<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>
ADOBE SYSTEMS INCORPORATED
345 PARK AVENUE
SAN JOSE, CALIFORNIA 95110-2704
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 15, 1999
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 15, 1999, at 4:30 p.m., local time, at the Company's
headquarters, East Tower, 321 Park Avenue, San Jose, California 95110 for the
following purposes:
1. To elect three (3) Class II directors of the Company to serve for a
two-year term.
2. To approve an amendment to the Company's 1997 Employee Stock Purchase
Plan (the "Amended 1997 Purchase Plan") to increase the number of shares
reserved for purchase under the Amended 1997 Purchase Plan by 2,500,000. THE
COMPANY EXPECTS THAT THE SHARE INCREASE WILL BE ADEQUATE TO COVER THE ISSUANCE
OF EMPLOYEE STOCK PURCHASE SHARES OVER A TWO-YEAR PERIOD.
3. To ratify the appointment of KPMG LLP as the independent public
accountants of the Company for the fiscal year ending December 3, 1999.
4. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on February 19, 1999 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 9, 1999
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 15, 1999
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 ................. 5
Executive Compensation ......................................................... 7
Report of the Executive Compensation Committee ................................. 15
Repricing Report of the Executive Compensation Committee ....................... 19
Ten-Year Option Repricings Table ............................................... 21
Director Compensation .......................................................... 24
Changes to Benefit Plans ....................................................... 24
Performance Graph .............................................................. 25
Proposal Two--Approval of an Amendment to Increase Share Reserve Under
the 1997 Employee Stock Purchase Plan ........................................ 26
Proposal Three--Ratification of Appointment of Auditors ........................ 28
Other Business ................................................................. 28
Stockholder Proposals to be Presented at Next Annual Meeting ................... 29
</TABLE>
(i)
<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 15, 1999, at the Company's headquarters, East Tower, 321 Park
Avenue, San Jose, California 95110-2704, at 4:30 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, 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 9, 1999, the
approximate date on which these proxy solicitation materials and the Annual
Report to Stockholders for the fiscal year ended November 27, 1998, 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 Innisfree M&A, Incorporated ("Innisfree") to assist in the solicitation
of proxies. The Company has previously paid Innisfree a retainer, of which
$7,500 is attributable to this solicitation. In addition, the Company will
reimburse Innisfree for its reasonable out-of-pocket expenses.
In addition to solicitation by mail and by Innisfree, 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 19, 1999, (the "Record Date")
60,324,573 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 and voting. The
affirmative vote of a majority of shares 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. Warnock and Sedgewick and Ms. Baldwin to
serve as Class II 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.
Gene P. Carter and William J. Spencer, both current Class II directors of
the Company, have declined to stand for re-election in 1999 because of other
commitments. Messrs. Carter's and Spencer's terms as Class II directors expire
immediately prior to the 1999 Annual Meeting of Stockholders. Although Ms.
Baldwin currently serves as a Class I director, effective as of the Annual
Meeting, Ms. Baldwin's class as a director shall change, so she has been
nominated as a Class II director. William Hambrecht decided in February 1999 to
relinquish his Board position in order to focus on his new business. The Board
of Directors intends to search for at least one additional qualified director to
join the Board.
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, but
effective as of the Annual Meeting of Stockholders, the size of the Board of
Directors will automatically be decreased to five members, with three in Class
II and two in Class I. 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 to Class II director is currently a director of
the Company, and each nominee except Ms. Baldwin was previously elected as a
director by the stockholders. The three Class II directors to be elected at the
1999 Annual Meeting will hold office until the 2001 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:
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION AS CLASS II DIRECTORS FOR A TERM EXPIRING IN 2001:
PRINCIPAL OCCUPATION
NAME DURING THE PAST FIVE YEARS AGE YEAR
---- -------------------------- --- ----
<S> <C> <C> <C>
John E. Warnock Dr. Warnock was a founder of the Company and has been its 58 1982
Chairman of the Board since April 1989. Since September
1997, he has shared the position of Chairman of the Board
with Charles M. Geschke. Dr. Warnock has been Chief
Executive Officer of the Company since 1982. He is Chairman
of Octavo Corporation. Dr. Warnock received a Ph.D. in
electrical engineering from the University of Utah.
Carol Mills Baldwin Ms. Baldwin is the President and Chief Executive Officer of 45 1998
Acta Technology, Inc., a privately held company. Prior to
joining Acta in July 1998, Ms. Baldwin was the General
Manager in the Enterprise Systems Division of
Hewlett-Packard since 1981. She holds a MBA degree from
Harvard University and a BA degree from Smith College.
Robert Sedgewick Since 1985, Dr. Sedgewick has been a Professor of Computer 52 1990
Science at 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.
</TABLE>
<TABLE>
INCUMBENT CLASS I DIRECTORS WITH A TERM EXPIRING IN 2000:
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 59 1982
President since 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 of the Company from December 1986 until July 1994.
He is a director of Rambus Incorporated. Dr. Geschke
received a Ph.D. in computer science from Carnegie Mellon
University.
Delbert W. Yocam Mr. Yocam is Chairman of the Board and Chief Executive 55 1991
Officer of Inprise Corporation, formerly Borland
International, Inc. Prior to joining Inprise, Mr. Yocam was
an independent consultant from November 1994 through
November 1996. From September 1992 until November 1994, he
served as President and Chief Operating Officer and as a
director of Tektronix, Inc. Mr. Yocam is also a director
of Raster Graphics, Inc., Xircom, Inc., and several
privately-held technology companies. He holds a MBA degree
from California State University, Long Beach, and a BA
degree in Business Administration from California State
University, Fullerton.
</TABLE>
3
<PAGE>
BOARD MEETINGS AND COMMITTEES MEETINGS
The following table sets forth the standing Committees of the Board of
Directors, the members of each such Committee during fiscal 1998 and the number
of meetings held by the Board and the Committees:
MEMBERSHIP ROSTER
<TABLE>
<CAPTION>
EXECUTIVE EMPLOYEE
NAME BOARD AUDIT COMPENSATION INVESTMENT GRANT
- ---- ----- ----- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Ms. Baldwin.................................... X
Dr. Warnock.................................... X X
Dr. Geschke.................................... X 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 fiscal 1998......... 12 2 7 8 1*
</TABLE>
- ------------------------------------
* The Employee Grant Committee held only one meeting during fiscal 1998. All
other actions taken 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 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. Effective as of the Annual
Meeting, Mr. Spencer will no longer serve on the Audit Committee.
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.
Mr. Hambrecht relinquished his position on the Executive Compensation
Committee in February 1999. Effective as of the Annual Meeting, Mr. Carter
will no longer serve on the Executive Compensation Committee.
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. Effective as of the Annual Meeting, Messrs. Carter and
Spencer will no longer serve on the Investment Committee.
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 1994 Performance and Restricted Stock Plan, respectively.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1999, there were outstanding 61,421,906 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 31, 1999: (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 current executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF COMMON
NAME BENEFICIAL OWNERSHIP(1)(2) STOCK OUTSTANDING
- ---- -------------------------- -----------------
<S> <C> <C>
Vanguard PRIMECAP Fund ................................. 5,190,000 (3) 8.45%
225 South Lake Ave., Suite 400
Pasadena, CA 91101-3005
T. Rowe Price Associates, Inc. ......................... 3,790,383 (4) 6.17%
100 E. Pratt Street
Baltimore, ML 21202
John E. Warnock ........................................ 978,174 (5) 1.59%
Charles M. Geschke ..................................... 627,808 (6) 1.02%
Frederick A. Snow ...................................... 31,188 (7) *
Bruce Chizen............................................ 14,765 (8) *
Derek J. Gray........................................... 60,674 (9) *
William R. Hambrecht ................................... 100,984(10) *
Delbert W. Yocam ....................................... 17,500(11) *
Robert Sedgewick ....................................... 28,700(12) *
William J. Spencer ..................................... 0 *
Gene P. Carter ......................................... 91,104(13) *
Carol Mills Baldwin .................................... 0(14) *
All directors and current executive officers
as a group (13 persons).............................. 2,061,851(15) 3.36%
</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
to 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 31, 1999 or within 60 days thereafter are included.
(3) Of the 5,190,000 shares attributed to Vanguard PRIMECAP Fund, it has
sole voting power and shared dispositive power over all shares. This
information was provided pursuant to Schedule 13G and is as of December
31, 1998.
(4) Of the 3,790,383 shares attributed to T. Rowe Price Associates, Inc., it
has sole voting power over 285,737 shares and sole dispositive power
over all 3,790,383 shares. This information was provided pursuant to
Schedule 13G and is as of December 31, 1998.
5
<PAGE>
(5) 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 182,894 shares issuable upon exercise of outstanding
options.
(6) Of the shares attributed to Dr. Geschke, 800 shares are held by Dr.
Geschke's father; Dr. Geschke disclaims beneficial ownership of those
shares. In addition, 355,949 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 180,825 shares issuable upon
exercise of outstanding options.
(7) Includes 29,416 shares issuable upon exercise of outstanding options,
and 1,772 shares of restricted securities subject to vesting.
(8) Includes 13,379 shares issuable upon exercise of outstanding options,
and 1,386 shares of restricted securities subject to vesting.
(9) Includes 58,674 shares issuable upon exercise of outstanding options.
(10) Includes 17,500 shares issuable upon exercise of outstanding options.
Mr. Hambrecht resigned as a director of the Company in February
1999.
(11) Consists entirely of 17,500 shares issuable upon exercise of outstanding
options.
(12) Includes 27,500 shares issuable upon exercise of outstanding options.
(13) Of the shares attributed to Mr. Carter, 86,104 are held in a family
trust; Mr. Carter shares voting and investment power over this trust
with his spouse. Includes 5,000 shares issuable upon exercise of
outstanding options.
(14) Ms. Baldwin became a Director of the Company on June 24, 1998.
(15) Includes 657,156 shares issuable upon exercise of outstanding options.
See also Notes 5, 6, 7, 8 and 13.
6
<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 (collectively the "Named
Executive Officers"), for the fiscal years ended November 27, 1998, November
28, 1997 and November 29, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------ ----------------------------------------
AWARDS PAYOUTS
------------------------ -----------
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) SARS PAYOUTS(3) COMPENSATION(4)
- --------------------------------------- ----- -------- --------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John E. Warnock ............................. 1998 $600,023 $287,901 $ 0 532,100(5) $ 0 $293,010
Chairman of the Board 1997 489,518 403,313 0 94,350 0 369,965
and Chief Executive Officer 1996 428,592 209,519 0 27,800 0 39,965
Charles M. Geschke .......................... 1998 600,023 276,601 0 531,800(5) 0 294,880
Chairman of the 1997 489,518 403,313 0 94,200 0 342,108
Board and President 1996 428,592 209,519 0 27,800 0 41,000
Frederick A. Snow (6) ....................... 1998 317,920 211,876 203,750 256,000(5) 0 50,467
Executive Vice President, 1997 N/A N/A N/A N/A 0 N/A
Worldwide Field Operations 1996 N/A N/A N/A N/A 0 N/A
Bruce R. Chizen ............................. 1998 315,784 132,335 0 133,925(5) 0 20,624
Executive Vice President, 1997 220,008 121,389 0 22,000 0 4,615
Worldwide Products and 1996 205,008 82,171 68,750 14,333 0 2,250
Marketing
Derek J. Gray (7)............................ 1998 280,670 166,875 0 145,300(5) 0 78,802
Senior Vice President and 1997 250,796 235,191 0 22,000 0 153,549
General Manager, 1996 249,609 78,316 0 11,040 0 64,829
Adobe Systems Europe
</TABLE>
- --------------------------------------------
(1) The amounts shown in this column include payments under the Company's
Profit Sharing Plan*, in which all North America employees of the
Company participate, as follows:
PROFIT SHARING PLAN PAYMENTS
<TABLE>
<CAPTION>
Name 1998 1997 1996
- ---- --------------- --------------- ----------------
<S> <C> <C> <C>
John E. Warnock ..................... $ 36,001 $ 46,920 $ 34,717
Charles M. Geschke .................. 36,001 46,920 34,717
Frederick A. Snow ................... 22,501 N/A N/A
Bruce R. Chizen ..................... 20,588 21,505 16,606
Derek J. Gray ....................... N/A N/A N/A
</TABLE>
* See "Report of the Executive Compensation Committee -- Compensation
Components" for a description of the Profit Sharing Plan.
7
<PAGE>
(2) For the Named Executive Officers, the aggregate number of restricted
stock holdings at the end of fiscal 1998 was 5,667 shares; the closing
price of the Company's Common Stock at November 27, 1998, the fiscal
year-end, was $46.875 per share for an aggregate value of $296,906.
During fiscal 1998, Mr. Snow was the only Named Executive Officer
awarded restricted stock; his award of 5,000 shares was made on January
18, 1998 and vests in full on the first anniversary of the date of
grant. During fiscal 1997, no Named Executive Officer was awarded
restricted stock. During fiscal 1996, Mr. Chizen was awarded a
restricted stock award of 2,000 shares on June 18, 1996, which vests
one-third on each of the first three anniversaries of the date of grant.
At the time, he was not an executive officer of the Company. The holders
of restricted stock are entitled to the same dividend that the Company
pays on its outstanding Common Stock.
(3) The first three-year performance cycle period (fiscal years 1995-1997)
of the Company's 1994 Performance and Restricted Stock Plan (the
"Performance Plan") was completed at the end of fiscal 1997, and the
second at the end of fiscal 1998. Pursuant to the 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 three-year performance cycle completed
at the end of fiscal 1997; no payouts were earned in the performance
cycle completed at the end of fiscal 1998. The cash payouts for the
1995-1997 cycle were made during fiscal 1998 and therefore, pursuant to
the Securities and Exchange Commission rules, are included in the column
"All Other Compensation" for fiscal 1997 (see the "Performance Plan
Payouts" column in Note 4, below).
(4) The amounts disclosed in this column for fiscal 1998, 1997 and 1996
include life insurance premiums, the dollar value of the remainder of
the life insurance premiums, disability insurance premiums, Company
contributions under the Company's 401(k) Plan (U.S.) and pension (U.K.),
social charges, physical examinations, performance payouts for the
three-year performance periods ending 1998 and 1997, distributions in
connection with the Named Executive Officers respective partnership
interests in Adobe Incentive Partners, L.P. ("AIP") and 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 AIP for fiscal 1998 and 1997, all as described below:
ALL OTHER COMPENSATION
<TABLE>
<CAPTION>
Company
Remainder 401(k)/ Social Perfor- AIP Total
Life Value of Disability Pension Charges/ mance AIP Deemed Other
Insurance Insurance Insurance Contri- Physical Plan Distribu- Compen- Compen-
Name Year Premiums Premiums Premiums(a) butions(b) Exams(c) Payouts tions(d) sation(e) sation
- --------- ---- ----------- ------------- --------------- ---------- --------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
John E. Warnock.... 1998 $13,630 $12,289 $11,352 $ 2,400 $ 0 $ 0 $253,339 $ 0 $293,010
1997 13,630 12,431 11,352 4,615 0 147,514 0 180,423 369,965
1996 13,630 12,562 11,523 2,250 0 N/A N/A N/A 39,965
Charles M. Geschke. 1998 14,235 12,801 11,454 2,400 651 0 253,339 0 294,880
1997 14,235 12,930 11,454 4,615 937 147,514 0 150,423 342,108
1996 14,235 13,061 11,454 2,250 0 N/A N/A N/A 41,000
Frederick A. Snow.. 1998 24,673 23,394 N/A (f) 2,400 0 N/A N/A N/A 50,467
1997 N/A N/A N/A N/A N/A N/A N/A N/A N/A
1996 N/A N/A N/A N/A N/A N/A N/A N/A N/A
Bruce R. Chizen.... 1998 9,230 8,994 N/A (f) 2,400 0 N/A N/A N/A 20,624
1997 N/A (g) N/A (g) N/A (g) 4,615 0 N/A N/A N/A 4,615
1996 N/A (g) N/A (g) N/A (g) 2,250 0 N/A N/A N/A 2,250
Derek J. Gray...... 1998 3,508 (a) N/A 0 (a) 16,840 44,754 0 N/A N/A 78,802(h)
1997 2,437 (a) N/A 0 (a) 15,048 49,931 72,397 N/A N/A 153,549(h)
1996 2,424 (a) 1,179 0 (a) 14,977 32,780 N/A N/A N/A 64,829(h)
</TABLE>
8
<PAGE>
(a) Mr. Gray's life insurance and disability insurance is combined;
the single premium is listed under "Life Insurance Premiums."
(b) Amounts listed are 401(k) Plan contributions for all Executive
Officers except Mr. Gray. Mr. Gray's amount represents the
Company's contribution to his pension.
(c) "Social Charges" are a government-mandated payment of National
Insurance contributions for the Company's United Kingdom
employees. The National Insurance Contributions (NIC) cover state
pension, a small element of state National Health Care (NHS) and a
contribution to a general state benefits pool such as statutory
sick pay. All other amounts in this column are for physical exams.
(d) Distributions made in connection with the Named Executive Officers'
respective partnership interests in AIP.
(e) Deemed compensation recognized by the Named Executive Officers
pursuant to the Code Section 83(b) elections made in connection
with their respective partnership interests in AIP for fiscal 1998
and 1997. See "Report of the Executive Compensation Committee -
Compensation Components." 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 cash
payment or securities of any venture investment; instead, the
amounts shown reflect the value of the partnership interest they
received.
(f) The executive officer participates in the Company's standard
disability benefits program on the same terms as non-executive
officer employees.
(g) Prior to becoming an Executive Officer in fiscal 1998, Mr. Chizen
received benefits on the same terms as non-executive officer
employees of the Company.
(h) Motor vehicle and fuel allowance for Mr. Gray for fiscal years
1998, 1997 and 1996 in the amounts of $13,700, $13,736, $13,469,
respectively, are included in the total other compensation amount.
(5) Grant amounts for fiscal 1998 include all previously granted options
amended in September 1998 in the option repricing. For information about
new grants in 1998, please see the "OPTION/SAR GRANTS IN LAST FISCAL
YEAR" table; for information about repriced grants, please see the
"TEN-YEAR OPTION REPRICINGS" table.
(6) Mr. Snow's offer letter guaranteed his 1998 executive bonus. He joined
the Company in January 1998.
(7) All amounts attributed to Mr. Gray have been converted into U.S. Dollars
from the pounds sterling currency in which he is paid, using the
exchange rate at the end of each fiscal year as follows: fiscal 1998 -
$1.651; fiscal 1997 - $1.690; fiscal 1996 - $1.682.
STOCK OPTIONS
The following table provides details regarding stock options granted to
the Named Executive Officers in fiscal 1998 under the Company's 1994 Stock
Option Plan. In addition, in accordance with the Securities and Exchange
Commission ("SEC") rules, the table includes previously granted options that
were repriced in fiscal 1998. Also in accordance with 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.
9
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS EXERCISE
OPTIONS/ GRANTED TO OR
SARS EMPLOYEES IN BASE EXPIRATION
GRANTED GRANTED FISCAL YEAR PRICE(2) DATE(3)
- ------- ---------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
John E. Warnock....................... 110,000 (5) 1.033% $35.00 12/17/05
52,800 (6) 0.496 43.81 02/18/06
110,000 (7) 1.033 33.81 12/17/05
52,800 (7) 0.496 33.81 02/18/06
42,000 (7) 0.394 33.81 08/01/05
94,200 (7) 0.885 33.81 12/18/06
70,000 (5) 0.657 33.81 09/23/06
150 (7) 0.001 33.81 06/04/05
150 (5) 0.001 43.50 11/06/06
Charles M. Geschke.................... 110,000 (5) 1.033 35.00 12/17/05
52,800 (6) 0.496 43.81 02/18/06
110,000 (7) 1.033 33.81 12/17/05
52,800 (7) 0.496 33.81 02/18/06
42,000 (7) 0.394 33.81 08/01/05
94,200 (7) 0.885 33.81 12/18/06
70,000 (5) 0.657 33.81 09/23/06
Frederick A. Snow..................... 100,000 (5) 0.939 38.38 02/02/06
100,000 (7) 0.939 33.81 02/02/06
56,000 (5) 0.526 33.81 09/23/06
Bruce R. Chizen....................... 31,400 (5) 0.295 35.00 12/17/05
31,400 (7) 0.295 33.81 12/17/05
15,125 (7) 0.142 33.81 12/18/06
56,000 (5) 0.526 33.81 09/23/06
Derek J. Gray......................... 37,650 (5) 0.354 35.00 12/17/04
37,650 (7) 0.354 33.81 12/17/04
20,000 (7) 0.188 33.81 08/01/02
22,000 (7) 0.207 33.81 12/18/03
28,000 (5) 0.263 33.81 09/23/05
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM(4)
--------------------------------------------
GRANTED 5% 10%
- ------- -------------------- --------------------
<S> <C> <C>
John E. Warnock....................... $ 1,838,203 $ 4,402,817
1,104,498 2,645,464
1,573,962 3,691,307
776,989 1,830,829
564,027 1,309,261
1,575,171 3,797,548
1,130,077 2,706,732
1,960 4,529
3,115 7,462
Charles M. Geschke.................... 1,838,203 4,402,817
1,104,498 2,645,464
1,573,962 3,691,307
776,989 1,830,829
564,027 1,309,261
1,575,171 3,797,548
1,130,077 2,706,732
Frederick A. Snow..................... 1,832,235 4,388,522
1,461,202 3,438,925
904,062 2,165,385
Bruce R. Chizen....................... 524,724 1,256,804
449,295 1,053,700
252,914 609,744
904,062 2,165,384
Derek J. Gray......................... 536,457 1,250,172
452,450 1,032,845
139,933 300,239
302,832 705,727
385,422 898,198
</TABLE>
- -------------------------------------
(1) 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. 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
10
<PAGE>
(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
(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 this vesting 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) Options that were repriced expire on the same date as the originally
granted option, either eight or ten years after the original grant date,
except Mr. Gray's options, which expire seven years after the original
grant date (see Note 7 below). All other options listed in the table
have a term of eight years, except those granted to Mr. Gray, which all
have a term of seven years.
(4) The potential gain is calculated from the closing price of the Company's
Common Stock on the date of grant to the Named Executive Officer
(see Note 3 above regarding option expiration terms).
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 condition.
There can be no assurance that the amounts reflected in this table will
be achieved.
Using the same analysis, over an eight-year period all holders of Common
Stock as of the Company's fiscal year-end would potentially gain
approximately $3.0 billion at 5%, and $4.4 billion at 10% rates of stock
price appreciation.
(5) All noted options granted to Messrs. Chizen and Gray 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; all options granted to Dr.
Warnock and Dr. Geschke, except those granted in February 1998 (see Note
6 below), vest on the same schedule; Mr. Snow's option granted in
September 1998 vests on the same schedule. Mr. Snow's option granted in
February 1998 vests 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%
for the final twelve months.
(6) The 52,800 options granted in February 1998 to each of Dr. Warnock and
Dr. Geschke will vest in one installment in February 2005, but the
options are subject to 100% acceleration if the Company meets certain
performance objectives for the three fiscal years ending in 1999 and the
executive's employment with the Company continues through the vesting
date. See "Report of the Executive Compensation Committee - Chief
Executive Officer Compensation."
(7) Represents an option granted earlier in fiscal 1998 or in previous
fiscal years that was repriced September 23, 1998; vesting and
expiration terms of the original option grant were not affected by the
repricing. See "Repricing Report of the Executive Compensation
Committee" and "TEN-YEAR OPTION REPRICINGS" table.
11
<PAGE>
STOCK OPTION EXERCISES AND HOLDINGS
The following table shows stock options exercised by Named Executive
Officers during fiscal 1998, 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.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE
UNDERLYING UNEXERCISED MONEY OPTIONS AT
SHARES OPTIONS 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 ........... 0 $ 0 149,497 262,094 $2,087,143 $3,425,697
Charles M. Geschke ........ 0 0 147,452 261,849 2,040,184 3,423,950
Frederick A. Snow ......... 0 0 2,333 153,667 30,475 2,007,275
Bruce R. Chizen ........... 25,499 476,534 16,985 92,249 224,745 1,206,279
Derek J. Gray ............. 0 0 48,153 70,537 632,419 922,799
</TABLE>
- ------------------------
(1) Fiscal year ended November 27, 1998. The closing market price on that
date for the Company's Common Stock was $46.875.
LONG-TERM INCENTIVE PLAN
In 1994, the Company's Board of Directors adopted and the stockholders
approved the 1994 Performance and Restricted Stock Plan, the Company's form
of Long-Term Incentive Plan, which plan was subsequently amended by the
Company's Board of Directors in December 1997 and approved by the
stockholders in April 1998 as the Amended 1994 Performance and Restricted
Stock Plan (the "Performance 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's 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. For
the first two three-year performance periods (fiscal years 1995-1997 and
1996-1998), the third modifying measure was based on the Company's stock
price performance relative to the Hambrecht & Quist ("H&Q") Technology Index.
For the fiscal years 1997-1999 performance period, the third modifying
measure is based on the Company's return on equity performance relative to
the Standard & Poor's 500 Stock Index ("S&P 500 Index"), and for the fiscal
years 1998 - 2000 performance period, the third modifying measure is based on
the Company's stock price performance relative to the S&P 500 Index. No
performance awards were granted for the performance period covering fiscal
years 1999-2001; however, the Company may continue to grant performance
awards for future performance cycles.
Fiscal 1998 was the fourth fiscal year that Performance Plan contingent
awards were granted, with the three-year cycle to be fiscal 1998 through
fiscal 2000. The following table provides certain information with respect to
awards during fiscal 1998 to the Named Executive Officers under the
Performance Plan:
12
<PAGE>
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS OTHER PERIOD NON-STOCK PRICE-BASED PLANS
OR OTHER UNTIL MATURATION -------------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD(#) TARGET(#) MAXIMUM(#)
- ---- ------------- ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
John E. Warnock ......... 16,500 FY'98-FY'00 103 16,500 49,500
Charles M. Geschke ...... 16,500 FY'98-FY'00 103 16,500 49,500
Frederick A. Snow ....... 0 N/A 0 0 0
Bruce R. Chizen ......... 8,000 FY'98-FY'00 50 8,000 24,000
Derek J. Gray .......... 9,420 FY'98-FY'00 58 9,420 28,260
</TABLE>
SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
CHANGE-IN-CONTROL ARRANGEMENTS
In September 1997, the Company entered into retention agreements (the
"Agreements") with its current 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. In August 1998, the Company entered
into a retention agreement with Harold L. Covert, Senior Vice President and
Chief Financial Officer and with Bruce R. Chizen, Executive Vice President,
Worldwide Products and Marketing.
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 the Chief Executive Officer and the President, all outstanding
options, performance grants, restricted stock awards and partnership
interests in AIP (see "Report of the Executive Compensation Committee" for a
description of AIP) 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 AIP 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.
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.
13
<PAGE>
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 prepares 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 1998 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 1,590
shares were not included on Jim Stephens' initially filed Form 3 due to a
clerical error.
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 1998, 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 has established an internal limited partnership ("Adobe Incentive
Partners" or "AIP") 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 1998, compensation
included performance shares granted under the Company's Amended 1994
Performance and Restricted Plan (the "Performance Plan") that 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 1998 each of the Named Executive Officers' target bonus
percentage equaled or exceeded 40% 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 1998, 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 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 Company's 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 just exceeded 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 multiple surveys of high technology companies. The companies
included in these surveys are not necessarily those included in the indices
used in the Performance Graph 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 officers' levels 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.
15
<PAGE>
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 1998, the target level of bonus equaled or exceeded 40% 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. 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 more important than the other performance
measures listed. In September 1998, the Board adjusted the targets for all
executives except the Chief Executive Officer and President to reflect the
reorganization in August 1998. Also, two executive officers who joined the
Company during fiscal 1998 were guaranteed payment of their 1998 bonuses in
their respective offer letters. In 1998, the Committee awarded incentive
bonuses on a semi-annual basis and, except for the September 1998 adjustments
and the guaranteed payments, did not alter the incentive payout from what the
plan provided. The Company's performance exceeded the minimum targets in the
first half of fiscal 1998, so a portion of the bonus component dependent on
Company performance was paid; however, in the second half, the Company's
performance did not meet the minimum targets, so bonuses were paid only for
the achievement of the individual objectives component of the targets.
Executive officers based in North America also participated with all
North America Company employees in the Company's corporate profit sharing
plan, under which a target bonus of up to 10% of each employee's base salary,
payable quarterly with the potential of paying an overall 12% for the year,
is awarded depending upon the Company's overall performance based on revenue,
expenses and earnings. Due to the morale issues surrounding the Company's
August reduction in force and unsolicited acquisition proposal, in September
1998 this profit sharing plan target percentage was increased for the fourth
quarter to 15% (from 10%) of each employee's base salary. Based on the
Company's level of revenue and operating profit versus budget for each
quarter of fiscal 1998, the profit sharing bonus was paid in the following
percentages for the relevant quarter: first quarter, 0%; second quarter, 9%;
third quarter, 0%; and fourth quarter, 15%. Because the Company's annual
performance did not meet the targets, no additional bonus was contributed to
employees' 401(k) accounts.
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 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 typically granted annually and are subject to vesting
provisions to encourage officers to remain employed with the Company.
However, although the Committee considered fiscal 1998 annual grants in
December 1997 as usual, it considered fiscal 1999 annual grants in September
1998 rather than December 1998 to improve morale after the Company's August
reduction in force and an unsolicited acquisition proposal, but reduced the
number of shares granted to balance the accelerated grant date. In addition,
the Committee granted additional options to two senior executive officers,
including the Chief Executive Officer, in February 1998; these options would
vest in one installment in February 2005, but are subject to 100% accelerated
vesting if the Company meets certain performance objectives over the three
fiscal years ending in 1999 and if the executive officer continues his
employment with the Company through the vesting date. See "Chief Executive
Officer Compensation" and the "OPTION/SAR GRANTS IN LAST FISCAL YEAR" table.
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 officer's anticipated performance and
responsibilities. Additionally, the Committee considers the net present
value of the grant compared to typical grants
16
<PAGE>
at companies comparable in size and technology-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. In addition, the
Committee 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. 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 Performance
Plan to executive officers at the beginning of fiscal 1998 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 relative stock price
performance to the S&P 500 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 Adobe who are involved in Adobe'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 AIP, 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
officer 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 executive officers
are deemed to receive compensation in proportion to their interests. In
addition, in fiscal 1998, distributions to executive officers totaling
$707,000 were made by AIP.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee established the Chief Executive Officer's salary and
target bonus levels at the beginning of fiscal 1998. 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 --the payment of 86% of Dr. Warnock's target bonus; for
the second half, 28.6% of target was paid.
For Dr. Warnock's long-term compensation, the Committee granted stock
options under the Company's 1994 Stock Option Plan for 110,000 shares of
Common Stock in December 1997 in consideration of his individual performance
in 1997 and expected performance in 1998. For similar reasons, in February
1998, Dr. Warnock was granted a stock option for 52,800 shares which will
vest in its entirety in one installment in February 2005, but is subject to
100% accelerated vesting if the Company meets certain performance objectives
over the three fiscal years ending in 1999. These performance objectives
consist of achievement of targeted levels of revenue growth and operating
margin, and require that the Company's return on equity performance exceed
the Hambrecht & Quist return on equity index by at least 135% for the
relevant three-year period.
In September 1998, the Committee repriced options held by all employees
of the Company, including Dr. Warnock, with exercise prices above fair market
value on the date of the repricing; these amended options are shown as grants
during fiscal 1998 in accordance with SEC rules. See "Repricing Report of
the Executive Compensation Committee" for more information regarding the
repricing. Also in September 1998, as part of the accelerated schedule of
fiscal 1999 annual grant consideration by the Company and the Committee to
improve morale after the August reduction in force and unsolicited
acquisition proposal, the Committee granted Dr. Warnock stock options
17
<PAGE>
under the Option Plan for 70,000 shares of Common Stock in consideration of
his individual performance in 1998 and expected performance in 1999, but at a
reduced level to balance the accelerated grant date. In November 1998, Dr.
Warnock was also granted an option for 150 shares in connection with a patent
granted to him by the U.S. Patent and Trademark office, in accordance with
the Company's usual policy regarding patent grants. The Committee expects to
consider further option grants to Dr. Warnock during fiscal 1999 only in lieu
of any award that would otherwise have been made pursuant to the Performance
Plan and in accordance with its patent grant policy. None of these options
were related to Company performance in fiscal 1997 or 1998, except to the
extent the vesting of the grant in February 1998 may accelerate based on the
Company's performance over a three-year period as described above. 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
these grants were appropriate.
In addition, the Committee granted Dr. Warnock 16,500 performance shares
covering a three-year performance period beginning in fiscal 1998. 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 is
modified depending upon the Company's stock price performance relative to the
S&P 500 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.
During fiscal 1998, Dr. Warnock's Class B limited partner interest in
Adobe Incentive Partners for future investments was reduced from 5% to 3%.
The Committee made this change at the request of Dr. Warnock to enable the
Committee to include additional executive officers in AIP. Dr. Warnock
received distributions from his AIP partnership interest totaling $253,339 in
fiscal 1998.
EXECUTIVE COMPENSATION COMMITTEE
Gene P. Carter
William R. Hambrecht
Robert Sedgewick
Delbert W. Yocam
18
<PAGE>
REPRICING REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
In September 1998, the Executive Compensation Committee considered a
proposal from management for significant changes to existing employee
programs, including options held by the Company's executive officers.(1)
This proposal arose largely from a broad decline in the price of the Common
Stock of the Company that had resulted in a substantial number of stock
options granted pursuant to the Company's existing option plans having
exercise prices well above the recent historical trading prices of the Common
Stock. This decline together with the resulting equity disparity between new
hires who receive option grants at the current fair market value and existing
employees' exercise prices prompted the proposal. The Committee was advised
by management that management believed that employee and executive turnover
was likely to increase. In large part, this increase was expected because
the Company's total compensation package for long-term employees, which
included substantial options with exercise prices well above the then-current
trading price, no longer provided an effective retention incentive,
particularly when combined with job security concerns in light of the August
1998 reduction in force and the unsolicited acquisition proposal. In
addition, the Company's existing option grants were not competitive with
competing offers from other companies, since options granted to new hires at
other companies would be granted at current trading prices. The Committee
also reviewed independent data obtained by management regarding equity and
other compensation offered by competitors as well as other companies in the
high technology industry in the local area.
The Committee considered both cash and equity compensation as
possibilities to aid employee and executive retention by the Company. The
Committee recognized that an amendment of existing options with exercise
prices higher than fair market value to provide exercise prices at fair
market value would provide additional incentives to employees because of the
increased potential for appreciation. Such additional incentives were
necessary, the Committee decided, in order for the Company's employee
programs to continue to meet their objectives, including driving operating
performance in accordance with the Company's plans and targets, promoting
employee retention, addressing stockholder concerns for dilution, and
preserving the reserved shares for employee stock programs.
Considering these factors, the Committee determined it to be in the best
interests of the Company and its stockholders to amend outstanding stock
options under its option plans to set the exercise prices equal to the
current market value with the same vesting and expiration terms as existing
options, thus restoring the incentives for employees to remain as employees
of the Company and to exert their maximum efforts on behalf of the Company
and focus on achieving the Company's operating plans. The Committee
determined not to impose any exercise restrictions or to defer the date of
the repricing, even though management's proposal had included certain of
these restrictions, because of the competitive situation that the Company
faced as well as concerns that external market factors could affect the
repricing. Based on the restructured operational responsibilities of several
of the executives, the Committee believed that strong incentives were
appropriate.
Additionally, the Committee determined to include the Chairmen of the
Board in the repricing, even though they were not included in the proposal
from management, based on the Committee's belief that these individuals
should be governed by the same incentives as the overall employee population.
The Committee did not want to create distinctions among the classes of
employees for purposes of the equity compensation component of compensation.
- -----------------------
(1) The Employee Grant Committee separately approved a concurrent repricing
of options held by non-executive employees and certain consultants of
the Company, for reasons similar to those outlined in this Report. In
such repricing, a total of 3,794,576 option shares with exercise prices
ranging from $34.25 to $67.00 were exchanged for options for an equal
number of shares at an exercise price of $33.8125, the fair market value
of the Company's Common Stock on the day of the September 23, 1998
effective date of the repricing.
19
<PAGE>
Accordingly, in September 1998, the Executive Compensation Committee
approved an amendment of each outstanding option held by all current
executive officers of the Company with exercise prices above the then-current
trading price to provide an exercise price equal to the current trading
price. The exchanged options will continue to vest at the same rate and on
the same terms as the original options and will terminate on the same date
and terms as the original options. The option amendments were completed in
their entirety on September 23, 1998; options held by executive officers for
1,257,325 shares with exercise prices ranging from $35.00 to $50.75 were
exchanged for options for an equal number of shares at an exercise price of
$33.8125, the fair market value of the Company's Common Stock on September
23, 1998, the effective date of the repricing. See "TEN-YEAR OPTION
REPRICINGS" table for further information concerning the repricing in its
entirety.
EXECUTIVE COMPENSATION COMMITTEE
Gene P. Carter
William R. Hambrecht
Robert Sedgewick
Delbert W. Yocam
20
<PAGE>
REPRICING OF OPTIONS
The following table provides the specified information concerning all
repricings of options to purchase the Companys Common Stock held by an
executive officer of the Company during the last ten completed fiscal years.
TEN-YEAR OPTION REPRICINGS TABLE
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES MARKET PRICE EXERCISE TERM REMAINING
INDERLYING OF STOCK AT PRICE AT DATE OF
OPTIONS AT TIME OF AT TIME OF NEW REPRICING OR
REPRICING REPRICED OR REPRICING OR REPRICING OR EXERCISE AMENDMENT
NAME AND POSITION DATE AMENDED(1) AMENDMENT AMENDMENT PRICE (YEAR/DAYS)(2)
- ------------------------ ------------- ----------- -------------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John E. Warnock ..................... 09/23/98 42,000 $ 33.8125 $ 50.7500 $ 33.8125 6 Yrs. 312 Days
Chairman of the Board 09/23/98 94,200 33.8125 40.8750 33.8125 8 Yrs. 86 Days
and Chief Executive Officer 09/23/98 150 33.8125 41.3750 33.8125 6 Yrs. 254 Days
09/23/98 52,800 33.8125 43.8125 33.8125 7 Yrs. 148 Days
09/23/98 110,000 33.8125 35.0000 33.8125 7 Yrs. 85 Days
09/28/90 100,000 9.5000 13.0000 9.5000 9 Yrs. 331 Days
09/22/89 150,000 8.2500 11.2500 8.2500 9 Yrs. 315 Days
Charles M. Geschke .................. 09/23/98 42,000 33.8125 50.7500 33.8125 6 Yrs. 312 Days
Chairman of the Board 09/23/98 94,200 33.8125 40.8750 33.8125 8 Yrs. 86 Days
and President 09/23/98 94,200 33.8125 35.0000 33.8125 7 Yrs. 85 Days
09/23/98 52,800 33.8125 43.8125 33.8125 7 Yrs. 148 Days
09/23/98 15,800 33.8125 35.0000 33.8125 7 Yrs. 85 Days
09/28/90 100,000 9.5000 13.0000 9.5000 9 Yrs. 331 Days
09/22/89 150,000 8.2500 11.2500 8.2500 9 Yrs. 315 Days
Bruce R. Chizen ..................... 09/23/98 15,125 33.8125 40.8750 33.8125 8 Yrs. 86 Days
Executive VP, Worldwide 09/23/98 31,400 33.8125 35.0000 33.8125 7 Yrs. 85 Days
Products and Marketing 03/29/96(3) 4,333 32.2500 50.7500 32.2500 9 Yrs. 173 Days
Derek J. Gray ....................... 09/23/98 20,000 33.8125 50.7500 33.8125 3 Yrs. 312 Days
Senior VP and General Manager, 09/23/98 22,000 33.8125 40.8750 33.8125 8 Yrs. 86 Days
Adobe Systems Europe 09/23/98 37,650 33.8125 35.0000 33.8125 6 Yrs. 85 Days
Harold L. Covert .................... 09/23/98 12,500 33.8125 41.6875 33.8125 7 Yrs. 246 Days
Senior VP and 09/23/98 25,000 33.8125 50.3750 33.8125 7 Yrs. 220 Days
Chief Financial Officer
Colleen M. Pouliot .................. 09/23/98 31,400 33.8125 40.8750 33.8125 8 Yrs. 86 Days
Senior VP, General Counsel 09/23/98 12,500 33.8125 50.7500 33.8125 6 Yrs. 312 Days
and Secretary 09/23/98 37,650 33.8125 35.0000 33.8125 7 Yrs. 85 Days
04/14/92 28,000 21.5625 22.3750 21.1250 9 Yrs. 150 Days
09/28/90 20,000 9.5000 13.0000 9.5000 9 Yrs. 331 Days
09/22/89 20,000 8.2500 11.2500 8.2500 9 Yrs. 315 Days
09/22/89 40,000 8.2500 10.4375 8.2500 8 Yrs. 313 Days
</TABLE>
21
<PAGE>
TEN-YEAR OPTION REPRICINGS TABLE (CONTINUED)
<TABLE>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES MARKET PRICE EXERCISE TERM REMAINING
INDERLYING OF STOCK AT PRICE AT DATE OF
OPTIONS AT TIME OF AT TIME OF NEW REPRICING OR
REPRICING REPRICED OR REPRICING OR REPRICING OR EXERCISE AMENDMENT
NAME AND POSITION DATE AMENDED(1) AMENDMENT AMENDMENT PRICE (YEAR/DAYS)(2)
- ----------------- --------- --------------- ------------- ------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Frederick A. Snow .................. 09/23/98 100,000 $33.8125 $38.3750 $33.8125 7 Yrs. 132 Days
Executive VP, Worldwide
Field Operations
FORMER OFFICERS:
Ross A. Bott ....................... 09/23/98 75,000 33.8125 38.6250 33.8125 8 Yrs. 101 Days
Executive VP, Products Division 09/23/98 47,100 33.8125 35.0000 33.8125 7 Yrs. 85 Days
John H. Brandon .................... 03/29/96 (3) 5,333 32.2500 50.7500 32.2500 9 Yrs. 173 Days
VP, North America Sales 04/14/92 1,000 21.5625 25.2500 21.1250 9 Yrs. 232 Days
04/14/92 9,000 21.5625 23.8125 21.1250 9 Yrs. 88 Days
09/28/90 9,000 9.5000 16.8750 9.5000 9 Yrs. 252 Days
09/22/89 8,000 8.2500 8.5000 8.2500 8 Yrs. 246 Days
David P. Eichler ................... 09/23/98 20,000 33.8125 40.5000 33.8125 7 Yrs. 101 Days
VP, Finance
Hachiro Kimura ..................... 09/23/98 22,000 33.8125 40.8750 33.8125 8 Yrs. 86 Days
President, Adobe Systems 09/23/98 25,100 33.8125 35.0000 33.8125 7 Yrs. 85 Days
Japan 03/29/96 (3) 5,000 32.2500 50.7500 32.2500 9 Yrs. 173 Days
John H. Kunze ...................... 04/14/92 9,000 21.5625 23.8125 21.1250 9 Yrs. 88 Days
VP and General Manager, 09/28/90 9,000 9.5000 16.8750 9.5000 9 Yrs. 252 Days
Internet Products Division 09/22/89 12,000 8.2500 8.5000 8.2500 8 Yrs. 246 Days
Stephen A. MacDonald ............... 04/14/92 70,000 21.5625 22.3750 21.1250 9 Yrs. 150 Days
Senior VP and General Manager, 09/28/90 50,000 9.5000 13.0000 9.5000 9 Yrs. 331 Days
Systems Product Division 09/22/89 70,000 8.2500 11.2500 8.2500 9 Yrs. 315 Days
M. Bruce Nakao ..................... 09/28/90 36,000 9.5000 13.0000 9.5000 9 Yrs. 331 Days
Senior VP, Finance and 09/22/89 50,000 8.2500 11.2500 8.2500 9 Yrs. 315 Days
Administration, Chief Financial
Officer and Treasurer
David B. Pratt ..................... 09/28/90 40,000 9.5000 13.0000 9.5000 9 Yrs. 331 Days
Senior VP and General Manager 09/22/89 100,000 8.2500 9.1250 8.2500 8 Yrs. 252 Days
Applications Products Division 09/22/89 40,000 8.2500 11.2500 8.2500 9 Yrs. 315 Days
</TABLE>
22
<PAGE>
TEN-YEAR OPTION REPRICINGS TABLE (CONTINUED)
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES MARKET PRICE EXERCISE TERM REMAINING
INDERLYING OF STOCK AT PRICE AT DATE OF
OPTIONS AT TIME OF AT TIME OF NEW REPRICING OR
REPRICING REPRICED OR REPRICING OR REPRICING OR EXERCISE AMENDMENT
NAME AND POSITION DATE AMENDED(1) AMENDMENT AMENDMENT PRICE (YEAR/DAYS)(2)
- ----------------- ----------- ------------ ------------ ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
FORMER OFFICERS (CONTINUED):
R. Daniel Putman ...................... 09/28/90 40,000 $ 9.5000 $ 13.0000 $ 9.5000 9 Yrs. 331 Days
Senior VP, New Products 09/22/89 60,000 8.2500 11.2500 8.2500 9 Yrs. 315 Days
Development
Frederick A. Schwedner ................ 09/23/98 31,400 33.8125 40.8750 33.8125 8 Yrs. 86 Days
Senior VP and General Manager, 09/23/98 25,100 33.8125 35.0000 33.8125 7 Yrs. 85 Days
Printing and Systems Division 03/29/96(3) 6,000 32.2500 50.7500 32.2500 9 Yrs. 173 Days
04/14/92 12,000 21.5625 23.8125 21.1250 9 Yrs. 88 Days
09/28/90 8,000 9.5000 16.8750 9.5000 9 Yrs. 252 Days
09/22/89 30,000 8.2500 11.5000 8.2500 9 Yrs. 313 Days
William M. Spaller .................... 04/14/92 30,000 21.5625 25.6250 21.1250 9 Yrs. 201 Days
VP, Product Marketing
and Development
</TABLE>
- ---------------------------------------
(1) All share numbers have been adjusted to reflect stock dividends and
splits.
(2) Repriced options in the September 1998 repricing vest and expire on
the same terms as the original options. See "Repricing Report of the
Executive Compensation Committee." Repriced options in the March 1996
repricing included a restriction prohibiting the employee from
exercising the repriced options for six months from the date of the
repricing and required the employee to surrender three shares for
every two shares repriced, but vesting and expiration terms were
otherwise unchanged; executive officers were excluded from participating
in this repricing. The April 1992 repricing required that the repriced
option begin vesting as a new grant on the date of the repricing, but
the expiration terms were otherwise unchanged. The September 1990
repricing also required that the repriced option would begin vesting
as a new grant on the date of the repricing, but the expiration terms
were otherwise unchanged. Repriced options in the September 1989
repricing vest and expire on the same terms as the original options.
(3) Person was not an executive officer at the time of this repricing, and
therefore was permitted to participate in a repricing that excluded
executive officers.
23
<PAGE>
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive annual retainers
of $20,000, 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, subject to vesting provisions as
described below, 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
automatically receive an option to purchase 15,000 shares of the Company's
Common Stock under the Outside Directors Plan, subject to the same vesting
terms. 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 if certain conditions are met.
Each option has a term of ten years and a vesting schedule of (i) 25% on
the day preceding each of the next two annual meetings of stockholders and
the remaining 50% on the day preceding the third annual meeting of
stockholders of the Company after the grant of the option. The options are
exercisable to the extent vested. Options cease to be exercisable three
months after termination of director status (except termination due to death
or disability), 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 or
(iii) expiration of the option. In the event of a change of control, any
unexercisable portion of an option shall be fully exercisable thirty days
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 to the extent it is not assumed or substituted by the acquiring
company.
CHANGES TO BENEFIT PLANS
AMENDED 1997 EMPLOYEE STOCK PURCHASE PLAN. The Board of Directors has
adopted, subject to stockholder approval, an amendment to the Company's 1997
Employee Stock Purchase Plan (as amended, the "Amended 1997 Purchase Plan")
to increase the maximum number of shares that may be issued under the Amended
1997 Purchase Plan by 2,500,000 shares, from 7,000,000 to 9,500,000 shares.
See "APPROVAL OF AN AMENDMENT TO INCREASE SHARE RESERVE UNDER THE 1997
EMPLOYEE STOCK PURCHASE PLAN." As of March 9, 1999, no purchases have been
made by any employee conditioned on stockholder approval of an increase in
the share reserve under the Amended 1997 Purchase Plan. Non-employee
directors are not eligible to participate in the Amended 1997 Purchase Plan.
Future purchases under the Amended 1997 Purchase Plan are not determinable at
this time.
24
<PAGE>
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 500 Stock Index ("S&P
500") for the broad equity index and the H&Q Technology Index as an industry
standard for the five fiscal-year period commencing November 26, 1993 and
ending November 27, 1998. 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."
[GRAPH]
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Adobe Systems H&Q Technology Index S&P 500
<S> <C> <C> <C>
**1993 100.00 100.00 100.00
1994 138.82 119.68 101.05
1995 289.27 194.19 138.41
1996 171.40 234.52 176.98
1997 182.03 280.48 227.44
1998 202.25 357.71 281.26
</TABLE>
* Assumes $100 invested on November 26, 1993 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, which ends on the Friday closest to
November 30th, and the S&P 500 Index and H&Q Technology Index dates are
the last trading dates in November.
25
<PAGE>
PROPOSAL TWO
APPROVAL OF AN
AMENDMENT TO INCREASE SHARE RESERVE
UNDER THE 1997 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors and the stockholders approved the adoption of the
1988 Employee Stock Purchase Plan (the "Old Plan") in December 1987 and April
1988, respectively. The Old Plan qualified as an "employee stock purchase
plan" under Section 423 of the Code and terminated in December 1997; no
further offers may be made under the Old Plan. The 1997 Employee Stock
Purchase Plan (the "Purchase Plan") and related purchase plan agreements were
adopted by the Company's Board of Directors on December 18, 1996, and by the
Company's stockholders on April 9, 1997, in contemplation of the Old Plan
terminating in December 1997. The Purchase Plan included an increase in the
share reserve by 3,000,000 shares, from 4,000,000 shares to 7,000,000 shares.
On September 23, 1998, the Company's Board of Directors approved certain
amendments to the Purchase Plan (the "Amended 1997 Purchase Plan") including
an increase in the share reserve by 2,500,000 shares, from 7,000,000 shares
to 9,500,000 shares, which is subject to stockholder approval. The Board of
Directors believes that the availability of an adequate number of shares in
the share reserve of the Amended 1997 Purchase Plan is an important factor in
attracting, motivating and retaining qualified officers and employees
essential to the success of the Company.
THE BOARD APPROVED AND ADOPTED THE AMENDED 1997 PURCHASE PLAN AND
INCREASED THE SHARE RESERVE, SUBJECT TO STOCKHOLDER APPROVAL, IN
CONTEMPLATION OF USING THESE SHARES FOR PARTICIPANT STOCK PURCHASES OVER A
TWO-YEAR PERIOD. IN LIGHT OF HISTORICAL USAGE AND EXPECTED FUTURE PARTICIPANT
PURCHASES, THE COMPANY EXPECTS THAT THE 2,500,000 SHARE INCREASE WILL BE
ADEQUATE TO MEET THESE FORESEEABLE REQUIREMENTS.
SIMULTANEOUSLY, THE BOARD APPROVED AMENDMENTS TO REDUCE THE MAXIMUM
PARTICIPANT PAYROLL CONTRIBUTION FROM 25% TO 15% AND TO REDUCE EACH OFFERING
PERIOD FROM 24 MONTHS TO 12 MONTHS. THESE CHANGES APPLY TO ALL OFFERING
PERIODS COMMENCING AFTER THE DATE OF THE AMENDMENTS.
The Company intends to register the 2,500,000 share increase on Form S-8
under the Securities Act of 1933 as soon as is practicable after receiving
stockholder approval.
The following summary of the Amended 1997 Purchase Plan is qualified in
its entirety by the specific language of the Amended 1997 Purchase Plan, a
copy of which will be made available to any stockholder upon written request.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
SUMMARY OF THE AMENDED 1997 EMPLOYEE STOCK PURCHASE PLAN TERMS
GENERAL. The aggregate number of shares authorized for issuance will be
9,500,000, i.e., the sum of the 7,000,000 shares previously approved by the
Board of Directors and the stockholders, and, if approved by the
stockholders, an additional 2,500,000 shares as approved by the Board of
Directors. Whether or not the stockholders approve the Amended 1997 Purchase
Plan, the remaining share reserve will be available for purchases under
reduced Offering Periods of 12 months with a reduced maximum payroll
deduction of 15% of eligible compensation. The provisions of the Purchase
Plan will continue to govern the terms of offerings that commenced prior to
the effective date of the Amended 1997 Purchase Plan.
Pursuant to the Code, the Amended 1997 Purchase Plan does not have a
termination date, and will remain in effect until the earlier of its
termination by the Board of Directors or the date on which all of the shares
of stock available for issuance under the Amended 1997 Purchase Plan have
been issued.
26
<PAGE>
ELIGIBILITY. Any employee of the Company or any of its subsidiaries,
excluding those in India and China due to strict regulatory requirements, are
eligible to participate in the Amended 1997 Purchase Plan as long as the
employee is employed by the Company prior to the offering date, is
customarily employed for at least twenty hours per week and is customarily
employed for at least five months each year. No employee shall be granted a
right to purchase shares under the Amended 1997 Purchase Plan if, immediately
after such grant, such employee would own or hold options to purchase stock
of the Company or of any parent corporation or subsidiary corporation
possessing five percent or more of the total combined voting power or value
of all classes of stock of such corporation. As of December 31, 1998, 2,646
non-executive officer employees and seven executive officers were eligible to
participate in the Purchase Plan and continue to be eligible under the
Amended 1997 Purchase Plan.
PURCHASE OF SHARES. The Amended 1997 Purchase Plan permits eligible
employees to purchase shares of Common Stock of the Company through payroll
withholding. Each offering period commencing under the Amended 1997 Purchase
Plan is 12 months and is divided into two consecutive six month purchase
periods. At the end of each purchase period, shares are issued based on
payroll deductions accumulated during that period not to exceed 15% of the
employee's compensation. The purchase price per share at which the shares of
the Company's Common Stock are sold under the Amended 1997 Purchase Plan
generally will be equal to 85% of the lesser of the fair market value of the
Common Stock on (i) the first day of the offering, or (ii) the last day of
the purchase period. No participant may purchase more than 2,500 shares of
the Company's Common Stock in any offering, or shares having a fair market
value exceeding $25,000 in any calendar year. A participant may withdraw from
an offering at any time without affecting his/her eligibility to participate
in future offerings. If the fair market value of the shares at the end of a
purchase period of an offering (other than the final purchase period of any
offering) is less than the fair market value of the shares on the first day
of such offering, then every participant in the offering will automatically
(i) be withdrawn from the offering at the close of such purchase period and
after the acquisition of shares, and (ii) be enrolled in the offering
commencing on the first business day subsequent to such purchase period.
ADMINISTRATION. The Amended 1997 Purchase Plan is administered by the
Board of Directors or a committee appointed by the Board of Directors. As of
December 31, 1998, a total of 4,511,661 shares had been purchased under the
Purchase Plan and 2,488,339 shares remained available for purchase. The
closing market price for the Company Common Stock on December 31, 1998 was
$46.875.
AMENDMENTS. The Board may at any time amend or terminate the Amended
1997 Employee Stock Purchase Plan, except that stockholder approval is
required to increase the number of shares authorized for issuance under the
Amended 1997 Purchase Plan. As in the Purchase Plan, the Amended 1997
Purchase Plan does permit the Board to designate certain affiliated
corporations whose employees may participate without stockholder approval. In
addition, except as required by law or regulation, no amendment to the
Amended 1997 Purchase Plan may adversely affect the purchase rights
previously granted a participant under the Purchase Plan or the Amended 1997
Purchase Plan without such participant's consent.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE AMENDED 1997 PURCHASE PLAN
The following summary is intended only as a general guide as to the
federal income tax consequences under current law of options granted pursuant
to the Amended 1997 Purchase Plan and does not attempt to describe all
potential tax consequences. Furthermore, the tax consequences are complex and
subject to change, and a taxpayer's particular situation may be such that
some variation of the described rules is applicable.
A participant recognizes no taxable income either as a result of
commencing to participate in the Amended 1997 Purchase Plan or purchasing
shares of the Company's Common Stock under the terms of the Amended 1997
Purchase Plan.
27
<PAGE>
If a participant disposes of shares purchased under the Amended 1997
Purchase Plan within two years from the first day of the applicable offering
period or within one year from the date of purchase (which is the last day of
a purchase period) (a "disqualifying disposition"), the participant will
recognize ordinary income in the year of such disposition equal to the amount
by which the fair market value of the shares on the date the shares were
purchased exceeds the purchase price. The amount of ordinary income will be
added to the participant's basis in the shares, and any additional gain or
resulting loss recognized on the disposition of the shares will be a capital
gain or loss. A capital gain or loss will be long-term if the participant's
holding period is more than twelve months, otherwise it will be short-term.
If the participant disposes of shares purchased under the Amended 1997
Purchase Plan more than two years after the first day of the applicable
offering period and more than one year after the date of purchase, the
participant will recognize ordinary income in the year of disposition equal
to the lesser of (i) the excess of the fair market value of the shares on the
date of disposition over the purchase price or (ii) 15% of the fair market
value of the shares on the first day of the applicable offering period. The
amount of any ordinary income will be added to the participant's basis in the
shares, and any additional gain recognized upon the disposition after such
basis adjustment will be long-term capital gain. If the fair market value of
the shares on the date of disposition is less than the purchase price, there
will be no ordinary income and any loss recognized will be a long-term
capital loss.
The Company will be entitled to a deduction in the year of a
disqualifying disposition equal to the amount of ordinary income recognized
by the participant as a result of the disposition. In all other cases, no
deduction is allowed to the Company.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has selected KPMG LLP ("KPMG") as the independent
public accountants for the Company for fiscal 1999, 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.
28
<PAGE>
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Pursuant to the Company's Amended and Restated Bylaws, any proposal to
be brought before next year's annual meeting by a stockholder must be
received by the Company at its offices not later than November 1, 1999 and,
to be included in the Company's proxy statement for that meeting, must
satisfy the conditions established by the Securities and Exchange Commission
for stockholder proposals; provided, however, that if no annual meeting is
held in the prior year or the date of the annual meeting is changed by more
than 30 days from the date contemplated at this time, notice by a stockholder
must be so received not later than the close of business on the 10th day
following the day on which a notice of the date of the meeting is mailed or a
public announcement thereof is made.
By Order of the Board of Directors
/s/ Colleen M. Pouliot
Colleen M. Pouliot
SENIOR VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY
San Jose, California
March 9, 1999
29
<PAGE>
ADOBE SYSTEMS INCORPORATED
1997 EMPLOYEE STOCK PURCHASE PLAN
(as amended by the Board through September 23, 1998)
1. PURPOSE AND TERM OF PLAN.
1.1 PURPOSE. The purpose of the Adobe Systems Incorporated
1997 Employee Stock Purchase Plan, as amended (the "Plan"), is to provide
Eligible Employees of the Participating Company Group with an opportunity to
acquire a proprietary interest in the Company through the purchase of Stock.
The Company intends that the Plan qualify as an "employee stock purchase
plan" under Section 423 of the Code (including any amendments or replacements
of such section), and the Plan shall be so construed.
1.2 TERM OF PLAN. The Plan shall continue in effect until
the earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued.
1.3 ESTABLISHMENT. The Adobe Systems Incorporated Employee
Stock Purchase Plan was initially established on December 7, 1987, was
amended and restated effective January 1, 1989, and was amended and restated
in its entirety as the Plan effective April 9, 1997, the initial date of
stockholder approval of the Plan. The Plan is hereby amended and restated
effective September 23, 1998, except that the amendment in Section 4.1 to
increase the maximum aggregate number of Shares that may be issued under the
Plan shall be effective as of the date on which it is approved by the
stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan
but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified
by the Board. Unless the powers of the Committee have been specifically
limited, the Committee shall have all of the powers of the Board granted
herein, including, without limitation, the power to amend or terminate the
Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.
<PAGE>
(d) "COMPANY" means Adobe Systems Incorporated, a
Delaware corporation, or any successor corporation thereto.
(e) "COMPENSATION" means, with respect to any
Offering Period, base wages or salary, overtime, bonuses, commissions, shift
differentials, payments for paid time off, payments in lieu of notice, and
compensation deferred under any program or plan, including, without
limitation, pursuant to Section 401(k) or Section 125 of the Code.
Compensation shall be limited to amounts actually payable in cash or deferred
during the Offering Period. Compensation shall not include moving
allowances, payments pursuant to a severance agreement, termination pay,
relocation payments, sign-on bonuses, any amounts directly or indirectly paid
pursuant to the Plan or any other stock purchase or stock option plan, or any
other compensation not included above.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets
the requirements set forth in Section 5 for eligibility to participate in the
Plan.
(g) "EMPLOYEE" means a person treated as an employee
of a Participating Company for purposes of Section 423 of the Code. A
Participant shall be deemed to have ceased to be an Employee either upon an
actual termination of employment or upon the corporation employing the
Participant ceasing to be a Participating Company. For purposes of the Plan,
an individual shall not be deemed to have ceased to be an Employee while such
individual is on a bona fide leave of absence approved by the Company of
ninety (90) days or less. In the event an individual's leave of absence
exceeds ninety (90) days, the individual shall be deemed to have ceased to be
an Employee on the ninety-first (91st) day of such leave unless the
individual's right to reemployment with the Participating Company Group is
guaranteed either by statute or by contract. The Company shall determine in
good faith and in the exercise of its discretion whether an individual has
become or has ceased to be an Employee and the effective date of such
individual's employment or termination of employment, as the case may be.
All such determinations by the Company shall be, for purposes of an
individual's participation in or other rights under the Plan as of the time
of the Company's determination, final, binding and conclusive,
notwithstanding that the Company or any governmental agency subsequently
makes a contrary determination.
(h) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing sale price of a
share of Stock (or the mean of the closing bid and asked prices if the Stock
is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq
Small-Cap Market or such other national or regional securities exchange or
market system constituting the primary market for the Stock, as reported in
THE WALL STREET JOURNAL or such other source as the Company deems reliable.
If the relevant date does not fall on a day on which the Stock has traded on
such securities exchange or market system, the date on which the Fair Market
Value shall be established shall be the last day on which the Stock was so
traded prior to the relevant date, or such other appropriate day as shall be
determined by the Board, in its sole discretion. If there is then no public
market for the Stock, the Fair Market Value on any
<PAGE>
relevant date shall be as determined by the Board without regard to any
restriction other than a restriction which, by its terms, will never lapse.
(i) "OFFERING" means an offering of Stock as provided
in Section 6.
(j) "OFFERING DATE" means, for any Offering Period,
the first day of such Offering Period.
(k) "OFFERING PERIOD" means a period established in
accordance with Section 6.1.
(l) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(m) "PARTICIPANT" means an Eligible Employee who has
become a participant in an Offering Period in accordance with Section 7 and
remains a participant in accordance with the Plan.
(n) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation designated by the Board as a
corporation the Employees of which may, if Eligible Employees, participate in
the Plan. The Board shall have the sole and absolute discretion to determine
from time to time which Parent Corporations or Subsidiary Corporations shall
be Participating Companies.
(o) "PARTICIPATING COMPANY GROUP" means, at any point
in time, the Company and all other corporations collectively which are then
Participating Companies.
(p) "PURCHASE DATE" means, for any Purchase Period,
the last day of such period.
(q) "PURCHASE PERIOD" means a period established in
accordance with Section 6.2.
(r) "PURCHASE PRICE" means the price at which a share
of Stock may be purchased under the Plan, as determined in accordance with
Section 9.
(s) "PURCHASE RIGHT" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided
in Section 8, which the Participant may or may not exercise during the
Offering Period in which such option is outstanding. Such option arises from
the right of a Participant to withdraw any accumulated payroll deductions of
the Participant not previously applied to the purchase of Stock under the
Plan and to terminate participation in the Plan at any time during an
Offering Period.
(t) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
<PAGE>
(u) "SUBSCRIPTION AGREEMENT" means a written
agreement in such form as specified by the Company, stating an Employee's
election to participate in the Plan and authorizing payroll deductions under
the Plan from the Employee's Compensation.
(v) "SUBSCRIPTION DATE" means the last business day
prior to the Offering Date of an Offering Period or such earlier date as the
Company shall establish.
(w) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f)
of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of
any provision of the Plan. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board, including any duly appointed Committee of the
Board. All questions of interpretation of the Plan, of any form of agreement
or other document employed by the Company in the administration of the Plan,
or of any Purchase Right shall be determined by the Board and shall be final
and binding upon all persons having an interest in the Plan or the Purchase
Right. Subject to the provisions of the Plan, the Board shall determine all
of the relevant terms and conditions of Purchase Rights granted pursuant to
the Plan; provided, however, that all Participants granted Purchase Rights
pursuant to the Plan shall have the same rights and privileges within the
meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall
have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election that is the
responsibility of or that is allocated to the Company herein, provided that
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The
Company may, from time to time, consistent with the Plan and the requirements
of Section 423 of the Code, establish, change or terminate such rules,
guidelines, policies, procedures, limitations, or adjustments as deemed
advisable by the Company, in its sole discretion, for the proper
administration of the Plan, including, without limitation, (a) a minimum
payroll deduction amount required for participation in an Offering, (b) a
limitation on the frequency or number of changes permitted in the rate of
payroll deduction during an Offering, (c) an exchange ratio applicable to
amounts withheld in a currency other than United States dollars, (d) a
payroll deduction greater than or less than the amount designated by a
Participant in order to adjust for
<PAGE>
the Company's delay or mistake in processing a Subscription Agreement or in
otherwise effecting a Participant's election under the Plan or as advisable
to comply with the requirements of Section 423 of the Code, and (e)
determination of the date and manner by which the Fair Market Value of a
share of Stock is determined for purposes of administration of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to
adjustment as provided in Section 4.2, and effective upon approval by the
stockholders of the Company, the maximum aggregate number of shares of Stock
that may be issued under the Plan shall be nine million five hundred thousand
(9,500,000) and shall consist of authorized but unissued or reacquired shares
of Stock, or any combination thereof; provided that until such approval by
the stockholders of the Company, the maximum aggregate number of Shares that
may be issued under the Plan shall be seven million (7,000,000). If an
outstanding Purchase Right for any reason expires or is terminated or
canceled, the shares of Stock allocable to the unexercised portion of such
Purchase Right shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the
capital structure of the Company, or in the event of any merger (including a
merger effected for the purpose of changing the Company's domicile), sale of
assets or other reorganization in which the Company is a party, appropriate
adjustments shall be made in the number and class of shares subject to the
Plan and each Purchase Right and in the Purchase Price. If a majority of the
shares which are of the same class as the shares that are subject to
outstanding Purchase Rights are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change Event) shares of
another corporation (the "NEW SHARES"), the Board may unilaterally amend the
outstanding Purchase Rights to provide that such Purchase Rights are
exercisable for New Shares. In the event of any such amendment, the number
of shares subject to, and the Purchase Price of, the outstanding Purchase
Rights shall be adjusted in a fair and equitable manner, as determined by the
Board, in its sole discretion. Notwithstanding the foregoing, any fractional
share resulting from an adjustment pursuant to this Section 4.2 shall be
rounded down to the nearest whole number, and in no event may the Purchase
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be
deemed an Eligible Employee, except the following:
(a) Any Employee who is customarily employed by the
Participating Company Group for less than twenty (20) hours per week; or
<PAGE>
(b) Any Employee who is customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year.
5.2 EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be granted a
Purchase Right under the Plan if, immediately after such grant, such Employee
would own or hold options to purchase stock of the Company or of any Parent
Corporation or Subsidiary Corporation possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of such
corporation, as determined in accordance with Section 423(b)(3) of the Code.
For purposes of this Section 5.2, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of such Employee.
6. OFFERINGS.
6.1 OFFERING PERIODS. Effective for Offerings beginning on and
after September 23, 1998, except as otherwise set forth below, the Plan shall be
implemented by Offerings of approximately twelve (12) months duration or such
other duration as the Board shall determine. Offering Periods shall commence on
or about January 1 and July 1 of each year and end on or about the next December
31 and June 30, respectively, occurring thereafter. The initial Offering Period
commenced on July 1, 1997. Notwithstanding the foregoing, the Board may
establish a different duration for one or more future Offering Periods or
different commencing or ending dates for such Offering Periods; provided,
however, that no Offering Period may have a duration exceeding twenty-seven (27)
months. If the first or last day of an Offering Period is not a day on which
the national securities exchanges or Nasdaq Stock Market are open for trading,
the Company shall specify the trading day that will be deemed the first or last
day, as the case may be, of the Offering Period.
6.2 PURCHASE PERIODS. Effective for Offerings beginning on
and after September 23, 1998, each Offering Period shall consist of two (2)
consecutive Purchase Periods of approximately six (6) months duration, or
such other number or duration as the Board shall determine. A Purchase
Period commencing on or about January 1 shall end on or about the next June
30. A Purchase Period commencing on or about July 1 shall end on or about
the next December 31. Notwithstanding the foregoing, the Board may establish
a different duration for one or more future Purchase Periods or different
commencing or ending dates for such Purchase Periods. If the first or last
day of a Purchase Period is not a day on which the national securities
exchanges or Nasdaq Stock Market are open for trading, the Company shall
specify the trading day that will be deemed the first or last day, as the
case may be, of the Purchase Period.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may become
a Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the office designated by the Company not later than
the close of business for such office on the Subscription Date established by
the Company for such Offering Period. An Eligible Employee who does not
deliver a properly completed Subscription Agreement to the Company's
designated
<PAGE>
office on or before the Subscription Date for an Offering Period shall not
participate in the Plan for that Offering Period or for any subsequent
Offering Period unless such Eligible Employee subsequently delivers a
properly completed Subscription Agreement to the appropriate office of the
Company on or before the Subscription Date for such subsequent Offering
Period. An Employee who becomes an Eligible Employee on or after the
Offering Date of an Offering Period shall not be eligible to participate in
such Offering Period but may participate in any subsequent Offering Period
provided such Employee is still an Eligible Employee as of the Offering Date
of such subsequent Offering Period.
7.2 CONTINUED PARTICIPATION. A Participant shall
automatically participate in the next Offering Period commencing immediately
after the final Purchase Date of each Offering Period in which the
Participant participates provided that such Participant remains an Eligible
Employee on the Offering Date of the new Offering Period and has not either
(a) withdrawn from the Plan pursuant to Section 12.1 or (b) terminated
employment as provided in Section 13. A Participant who may automatically
participate in a subsequent Offering Period, as provided in this Section 7.2,
is not required to deliver any additional Subscription Agreement for the
subsequent Offering Period in order to continue participation in the Plan.
However, a Participant may deliver a new Subscription Agreement for a
subsequent Offering Period in accordance with the procedures set forth in
Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement.
Eligible Employees may not participate simultaneously in more than one
Offering.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on
the Offering Date of each Offering Period, each Participant in such Offering
Period shall be granted automatically a Purchase Right consisting of an
option to purchase two thousand five hundred (2,500) shares of Stock. No
Purchase Right shall be granted on an Offering Date to any person who is not,
on such Offering Date, an Eligible Employee.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding
the provisions of Section 8.1, if the Board establishes an Offering Period of
less than eleven and one-half (11 1/2) months or more than twelve and one-half
(12 1/2) months in duration, the number of whole shares of Stock subject to a
Purchase Right shall be determined by multiplying 208.33 shares by the number
of months (rounded to the nearest whole month) in the Offering Period and
disregarding any resulting fractional share.
8.3 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any
provision of the Plan to the contrary, no Purchase Right shall entitle a
Participant to purchase shares of Stock under the Plan at a rate which, when
aggregated with such Participant's rights to purchase shares under all other
employee stock purchase plans of a Participating Company intended to meet the
requirements of Section 423 of the Code, exceeds Twenty-Five Thousand Dollars
($25,000) in Fair Market Value (or such other limit, if any, as may be
imposed by the Code) for each calendar year in which such Purchase Right has
been outstanding at any time. For purposes of the preceding sentence, the
Fair Market Value of shares purchased during a given Offering Period
<PAGE>
shall be determined as of the Offering Date for such Offering Period. The
limitation described in this Section 8.3 shall be applied in conformance with
applicable regulations under Section 423(b)(8) of the Code.
9. PURCHASE PRICE. The Purchase Price at which each share of
Stock may be acquired in an Offering Period upon the exercise of all or any
portion of a Purchase Right shall be established by the Board; provided,
however, that the Purchase Price shall not be less than eighty-five percent
(85%) of the lesser of (a) the Fair Market Value of a share of Stock on the
Offering Date of the Offering Period or (b) the Fair Market Value of a share
of Stock on the Purchase Date. Unless otherwise provided by the Board prior
to the commencement of an Offering Period, the Purchase Price for that
Offering Period shall be eighty-five percent (85%) of the lesser of (a) the
Fair Market Value of a share of Stock on the Offering Date of the Offering
Period, or (b) the Fair Market Value of a share of Stock on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or any portion of a
Purchase Right may be paid for only by means of payroll deductions from the
Participant's Compensation accumulated during the Offering Period for which
such Purchase Right was granted, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise
provided herein, the amount to be deducted under the Plan from a
Participant's Compensation on each payday during an Offering Period shall be
determined by the Participant's Subscription Agreement. The Subscription
Agreement shall set forth the percentage of the Participant's Compensation to
be deducted on each payday during an Offering Period in whole percentages of
not less than one percent (1%) (except as a result of an election pursuant to
Section 10.3 to stop payroll deductions made effective following the first
payday during an Offering) or more than fifteen percent (15%).
Notwithstanding the foregoing, the Board may change the limits on payroll
deductions effective as of any future Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue to the end of the Offering Period unless sooner altered or
terminated as provided herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During
an Offering Period, a Participant may elect to increase or decrease the rate
of or to stop deductions from his or her Compensation by delivering to the
Company's designated office an amended Subscription Agreement authorizing
such change on or before the "Change Notice Date." The "CHANGE NOTICE DATE"
shall be a date prior to the beginning of the first pay period for which such
election is to be effective as established by the Company from time to time
and announced to the Participants. A Participant who elects to decrease the
rate of his or her payroll deductions to zero percent (0%) shall nevertheless
remain a Participant in the current Offering Period unless such Participant
withdraws from the Plan as provided in Section 12.1.
10.4 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts
shall be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall
<PAGE>
be credited to such Participant's Plan account and shall be deposited with
the general funds of the Company. All payroll deductions received or held by
the Company may be used by the Company for any corporate purpose.
10.5 NO INTEREST PAID. Interest shall not be paid on sums
deducted from a Participant's Compensation pursuant to the Plan.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Plan and
whose participation in the Offering has not terminated before such Purchase
Date shall automatically acquire pursuant to the exercise of the
Participant's Purchase Right the number of whole shares of Stock determined
by dividing (a) the total amount of the Participant's payroll deductions
accumulated in the Participant's Plan account during the Offering Period and
not previously applied toward the purchase of Stock by (b) the Purchase
Price. However, in no event shall the number of shares purchased by the
Participant during an Offering Period exceed the number of shares subject to
the Participant's Purchase Right. No shares of Stock shall be purchased on a
Purchase Date on behalf of a Participant whose participation in the Offering
or the Plan has terminated before such Purchase Date.
11.2 PRO RATA ALLOCATION OF SHARES. In the event that the
number of shares of Stock which might be purchased by all Participants in the
Plan on a Purchase Date exceeds the number of shares of Stock available in
the Plan as provided in Section 4.1, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Company shall determine to be equitable. Any
fractional share resulting from such pro rata allocation to any Participant
shall be disregarded.
11.3 DELIVERY OF CERTIFICATES. As soon as practicable after
each Purchase Date, the Company shall arrange the delivery to each
Participant, as appropriate, of a certificate representing the shares
acquired by the Participant on such Purchase Date; provided that the Company
may deliver such shares to a broker that holds such shares in street name for
the benefit of the Participant. Shares to be delivered to a Participant
under the Plan shall be registered in the name of the Participant, or, if
requested by the Participant, in the name of the Participant and his or her
spouse, or, if applicable, in the names of the heirs of the Participant.
11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to
the Participant as soon as practicable after such Purchase Date. However, if
the cash to be returned to a Participant pursuant to the preceding sentence
is an amount less than the amount that would have been necessary to purchase
an additional whole share of Stock on such Purchase Date, the Company may
retain such amount in the Participant's Plan account to be applied toward the
purchase of shares of Stock in the subsequent Purchase Period or Offering
Period, as the case may be.
<PAGE>
11.5 TAX WITHHOLDING. At the time a Participant's Purchase
Right is exercised, in whole or in part, or at the time a Participant
disposes of some or all of the shares of Stock he or she acquires under the
Plan, the Participant shall make adequate provision for the foreign, federal,
state and local tax withholding obligations of the Participating Company
Group, if any, which arise upon exercise of the Purchase Right or upon such
disposition of shares, respectively. The Participating Company Group may,
but shall not be obligated to, withhold from the Participant's compensation
the amount necessary to meet such withholding obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the
Offering Period to which the Purchase Right relates shall expire immediately
upon the end of the Offering Period.
11.7 REPORTS TO PARTICIPANTS. Each Participant who has
exercised all or part of his or her Purchase Right shall receive, as soon as
practicable after the Purchase Date, a report of such Participant's Plan
account setting forth the total payroll deductions accumulated prior to such
exercise, the number of shares of Stock purchased, the Purchase Price for
such shares, the date of purchase and the cash balance, if any, remaining
immediately after such purchase that is to be refunded or retained in the
Participant's Plan account pursuant to Section 11.4. The report required by
this Section may be delivered in such form and by such means, including by
electronic transmission, as the Company may determine.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may
withdraw from the Plan by signing and delivering to the Company's designated
office a written notice of withdrawal on a form provided by the Company for
such purpose. Such withdrawal may be elected at any time prior to the end of
an Offering Period; provided, however, if a Participant withdraws from the
Plan after the Purchase Date of a Purchase Period, the withdrawal shall not
affect shares of Stock acquired by the Participant on such Purchase Date. A
Participant who voluntarily withdraws from the Plan is prohibited from
resuming participation in the Plan in the same Offering from which he or she
withdrew, but may participate in any subsequent Offering by again satisfying
the requirements of Sections 5 and 7.1. The Company may impose, from time to
time, a requirement that the notice of withdrawal from the Plan be on file
with the Company's designated office for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
12.2 AUTOMATIC WITHDRAWAL FROM AN OFFERING. If the Fair
Market Value of a share of Stock on a Purchase Date other than the final
Purchase Date of an Offering is less than the Fair Market Value of a share of
Stock on the Offering Date of the Offering, then every Participant
automatically shall be (a) withdrawn from such Offering at the close of such
Purchase Date and after the acquisition of shares of Stock for the Purchase
Period and (b) enrolled in the Offering commencing on the first business day
subsequent to such Purchase Date.
12.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from the Plan pursuant to Sections 12.1 or automatic
withdrawal from an Offering pursuant to
<PAGE>
Section 12.2, the Participant's accumulated payroll deductions which have not
been applied toward the purchase of shares of Stock (except, in the case of an
automatic withdrawal pursuant to Section 12.2, for an amount necessary to
purchase an additional whole share as provided in Section 11.4) shall be
returned as soon as practicable after the withdrawal, without the payment of
any interest, to the Participant, and the Participant's interest in the Plan
or the Offering, as applicable, shall terminate. Such accumulated payroll
deductions may not be applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Upon a Participant's
ceasing, prior to a Purchase Date, to be an Employee of the Participating
Company Group for any reason, including retirement, disability or death, or
the failure of a Participant to remain an Eligible Employee, the
Participant's participation in the Plan shall terminate immediately. In such
event, the payroll deductions credited to the Participant's Plan account
since the last Purchase Date shall, as soon as practicable, be returned to
the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned
pursuant to this Section 13. A Participant whose participation has been so
terminated may again become eligible to participate in the Plan by again
satisfying the requirements of Sections 5 and 7.1.
14. TRANSFER OF CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company: (i)
the direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent
(50%) of the voting stock of the Company; (ii) a merger or consolidation in
which the Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively,
the "TRANSACTION") wherein the stockholders of the Company immediately before
the Transaction do not retain immediately after the Transaction, in
substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before the Transaction, direct or indirect
beneficial ownership of more than fifty percent (50%) of the total combined
voting power of the outstanding voting stock of the Company or the
corporation or corporations to which the assets of the Company were
transferred (the "TRANSFEREE CORPORATION(s)"), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall
include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the
Transaction, own the Company or the Transferee Corporation(s), as the case
may be, either directly or through one or more subsidiary corporations. The
Board shall have the right to determine whether multiple sales or exchanges
of the voting stock of the Company or multiple Ownership Change Events are
related, and its determination shall be final, binding and conclusive.
<PAGE>
14.2 EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. In
the event of a Transfer of Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), shall assume the Company's rights and obligations
under the Plan. If the Acquiring Corporation elects not to assume the
Company's rights and obligations under outstanding Purchase Rights, the
Purchase Date of the then current Purchase Period shall be accelerated to a
date before the date of the Transfer of Control specified by the Board, but
the number of shares of Stock subject to outstanding Purchase Rights shall
not be adjusted. All Purchase Rights which are neither assumed by the
Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control shall terminate and cease
to be outstanding effective as of the date of the Transfer of Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may
not be transferred in any manner otherwise than by will or the laws of
descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant.
16. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares
under the Plan shall be subject to compliance with all applicable
requirements of foreign, federal or state law with respect to such
securities. A Purchase Right may not be exercised if the issuance of shares
upon such exercise would constitute a violation of any applicable foreign,
federal or state securities laws or other law or regulations or the
requirements of any securities exchange or market system upon which the Stock
may then be listed. In addition, no Purchase Right may be exercised unless
(a) a registration statement under the Securities Act of 1933, as amended,
shall at the time of exercise of the Purchase Right be in effect with respect
to the shares issuable upon exercise of the Purchase Right, or (b) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Purchase Right may be issued in accordance with the terms of an
applicable exemption from the registration requirements of said Act. The
inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to
be necessary to the lawful issuance and sale of any shares under the Plan
shall relieve the Company of any liability in respect of the failure to issue
or sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of a Purchase Right, the Company
may require the Participant to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation, and to make any representation or warranty with respect thereto
as may be requested by the Company.
17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have
no rights as a stockholder by virtue of the Participant's participation in
the Plan until the date of the issuance of a certificate for the shares
purchased pursuant to the exercise of the Participant's Purchase Right (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company). No adjustment shall be made for
dividends, distributions or other rights for which the record date is prior
to the date such certificate is issued, except as provided in Section 4.2.
Nothing herein shall confer upon a Participant any right to continue in
<PAGE>
the employ of the Participating Company Group or interfere in any way with
any right of the Participating Company Group to terminate the Participant's
employment at any time.
18. LEGENDS. The Company may at any time place legends or other
identifying symbols referencing any applicable foreign, federal or state
securities law restrictions or any provision convenient in the administration
of the Plan on some or all of the certificates representing shares of Stock
issued under the Plan. The Participant shall, at the request of the Company,
promptly present to the Company any and all certificates representing shares
acquired pursuant to a Purchase Right in the possession of the Participant in
order to carry out the provisions of this Section. Unless otherwise
specified by the Company, legends placed on such certificates may include but
shall not be limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES
EVIDENCED HEREBY SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF
THE SHARES BY THE REGISTERED HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD
ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT
IN THE NAME OF ANY NOMINEE)."
19. NOTIFICATION OF SALE OF SHARES. The Company may require the
Participant to give the Company prompt notice of any disposition of shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may require that until such time as a
Participant disposes of shares acquired upon exercise of a Purchase Right,
the Participant shall hold all such shares in the Participant's name (or, if
elected by the Participant, in the name of the Participant and his or her
spouse but not in the name of any nominee) until the lapse of the time
periods with respect to such Purchase Right referred to in the preceding
sentence. The Company may direct that the certificates evidencing shares
acquired by exercise of a Purchase Right refer to such requirement to give
prompt notice of disposition.
20. NOTICES. All notices or other communications by a Participant
to the Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit
or proceeding, or in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or
<PAGE>
failure to act under or in connection with the Plan, or any right granted
hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected
by the Company) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is
liable for gross negligence, bad faith or intentional misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in
writing, the opportunity at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any
time amend or terminate the Plan, except that (a) such termination shall not
affect Purchase Rights previously granted under the Plan, except as permitted
under the Plan, and (b) no amendment may adversely affect a Purchase Right
previously granted under the Plan (except to the extent permitted by the Plan
or as may be necessary to qualify the Plan as an employee stock purchase plan
pursuant to Section 423 of the Code or to obtain qualification or
registration of the shares of Stock under applicable foreign, federal or
state securities laws). In addition, an amendment to the Plan must be
approved by the stockholders of the Company within twelve (12) months of the
adoption of such amendment if such amendment would authorize the sale of more
shares than are authorized for issuance under the Plan or would change the
definition of the corporations that may be designated by the Board as
Participating Companies.
23. CONTINUATION OF PLAN TERMS AS TO OUTSTANDING PURCHASE RIGHTS.
Any other provision of the Plan to the contrary notwithstanding, the terms of
the Plan prior to amendment (other than the maximum aggregate number of
shares of Stock issuable thereunder) shall remain in effect and apply to all
Purchase Rights granted pursuant to the Plan prior to amendment.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Adobe Systems Incorporated 1997 Employee Stock Purchase
Plan, as amended, was duly adopted by the Board of Directors of the Company
on September 23, 1998.
/s/ Colleen M. Pouliot
----------------------
Secretary
<PAGE>
PROXY PROXY
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 at the Company's headquarters, East Tower, 321 Park
Avenue, San Jose, California 95110-2704 on Thursday, April 15, 1999 at 4:30
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>
- --------------------------------------------------------------------------------
ADOBE SYSTEMS INCORPORATED
PLEASE MARK VOTE IN THE OVAL IN FOLLOWING MANNER USING DARK INK ONLY.
/ /
A VOTE FOR THE FOLLOWING PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
FOR WITHHOLD FOR ALL
1. Election of the three (3)
Class II directors ALL ALL EXCEPT NOMINEE(S) WRITTEN BELOW.
proposed in the
accompanying Proxy / / / / / / __________________________
Statement to serve for
a two-year term;
John E. Warnock,
Robert Sedgewick,
Carol Mills Baldwin.
2. Approval of an amendment FOR AGAINST ABSTAIN
to the Company's 1997
Employee Stock Purchase / / / / / /
Plan to increase the
share reserve by
2,500,000 shares.
3. Ratification of the FOR AGAINST ABSTAIN
appointment of KPMG
LLP as the Company's / / / / / /
independent public
accountants for the
fiscal year ending
December 3, 1999.
4. Transacting of such
other business as may
properly come before
the meeting or any
adjournment or
postponement thereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signatures:
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
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.
Dated:
--------------------------------, 1999
(be sure to date your Proxy)
- --------------------------------------------------------------------------------
^ ^
| |
| FOLD AND DETACH HERE |
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM
PROMPTLY USING THE ENCLOSED ENVELOPE.
