and in favor of all proposals described.
For the election of directors, a plurality of the votes present and entitled
to vote is required for approval if a quorum is present. The affirmative vote of
a majority of the votes cast at the meeting is required for approval of
Proposals 2 and 3 being submitted to the stockholders for their consideration.
An automated system administered by the Company's transfer agent tabulates the
votes. Abstentions and broker non-votes are each included in the determination
of the number of shares represented at the meeting for purposes of determining
the presence of a quorum. Each is tabulated separately. Abstentions and broker
non-votes will not be counted for purposes of determining the number of votes
cast for a proposal.
1
<PAGE>
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by filing with the Secretary of the Company
a written notice revoking it, by presenting at the meeting a duly executed proxy
bearing a later date, or by attending the meeting and voting in person.
Attendance at the meeting will not, by itself, revoke a proxy.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board has nominated Messrs. Geschke, Hambrecht and Yocam to serve as
Class I directors of the Company. Management knows of no reason why any of these
nominees would be unable or unwilling to serve, but if any nominee should be
unable or unwilling to serve, the Proxies will be voted for the election of such
other persons for the office of director as Management may recommend in the
place of such nominee.
THE BOARD RECOMMENDS VOTING "FOR" THE THREE NOMINEES LISTED BELOW.
INFORMATION REGARDING NOMINEES
The Company's Bylaws provide that the authorized number of directors shall
be fixed in accordance with the Company's Certificate of Incorporation. The
Company's Certificate of Incorporation states that the number of directors
constituting the Board of Directors shall be fixed by the Board of Directors.
Accordingly, the Board of Directors has fixed the current number at seven. The
Company's Bylaws provide that the directors shall be divided into two classes,
with the classes of directors serving staggered, two-year terms.
Vacancies on the Board resulting from any cause, and any newly created
directorships resulting from any increase in the number of directors, shall be
filled by a majority of the remaining directors, unless the Board of Directors
determines that any such vacancies or newly created directorships shall be
filled by the stockholders and except as otherwise provided by law.
All directors, including directors elected by the Board of Directors to fill
vacancies, shall hold office until the expiration of the term for which elected
and until their successors are elected and qualified, except in the case of
death, resignation or removal of any director.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the three nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as Management may propose. Each person nominated for election
has agreed to serve if elected and Management has no reason to believe that any
nominee will be unable to serve.
Each nominee for election as a Class I director is currently a director of
the Company who was previously elected by the stockholders. The three Class I
directors to be elected at the 1998 Annual Meeting will hold office until the
2000 Annual Meeting and until their successors have been elected and qualified,
or until such director's earlier death, resignation or removal.
2
<PAGE>
The following tables set forth the name and age of each nominee and each
director of the Company whose term of office continues after the Annual Meeting,
the principal occupation of each during the past five years, and the year each
began serving as a director of the Company:
NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR A TERM EXPIRING IN 2000:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME DURING THE PAST FIVE YEARS AGE YEAR
- ------------------------- ------------------------------------------------------------------------- --- ---------
<S> <C> <C> <C>
Charles M. Geschke Dr. Geschke was a founder of the Company and has been its President since 58 1982
April 1989. In September 1997, Dr. Geschke assumed the position of
Chairman of the Board, sharing that office with John E. Warnock. He was
Chief Operating Officer from December 1986 until July 1994. Dr. Geschke
received a Ph.D. in computer science from Carnegie Mellon University. Dr.
Geschke is a director of Rambus Incorporated.
William R. Hambrecht Mr. Hambrecht retired from his position as Chairman of Hambrecht & Quist 61 1982
Group and its principal subsidiary, Hambrecht & Quist LLC, effective
January 1, 1998. He had served as an officer, director or principal of
those entities or their predecessors since he and the late George Quist
co-founded Hambrecht & Quist in 1968. He holds a BA degree from Princeton
University.
Delbert W. Yocam Mr. Yocam is Chairman of the Board and Chief Executive Officer of Borland 54 1991
International, Inc. Prior to joining Borland, Mr. Yocam was an
independent consultant from November 1994 through November 1996. From
September 1992 until November 1994, he served as President, Chief
Operating Officer and a director of Tektronix, Inc. Mr. Yocam is also a
director of Hollywood Park, Inc., Raster Graphics, Inc., Xircom, Inc.,
and several privately-held technology companies. Mr. Yocam received a BA
degree in Business Administration from California State University,
Fullerton, and an MBA from California State University, Long Beach.
INCUMBENT CLASS II DIRECTORS WITH TERMS EXPIRING IN 1999:
John E. Warnock Dr. Warnock was a founder of the Company and has been its Chairman of the 57 1982
Board since April 1989. Beginning September 1997, he shares the position
of Chairman of the Board with Dr. Geschke. He has been Chief Executive
Officer since 1982. Dr. Warnock received a Ph.D. in electrical
engineering from the University of Utah. He is a director of Evans &
Sutherland Computer Corporation, Netscape Communications Corporation, and
Redbrick Systems.
Gene P. Carter Mr. Carter has been a private investor since 1984. He is a director of 63 1994
Portable Energy Products, Inc., and is on the Board of Regents of the
Milwaukee School of Engineering. Mr. Carter received an Associates Degree
in Applied Science, as well as an honorary doctorate degree in
engineering, from the Milwaukee School of Engineering.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME DURING THE PAST FIVE YEARS AGE YEAR
- ------------------------- ------------------------------------------------------------------------- --- ---------
<S> <C> <C> <C>
Robert Sedgewick Since 1985, Dr. Sedgewick has been a Professor of Computer Science at 51 1990
Princeton University, where he was the founding Chairman of the
Department of Computer Science from 1985 to 1994. He is the author of a
widely used series of textbooks on algorithms. Dr. Sedgewick holds a
Ph.D. in computer science from Stanford University.
William J. Spencer Dr. Spencer served as President and Chief Executive Officer of SEMATECH 67 1992
from October 1990 to April 1997. He was appointed Chairman of the Board
of SEMATECH in August 1996, a position he still holds. Dr. Spencer is a
director of CNRI, SRI International and ICA. Dr. Spencer received a Ph.D.
in physics from Kansas State University.
</TABLE>
4
<PAGE>
BOARD AND COMMITTEE MEETINGS
The following table sets forth the Committees of the Board of Directors, the
members of each Committee and the number of meetings held by the Board and the
Committees:
MEMBERSHIP ROSTER
<TABLE>
<CAPTION>
EXECUTIVE
NAME BOARD AUDIT COMPENSATION INVESTMENT
- ----------------------------------------------------------- ----------- ----- ----------------- ---------------
<S> <C> <C> <C> <C>
Dr. Warnock................................................ x
Dr. Geschke................................................ x
Mr. Carter................................................. x x x
Mr. Hambrecht.............................................. x x
Dr. Sedgewick.............................................. x x x x
Dr. Spencer................................................ x x x
Mr. Yocam.................................................. x x x
Number of meetings held in 1997............................ 11 1 6 4
<CAPTION>
EMPLOYEE
NAME GRANT
- ----------------------------------------------------------- -------------
<S> <C>
Dr. Warnock................................................ x
Dr. Geschke................................................ x
Mr. Carter.................................................
Mr. Hambrecht..............................................
Dr. Sedgewick..............................................
Dr. Spencer................................................
Mr. Yocam..................................................
Number of meetings held in 1997............................ 0*
</TABLE>
- ------------------------
* The Employee Grant Committee did not hold any meetings during fiscal 1997.
Instead, all actions by the Employee Grant Committee were taken by Unanimous
Written Consent.
All directors attended at least 75% of the aggregate of the meetings of the
Board and all committees of the Board of which they were members. The Company
does not have a nominating committee nor any committee performing such
functions.
The Audit Committee meets with the Company's independent auditors at least
annually and reviews and approves (i) the scope of the audit performed by the
Company's independent public accountants and (ii) the Company's accounting
principles and internal accounting controls. All members of the Audit Committee
are non-employee directors.
The Executive Compensation Committee is responsible for setting and
administering the policies governing annual compensation of executive officers,
including cash compensation and stock ownership programs. All members of the
Executive Compensation Committee are non-employee directors.
The Investment Committee evaluates the advisability of the Company's
investing in outside-managed venture capital funds and direct investments by the
Company, focusing on startup companies in businesses strategically related to
the Company's markets and technology, and continues to monitor the performance
of the investments. The Investment Committee also reviews and approves any
transaction in excess of $1 million between the Company and any investee
company.
The Employee Grant Committee reviews and approves grants of options and
restricted stock to non-officer employees under the Company's 1994 Stock Option
Plan and the Amended 1994 Performance and Restricted Stock Plan, respectively.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 23, 1998, there were outstanding 67,477,957 shares of the
Company's Common Stock. Except as set forth in the footnotes to the table, the
following table sets forth information regarding the beneficial ownership of the
Company's Common Stock as of January 23, 1998: (a) by each person known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock; (b) by the Chief Executive Officer of the Company; (c) by each of the
executive officers named in the Summary Compensation Table; (d) by each director
of the Company; and (e) by all executive officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF COMMON
NAME OWNERSHIP(1)(2) STOCK OUTSTANDING
- ------------------------------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
PRIMECAP Management Company........................................ 6,685,085(3) 9.9%
225 South Lake Ave., Suite 400
Pasadena, CA 91101-3005
John E. Warnock.................................................... 936,112(4) 1.4%
Charles M. Geschke................................................. 607,003(5) *
David B. Pratt..................................................... 323,705(6) *
P. Jackson Bell.................................................... 34,912(7) *
Ross A. Bott....................................................... 32,594(8) *
William R. Hambrecht............................................... 95,984(9) *
Robert Sedgewick................................................... 38,700(10) *
William J. Spencer................................................. 40,000(11) *
Delbert W. Yocam................................................... 23,125(12) *
Gene P. Carter..................................................... 96,104(13) *
All directors and executive officers 2,142,102(14) 3.1%
as a group (18 persons)..........................................
</TABLE>
- ------------------------
* Less than 1%.
(1) The persons named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and the
information contained in the footnotes to this table.
(2) As to any shares issuable upon exercise of outstanding options identified
in the footnotes to this table, those options exercisable on January 23,
1998 or within 60 days thereafter are included.
(3) Of the shares attributed to PRIMECAP Management Company, it has sole voting
and dispositive power over all shares. These shares include 5,190,000 shares
attributed to Vanguard/PRIMECAP Fund, Inc., which has sole voting power and
shared dispositive power over all 5,190,000 shares. This information was
provided in a representation to the Company and pursuant to Schedules 13G
and is current as of December 31, 1997.
(4) Of the shares attributed to Dr. Warnock, 8,400 shares are held in trusts
for the benefit of his children; Dr. Warnock shares voting and investment
power over these trusts with his spouse and Charles M. Geschke. Includes
59,929 shares issuable upon exercise of outstanding options.
(5) Of the shares attributed to Dr. Geschke, 3,870 are held in trusts for the
benefit of his children, and 800 shares are held by Dr. Geschke's father;
Dr. Geschke and his spouse share voting and investment power over the
childrens' trusts. Dr. Geschke disclaims beneficial ownership of the shares
held in his childrens' trusts and the shares held by his father. In
addition, 404,190 shares are held in the name of the Geschke Family Trust
dated 9/25/87, over which Dr. Geschke shares voting and investment power
with his spouse. Includes 87,349 shares issuable upon exercise of
outstanding options.
6
<PAGE>
(6) Of the shares attributable to Mr. Pratt, 2,909 are held in a living trust
over which Mr. Pratt shares voting and investment power with his spouse.
Includes 308,680 shares issuable upon exercise of outstanding options.
(7) Includes 34,193 shares issuable upon exercise of outstanding options.
(8) Includes 21,875 shares issuable upon exercise of outstanding options.
(9) Includes 80,000 shares issuable upon exercise of outstanding options.
(10) Includes 37,500 shares issuable upon exercise of outstanding options.
(11) Consists entirely of 40,000 shares issuable upon exercise of outstanding
options.
(12) Consists entirely of 23,125 shares issuable upon exercise of outstanding
options.
(13) Includes 83,504 shares held by the Carter Family Trust over which Mr.
Carter shares voting and investment power with his spouse. Includes 10,000
shares issuable upon exercise of outstanding options.
(14) Includes 616,630 shares issuable upon exercise of outstanding options. Does
not include shares held by Mr. Pratt, who is no longer an executive officer
of the Company.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides information concerning the compensation of the
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (the "Named Executive Officers"), for the
fiscal years ended December 1, 1995, November 29, 1996 and November 28, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS
----------------------- PAYOUTS
ANNUAL COMPENSATION RESTRICTED SECURITIES -------------
--------------------------------- STOCK UNDERLYING LTIP ALL OTHER
BONUS AWARD(S) OPTION/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(1) ($)(2) SARS (#) ($)(3) ($)(4)
- -------------------------------------- --------- ---------- ---------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
John E. Warnock....................... 1997 $ 489,518 $ 403,313 0 94,350 0 $ 369,965
Chairman of the Board 1996 428,592 209,519 0 27,800 0 27,403
and Chief Executive 1995 375,014 293,308 0 42,000 0 44,572
Officer
Charles M. Geschke.................... 1997 489,518 403,313 0 94,200 0 342,108
Chairman of the Board 1996 428,592 209,519 0 27,800 0 27,939
and President 1995 375,014 293,308 0 42,000 0 45,530
David B. Pratt (5).................... 1997 349,513 223,426 0 78,500 0 2,215,312
Executive Vice President 1996 301,637 119,067 0 11,040 0 25,930
and Chief Operating 1995 271,010 168,272 $ 107,500 25,000 0 44,797
Officer
P. Jackson Bell (6)................... 1997 334,512 236,654 0 100,000 0 151,679
Executive Vice President, 1996 43,271 0 0 0 0 0
Chief Financial Officer and Chief
Administrative Officer
Ross A. Bott (7)...................... 1997 269,000 164,779 393,750 75,000 0 28,944
Executive Vice President,
Product Divisions
</TABLE>
- ------------------------
Notes:
(1) Some of the amounts shown in this column reflect payments under the
Company's Profit Sharing Plan in which all employees of the Company
participate.
(2) For the Named Executive Officers, the aggregate number of restricted stock
holdings at the end of fiscal 1997 was 10,000 shares; the closing price of
the Company's Common Stock at November 28, 1997, the fiscal year-end, was
$42.00/share for an aggregated value of $420,000. During fiscal 1997, Mr.
Bott was the only Named Executive Officer awarded restricted stock.
Mr. Pratt's award was granted on May 10, 1995 and fully vested on September
1, 1995. Mr. Bott's award was granted December 23, 1996 and fully vested on
January 2, 1998.
The holders of restricted stock are entitled to the same dividend that the
Company pays on its outstanding Common Stock.
8
<PAGE>
(3) The first three-year performance cycle period (fiscal years 1995-1997) of
the Company's 1994 Performance and Restricted Stock Plan (the "Restated
Performance Plan") was completed at the end of fiscal 1997. Pursuant to the
Restated Performance Plan, the Company has the option to pay out in either
cash or stock. The Company chose to pay out in cash for the first three-year
performance cycle period. However, the cash payouts were made during fiscal
1998 and therefore, pursuant to the Securities and Exchange Commission
("SEC") rules, are included in the column "All Other Compensation" (see Note
4(f), below).
(4) The amounts disclosed in this column for fiscal 1997 include compensation
as follows, including payments by the Company on behalf of the Named
Executive Officers as described in items (a), (c), (d) and (e), and deemed
compensation as described in items (b) and (h):
(a) Life insurance premiums in the following amounts: Dr. Warnock, $13,630;
Dr. Geschke, $14,235; Mr. Pratt, $14,235; Mr. Bell, $15,390; and Mr.
Bott, $10,580.
(b) The dollar value of the remainder of the life insurance premiums as
follows: Dr. Warnock, $12,431; Dr. Geschke, $12,930; Mr. Pratt, $12,930;
Mr. Bell, $14,832; and Mr. Bott, $10,311.
(c) Disability insurance premiums in the following amounts: Dr. Warnock,
$11,352; Dr. Geschke, $11,454; Mr. Pratt, $9,445; Mr. Bell, $8,589; and
Mr. Bott, $5,678.
(d) Company contributions under the Company's 401(k) Plan in the following
amounts: Dr. Warnock, $4,615; Dr. Geschke, $4,615; Mr. Pratt, $4,615; Mr.
Bell, $4,615; and Mr. Bott, $2,375.
(e) Physical examinations for Dr. Geschke, $937 and Mr. Pratt, $680.
(f) Performance Plan payouts for the three-year performance period ending in
fiscal 1997 (cycle period 1995-1997) but actually paid in fiscal 1998, as
follows: Dr. Warnock, $147,514; Dr. Geschke, $147,514; and Mr. Pratt,
$82,566. Mr. Pratt's amount also includes pro rata Performance Plan
payouts for the three-year performance periods ending in fiscal 1998
(cycle period 1996-1998), $199,187 and fiscal 1999 (cycle period
1997-1999), $287,401, pursuant to the terms of his Resignation Agreement.
See also Note 3, above and Note 5, below.
(g) See Note 5, below.
(h) Deemed compensation recognized by the Named Executive Officers pursuant
to the Internal Revenue Code of 1986, as amended (the "Code"), Section
83(b) elections made in connection with their respective partnership
interests in Adobe Incentive Partners, as follows: Dr. Warnock, $180,423;
Dr. Geschke, $150,423; Mr. Pratt, $108,253; and Mr. Bell, $108,252. See
"Report of the Executive Compensation Committee--Long Term Compensation"
below. Pursuant to the requirements of the Code, the amounts in this
footnote are included in "All Other Compensation," but the individuals
listed did not receive any actual cash payment or securities of any
venture investment; instead, the amounts shown reflect the value of the
partnership interest they received.
(5) Mr. Pratt resigned from the offices of Executive Vice President and Chief
Operating Officer effective November 30, 1997. Mr. Pratt remained an
employee of the Company through January 15, 1998. Pursuant to his
Resignation Agreement (as described below under "Severance and
Change-in-Control Arrangements"), Mr. Pratt received a lump sum cash payment
of $1,496,000 (this figure is included in the column "All Other
Compensation"). Please see "Severance and Change-in-Control Arrangements"
for details regarding the computation of his severance payment.
(6) Mr. Bell joined the Company on November 11, 1996.
(7) Mr. Bott joined the Company on December 23, 1996.
9
<PAGE>
STOCK OPTIONS
The following table provides details regarding stock options granted to the
Named Executive Officers in fiscal 1997 under the Company's 1994 Stock Option
Plan. In addition, in accordance with the SEC rules, there are shown the
hypothetical gains or "option spreads" that would exist for the respective
options. These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term. The actual value, if any, an executive may realize will depend on
the spread between the market price and the exercise price on the date the
option is exercised.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- --------------------------- ------------- ------------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John E. Warnock............ 94,200 3.92% $ 40.88 12/18/06 $ 2,421,512 $ 6,136,586
150 0.01 41.38 6/4/05 2,963 7,097
Charles M. Geschke......... 94,200 3.92 40.88 12/18/06 2,421,512 6,136,586
David B. Pratt............. 78,500 3.27 40.88 12/18/06 2,017,926 5,113,822
P. Jackson Bell............ 100,000 4.16 43.38 12/2/06 2,727,830 6,912,858
Ross A. Bott............... 75,000 3.12 38.63 1/2/07 1,821,829 4,616,873
</TABLE>
- ------------------------
Notes:
(1) All options with a December 18, 2006 expiration date were granted December
18, 1996; vest in the amount of 2.08% per month for the first 24 months from
the date of grant, and 4.17% per month for the next 12 months; and have a
term of ten years. Pursuant to his Resignation Agreement, all of Mr. Pratt's
options were fully vested and exercisable on January 15, 1998. On June 4,
1997, Dr. Warnock was granted an option for 150 shares in connection with a
patent issued by the U.S. Patent and Trademark Office. This option also
vests in the amount of 2.08% per month for the first 24 months from the date
of grant, and 4.17% per month for the next 12 months, and has a term of
eight years. Mr. Bell's option was granted December 2, 1996, and Mr. Bott's
option was granted January 2, 1997. Messrs. Bell's and Bott's options vest
25% one year from the date of grant, then at the rate of 2.08% per month for
the next 12 months and at the rate of 4.17% per month for the final twelve
months, and have a term of ten years. All of the options permit withholding
of shares to satisfy tax obligations upon exercise. The price of each option
share, paid at the time of exercise, is the fair market value of a share of
the Company's Common Stock on the date of grant, which was equal to the
closing price per share of the Company's Common Stock as quoted on the
Nasdaq National Market on such date. Subject to the Retention Agreement
terms described in "Severance and Change-in-Control Arrangements" below, if
the optionee terminates employment with the Company, his option term will
change as follows:
(a) if the termination is due to the optionee's normal retirement, death or
disability, the exercise period is twelve months from such date; or
(b) if the termination is due to the optionee's early retirement pursuant to
an early retirement program, the exercise period is three months from the
date of early retirement or such greater period as established pursuant
to the early retirement program; or
10
<PAGE>
(c) if there is a transfer of control of the Company in which the Company is
not the surviving corporation, and termination occurs within 24 months
thereafter due to (i) constructive termination or (ii) any reason other
than termination for cause, the exercise period is twelve months from the
date on which the optionee's employment terminated, and the vesting of
all options will accelerate such that all options will vest in full; or
(d) if the termination is for cause, the option shall terminate and cease to
be exercisable from the date of termination; or
(e) if the termination is for any reason other than stated above, the
exercise period is three months from the date of such termination.
(2) The exercise price may be paid in cash, by delivery of already-owned shares
subject to certain conditions, or pursuant to a cashless exercise procedure
under which the optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to the Company, out of the
sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(3) For all grants with an expiration date of December 18, 2006, the potential
gain is calculated from the closing price of the Company's Common Stock on
December 18, 1996, the date of grant to the Named Executive Officer.
The potential gains on Dr. Warnock's patent grant are calculated from the
closing price on June 4, 1997, the day his patent shares were granted.
The potential gains on Mr. Bell's grant and Mr. Bott's grant are calculated
from the closing price of the Company's Common Stock on December 2, 1996 and
January 2, 1997, their respective dates of grant.
For all of the grants, the potential gains represent certain assumed rates
of appreciation only, as set by the SEC. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent upon the future
performance of the Company and overall stock market conditions. There can be
no assurance that the amounts reflected in this table will be achieved.
Using the same analysis, all holders of Common Stock as of the Company's
fiscal year-end would potentially gain approximately $1.8 billion at 5%, and
$4.5 billion at 10%, rates of stock price appreciation.
STOCK OPTION EXERCISES AND HOLDINGS
The following table shows stock options exercised by Named Executive
Officers during fiscal 1997, including the aggregate value of gains on the date
of exercise. In addition, this table includes the number of shares covered by
both exercisable and non-exercisable stock options as of fiscal year-end. Also
reported are the values for "in-the-money" options which represent the positive
spread between the exercise price of any such existing stock options and the
year-end price of the Company's Common Stock.
11
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE- MONEY OPTIONS/SARS
UNDERLYING UNEXERCISED AT
SHARES OPTIONS/SARS AT FY-END(#) FY-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Warnock.............. 410,664 $ 8,684,349 72,190 106,451 $ 353,579 $236,634
Charles M. Geschke........... 357,499 7,284,982 70,182 106,319 317,028 236,551
David B. Pratt............... 10,000 268,750 228,989 79,691(2) 3,225,356 152,634
P. Jackson Bell.............. 0 0 61,559 100,000 0 0
Ross A. Bott................. 0 0 0 75,000 0 253,125
</TABLE>
- ------------------------
(1) Fiscal year ended November 28, 1997. The closing market price on that date
for the Company's Common Stock was $42.00.
(2) Pursuant to his Resignation Agreement, all of Mr. Pratt's options became
fully vested and exercisable on January 15, 1998.
LONG-TERM INCENTIVE PLAN
In June 1994, the Company's Board of Directors adopted the 1994 Performance
and Restricted Stock Plan, the Company's form of long-term incentive plan, which
plan was subsequently approved by the Company's stockholders in August 1994; the
Board has amended the plan as the Amended 1994 Performance and Restricted Stock
Plan (the "Performance Plan") and has submitted the Performance Plan for
stockholder approval. See "Proposal Two--Approval of the Amended 1994
Performance and Restricted Stock Plan." The Performance Plan is a compensation
plan tied to corporate performance and measured by the achievement of financial
goals.
The Performance Plan has a three-year cycle. At the start of each three-year
performance cycle, each participant is given a contingent award of a number of
shares of the Company's Common Stock. The actual number of shares earned by the
participant is determined based upon the Company meeting pre-defined performance
objectives over the three-year performance period. The measures for the
three-year performance periods consist of the Company's (i) compound annual
revenue growth and (ii) operating margin. If the minimum targets for the first
two measures are met, a third measure is used to modify the number of shares
actually awarded, with the maximum number of shares possible for award as noted
in the last column of the following chart. The third modifying measure for the
first two performance periods (fiscal years 1995-1997 and 1996-1998) was based
on the Company's stock price performance relative to the Hambrecht & Quist
("H&Q") Technology Index; for the fiscal year 1997-1999 performance period, the
third modifying measure was based on the Company's return on equity relative to
the H&Q Technology Index.
12
<PAGE>
Fiscal 1997 was the third fiscal year that Performance Plan contingent
awards were granted, with the three-year cycle to be fiscal 1997 through fiscal
1999. The following table provides certain information with respect to awards
during fiscal 1997 to the Named Executive Officers under the Performance Plan:
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OTHER PERIOD -------------------------------------
OR OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT (#) (#) (#)
- ---------------------------------------------- --------------- ---------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
John E. Warnock............................... 24,000 FY97-FY99 150 24,000 50,000
Charles M. Geschke............................ 24,000 FY97-FY99 150 24,000 50,000
David B. Pratt................................ 20,000 FY97-FY99 125 20,000 50,000
P. Jackson Bell............................... 20,000 FY97-FY99 125 20,000 50,000
Ross A. Bott.................................. 0 N/A 0 0 0
</TABLE>
SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
In September 1997, the Company entered into Retention Agreements (the
"Agreements") with its executive officers, superseding prior agreements and
providing for certain cash payments in the event of termination of his or her
employment following a change in control of the Company. Upon his employment
with the Company in January 1998, the Company entered into a Retention Agreement
with Frederick A. Snow, Executive Vice President, Worldwide Field Operations.
For purposes of these Agreements, a "change in control" is defined as: (i)
the beneficial ownership of 30% or more of the combined voting power of the
Company by any person or entity; (ii) when Incumbent Directors (as defined in
the Agreements) cease to constitute a majority of the Board of Directors; (iii)
a merger or consolidation involving the Company or a subsidiary and the
stockholders of the Company prior to such transaction own less than 50% of the
combined voting power of the Company (or the resulting entity) after the
transaction; (iv) the sale, liquidation or distribution of all or substantially
all of the assets of the Company; or (iv) a "change in control" within the
meaning of Section 280G of the Code. If, within two years after a change in
control (the "Covered Period"), the executive's employment is terminated without
Cause, or if the executive resigns for Good Reason or Disability (as defined in
the Agreements) ("Involuntary Termination"), such executive officer will receive
a cash severance payment as follows:
(1) earned but unpaid salary and the cash equivalent for unused vacation
time through the date of termination; plus, (2) pro rata portion of the annual
bonus for the year in which termination occurs (calculated on the basis of the
officer's target bonus and on the assumption that all performance targets have
been or will be achieved); plus, (3) an amount equal to the product of (i) the
sum of the officer's Reference Salary and Reference Bonus (as defined in the
Agreements), multiplied by (ii) two plus one twelfth for each year of completed
service with the Company (not in excess of twelve years) (the "Severance
Multiple").
For each of the Chief Executive Officer and the President, all outstanding
options, performance grants, restricted stock awards and his partnership
interest in Adobe Incentive Partners limited partnership (see "Report of the
Executive Compensation Committee" for a description of the Adobe Incentive
Partners limited partnership) will accelerate and vest 100% on the date of the
change in control. For other executive officers, all outstanding options,
performance grants, restricted stock awards and his/her partnership interest in
Adobe Incentive Partners limited partnership, if any, will accelerate and vest
100% on the date of his/her Involuntary Termination during the Covered Period.
Also, the exercise period of all such options will be extended to twelve months
from termination. A change in control will not alter the payout provisions of
the Performance Plan.
13
<PAGE>
In addition, the executive officer will receive continued medical, dental,
vision and life insurance coverage for himself or herself and dependents for a
period of years equal to the Severance Multiple.
Pursuant to the terms of his Resignation Agreement, upon his termination
from the Company on January 15, 1998, Mr. Pratt, the Company's Executive Vice
President and Chief Operating Officer until November 30, 1997, received a lump
sum cash severance payment of $1,496,000, representing (i) two and nine-twelfths
multiplied by (ii) the sum of his annual salary and target bonus in effect upon
his termination. Also pursuant to his Resignation Agreement, on December 24,
1997, Mr. Pratt received pro rata cash payment of his Performance Plan shares
for the performance periods of fiscal years 1996-1998 ($199,187) and 1997-1999
($287,401). These amounts are included in the column "All Other Compensation" in
the Summary Compensation Table at page 8, above. Upon his termination, Mr.
Pratt's stock options accelerated and vested 100%, and are exercisable in full
in accordance with the terms of his stock option agreements. Thirty percent
(30%) of Mr. Pratt's severance payment is subject to forfeiture should he breach
certain terms of his Resignation Agreement before July 16, 1998. The Company can
deduct the forfeited amount from the future proceeds Mr. Pratt may be entitled
to receive pursuant to his partnership units in the Adobe Incentive Partners
limited partnership.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "34
Act") requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file with the SEC reports of ownership and changes in ownership of common stock
and other equity securities of the Company. Officers, directors and greater than
ten percent stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. The Company does prepare
Section 16(a) forms on behalf of its officers and directors based on the
information provided by them.
Based solely on review of this information, including written
representations from its officers and directors that no other reports were
required, the Company believes that, during the 1997 fiscal year, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with, except that one gift
transaction report was inadvertently filed late by Charles Geschke.
14
<PAGE>
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee of the Board of Directors (the
"Committee") is composed entirely of outside, non-management directors. No
member of the Committee is a former or current officer of the Company. The
Committee is responsible for setting and administering the policies governing
annual compensation of executive officers, including cash compensation and stock
ownership programs.
COMPENSATION POLICIES
The Company operates in the competitive and rapidly changing high technology
business environment. The goals of the Company's executive compensation program
are to motivate executives to achieve the Company's business objectives in this
environment and reward them for their achievement, foster teamwork, and attract
and retain executive officers who contribute to the long-term success of the
Company. During fiscal 1997, the Committee utilized salary, bonus, stock options
and performance shares to meet these goals. In addition, as part of its venture
investing program, the Company established an internal limited partnership
("Adobe Incentive Partners") which enables certain executives of the Company to
participate in cash or stock distributions from venture investments.
Guiding principles are to provide compensation levels which are comparable
to those offered by other leading high technology companies, and align the
interests of officers with the long-term interests of stockholders through stock
compensation. For example, in fiscal 1997 stock compensation included
performance shares granted under the Performance Plan which cover a three-year
performance period and measure growth in revenue and operating margin. Another
principle is that a substantial portion of each executive's compensation be in
the form of an incentive bonus contingent upon the Company's revenue and
operating profit levels for the relevant fiscal year. For example, in 1997 each
of the Named Executive Officers' target bonus percentage equaled or exceeded 50%
of salary, payable semi-annually. However, the Committee retains the authority
to alter the bonus amounts because qualitative factors and long-term results
need to be evaluated as well as the short-term operating results. In 1997, the
Committee considered factors such as market share increases, new product
development and return on equity.
The Committee has considered the potential impact of Section 162(m) of the
Code adopted under the Federal Revenue Reconciliation Act of 1993. This section
disallows a tax deduction for any publicly-held corporation for individual
compensation exceeding $1 million in any taxable year for the Named Executive
Officers, unless compensation is performance-based. Any options granted under
the 1994 Stock Option Plan or performance units or shares granted under the
Performance Plan will meet the requirement of being performance-based. For the
CEO and President, their targeted cash compensation in fiscal 1998 will just
exceed the $1 million threshold. Although there will be a reduction in the tax
deduction available to the Company if the targeted compensation is achieved, the
Committee believes it is small. The Company's policy is to qualify to the
maximum extent possible its executives' compensation for deductibility under
applicable tax laws.
COMPENSATION COMPONENTS
ANNUAL COMPENSATION. The salary portion of executive compensation,
including that of the Chief Executive Officer, is determined annually by
reference to the Radford Associates Management survey of high technology
companies (the "Radford Survey"). The companies included in the Radford Survey
are not necessarily those included in the indices used in the Performance Graph
at page 19, below. The executive officers are matched to each position by
comparing their responsibilities to the survey description most accurately
representing their position with the Company by content, organizational level
and revenue. Given the officer's level of responsibility and the past
performance of the Company, the Committee targets a median or slightly higher
percentile competitive position as stated by the survey in determining salary
for each executive officer. As the executives mature in their respective
positions for the size of the Company, the Committee expects to target a high
percentile competitive position for salary compensation. The
15
<PAGE>
annual total cash compensation (salary plus incentive bonus) for each executive
is targeted at a very high percentile competitive position as stated by the
survey.
A substantial portion of the annual compensation of each executive officer
is in the form of an incentive bonus, which becomes a greater portion of an
officer's potential total compensation as the executive's level of
responsibility increases. The bonus is computed as a percentage of base salary
and is established annually at the beginning of the fiscal year. In fiscal 1997,
the target level of bonus equaled or exceeded 50% of salary for each of the
Named Executive Officers. The actual amount of each bonus was determined by
reference to the management incentive bonus program, which contains targets
specifically tied to revenue and operating profit levels on a semi-annual basis.
Of the target incentive bonus, a significant portion is based upon the Company's
and the individual's relevant division/geography/function's performance. The
remainder is based upon attainment of the individual's objectives. If the
Company's performance exceeds the targets on a semi-annual basis, then an
additional bonus up to fifty percent of the annual target bonus is included in
the program. The Committee has the authority to alter the incentive payout based
on other factors related to Company performance, such as market share increases,
new product development and return on equity. The Committee did not assign
weights to each of these factors but considered overall profitability and
operating results as measured against the annual budget as updated more
important than the other performance measures listed. In 1997, the Committee
awarded incentive bonuses on a semi-annual basis and, except for two specific
functional executives, did not alter the incentive payout from what the plan
provided. The Company's performance exceeded the targets in the first half of
fiscal 1997, so an additional bonus was paid; however, in the second half, the
Company's performance did not exceed the targets, and, therefore, none of the
Named Executive Officers received full payment of the target bonuses.
Executive officers also participated with all Company employees in the
Company's corporate profit sharing plan, under which a bonus of up to ten
percent of each employee's base salary, payable quarterly, is awarded depending
upon the Company's overall performance based on revenue, expenses and earnings.
In addition, if the Company's performance exceeds the targets on an annual
basis, then an additional bonus up to two percent of the base salary is paid in
the form of a Company contribution into the employee's 401(k) account. However,
should the Company fail to pay the full ten percent cash bonus in any quarter,
and, if the Company's performance meets or exceeds the targets on an annual
basis, the Company has the option to contribute to the employee's 401(k) account
an additional amount calculated based on the difference between the quarterly
cash bonus maximum and the quarterly cash bonus actually paid. Based on the
Company's level of revenue and operating profit versus budget for each quarter
of fiscal 1997, the profit sharing bonus was paid in the following percentages
for the relevant quarter: first quarter, 100%; second quarter, 100%; third
quarter, 100%; and fourth quarter, 91%. In addition, since the Company's annual
performance exceeded the targets, an additional bonus of 1.4% of base salary was
contributed to the employee's 401(k) account.
LONG-TERM COMPENSATION. The Committee utilized stock options, performance
shares, and for those executives deemed critical to its venture investing
activities, limited partnership units in Adobe Incentive Partners, to motivate
and retain executive officers for the long-term. The Committee believes that
these forms of compensation closely align the officers' interests with those of
stockholders and provide a major incentive to officers in building stockholder
value. In addition, the Committee believes that the performance share awards
further its objective of forging a closer link between the executives'
compensation and the Company's longer-term financial performance since the
awards are based upon a three-year performance cycle.
Options are granted annually and are subject to vesting provisions to
encourage officers to remain employed with the Company. Each executive officer
receives stock options based upon that officer's relative position,
responsibilities and performance by the individual over the previous fiscal year
and the officers' anticipated performance and responsibilities. Additionally,
the Committee considers the net present value of the grant compared to typical
grants at companies comparable in size and technology-
16
<PAGE>
based industry to the Company. The Committee also reviews the prior level of
grants to the officers and to other members of senior management, including the
number of shares which continue to be subject to vesting under outstanding
options, in setting the level of options to be granted to the executive
officers. The size of the option grants is not related to Company performance.
The Committee also utilizes data compiled by iQuantic, Inc. (an independent
compensation consulting firm) on stock options granted in comparable companies
in the technology-based industry and comparable companies from a revenue
perspective. The companies included in the iQuantic data are not necessarily
those included in the indices used in the Performance Graph at page 19, below.
These stock options are granted at the market price on the date of grant and
will provide value to the officers only when the price of the Company's Common
Stock increases over the exercise price.
The Committee granted performance shares pursuant to the Restated
Performance Plan to executive officers at the beginning of fiscal 1997 covering
a three-year performance period. The performance shares will be payable in stock
of the Company or cash at the end of the three-year performance cycle, but only
if the Company achieves targeted levels of revenue growth and operating margin.
In addition, the target number of shares that will be payable is modified
depending upon the Company's return on equity performance relative to the H&Q
Technology Index for the three-year performance period.
As part of its venture investing program, the Board of Directors established
Adobe Incentive Partners to provide long-term compensation to those executive
officers of the Company who are involved in the Company's venture investing
activities and whose participation is deemed critical to the success of the
program. The limited partnership investments are restricted to venture
investments in companies that are private at the time of the establishment of
Adobe Incentive Partners, or when the investment is made, whichever is later.
Distributions to the partners are made when an investment is marketable or sold
for cash. The Company is both the general partner and a limited partner. The
Company's senior partnership interest includes both a liquidation preference and
a preference in recovery of the cost basis of each specific investment. The
executives' junior (Class B) partnership interests qualify for partnership
distributions only after: (a) the Company has fully recovered the cost basis of
the specific investment; and (b) the executive has met the vesting requirement.
Vesting is over a three-year period: 2.08% per month for the first 24 months and
4.17% per month for the remaining 12 months. The total amount allocated to the
junior partnership interests is 20% of the venture investments included in Adobe
Incentive Partners. As the Company makes venture investments, the executives are
deemed to receive compensation in proportion to their interests. In 1997, no
distributions were made by Adobe Incentive Partners.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee established the Chief Executive Officer's salary and target
bonus levels at the beginning of fiscal 1997. Consistent with the analysis
described above, the Committee increased Dr. Warnock's base salary and
maintained his target bonus percentage. For the first half, the Committee
approved 119% payment of Dr. Warnock's target bonus; for the second half, 93% of
target was paid.
For Dr. Warnock's long-term compensation, the Committee granted stock
options under the 1994 Stock Option Plan for 94,200 shares of Common Stock in
consideration of his individual performance in 1997 and expected performance in
1998. These options were not related to Company performance in 1997. Based on
Dr. Warnock's senior position, a net present value analysis for grants that are
typical at that level of responsibility for the size of company and
technology-based industry, and the number of shares which continue to be subject
to vesting under outstanding options, the Committee determined that a grant of
94,200 shares subject to options was appropriate. In keeping with the Company's
standard practice regarding patents issued to its employees for inventions
assigned to the Company, on June 4, 1997 Dr. Warnock was also granted an option
for 150 shares in connection with a patent issued to him by the U.S. Patent and
Trademark Office.
17
<PAGE>
In addition, the Committee granted Dr. Warnock 24,000 performance shares
covering a three-year performance period beginning in fiscal 1997. The
performance shares will be payable in stock or cash of the Company, at the
Committee's discretion, at the end of the three-year performance cycle, but only
if the Company achieves targeted levels of revenue growth and operating margin.
In addition, the target number of shares that will be payable will be modified
depending upon the Company's return on equity performance relative to the H&Q
Technology Index for the three-year performance period. The number of
performance shares awarded was determined by the Committee based on Dr.
Warnock's senior position and a hypothetical return based on the closing market
price for the Company's Common Stock on the date of grant.
The Committee also granted Dr. Warnock a 5% Class B limited partner interest
in Adobe Incentive Partners. Based upon Dr. Warnock's responsibilities for
overseeing the Company's venture investment program and his senior position, the
Committee determined that such an interest was appropriate.
EXECUTIVE COMPENSATION COMMITTEE
Gene P. Carter
William R. Hambrecht
Robert Sedgewick
Delbert W. Yocam
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive annual retainers of
$17,500, meeting fees of $1,000 for each Board of Directors and committee
meeting attended (other than telephonic meetings), and reimbursement for
reasonable travel expenses. In addition, each person who is a non-employee
director is automatically granted on the date following the annual meeting of
stockholders of the Company an option to purchase 10,000 shares of the Company's
Common Stock under the Company's 1996 Outside Directors Stock Plan ("Outside
Directors Plan") at a price per share equal to the closing price of the
Company's Common Stock on that date. New non-employee directors joining the
Board receive an option to purchase 15,000 shares of the Company's Common Stock
under the Outside Directors Plan. However, the Outside Directors Plan also
provides that, pursuant to Rule 16b-3 of the 34 Act, the Board may exercise its
discretion with respect to the number of shares to be granted under any initial
option or under the annual option.
Each option has a term of ten years and a vesting schedule of (i) 25% at the
end of twelve months from the date of grant; (ii) 25% at the end of twenty-four
months from the date of grant; and (iii) the remaining 50% at the end of
thirty-six months from the date of grant. The options are immediately
exercisable subject to the Company's repurchase at cost of the unvested portion
of such stock. Options cease to be exercisable 30 days after termination of
director status, unless such an exercise would subject the resigning director to
a forfeiture of profits under Section 16(b) of the 34 Act. In such an event, the
timeframe for exercising vested options would be extended until the earlier of
(i) the 10th day following the date on which the resigning director would no
longer be subject to a forfeiture of profits under Section 16(b), or (ii) the
190th day after termination of services as director. In the event of a change of
control, any unexercisable portion of an option shall be fully exercisable prior
to the transaction resulting in a change of control. The option will terminate
to the extent it is not exercised effective as of the date of such a
transaction.
18
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PERFORMANCE GRAPH
FIVE-YEAR STOCKHOLDER RETURN COMPARISON
In accordance with SEC rules, the following table shows a line-graph
presentation comparing cumulative, five-year stockholder returns on an indexed
basis with a broad equity market index and either a nationally recognized
industry standard or an index of peer companies selected by the Company. The
Company has selected the Standard & Poor's ("S&P") 500 Index for the broad
equity index and the H&Q Technology Index as an industry standard for the five
fiscal-year period commencing November 29, 1992 and ending November 28, 1997.
The stock price information shown on the graph below is not necessarily
indicative of future price performance.
Although including a stock performance graph in this proxy statement may
suggest that executive compensation should be based on stock performance alone,
the Executive Compensation Committee considers many factors in determining
compensation. These factors include the Company's operating results, overall
profitability, new product development, increases in market share and growth in
stockholders' equity. See "Report of the Executive Compensation Committee."
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ADOBE SYSTEMS H & Q TECHNOLOGY INDEX S & P 500
<S> <C> <C> <C>
1992 $100.00 $100.00 $100.00
1993 $142.82 $120.18 $110.10
1994 $198.93 $143.83 $111.25
1995 $415.49 $233.37 $152.39
1996 $281.85 $246.80 $194.85
1997 $337.07 $261.76 $250.41
</TABLE>
- ------------------------
* Assumes $100 invested on November 29, 1992 in the Company's Common Stock,
the S&P 500 Index and the H&Q Technology Index, with reinvestment of
dividends.
For each reported year, the Company's reported dates are the last trading
dates of its fiscal year ending on the Friday closest to November 30th, and the
S&P 500 Index and H&Q Technology Index dates are the last trading date in
November.
19
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PROPOSAL TWO
APPROVAL OF THE AMENDED
1994 PERFORMANCE AND RESTRICTED STOCK PLAN
The Board of Directors and the stockholders of the Company approved the
adoption of the 1989 Restricted Stock Plan (the "Initial Plan") in February and
March 1989, respectively. In June 1994, subject to stockholder approval, the
Board of Directors amended and restated the Initial Plan in its entirety as the
1994 Performance and Restricted Stock Plan (the "Restated Performance Plan"),
which was approved by the stockholders in August 1994. The Board of Directors
amended the Restated Performance Plan as the Amended 1994 Performance and
Restricted Stock Plan (the "Performance Plan"), subject to stockholder approval,
in December 1997 and February 1998.
Prior to the amendments, an aggregate of 1.5 million shares of the Company's
Common Stock was reserved for issuance under the Performance Plan. In addition,
the performance-based awards under the Performance Plan are intended to conform
to the exemption for performance-based compensation under Section 162(m) of the
Code ("Section 162(m)"), which otherwise imposes a limit on the deductibility
for federal income tax purposes of compensation paid to certain officers. The
Board believes that the availability of an adequate number of shares in the
share reserve of the Performance Plan, along with an adequate maximum annual
payout limit, is an important factor in attracting, retaining and motivating
qualified employees essential to the success of the Company.
ON DECEMBER 17, 1997, SUBJECT TO STOCKHOLDER APPROVAL, THE BOARD OF
DIRECTORS AMENDED THE PERFORMANCE PLAN TO INCREASE THE SHARE RESERVE BY 500,000
SHARES TO A TOTAL OF 2 MILLION SHARES IN CONTEMPLATION OF USING THESE SHARES TO
ISSUE PERFORMANCE SHARES AND/OR RESTRICTED SHARES OVER A TWO-YEAR PERIOD. IN
LIGHT OF HISTORICAL USAGE AND EXPECTED FUTURE ISSUANCE, THE COMPANY EXPECTS THAT
THE 500,000 SHARE INCREASE WILL BE ADEQUATE TO MEET THESE FORESEEABLE
REQUIREMENTS. THE BOARD BELIEVES THAT THE POTENTIAL DILUTIVE EFFECT OF THE SALE
OF ADDITIONAL SHARES UNDER THE PERFORMANCE PLAN WILL BE OFFSET BY THE STOCK
REPURCHASE PROGRAM CURRENTLY IN EFFECT.
FURTHERMORE, ON FEBRUARY 18, 1998, ALSO SUBJECT TO STOCKHOLDER APPROVAL, THE
BOARD OF DIRECTORS DETERMINED THAT IT WAS IN THE COMPANY'S BEST INTEREST TO
INCREASE THE PERFORMANCE PLAN'S PER-PARTICIPANT ANNUAL LIMIT ON PERFORMANCE
AWARDS DENOMINATED IN SHARES FROM 50,000 TO 200,000 AND ITS PER-PARTICIPANT
ANNUAL LIMIT ON PERFORMANCE AWARDS DENOMINATED IN DOLLARS FROM $2,500,000 TO
$10,000,000. WHILE THE BOARD OF DIRECTORS DOES NOT EXPECT TARGET AWARDS UNDER
THE PERFORMANCE PLAN TO APPROACH THESE LIMITS, IT IS POSSIBLE THAT MAXIMUM
PAYOUTS TO PARTICIPANTS, WHICH WOULD BE MADE ONLY IF THE COMPANY SIGNIFICANTLY
EXCEEDS ITS TARGET CRITERIA, INCLUDING THE PERFORMANCE OF THE COMPANY'S STOCK
COMPARED TO A STOCK INDEX SUCH AS THE H&Q TECHNOLOGY INDEX, COULD APPROACH THESE
INCREASED LIMITS IN FUTURE YEARS. TARGET AWARDS IN FISCAL 1997 DID NOT EXCEED
24,000 PERFORMANCE SHARES FOR ANY ONE PARTICIPANT.
The Company intends to register the 500,000 share increase on Form S-8 under
the Securities Act of 1933 as soon as is practicable after receiving stockholder
approval.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
SUMMARY OF PLAN TERMS
The following summary of the Performance Plan is qualified in its entirety
by the specific language of the Plan, a copy of which will be available to any
stockholder upon written request.
ADMINISTRATION. The Performance Plan is administered by the Executive
Compensation Committee for issuance of stock or performance shares or units to
the Company's executive officers, and by the Employee Grant Committee for
issuance of stock or performance shares or units to non-executive employees of
the Company (hereinafter referred to either singly or together as the
"Committee"). With respect to the participation of individuals who are subject
to Section 16 of the 34 Act, the Performance Plan must be administered by a
Committee consisting of at least two directors each of whom is both a
20
<PAGE>
"non-employee director" within the meaning of Rule 16b-3 under the 34 Act and an
"outside director" for purposes of Section 162(m). The Committee has the
authority to select persons to receive awards from among the eligible employees,
determine the types and sizes of awards, and set the terms and conditions of
each award consistent with the terms of the Performance Plan. In addition, the
Performance Plan authorizes the Committee to amend any award, waive any
restrictions or conditions on an award, accelerate the vesting of any award, and
determine whether an award will be paid in cash or in shares of the Company's
Common Stock. The Committee may establish rules and policies for administration
of the Performance Plan and adopt one or more forms of agreement to evidence
awards made under the Performance Plan. The Committee interprets the Performance
Plan and any agreement used under the Performance Plan, and all determinations
of the Committee will be final and binding on all persons having an interest in
the Performance Plan or any award granted under the Performance Plan.
ELIGIBILITY. All key employees of the Company are eligible to participate
in the Performance Plan. As of January 31, 1998, the Company had a total of
2,776 employees, including 12 executive officers, from among whom the Committee
could select key employees for participation.
SHARES SUBJECT TO PLAN. Subject to adjustment as described below, a maximum
of 2,000,000 shares of Common Stock may be issued under the Performance Plan. As
of January 31, 1998, a total of 1,227,430 shares had been earned as performance
shares, granted as restricted stock or awarded (but not yet earned) as target
performance shares under the Performance Plan. The closing price of the
Company's Common Stock, as reported on the Nasdaq National Market on February
17, 1998, was $43.3125 per share. If an award expires or is cancelled,
terminated or paid in cash, or if shares subject to an award are forfeited, the
shares subject to such award or such forfeited shares are returned to the
Performance Plan and become available for future awards. In the event of a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments will be made to the shares subject to the Performance
Plan and to any outstanding awards denominated in shares of stock.
PERFORMANCE AWARDS. The Committee may grant performance awards under which
participants may receive shares of Common Stock without monetary payment
therefor, cash, or a combination of both if and to the extent that performance
goals established by the Committee are met during a performance period. The
performance goals are based on one or more performance factors, which are
limited to the Company's revenue growth, operating margin, total return on
shares of Common Stock relative to the Hambrecht & Quist Technology Index or
other appropriate index selected by the Committee, earnings per share, return on
stockholder equity, return on assets and cash flow, as indicated by book
earnings before interest, taxes, depreciation and amortization. Performance
factors are measured on a consolidated, divisional or other business unit basis,
as determined by the Committee, before the effect of accounting changes,
restructuring and similar extraordinary items, determined according to criteria
established by the Committee. Performance periods are periods of three
consecutive fiscal years of the Company, at the end of which the degree of
attainment of performance goals is measured. Performance periods for different
performance awards, including awards made to the same participant, need not be
consecutive. However, no participant may be granted more than one performance
award for the same performance period.
Performance awards may be granted by the Committee in the form of
performance-based restricted stock, performance shares or performance units. A
participant awarded performance-based restricted stock receives shares of Common
Stock subject to forfeiture to the extent that the applicable performance goals
are not met, while a participant awarded performance shares or performance units
is credited with bookkeeping units denominated in shares of Common Stock or
dollar amounts, respectively, for which payment will be made following the end
of the performance period to the extent that the applicable performance goals
are met. The Committee specifies in a written agreement evidencing each
performance award the number of shares of Common Stock or the dollar amount that
may be earned by the participant at the end of the performance period at each
level of attainment of the performance goals. However,
21
<PAGE>
subject to adjustment for changes in the Company's capital structure, no
performance award denominated in shares may permit a participant to earn more
than 200,000 shares of Common Stock with respect to any performance period, and
no award denominated in dollars may permit a participant to earn more than
$10,000,000 with respect to any performance period.
Following completion of the performance period, the Committee will certify
in writing the degree of attainment of the performance goals to which a
performance award is subject and the number of shares of Common Stock or the
dollar amount earned by the participant. The Committee may reduce or eliminate
the payment of an award but will have no discretion to increase the payment of
an award in excess of the number of shares or dollar amount specified by the
participant's award agreement. Performance shares or units may be paid in shares
of Common Stock, cash or in any combination thereof at the discretion of the
Committee. Payment of performance shares in cash or payment of performance units
in stock is based on the fair market value of Common Stock on the date of
payment. Generally, except in the event of death, disability or retirement, a
participant who ceases to be an employee of the Company for any reason prior to
the end of the performance period will forfeit all rights under a performance
award. A participant who dies, becomes disabled or retires before the end of the
performance period will receive following the end of the performance period the
amount that would otherwise have been earned, prorated for the portion of the
performance period during which the participant was employed.
RESTRICTED STOCK. The Committee may also issue shares of Common Stock
without monetary payment therefor under a written restricted stock grant
agreement. The agreement will provide for the forfeiture of shares in the event
the participant's employment with the Company is terminated for any reason prior
to the end of one or more vesting periods. Typically, shares of restricted stock
become vested and nonforfeitable in annual and/or monthly installments over a
number of years. However, the Committee has the discretion to waive vesting
requirements in full or in part. A participant may not transfer shares of
restricted stock until they have become vested.
RIGHTS AS A STOCKHOLDER. A participant will have no rights as a stockholder
with respect to an award of performance shares or performance units under the
Performance Plan until shares of Common Stock are issued to the participant.
Participants awarded performance-based restricted stock or restricted stock may
vote such shares and will be entitled to dividends paid with respect to such
shares. However, the Committee may provide that such dividends will be
accumulated and paid only to the extent that the shares become nonforfeitable.
In the discretion of the Committee, participants awarded performance shares may
be paid dividend equivalents, which may be accumulated and paid following the
end of the performance period to the extent that shares are earned.
CHANGE OF CONTROL. In the event of a change of control of the Company, in
order to preserve participants' rights under awards granted under the
Performance Plan: (i) outstanding performance awards, based on the target amount
that may be earned under the award agreement, will be paid pro rata to the
portion of the performance period elapsed prior to the occurrence of the change
of control, and (ii) restricted stock will become nonforfeitable. A change of
control will occur in the event of (i) the direct or indirect sale or exchange
of all or substantially all of the Company's stock in which the stockholders of
the Company do not retain at least a majority of the voting stock of the
Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or in which the stockholders do not retain at least a
majority of the voting stock of the Company, (iii) the sale, exchange or
transfer of all or substantially all of the assets of the Company (other than to
one or more subsidiary corporations of the Company), or (iv) a liquidation or
dissolution of the Company.
TERMINATION OR AMENDMENT. Unless earlier terminated by the Committee or the
Board, the Performance Plan will continue until all of the shares subject to the
Performance Plan have been issued and all restrictions on shares awarded under
the Performance Plan have lapsed. The Committee or the Board may terminate or
amend the Performance Plan or any award thereunder at any time. However, no such
22
<PAGE>
termination or amendment may adversely affect any outstanding award without the
participant's consent, unless necessary to comply with any law or governmental
regulation.
NEW PLAN BENEFITS. During the fiscal year ended November 28, 1997, the
executive officer group was awarded an aggregate of 136,500 target performance
shares (88,000 of which were awarded to the Named Executive Officers) under the
Restated Performance Plan and non-executive officers were awarded an aggregate
of 20,000 target performance shares during the same period. Performance shares
were awarded to Named Executive Officers as follows: Dr. Warnock, 24,000 target
shares; Dr. Geschke, 24,000 target shares; Mr. Bell, 20,000 target shares; and
Mr. Pratt, 20,000 target shares. (See the "Long-Term Incentive Plan--Awards in
Last Fiscal Year" table on page 13 above for maximum and minimum award payout
information.) Additionally, during fiscal 1997, Mr. Bott was issued 10,000
shares of restricted stock under the Restated Performance Plan, which vested
100% on January 2, 1998; non-executive officers were issued an aggregate of
119,550 shares of restricted stock during the same period.
Performance awards under the Performance Plan are made at the discretion of
the Committee. Accordingly, future grants under the Performance Plan are not yet
determinable. As of February 16, 1998, no performance awards had been made to
any employee conditioned on stockholder approval of an increase in the share
reserve under the Performance Plan. Non-employee directors of the Company are
not eligible to participate in the Performance Plan, and therefore were not
issued any shares under the Performance Plan.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG") as the
independent public accountants for the Company for fiscal 1998, and recommends
that the stockholders vote for ratification of such appointment. Stockholder
ratification of the selection of KPMG as the Company's independent auditors is
not required by the Company's Bylaws or otherwise. However, the Board is
submitting the selection of KPMG for stockholder ratification as a matter of
good corporate practice. KPMG has audited the Company's financial statements
since 1983. Notwithstanding the selection, the Board, in its discretion, may
direct the appointment of a new independent accounting firm at any time during
the year if the Board feels that such a change would be in the best interests of
the Company and its stockholders. A representative of KPMG is expected to be
present at the Annual Meeting with the opportunity to make a statement if he or
she so desires and to be available to respond to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
OTHER BUSINESS
The Company knows of no other matters to be submitted at the Annual Meeting.
If any other matters are properly brought before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent in accordance with their judgment.
23
<PAGE>
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company not later
than November 4, 1998 in order to be included in the proxy statement and proxy
relating to that annual meeting. Stockholders are also advised to review the
Company's Bylaws, which contain additional requirements with respect to advance
notice of stockholder proposals.
By Order of the Board of Directors
/s/ COLLEEN M. POULIOT
Colleen M. Pouliot
SENIOR VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
San Jose, California
March 4, 1998
24
<PAGE>
ANNEX A
ADOBE SYSTEMS INCORPORATED
AMENDED 1994 PERFORMANCE AND RESTRICTED STOCK PLAN
1. ESTABLISHMENT AND PURPOSE.
(a) ESTABLISHMENT. The Adobe Systems Incorporated 1989 Restricted
Stock Plan was initially adopted on February 9, 1989 (the "INITIAL PLAN"). The
Initial Plan was amended and restated in its entirety as the "1994 Performance
and Restricted Stock Plan" (the "PLAN") effective as of August 31, 1994, the
date it was approved by the stockholders of the Company. This amendment is
effective as of the date it is approved by the stockholders of the Company.
(b) PURPOSE. The purpose of the Plan is to attract, retain and reward
key employees of Adobe Systems Incorporated and any successor corporation
thereto (collectively referred to as the "COMPANY"), and any present or future
parent and/or subsidiary corporations of the Company (all of whom along with the
Company being individually referred to as a "PARTICIPATING COMPANY" and
collectively referred to as the "PARTICIPATING COMPANY GROUP"), and to motivate
such persons to contribute to the financial success and progress of the
Participating Company Group. For purposes of the Plan, a parent corporation and
a subsidiary corporation shall be as defined in sections 424(e) and 424(f) of
the Internal Revenue Code of 1986, as amended (the "CODE").
2. ADMINISTRATION.
(a) ADMINISTRATION BY COMMITTEE. The Plan shall be administered by one
or more duly appointed committees (individually, a "COMMITTEE") of the Board of
Directors of the Company (the "BOARD"); provided, however, that with respect to
the participation of individuals who are subject to the provisions of Section 16
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or who
are divisional officers of the Participating Company Group, the Plan shall be
administered by a Committee consisting of not less than two directors each of
whom is both (i) a "Non-Employee Director " within the meaning of Rule 16b-3
under the Exchange Act or any successor rule ("RULE 16b-3") and (ii) an "outside
director" for purposes of Section 162(m) of the Code and the regulations
promulgated thereunder. The Committee shall have all of the powers vested in it
by the terms of the Plan, subject to the limitations described herein, including
the full and final authority in its sole discretion to:
(i) select the eligible persons to whom (a "PARTICIPANT"),
and the time at which, awards shall be granted under the Plan;
(ii) determine type of award granted and the number of shares
of stock, units or other consideration subject to awards (which need not be
identical);
1
<PAGE>
(iii) determine the terms and conditions of each award granted,
including, without limitation, the terms of vesting, if any, the effect of a
Participant's termination of employment with the Participating Company Group,
the method for satisfaction of any tax withholding obligation arising in
connection with any award, and all other terms and conditions of the award
not inconsistent with the terms of the Plan;
(iv) determine the performance goals and other conditions, if
any, for the settlement of any award and whether such goals and conditions
have been satisfied;
(v) determine whether an award shall be paid in cash, in
shares of stock or in any combination thereof;
(vi) determine whether payment of an award should be reduced or
eliminated;
(vii) modify or amend any award, or waive any restrictions or
conditions applicable to any award;
(viii) accelerate, continue, extend or defer the payment or
vesting of any award, including with respect to the period following a
Participant's termination of employment with the Participating Company Group;
(ix) determine the fair market value of the common stock of the
Company;
(x) authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an award;
(xi) prescribe, amend or rescind rules, regulations and
policies relating to the Plan;
(xii) approve one or more forms of agreement for use under the
Plan;
(xiii) construe and interpret the Plan and any agreement used
under the Plan and define the terms employed herein and therein;
(xiv) make all other determinations and take such other action
with respect to the Plan and any award granted hereunder as the Committee may
deem advisable, to the extent permitted by applicable law.
All decisions, determinations and interpretations of the Committee shall
be final and binding upon all persons having an interest in the Plan or any
award granted under the Plan.
(b) AUTHORITY OF OFFICERS. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, or
2
<PAGE>
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such
matter, right, obligation, or election.
3. ELIGIBILITY. Key employees of the Participating Company Group are
eligible to participate in the Plan. The Committee shall, in the Committee's
sole discretion, determine which individuals shall be granted awards under
the Plan.
4. SHARES SUBJECT TO PLAN. Shares issued pursuant to the Plan shall be
authorized but unissued shares of the common stock of the Company (the
"STOCK"). Subject to adjustment as provided in Section 5, the maximum number
of shares of Stock that may be issued under the Plan is 2,000,000. In the
event that any award granted under the Plan denominated in shares for any
reason expires or is canceled, terminated or paid in cash, or shares of Stock
subject to forfeiture are forfeited to the Company, the shares allocable to
such award or such forfeited shares shall again be available for issuance
under the Plan. Notwithstanding the foregoing, any such shares shall be made
subject to a new award only if the grant of such new award and the issuance
of such shares pursuant to such new award would not cause the Plan or any
award granted under the Plan to contravene Rule 16b-3.
5. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. Appropriate
adjustments shall be made in the number and class of shares of Stock subject
to the Plan, in the maximum number of shares set forth in Section 7(d), and
to any awards outstanding under the Plan, other than Performance Units (as
defined below), in the event of a stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification or like change in the
capital structure of the Company. In the event a majority of the shares which
are of the same class as the shares that are subject to outstanding awards
under the Plan are exchanged for, converted into, or otherwise become shares
of another corporation (the "NEW SHARES"), the Company may unilaterally amend
outstanding awards to provide that such awards may be settled in New Shares.
In the event of any such amendment, the number of shares shall be adjusted in
a fair and equitable manner. Any and all new, substituted or additional
shares or Performance Shares (as defined below) received by a Participant
pursuant to this Section 5 will be subject to the applicable restrictions set
forth in the agreement evidencing an award as if such shares or Performance
Shares were part of the original award.
6. TERM OF PLAN. The Plan shall continue in effect until terminated by
the Board or Committee or until all of the shares of Stock available for
issuance under the Plan have been issued and all restrictions on such shares
under the terms of the Plan and the agreements evidencing such awards have
lapsed.
7. PERFORMANCE AWARDS.
(a) TYPES OF PERFORMANCE AWARDS. The Committee may from time to
time grant awards under this Section 7 ("PERFORMANCE AWARDS") which are
Performance-Based Restricted Stock, Performance Shares, or Performance Units.
Performance Awards shall be evidenced by written agreements, in such form as
the Committee shall from time to time establish, specifying the number of
shares of Stock or the dollar amount covered thereby, the performance goals
established by the Committee, the period in which such goals are to be met
3
<PAGE>
and the other terms, conditions and restrictions of the award, and which
agreements may incorporate all or any of the terms of the Plan by reference.
The Committee shall not require a Participant to make any monetary payment
(other than applicable tax withholding) as a condition of receiving a
Performance Award.
(i) "PERFORMANCE-BASED RESTRICTED STOCK" shall mean shares of
Stock awarded to a Participant which, in accordance with rules established by
the Committee prior to the grant of such award, are subject to forfeiture in
full or in part or with respect to which additional shares of Stock may be
granted on the basis of the degree of attainment of Performance Goals (as
defined below) within a Performance Period (as defined below). Shares of
Performance-Based Restricted Stock shall be evidenced in such manner as the
Committee may deem appropriate, including by book-entry registration or
issuance of one or more stock certificates. Any certificate issued in respect
of shares of Performance-Based Restricted Stock shall be registered in the
name of the Participant and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such award. The Committee
may require that such certificates be held in the custody of the Company or
other escrow agent until the restrictions thereon lapse.
(ii) "PERFORMANCE SHARES" shall mean bookkeeping units,
denominated in shares of Stock, awarded to a Participant which, in accordance
with rules established by the Committee prior to the grant of such award, are
subject to forfeiture in full or in part or with respect to which additional
shares of Stock may be granted on the basis of the degree of attainment of
Performance Goals (as defined below) within a Performance Period (as defined
below).
(iii) "PERFORMANCE UNITS" shall mean bookkeeping units,
denominated in dollar amounts, awarded to a Participant which, in accordance
with rules established by the Committee prior to the grant of such award, are
subject to forfeiture in full or in part or with respect to which additional
such units may be granted on the basis of the degree of attainment of
Performance Goals (as defined below) within a Performance Period (as defined
below).
(b) PERFORMANCE GOALS AND PERFORMANCE PERIOD. Prior to the grant of
a Performance Award, the Committee shall establish with respect to one or
more of the Performance Factors set forth below the target levels of
attainment of such Performance Factors (collectively, "PERFORMANCE GOALS")
which, when measured at the end of the Performance Period (as defined below),
shall determine the number of shares of Stock, if any, which shall become
nonforfeitable and/or issuable with respect to such Performance Award or the
dollar amount, if any, payable with respect to such Performance Award. The
agreement evidencing a Performance Award shall set forth the applicable
Performance Goals and the number of shares of Stock or dollar amount, as the
case may be, which may be earned by the Participant upon the attainment of
the Performance Goals at the end of the Performance Period.
(i) "PERFORMANCE FACTORS" shall mean, with respect to the
Company and each parent and subsidiary corporation consolidated therewith for
financial reporting purposes or such division or other business unit thereof
as may be selected by the Committee:
4
<PAGE>
(A) growth in revenue,
(B) operating margin,
(C) total return on shares of Stock relative to the
increase in the Hambrecht & Quist Technology Index or such other appropriate
index as may be selected by the Committee,
(D) earnings per share,
(E) return on stockholder equity,
(F) return on assets, and
(G) cash flow, as indicated by book earnings before
interest, taxes, depreciation and amortization.
For purposes of the Plan, Performance Factors shall be measured before the
effect of accounting changes, restructuring charges and similar extraordinary
items, determined according to criteria established by the Committee.
(ii) "PERFORMANCE PERIOD" shall mean a period of three (3)
consecutive fiscal years of the Company, at the end of which the degree of
attainment of the Performance Goals is measured. Performance Periods for
different Performance Awards, including Performance Awards made to the same
Participant, need not be consecutive.
(c) SETTLEMENT OF PERFORMANCE AWARDS. As soon as practicable
following the completion of the Performance Period, the Committee shall
certify in writing the degree of attainment of the Performance Goals and the
number of shares of Stock, if any, which shall be nonforfeitable and/or
issued, or the dollar amount, if any, earned upon settlement of a Performance
Award in accordance with the terms of such award. The Committee, in its sole
discretion, may elect to pay earned Performance Shares or Performance Units
in shares of Stock, cash or any combination thereof. Payment of Performance
Shares in cash or payment of Performance Units in shares of Stock shall be
based on the fair market value of a share of Stock on the date of payment.
The Company shall promptly notify the Participant of the determination of the
Committee and deliver to the Participant the appropriate cash payment and/or
shares of Stock, free of the restrictions imposed by this Section 7, subject
to satisfaction of the Company's tax withholding obligations, if any, as
provided in Section 12. The Committee shall have no discretion to increase
the number of shares of Stock nonforfeitable and/or issuable or the dollar
amount payable upon settlement of a Performance Award in excess of the amount
called for by the terms of such award with respect to the degree of
attainment of the Performance Goals certified by the Committee.
(d) MAXIMUM PERFORMANCE AWARD. Subject to adjustment as provided in
Section 5, no Participant may be granted a Performance Award in the form of
Performance-Based Restricted Stock or Performance Shares which could result
in such Participant receiving
5
<PAGE>
more than 200,000 shares of Stock free of the restrictions imposed by this
Section 7 with respect to any Performance Period or a Performance Award in
the form of Performance Units which could result in such Participant
receiving more than $10,000,000 with respect to any Performance Period. No
Participant may be granted more than one (1) Performance Award for the same
Performance Period.
(e) DISCRETION TO REDUCE PERFORMANCE AWARDS. Notwithstanding the
attainment of any Performance Goal, the Committee shall have the discretion
to reduce some or all of a Performance Award that would otherwise be paid.
8. RESTRICTED STOCK. The Committee may from time to time grant shares
of Stock under this Section 8 ("RESTRICTED STOCK"). Restricted Stock awards
shall be evidenced by written agreements, in such form as the Committee shall
from time to time establish, specifying the number of shares of Stock covered
thereby and the terms, conditions and restrictions of the award, and which
agreements may incorporate all or any of the terms of the Plan by reference.
The number of shares of Restricted Stock which a Participant may receive
under the Plan shall be determined by the Committee in its sole discretion.
Shares of Restricted Stock shall be evidenced in such manner as the Committee
may deem appropriate, including by book-entry registration or issuance of one
or more stock certificates. Any certificate issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and shall
bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award. The Committee may require that such
certificates be held in the custody of the Company or other escrow agent
until the restrictions thereon lapse. The Committee shall not require a
Participant to make any monetary payment (other than applicable tax
withholding) as a condition of receiving Restricted Stock.
9. VOTING RIGHTS. A Participant issued shares of Stock pursuant to an
award of Performance-Based Restricted Stock or Restricted Stock shall be
entitled to vote such shares. A Participant awarded Performance Shares shall
not be entitled to vote any shares of Stock represented by such Performance
Shares until the date of issuance of shares of Stock upon settlement of such
award.
10. DIVIDENDS AND OTHER DISTRIBUTIONS. Except as provided in this
Section 10 or in Section 5, no Participant shall be entitled to dividends or
other distributions (collectively, "DIVIDENDS") with respect to shares of
Stock subject to an award under the Plan for which the record date is prior
to the later of the date such shares are issued to the Participant or the
date on which such shares become nonforfeitable under the terms of the
agreement evidencing such award.
(a) PERFORMANCE-BASED RESTRICTED STOCK AND RESTRICTED STOCK. With
respect to shares of Stock issued pursuant to the award of Performance-Based
Restricted Stock or Restricted Stock, the Committee may, in its sole
discretion, provide either for the current payment of Dividends or the
accumulation and payment of Dividends to the extent that such shares become
nonforfeitable.
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(b) PERFORMANCE SHARES. With respect to Performance Shares, the
Committee may, in its sole discretion, provide that dividend equivalents
shall not be paid or provide either for the current payment of dividend
equivalents or the accumulation and payment of dividend equivalents to the
extent that the Performance shares become nonforfeitable.
(c) PERFORMANCE UNITS. Dividend equivalents shall not be paid with
respect to Performance Units.
11. CHANGE OF CONTROL.
(a) DEFINITION. A "CHANGE OF CONTROL" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such sale or exchange;
(ii) a merger or consolidation in which the Company is not the
surviving corporation;
(iii) a merger or consolidation in which the Company is the
surviving corporation where the stockholders of the Company before such
merger or consolidation do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the Company after
such merger or consolidation;
(iv) the sale, exchange, or transfer of all or substantially
all of the assets of the Company (other than a sale, exchange, or transfer to
one (1) or more subsidiary corporations of the Company); or
(v) A liquidation or dissolution of the Company.
(b) EFFECT ON PERFORMANCE AWARDS. Notwithstanding any other
provision of the Plan to the contrary, each Participant granted a Performance
Award for a Performance Period that will not be completed as of the date of a
Change of Control shall be deemed to have earned and shall receive
immediately prior to the Change of Control, free of the restrictions imposed
by Section 7, award consideration as provided in Section 7(c) equal to the
product of (i) the target amount that may be earned under the Performance
Award in accordance with the terms of the agreement evidencing such award and
(ii) a fraction, the numerator of which is the number of full and partial
months that have elapsed since the beginning of such Performance Period to
the date on which the Change of Control occurs, and the denominator of which
is the total number of months in such Performance Period.
(c) EFFECT ON RESTRICTED STOCK. Notwithstanding any other provision
of the Plan to the contrary, all forfeiture conditions and restrictions
imposed under outstanding
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agreements evidencing Restricted Stock shall automatically lapse immediately
prior to a Change of Control.
12. TAX WITHHOLDING. The Company shall have the right to deduct from
the payment of any award hereunder any federal, state, local or foreign taxes
required by law to be withheld with respect to such payment. Alternatively,
in its sole discretion, the Company shall have the right to require the
Participant, through payroll withholding or otherwise, to make adequate
provision for any such tax withholding obligations of the Company arising in
connection with such award. The Company shall have no obligation to deliver
cash and/or shares of Stock in payment of an award unless the Company's tax
withholding obligations have been satisfied.
13. PROVISION OF INFORMATION. Each Participant shall be given access to
information concerning the Company equivalent to that information generally
made available to the Company's common stockholders.
14. NONTRANSFERABILITY OF AWARDS. Prior to the payment of, and lapse of
all restrictions with respect to, an award under the Plan, no award or any
rights or interests therein may be assigned or transferred in any manner
except by will or by the laws of descent and distribution.
15. TERMINATION OR AMENDMENT OF PLAN AND AWARDS. The Committee or the
Board may terminate or amend the Plan or any award under the Plan at any
time; provided, however, that no such termination or amendment may adversely
affect any outstanding award without the consent of the Participant, unless
such termination or amendment is necessary to comply with any applicable law
or government regulation. An award shall be considered as outstanding as of
the effective date of the grant of such award as determined by the Committee.
Notwithstanding the foregoing, the approval of the Company's stockholders
shall be sought for any amendment to the Plan or an award for which the
Committee deems stockholder approval necessary in order to comply with Rule
16b-3.
16. CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING AWARDS.
Notwithstanding any other provision of the Plan to the contrary, the terms of
the Initial Plan shall remain in effect and apply to awards granted pursuant
to the Initial Plan.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Adobe Systems Incorporated Amended 1994 Performance and
Restricted Stock Plan was duly adopted by the Board of Directors of the
Company on the 18th day of February, 1998.
/s/ COLLEEN M. POULIOT
---------------------------------
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ADOBE SYSTEMS INCORPORATED
Proxy for Annual Meeting of Stockholders
The undersigned hereby appoints John Warnock and Charles Geschke, and each of
them, with full power of substitution, to represent the undersigned and to
vote all of the shares of stock in Adobe Systems Incorporated (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company, to be held in the Regent Room at The Fairmont
Hotel, 170 South Market Street, San Jose, California 95113 on Wednesday,
April 8, 1998 at 1:30 p.m., local time, and at any adjournment or
postponement thereof: (1) as hereinafter specified upon the proposals listed
below and as more particularly described in the Company's Proxy Statement,
receipt of which is hereby acknowledged, and (2) in their discretion upon
such other matters as may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
The shares represented hereby shall be voted as specified. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1 THROUGH 4.
Whether or not you are able to attend the meeting, you are urged to sign and
mail the Proxy in the return envelope so that your stock may be represented
at the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
(Continued and to be signed on reverse side)
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
A vote FOR the following proposals is recommended by the Board of Directors:
1. Election of the three (3) Class I directors proposed in the accompanying
Proxy Statement to serve for a two-year term. (INSTRUCTION: TO WITHHOLD
AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST BELOW.)
FOR ALL __ AGAINST ALL __ FOR ALL EXCEPT __
Charles M. Geschke William R. Hambrecht Delbert W. Yocam
2. Approval of the Amended 1994 Performance and Restricted Stock Plan,
including an increase of 500,000 shares in the share reserve and increases
in the per-participant annual limits from 50,000 shares to 200,000 shares
and from $2,500,000 to $10,000,000.
FOR __ AGAINST __ ABSTAIN __
3. Ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ending November 27,
1998.
FOR __ AGAINST __ ABSTAIN __
4. Transacting of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons, or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the Proxy. If shares of stock are held of record by a
corporation, the Proxy should be executed by the President or Vice President
and the Secretary or Assistant Secretary, and the corporate seal should be
affixed thereto. Executors or administrators or other fiduciaries who execute
the Proxy for a deceased stockholder should give their full title. Please
date the Proxy.
Signature(s):
________________________________
________________________________
Date ___________________________, 1998
(be sure to date your Proxy)
