10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to

Commission File Number: 0-15175

ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	77-0019522 (I.R.S. Employer Identification No.)
345 Park Avenue, San Jose, California 95110-2704 (Address of principal executive offices and zip code)
(408) 536-6000 (Registrant's telephone number, including area code)

        Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the "Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act).

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

        The number of shares outstanding of the registrant's common stock as of March 28, 2008 was 531,823,042.

ADOBE SYSTEMS INCORPORATED
FORM 10-Q

TABLE OF CONTENTS

			Page No.
PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:
		Condensed Consolidated Balance Sheets February 29, 2008 and November 30, 2007	3
		Condensed Consolidated Statements of Income Three Months Ended February 29, 2008 and March 2, 2007	4
		Condensed Consolidated Statements of Cash Flows Three Months Ended February 29, 2008 and March 2, 2007	5
		Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		37
Item 4.	Controls and Procedures		37
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 5.	Other Information		47
Item 6.	Exhibits		47
Signature			53
Summary of Trademarks			54

2

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

			February 29, 2008			November 30, 2007
ASSETS
Current assets:
	Cash and cash equivalents		$	1,032,733		$	946,422
	Short-term investments			682,511			1,047,432
	Trade receivables, net of allowances for doubtful accounts of $4,271 and $4,398, respectively			293,266			318,145
	Other receivables			38,839			44,666
	Deferred income taxes			132,892			171,472
	Prepaid expenses and other assets			46,031			44,840
		Total current assets		2,226,272			2,572,977
Property and equipment, net				297,522			289,758
Goodwill				2,144,368			2,148,102
Purchased and other intangibles, net				357,221			402,619
Investment in lease receivable				207,239			207,239
Other assets				108,279			92,984
			$	5,340,901		$	5,713,679
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Trade and other payables		$	62,019		$	66,867
	Accrued expenses			368,978			383,436
	Accrued restructuring			5,956			3,731
	Income taxes payable			40,931			215,058
	Deferred revenue			191,662			183,318
		Total current liabilities		669,546			852,410
Long-term liabilities:
	Debt			450,000			—
	Accrued restructuring			12,069			13,987
	Income taxes payable			197,741			—
	Deferred income taxes			146,344			148,943
	Deferred revenue			22,956			25,950
	Other liabilities			28,095			22,407
		Total liabilities		1,526,751			1,063,697
Stockholders' equity:
	Preferred stock, $0.0001 par value; 2,000 shares authorized, none issued			—			—
	Common stock, $0.0001 par value; 900,000 shares authorized; 600,834 shares issued; 540,871 and 571,409 shares outstanding, respectively			61			61
	Additional paid-in-capital			2,317,582			2,340,969
	Retained earnings			4,260,970			4,041,592
	Accumulated other comprehensive income			26,215			27,948
	Treasury stock, at cost (59,963 and 29,425 shares, respectively), net of re-issuances			(2,790,678	)		(1,760,588	)
		Total stockholders' equity		3,814,150			4,649,982
			$	5,340,901		$	5,713,679

See accompanying Notes to Condensed Consolidated Financial Statements.

3

ADOBE SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

			Three Months Ended
			February 29, 2008			March 2, 2007
Revenue:
	Products		$	851,962		$	620,298
	Services and support			38,483			29,109
		Total revenue		890,445			649,407
Total cost of revenue:
	Products			59,805			53,815
	Services and support			22,670			18,448
		Total cost of revenue		82,475			72,263
Gross profit				807,970			577,144
Operating expenses:
	Research and development			168,485			137,129
	Sales and marketing			262,595			214,678
	General and administrative			82,929			61,275
	Restructuring and other charges			1,431			—
	Amortization of purchased intangibles			17,099			17,725
		Total operating expenses		532,539			430,807
Operating income				275,431			146,337
Non-operating income (expense):
	Interest and other income, net			13,290			22,515
	Interest expense			(1,809	)		(51	)
	Investment gains, net			8,732			5,601
		Total non-operating income		20,213			28,065
Income before income taxes				295,644			174,402
Provision for income taxes				76,265			30,551
Net income			$	219,379		$	143,851
Basic net income per share			$	0.39		$	0.24
Shares used in computing basic net income per share				561,113			587,969
Diluted net income per share			$	0.38		$	0.24
Shares used in computing diluted net income per share				571,259			604,249

See accompanying Notes to Condensed Consolidated Financial Statements.

4

ADOBE SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

					Three Months Ended
					February 29, 2008			March 2, 2007
Cash flows from operating activities:
	Net income				$	219,379		$	143,851
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, amortization and accretion				69,202			68,498
		Stock-based compensation				43,034			31,852
		Deferred income taxes				35,844			904
		Provision for estimated returns				19,587			27,133
		Other non-cash items				3,147			54
		Retirements of property and equipment				99			163
		Recovery of losses on receivables				(224	)		(163	)
		Net gains on sales and impairments of investments				(9,493	)		(5,835	)
		Tax benefit from employee stock option plans				—			15,935
		Excess tax benefits from stock-based compensation				—			(1,556	)
		Changes in operating assets and liabilities, net of acquired assets and liabilities:.
			Receivables			11,343			26,351
			Prepaid expenses and other current assets			(1,262	)		(2,066	)
			Trade and other payables			(4,848	)		(8,455	)
			Accrued expenses			(14,791	)		(29,104	)
			Accrued restructuring			(1,157	)		(5,097	)
			Income taxes payable			24,090			1,070
			Deferred revenue			5,350			7,585
				Net cash provided by operating activities		399,300			271,120
Cash flows from investing activities:
	Purchases of short-term investments					(224,645	)		(586,305	)
	Maturities of short-term investments					197,379			129,765
	Sales of short-term investments					389,858			207,000
	Purchases of property and equipment					(26,268	)		(48,300	)
	Purchases of long-term investments and other assets					(14,400	)		(8,915	)
	Cash paid for acquisitions					—			(3,094	)
	Issuance costs for credit facility					—			(602	)
	Proceeds from sale of equity securities					6,847			—
				Net cash provided by (used for) investing activities		328,771			(310,451	)
Cash flows from financing activities:
	Purchases of treasury stock					(1,150,022	)		(301,468	)
	Proceeds from issuance of treasury stock					53,510			94,033
	Excess tax benefits from stock-based compensation					—			1,556
	Proceeds from borrowings under line of credit					450,000			—
				Net cash used for financing activities		(646,512	)		(205,879	)
	Effect of foreign currency exchange rates on cash and cash equivalents					4,752			(1,260	)
Net increase (decrease) in cash and cash equivalents						86,311			(246,470	)
Cash and cash equivalents at beginning of period						946,422			772,500
Cash and cash equivalents at end of period					$	1,032,733		$	526,030
Supplemental disclosures:
	Cash paid for income taxes, net of refunds				$	12,894		$	11,858

See accompanying Notes to Condensed Consolidated Financial Statements.

5

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In management's opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended November 30, 2007 on file with the SEC.

        There have been no material changes in our significant accounting policies, except for the adoption of the Financial Accounting Standards Board ("FASB") Financial Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109", during the three months ended February 29, 2008 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended November 30, 2007.

Recent Accounting Pronouncements

        With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended February 29, 2008, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended November 30, 2007, that are of significance, or potential significance, to us.

        In March 2008, the FASB issued FASB Statement No. 161 ("SFAS 161"), "Disclosures about Derivative Instruments and Hedging Activities". SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the impact, if any, that SFAS 161 will have on our consolidated financial statements.

        In June 2007, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 07-1 ("SOP 07-1"), "Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies". SOP 07-1 defines investment companies for purposes of applying the related AICPA Audit and Accounting Guide. SOP 07-1 provides guidance on whether an investment company's parent or equity-method investor should retain investment-company accounting in its financial statements. SOP 07-1 would have been effective beginning in the first quarter of fiscal 2009; however, in February 2008, the FASB issued FASB Staff Position ("FSP") SOP 07-1-1 which indefinitely delayed the effective date of SOP 07-1.

6

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        In February 2007, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities". Under SFAS 159, companies may elect to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 was effective for us beginning in the first quarter of fiscal 2008. We currently do not have any instruments eligible for election of the fair value option. Therefore, the adoption of SFAS 159 in the first quarter of fiscal 2008 did not impact our consolidated financial position, results of operations or cash flows.

        In September 2006, the FASB issued SFAS No. 157 ("SFAS 157"), "Fair Value Measurements," which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements and is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB FSP 157-2 which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. Effective December 1, 2007, we adopted SFAS 157 for financial assets and liabilities recognized at fair value on a recurring basis. The partial adoption of SFAS 157 for financial assets and liabilities did not have a material impact on our consolidated financial position, results of operations or cash flows. See Note 2 for information and related disclosures regarding our fair value measurements.

        In July 2006, the FASB issued FIN 48 which clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Additionally, in May 2007, the FASB published FSP No. FIN 48-1 ("FSP FIN 48-1"), "Definition of Settlement in FASB Interpretation No. 48". FSP FIN 48-1 is an amendment to FIN 48. It clarifies how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. We adopted both FIN 48 and FSP FIN 48-1 on December 1, 2007. The adoption of FIN 48 resulted in an increase to both assets and liabilities in our condensed consolidated balance sheet as of the beginning of fiscal 2008. See Note 6 for additional information regarding income taxes, including the effects of adoption on our Condensed Consolidated Financial Statements.

NOTE 2. FINANCIAL INSTRUMENTS

        We measure certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale fixed income and equity securities, other equity securities and foreign currency

7

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 2. FINANCIAL INSTRUMENTS (Continued)

derivatives. The fair value of these certain financial assets and liabilities was determined using the following inputs at February 29, 2008:

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets
Fixed income available-for-sale securities(1)	$	699,553	$	—	$	699,553	$	—
Equity available-for-sale securities(2)		12,928		12,928		—		—
Investment in limited partnership(3)		33,906		438		—		33,468
Foreign currency derivatives(4)		4,323		—		4,323		—
Total	$	750,710	$	13,366	$	703,876	$	33,468
Liabilities
Foreign currency derivatives(5)		9,246		—		9,246		—
Total	$	9,246	$	—	$	9,246	$	—

⁽¹⁾

Included in cash and cash equivalents and short-term investments on our condensed consolidated balance sheet.

⁽²⁾

Included in short-term investments on our condensed consolidated balance sheet.

⁽³⁾

Included in other assets on our condensed consolidated balance sheet.

⁽⁴⁾

Included in prepaid expenses and other assets on our condensed consolidated balance sheet.

⁽⁵⁾

Included in accrued expenses on our condensed consolidated balance sheet.

        Fixed income available-for-sale securities include United States ("U.S.") treasury securities (95% of total), corporate bonds (1% of total), obligations of foreign governments (2% of total) and bonds of other government agencies (2% of total). Included in fixed income available-for-sale securities is approximately $30.0 million of cash equivalents. Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. The remaining balance of cash equivalents consists primarily of money market funds, for which the carrying amount is a reasonable estimate of fair value.

        The investment in limited partnership relates to our interest in Adobe Ventures IV L.P. ("Adobe Ventures") which was $33.9 million and $30.6 million as of February 29, 2008 and November 30, 2007, respectively. The change in this asset balance relates primarily to investment gains included in earnings during the three months ended February 29, 2008. All other activity during the quarter was insignificant both individually and in the aggregate. See Note 4 for further information regarding Adobe Ventures and related accounting policies.

8

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 2. FINANCIAL INSTRUMENTS (Continued)

        Foreign currency derivatives include option and forward foreign exchange contracts primarily for the Japanese Yen and the Euro.

NOTE 3. GOODWILL AND PURCHASED AND OTHER INTANGIBLES

        Goodwill as of February 29, 2008 and November 30, 2007 was $2.144 billion and $2.148 billion, respectively. The change includes net reductions in goodwill of $4.2 million related to the tax reserve for Macromedia, offset in part by foreign currency changes.

        Purchased and other intangible assets, subject to amortization were as follows as of February 29, 2008:

	Cost		Accumulated Amortization			Net
Purchased technology	$	466,966	$	(294,196	)	$	172,770
Localization	$	40,171	$	(29,688	)	$	10,483
Trademarks		131,225		(58,990	)		72,235
Customer contracts and relationships		197,220		(96,027	)		101,193
Other intangibles		800		(260	)		540
Total other intangible assets	$	369,416	$	(184,965	)	$	184,451
Total purchased and other intangible assets	$	836,382	$	(479,161	)	$	357,221

        Purchased and other intangible assets, subject to amortization were as follows as of November 30, 2007:

	Cost		Accumulated Amortization			Net
Purchased technology	$	464,639	$	(271,275	)	$	193,364
Localization	$	45,854	$	(27,676	)	$	18,178
Trademarks		131,225		(52,443	)		78,782
Customer contracts and relationships		197,220		(85,529	)		111,691
Other intangibles		800		(196	)		604
Total other intangible assets	$	375,099	$	(165,844	)	$	209,255
Total purchased and other intangible assets	$	839,738	$	(437,119	)	$	402,619

        Amortization expense related to purchased and other intangible assets was $50.4 million and $48.7 million for the three months ended February 29, 2008 and March 2, 2007, respectively. Of these amounts, $33.3 million and $31.0 million are included in cost of sales for the three months ended February 29, 2008 and March 2, 2007, respectively.

9

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 3. GOODWILL AND PURCHASED AND OTHER INTANGIBLES (Continued)

        Purchased and other intangible assets are amortized over their estimated useful lives up to 15 years. As of February 29, 2008, we expect amortization expense in future periods to be as shown below:

Fiscal year	Purchased Technology		Other Intangible Assets
Remainder of 2008	$	91,435	$	78,440
2009		39,994		60,068
2010		10,687		41,927
2011		7,338		2,137
2012		5,152		899
Thereafter		18,164		980
Total expected amortization expense	$	172,770	$	184,451

NOTE 4. OTHER ASSETS

        Other assets consisted of the following as of February 29, 2008 and November 30, 2007:

		2008		2007
Investments		$	59,542	$	52,830
Prepaid royalty			16,990		13,289
Deferred compensation plan assets			8,029		3,145
Restricted cash			7,365		7,367
Security deposits			7,213		6,650
Prepaid rent			3,878		4,285
Prepaid land lease			3,214		3,224
Other			2,048		2,194
	Total other assets	$	108,279	$	92,984

        Included in investments is our limited partnership interest in Adobe Ventures which is consolidated in accordance with FASB Interpretation No. 46R, a revision to FASB Interpretation No. 46, "Consolidation of Variable Interest Entities". Our evaluation of fair value includes, but is not limited to, reviewing each company's cash position, financing needs, earnings and revenue outlook, operational performance, management and ownership changes and competition.

        The partnership is controlled by Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures. Investments also include our direct investments which are accounted for under the cost method.

10

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 5. TRADE AND OTHER PAYABLES AND ACCRUED EXPENSES

        Trade and other payables consisted of the following as of February 29, 2008 and November 30, 2007:

		2008		2007
Trade payables		$	38,818	$	41,724
Sales and use tax and other payables			23,201		25,143
	Total trade and other payables	$	62,019	$	66,867

        Accrued expenses consisted of the following as of February 29, 2008 and November 30, 2007:

		2008		2007
Accrued compensation and benefits		$	166,623	$	205,018
Sales and marketing allowances			19,109		21,231
Other			183,246		157,187
	Total accrued expenses	$	368,978	$	383,436

        Other primarily includes general corporate accruals for corporate marketing programs, local and regional expenses, charitable contributions and technical support. Other is also comprised of deferred rent related to office locations with rent escalations, accrued royalties, foreign currency derivatives and accrued interest on the credit facility.

NOTE 6. INCOME TAXES

        We adopted both FIN 48 and FSP FIN 48-1 on December 1, 2007. The adoption of FIN 48 resulted in an increase of $3.9 million to both assets and liabilities in our condensed consolidated balance sheet as of the beginning of fiscal 2008. Upon adoption, the gross liability for unrecognized tax benefits at December 1, 2007 was $218.4 million, exclusive of interest and penalties. The total amount of gross FIN 48 liabilities includes $57.7 million that relates to certain tax attributes from acquired companies, including Macromedia. These liabilities from acquired companies are not recorded on our balance sheet because they are related to positions that have not yet been claimed on our income tax returns. If the total FIN 48 liabilities are recognized in the future, the following amounts, net of an estimated $22.2 million benefit related to deducting such payments on future tax returns, would result: $99.0 million of unrecognized tax benefits would affect the effective tax rate and $82.8 million would affect goodwill and $14.4 million would affect additional paid-in-capital.

        As of February 29, 2008, the gross liability for unrecognized tax benefits is $219.2 million, exclusive of interest and penalties. If the total FIN 48 liabilities are recognized in the future, the following amounts, net of an estimated $22.4 million benefit related to deducting such payments on future tax returns, would result: $102.2 million of unrecognized tax benefits would affect the effective tax rate, $80.2 million would affect goodwill and $14.4 million would affect additional paid-in-capital.

        We have historically presented our estimated liability for unrecognized tax benefits as a current liability. FIN 48 requires liabilities for unrecognized tax benefits to be classified based on whether a payment is expected to be made within the next 12 months. That is, amounts expected to be paid within the

11

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 6. INCOME TAXES (Continued)

next 12 months are to be classified as a current liability and all other amounts are to be classified as a non-current liability. As a result of adopting FIN 48, we reclassified $197.7 million from current income taxes payable to long-term income taxes payable, including interest.

        We have historically presented our estimated state, local and interest liabilities net of the estimated benefit we expect to receive from deducting such payments on future tax returns (i.e., on a "net" basis). FIN 48 requires this estimated benefit to be classified as a deferred tax asset instead of a reduction of the overall liability (i.e., on a "gross" basis). Thus, we recognized additional deferred income tax assets of $3.9 million to present the unrecognized tax benefits as gross amounts on our condensed consolidated balance sheet.

        Our policy to classify interest and penalties on unrecognized tax benefits as income tax expense did not change upon the adoption of FIN 48. As of February 29, 2008 and December 1, 2007, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-current income taxes payable was approximately $43.0 million and $42.8 million, respectively.

        We file income tax returns in the U.S. on a federal basis and in many U.S. state and foreign jurisdictions. We are subject to the continual examination of our income tax returns by the Internal Revenue Service ("IRS") and other domestic and foreign tax authorities. Our major tax jurisdictions are the U.S., Ireland and California. For U.S. and California, our fiscal 2001 through fiscal 2008 years are open for examination. A current examination by the IRS for our fiscal 2001, 2002 and 2003 tax returns, is primarily related to our intercompany transfer pricing. For Ireland, our fiscal 2002 through fiscal 2008 years are open for examination.

        The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues in the IRS and other examinations could be resolved within the next 12 months, based upon the current facts and circumstances, we cannot estimate the timing of such resolution or range of potential changes as it relates to the current unrecognized tax benefits that are recorded as part of our financial statements.

NOTE 7. STOCK-BASED COMPENSATION

        The assumptions used to value option grants, restricted stock units and performance shares during the three months ended February 29, 2008 and March 2, 2007 are as follows:

	2008		2007
Expected life (in years)	2.27 - 4.64		3.54 - 3.66
Volatility	33.37 - 35.34	%	31.58 - 32.71	%
Risk free interest rate	2.37 - 3.35	%	4.47 - 4.83	%

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 7. STOCK-BASED COMPENSATION (Continued)

        The expected term of employee stock purchase plan ("ESPP") shares is the average of the remaining purchase periods under each offering period. The assumptions used to value employee stock purchase rights during the three months ended February 29, 2008 and March 2, 2007 are as follows:

	2008		2007
Expected life (in years)	0.50 - 2.0		0.5 - 2.0
Volatility	29.97 - 31.35	%	31.46 - 32.75	%
Risk free interest rate	2.82 - 3.29	%	4.79 - 5.11	%

Summary of Stock Options

        Information regarding the stock options outstanding at February 29, 2008 and March 2, 2007 is summarized below.

	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value* (millions)
2008
Shares outstanding	50,247	$	29.08	4.41 years	$	313.2
Shares vested and expected to vest	45,200	$	28.33	4.23 years	$	308.0
Shares exercisable	30,625	$	24.63	3.35 years	$	294.7
2007
Shares outstanding	64,465	$	26.14	4.52 years	$	817.8
Shares vested and expected to vest	60,633	$	25.59	3.93 years	$	801.2
Shares exercisable	39,016	$	21.34	3.34 years	$	676.6

*

The intrinsic value is calculated as the difference between the market value as of the end of the fiscal year and the exercise price of the shares. As reported by the NASDAQ Global Select Market, the market values as of February 29, 2008 and March 2, 2007 were $33.65 and $38.66, respectively.

Summary of Restricted Stock Units

        Restricted stock unit activity for the three months ended February 29, 2008 and March 2, 2007 is as follows:

	2008		2007
Beginning balance	1,701		—
Awarded	2,395		1,271
Released	(292	)	—
Forfeited	(36	)	(3	)
Ending balance	3,768		1,268

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 7. STOCK-BASED COMPENSATION (Continued)

        Information regarding restricted stock units outstanding at February 29, 2008 and March 2, 2007 is summarized below.

	Number of Shares	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value* (millions)
2008
Shares outstanding	3,768	2.31 years	$	126.8
Shares vested and expected to vest	2,567	2.11 years	$	86.3
Shares exercisable	891	—	$	30.0
2007
Shares outstanding	1,268	2.44 years	$	49.0
Shares vested and expected to vest	964	2.27 years	$	37.3
Shares exercisable	—	—	$	—

*

The intrinsic value is calculated as the difference between the market value as of the end of the fiscal year and the exercise price of the shares. As reported by the NASDAQ Global Select Market, the market values as of February 29, 2008 and March 2, 2007 were $33.65 and $38.66, respectively.

Summary of Performance Shares

        Effective January 24, 2008, the Executive Compensation Committee adopted the 2008 Performance Share Program (the "2008 Program"). The purpose of the 2008 Program is to align key management and senior leadership with stockholders' interests and to retain key employees. The measurement period for the 2008 Program is our fiscal 2008 year. All members of our executive management and other key senior leaders are participating in the 2008 Program. Awards granted under the 2008 Program were granted in the form of performance shares pursuant to the terms of our 2003 Equity Incentive Plan. If pre-determined performance goals are met, shares of stock will be granted to the recipient, with 25% vesting on the later of the date of certification of achievement or the first anniversary date of the grant, and the remaining 75% vest evenly on the following three annual anniversary dates of the grant, contingent upon the recipient's continued service to Adobe. Participants in the 2008 Program have the ability to receive up to 200% of the target number of shares originally granted.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 7. STOCK-BASED COMPENSATION (Continued)

        The following table sets forth the summary of performance share activity under our 2008 Program ended February 29, 2008.

	Shares Granted		Maximum Shares Eligible to Receive
Beginning balance	—		—
Awarded	909		1,818
Forfeited	(35	)	(70	)
Ending balance	874		1,748

        In the first quarter of fiscal 2008, the Executive Compensation Committee certified the actual performance achievement of participants in the 2006 Performance Share Program (the "2006 Program") and the 2007 Performance Share Program (the "2007 Program"). Based upon the achievement of goals outlined in the 2006 Program and 2007 Program, participants had the ability to receive up to 150% and 200%, respectively, of the target number of shares originally granted. Actual performance resulted in participants achieving approximately 105% of target or 0.3 million shares for the 2006 Program and 200% of target or 0.7 million shares for the 2007 Program. Shares awarded under the 2006 Program vested 100% and were released in the first quarter of fiscal 2008. Shares under the 2007 Program vested 25% in the first quarter of fiscal 2008, and the remaining 75% vest evenly on the following three annual anniversary dates of the grant, contingent upon the recipient's continued service to Adobe.

        The following table sets forth the summary of performance share activity under our 2007 Program, based upon share awards actually achieved, for the three months ended February 29, 2008:

	Shares
Shares achieved	717
Released	(189	)
Forfeited	(24	)
Ending balance	504

Compensation Costs

        As of February 29, 2008, there was $161.9 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted to our employees which will be recognized over a weighted average period of 2.9 years. Additionally, as of February 29, 2008, there was $18.1 million of unamortized stock-based compensation, adjusted for estimated forfeitures, related to the assumption of Macromedia unvested options which will be recognized over a weighted average period of 1.4 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 7. STOCK-BASED COMPENSATION (Continued)

        Total stock-based compensation costs that have been included in our consolidated statements of income for the three months ended February 29, 2008 and March 2, 2007 are as follows:

		2008				2007
Income Statement Classifications		Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards		Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards
Cost of revenue—services and support		$	804	$	40	$	1,170	$	34
Research and development			14,926		3,396		12,737		1,150
Sales and marketing			10,907		3,541		10,117		862
General and administrative			5,942		3,478		5,663		119
	Total	$	32,579	$	10,455	$	29,687	$	2,165

NOTE 8. EMPLOYEE BENEFIT PLAN

Deferred Compensation Plan

        As of February 29, 2008 and November 30, 2007, the invested amounts under the Deferred Compensation Plan total $8.0 million and $3.1 million, respectively, and are recorded as long-term other assets on our balance sheet. As of February 29, 2008 and November 30, 2007, we recorded $8.0 million and $3.1 million, respectively, as a long-term liability to recognize undistributed deferred compensation due to employees.

NOTE 9. RESTRUCTURING AND OTHER CHARGES

Macromedia Merger Restructuring Charges

        We completed our acquisition of Macromedia on December 3, 2005. We recognized costs related to the cancellation of certain contracts associated with the wind-down of subsidiaries and other service contracts held by Macromedia.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 9.    RESTRUCTURING AND OTHER CHARGES (Continued)

        The following table sets forth a summary of Macromedia restructuring activities as of November 30, 2007 and February 29, 2008:

	November 30, 2007		Cash Payments			Adjustments			February 29, 2008		Total Costs Incurred To Date		Total Costs Expected to be Incurred
Termination benefits	$	—	$	—		$	—		$	—	$	26,986	$	26,986
Cost of closing redundant facilities		16,283		(1,136	)		1,768			16,915		24,096		41,011
Cost of contract termination		—		—			—			—		3,238		3,238
Other		1,435		(21	)		(304	)		1,110		1,244		2,354
Total	$	17,718	$	(1,157	)	$	1,464		$	18,025	$	55,564	$	73,589

        Included in the adjustments column is a change to previous estimates, recorded as a current period expense, associated with closing redundant facilities as a result of the Macromedia acquisition totaling $1.4 million as well as the effect of foreign currency changes. Accrued restructuring charges of $18.0 million at February 29, 2008 includes $6.0 million recorded in accrued restructuring, current and $12.0 million, related to long-term facilities obligations, recorded in accrued restructuring, non-current in the accompanying condensed consolidated balance sheets. We expect to pay these liabilities through fiscal 2011. At November 30, 2007, accrued restructuring charges of $17.7 million includes $3.7 million recorded in accrued restructuring, current and $14.0 million, related to long-term facilities obligations, recorded in accrued restructuring, non-current in the accompanying condensed consolidated balance sheets.

NOTE 10.    STOCKHOLDERS' EQUITY

Stock Repurchase Program I

        During the three months ended February 29, 2008 and March 2, 2007, we entered into several structured repurchase agreements with large financial institutions, whereupon we provided the financial institutions with prepayments of $150.0 and $300.0 million, respectively. We entered into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the Volume Weighted Average Price ("VWAP") of our common stock over a specified period of time. We only enter into such transactions when the discount that we receive is higher than the foregone return on our cash prepayments to the financial institutions. There were no explicit commissions or fees on these structured repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.

        The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon discount. During the three months ended February 29, 2008, we repurchased 6.7 million shares at an average price of $36.78 through

17

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 10.    STOCKHOLDERS' EQUITY (Continued)

structured repurchase agreements which included prepayments from fiscal 2007. During the three months ended March 2, 2007, we repurchased 4.8 million shares at an average price of $38.22 through structured repurchase agreements which included prepayments from fiscal 2006.

        As of February 29, 2008 and November 30, 2007, the prepayments were classified as treasury stock on our balance sheet at the payment date, though only shares physically delivered to us by February 29, 2008 and November 30, 2007 are excluded from the denominator in the computation of earnings per share. All outstanding structured repurchase agreements as of February 29, 2008 under this program will expire on or before June 19, 2008. As of February 29, 2008 and March 2, 2007, approximately $325.8 million and $319.3 million, respectively, of up-front payments remained under the agreements.

        Subsequent to February 29, 2008, we entered into additional structured stock repurchase agreements with large financial institutions whereupon we provided the financial institutions with prepayments of $100.0 million. The $100.0 million will be classified as treasury stock on our balance sheet. See Note 17 for further discussion of our additional structured stock repurchase agreements.

Stock Repurchase Program II

        Under this stock repurchase program, we are authorized to repurchase 50.0 million shares of our common stock. From the inception of this program, we have repurchased 44.3 million shares and provided prepayments of $1.85 billion under structured share repurchase agreements to large financial institutions. During the first quarter of fiscal 2008, we provided prepayments of $1.0 billion and repurchased 26.6 million shares under these structured agreements at an average price of $37.56. As of February 29, 2008, approximately $133.3 million of up-front payments remained under these agreements. All outstanding structured repurchase agreements as of February 29, 2008 under this program will expire on or before April 24, 2008. There were no prepayments under this program as of March 2, 2007.

        Subsequent to February 29, 2008, we entered into additional structured stock repurchase agreements with large financial institutions whereupon we provided the financial institutions with prepayments of $50.0 million. The $50.0 million will be classified as treasury stock on our balance sheet. See Note 17 for further discussion of our additional structured stock repurchase agreements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 11.    COMPREHENSIVE INCOME

        The following table sets forth the components of comprehensive income for the three months ended February 29, 2008 and March 2, 2007:

			2008			2007
Net income			$	219,379		$	143,851
Other comprehensive income (loss):
	Change in unrealized gain (loss) on available-for-sale securities, net of taxes			(3,079	)		1,893
	Currency translation adjustments			1,378			(1,260	)
	Net gain (loss) in derivative instruments, net of taxes of zero			(31	)		126
		Other comprehensive income (loss), net of taxes		(1,732	)		759
Total comprehensive income, net of taxes			$	217,647		$	144,610

NOTE 12.    NET INCOME PER SHARE

        The following table sets forth the computation of basic and diluted net income per share for the three months ended February 29, 2008 and March 2, 2007:

		2008		2007
Net income		$	219,379	$	143,851
Shares used to compute basic net income per share			561,113		587,969
Dilutive potential common shares:
	Unvested restricted stock		680		14
	Stock options		9,466		16,266
Shares used to compute diluted net income per share			571,259		604,249
Basic net income per share		$	0.39	$	0.24
Diluted net income per share		$	0.38	$	0.24

        For the three months ended February 29, 2008 and March 2, 2007, options to purchase approximately 15.5 million and 8.6 million shares, respectively, of common stock with exercise prices greater than the annual average fair market value of our stock of $38.22 and $39.70, respectively, were not included in the calculation because the effect would have been anti-dilutive.

NOTE 13.    COMMITMENTS AND CONTINGENCIES

Lease Commitments

        We occupy three office buildings in San Jose, California where our corporate headquarters are located. We reference these office buildings as the Almaden Tower and the East and West Towers.

        In August 2004, we extended the lease agreement for our East and West Towers for an additional five years with an option to extend for an additional five years solely at our election. In March 2007, the

19

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 13.    COMMITMENTS AND CONTINGENCIES (Continued)

Almaden Tower lease was extended for five years, with a renewal option for an additional five years solely at our election. As part of the lease extensions, we purchased the lease receivable from the lessor of the East and West Towers for $126.8 million and a portion of the lease receivable from the lessor of the Almaden Tower for $80.4 million, both of which are recorded as investments in lease receivables on our consolidated balance sheet. This purchase may be credited against the residual value guarantee if we purchase the properties or will be repaid from the sale proceeds if the properties are sold to third parties. Under the agreement for the East and West Towers and the agreement for the Almaden Tower, we have the option to purchase the buildings at any time during the lease term for approximately $143.2 million and $103.6 million, respectively. The residual value guarantees under the East and West Towers and the Almaden Tower obligations are $126.8 million and $89.4 million, respectively.

        These two leases are both subject to standard covenants including certain financial ratios that are reported to the lessors quarterly. As of February 29, 2008, we were in compliance with all covenants. In the case of a default, the lessor may demand we purchase the buildings for an amount equal to the lease balance, or require that we remarket or relinquish the buildings. Both leases qualify for operating lease accounting treatment under SFAS No. 13, "Accounting for Leases," and, as such, the buildings and the related obligations are not included on our consolidated balance sheet. We utilized this type of financing in order to access bank-provided funding at the most favorable rates and to provide the lowest total cost of occupancy for the headquarter buildings. At the end of the lease term, we can extend the lease for an additional five year term, purchase the buildings for the lease balance, remarket or relinquish the buildings. If we choose to remarket or are required to do so upon relinquishing the buildings, we are bound to arrange the sale of the buildings to an unrelated party and will be required to pay the lessor any shortfall between the net remarketing proceeds and the lease balance, up to the residual value guarantee amount.

Guarantees

        The lease agreements for our corporate headquarters provide for residual value guarantees as noted above. Under FASB Interpretation No. 45, ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", the fair value of a residual value guarantee in lease agreements entered into after December 31, 2002 must be recognized as a liability on our consolidated balance sheet. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the East and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to the income statement over the life of the leases. As of February 29, 2008 and November 30, 2007, the unamortized portion of the fair value of the residual value guarantees, for both leases, remaining in other long-term liabilities and prepaid rent was $3.8 million and $4.2 million, respectively.

Royalties

        We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue.

20

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 13.    COMMITMENTS AND CONTINGENCIES (Continued)

Indemnifications

        In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

        To the extent permitted under Delaware law, we have agreements whereby we indemnify our directors and officers for certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the director's or officer's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

        As part of our limited partnership interest in Adobe Ventures, we have provided a general indemnification to Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences while Granite Ventures is, or was serving, at our request in such capacity provided that Granite Ventures acts in good faith on behalf of the partnership. We are unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but believe the risk of having to make any payments under this general indemnification to be remote.

Legal Proceedings

        On October 13, 2006, a purported shareholder derivative action entitled Steven Staehr v. Bruce R. Chizen, et al was filed in the Superior Court of California for the County of Santa Clara against certain of our current and former officers and directors, and against Adobe as a nominal defendant. The complaint asserts that stock option grants to executives were priced retroactively by Adobe and were improperly accounted for and alleges various causes of action based on that assertion. The complaint seeks payment by the defendants to Adobe of damages allegedly suffered by it and disgorgement of profits, as well as injunctive relief. On November 27, 2007 the Court granted defendants' demurrer to the second amended complaint and dismissed it without leave to amend. On December 11, 2007, plaintiff filed a motion for reconsideration of the Court's order sustaining the demurrer without leave to amend, but that motion was denied by the Court on January 29, 2008. The Court is expected to issue a final judgment dismissing the complaint shortly.

        In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software Alliance, from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other local laws. We believe we have valid defenses with respect to such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be affected in any particular period by the resolution of one or more of these counter-claims.

21

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 13.    COMMITMENTS AND CONTINGENCIES (Continued)

        From time to time, in addition to those identified above, Adobe is subject to legal proceedings, claims, investigations and proceedings in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment and other matters. In accordance with GAAP, Adobe makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against Adobe. It is possible, nevertheless, that our consolidated financial position, cash flows or results of operations could be affected by the resolution of one or more of such contingencies.

NOTE 14.    CREDIT AGREEMENT

        In August 2007, we entered into the Amendment to our Credit Agreement dated February 2007 (the "Amendment"), which increased the total senior unsecured revolving facility from $500.0 million to $1.0 billion. The Amendment also permits us to request one-year extensions effective on each anniversary of the closing date of the original agreement, subject to the majority consent of the lenders. We also retain an option to request an additional $500.0 million in commitments, for a maximum aggregate facility of $1.5 billion.

        In February 2008, we entered into the Second Amendment to the Credit Agreement dated February 26, 2008 (the "Second Amendment"), which extended the maturity date of the facility by one year to February 16, 2013. The facility would terminate at this date if no additional extensions have been requested and granted. All other terms and conditions remain the same.

        The facility contains a financial covenant requiring us not to exceed a certain maximum leverage ratio. At the Company's option, borrowings under the facility accrue interest based on either the London interbank offered rate (LIBOR) for one, two, three or six months, or longer periods with bank consent, plus a margin according to a pricing grid tied to this financial covenant, or a base rate. The margin is set at rates between 0.20% and 0.475%. Commitment fees are payable on the facility at rates between 0.05% and 0.15% per year based on the same pricing grid. The facility is available to provide loans to us and certain of our subsidiaries for general corporate purposes. As of February 29, 2008 and November 30, 2007, the amount outstanding under the credit facility was $450.0 million and zero, respectively, which is included in long-term liabilities on our condensed consolidated balance sheet. As of February 29, 2008, we were in compliance with all of the covenants.

        As of February 29, 2008, the outstanding and accrued interest due was approximately $1.7 million which is included in accrued expenses on our condensed consolidated balance sheet.

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ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 15.    NON-OPERATING INCOME (EXPENSE)

        Non-operating income (expense) for the three months ended February 29, 2008 and March 2, 2007 includes the following:

			2008			2007
Interest and other income, net:
	Interest income		$	17,511		$	23,470
	Foreign exchange (losses)			(4,700	)		(1,507	)
	Fixed income investment (losses)			—			(262	)
	Other			479			814
		Interest and other income, net	$	13,290		$	22,515
Interest expense			$	(1,809	)	$	(51	)
Investment gains, net:
	Realized investment gains		$	5,397		$	8,820
	Unrealized investment gains			3,914			209
	Realized investment (losses)			(383	)		(558	)
	Unrealized investment (losses)			(196	)		(2,870	)
		Investment gains, net	$	8,732		$	5,601
Total non-operating income			$	20,213		$	28,065

NOTE 16.    INDUSTRY SEGMENTS

        We have the following segments: Creative Solutions, Knowledge Worker Solutions, Enterprise Solutions, Mobile and Device Solutions, Platform and Print Publishing. Our Creative Solutions segment focuses on delivering a complete professional line of integrated tools for a full range of creative and developer tasks to an extended set of customers. The Knowledge Worker Solutions segment focuses on the needs of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains revenue generated by Acrobat Connect and our Acrobat family of products. Our Enterprise Solutions segment provides server-based enterprise interaction solutions that automate people-centric processes and contains revenue generated by our LiveCycle line of products. The Mobile and Device Solutions segment provides solutions that create compelling experiences through rich content, user interfaces and data services on mobile and non-PC devices such as cellular phones, consumer devices and Internet connected hand-held devices. The Platform segment provides developer solutions and technologies, including Adobe Flash Player and Adobe AIR which are used to build rich application experiences. Finally, the Print Publishing segment addresses market opportunities ranging from the diverse publishing needs of technical and business publishing, to our legacy type and original equipment manufacturer ("OEM") printing businesses.

        Effective in the first quarter of fiscal 2008, to better align our engineering and marketing efforts, we merged our Knowledge Worker Solutions segment with our Enterprise Solutions segment (formerly "Enterprise and Developer Solutions") to form our new Business Productivity Solutions business unit. However, under the requirements of SFAS No. 131, ("SFAS 131"), "Disclosures about Segments of an

23

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

(Unaudited)

NOTE 16.    INDUSTRY SEGMENTS (Continued)

Enterprise and Related Information", Knowledge Worker Solutions and Enterprise Solutions are separately reportable segments. In addition, we moved responsibility for Flex Builder, Flex SDK and our ColdFusion product line to our Platform segment from our Enterprise Solutions segment. The prior year information in the table below has also been updated to reflect this product movement.

        Our Chief Operating Decision Maker reviews revenue and gross margin information for each of our operating segments. Operating expenses are not reviewed on a segment by segment basis. In addition, with the exception of goodwill and intangible assets, we do not identify or allocate our assets by the operating segments.

		Creative Solutions			Knowledge Worker Solutions			Enterprise Solutions			Mobile and Device Solutions			Platform			Print Publishing			Total
Three months ended February 29, 2008
	Revenue	$	543,475		$	195,535		$	54,164		$	15,212		$	28,132		$	53,927		$	890,445
	Cost of revenue		36,048			11,681			16,991			5,991			3,973			7,791			82,475
	Gross profit	$	507,427		$	183,854		$	37,173		$	9,221		$	24,159		$	46,136		$	807,970
	Gross profit as a percentage of revenue		93	%		94	%		69	%		61	%		86	%		86	%		91	%
Three months ended March 2, 2007
	Revenue	$	346,391		$	174,828		$	42,465		$	13,733		$	15,782		$	56,208		$	649,407
	Cost of revenue		30,100			10,674			13,953			6,880			2,901			7,755			72,263
	Gross profit	$	316,291		$	164,154		$	28,512		$	6,853		$	12,881		$	48,453		$	577,144
	Gross profit as a percentage of revenue		91	%		94	%		67	%		50	%		82	%		86	%		89	%

NOTE 17.    SUBSEQUENT EVENT

Structured Stock Repurchase Agreements

        Subsequent to February 29, 2008, as part of Stock Repurchase Programs I and II, we entered into additional structured stock repurchase agreements with large financial institutions whereupon we provided the financial institutions with prepayments of approximately $150.0 million. This amount will be classified as treasury stock on our balance sheet. See Note 10 for further information regarding our structured stock repurchase agreements.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion (unaudited and presented in millions, except share and per share amounts) should be read in conjunction with the condensed consolidated financial statements and notes thereto.

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, including statements regarding product plans, future growth and market opportunities, which involve risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" in Part II, Item 1A. You should carefully review the risks described herein and in other documents we file from time to time with the SEC, including the Annual Report on Form 10-K for fiscal 2007 and the other Quarterly Reports on Form 10-Q to be filed by us in fiscal 2008. When used in this report, the words "expects," "could," "would," "may," "anticipates," "intends," "plans," "believes," "seeks," "targets," "estimates," "looks for," "looks to" and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

BUSINESS OVERVIEW

        Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world. We offer a line of creative, business and mobile software and services used by creative professionals, designers, knowledge workers, high-end consumers, OEM partners, developers and enterprises for creating, managing, delivering and engaging with compelling content and experiences across multiple operating systems, devices and media. We distribute our products through a network of distributors and dealers, value-added resellers ("VARs"), systems integrators, independent software vendors ("ISVs") and OEMs, direct to end users and through our own Web site at www.adobe.com. We also license our technology to hardware manufacturers, software developers and service providers, and we offer integrated software solutions to businesses of all sizes. We have operations in the Americas, Europe, Middle East and Africa ("EMEA") and Asia. Our software runs on personal computers with Microsoft Windows, Apple OS, Linux, UNIX and various non-PC platforms, depending on the product.

        We maintain executive offices and principal facilities at 345 Park Avenue, San Jose, California 95110-2704. Our telephone number is 408-536-6000. We maintain a Web site at www.adobe.com. Investors can obtain copies of our SEC filings from this site free of charge, as well as from the SEC Web site at www.sec.gov.

OPERATIONS OVERVIEW

        Effective in the first quarter of fiscal 2008, to better align our engineering and marketing efforts, we merged our Knowledge Worker Solutions segment with our Enterprise Solutions segment to form our new Business Productivity Solutions business unit. However, under the requirements of SFAS 131, Knowledge Worker Solutions and Enterprise Solutions are separately reportable segments. In addition, we moved responsibility for Flex Builder, Flex SDK and our ColdFusion product line to our Platform segment from our Enterprise Solutions segment. The prior year information has been updated to reflect this product movement.

        During the first quarter of fiscal 2008, we continued to focus on driving revenue growth and increasing market share of our products through the continued delivery of comprehensive software and technology solutions that meet the evolving needs of our customers.

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        In our Creative Solutions segment, we continued to experience solid demand in the first quarter of fiscal 2008 for our Creative Suite 3 ("CS3") family of products.

        In our Knowledge Worker Solutions segment, we achieved record revenue results with our Acrobat family of products in the first quarter of fiscal 2008. Helping drive this success was continued strong volume licensing of Acrobat products due to ongoing adoption by users in enterprises, governments and vertical markets such as architecture, engineering and construction.

        In our Enterprise Solutions segment, we achieved strong year-over-year revenue growth as we continued to focus on delivering innovative products and solutions for our customers.

        The Mobile and Device Solutions segment also achieved year-over-year revenue growth due to the ongoing success we have had targeting mobile operators, handset manufacturers and consumer electronic device manufactures with our Flash Lite and Flash Cast technologies.

        Our Platform segment performed strongly resulting in increased revenue year-over-year, offset in part by a year-over-year decline in our Print Publishing segment revenue.

CRITICAL ACCOUNTING ESTIMATES

        In preparing our condensed consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors.

        We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, stock-based compensation, goodwill impairment and income taxes have the greatest potential impact on our condensed consolidated financial statements. These areas are key components of our results of operations and are based on complex rules which require us to make judgments and estimates, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

        With the exception of our adoption of FIN 48, there have been no other significant changes in our critical accounting estimates during the three months ended February 29, 2008 as compared to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended November 30, 2007. Our critical accounting estimate for accounting for income taxes is described as follows:

        As of February 29, 2008, the gross liability for unrecognized tax benefits is $219.2 million. If the total FIN 48 liabilities are recognized in the future, the following amounts, net of an estimated $22.4 million benefit related to deducting such payments on future tax returns, would result: $102.2 million of unrecognized tax benefits would affect the effective tax rate, $80.2 million would affect goodwill and $14.4 million would affect additional paid-in-capital. Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of current and any future tax audits could significantly impact the amounts provided for income taxes in our condensed consolidated financial statements.

        As of February 29, 2008, we have $163.6 million of deferred tax assets. Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and

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category of future taxable income, such as income from operations or capital gains income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.

RESULTS OF OPERATIONS

Revenue for the Three Months Ended February 29, 2008 and March 2, 2007

		2008			2007			Percent Change
Product		$	852.0		$	620.3		37	%
	Percentage of total revenue		96	%		96	%
Services and support			38.4			29.1		32	%
	Percentage of total revenue		4	%		4	%
Total revenue		$	890.4		$	649.4

        As described in Note 16 of our Notes to Condensed Consolidated Financial Statements, we have the following segments: Creative Solutions, Knowledge Worker Solutions, Enterprise Solutions, Mobile and Device Solutions, Platform and Print Publishing products.

        Our services and support revenue is composed of consulting, training, and maintenance and support, primarily related to the licensing of our enterprise, developer and platform products. Our support revenue also includes technical support and developer support to partners and developer organizations related to our desktop products. Our maintenance and support offerings which entitle customers to receive product upgrades and enhancements or technical support, depending on the offering, are recognized ratably over the term of the arrangement.

Segment Information

		2008			2007			Percent Change
Creative Solutions		$	543.5		$	346.4		57	%
	Percentage of total revenue		61	%		53	%
Knowledge Worker Solutions			195.5			174.8		12	%
	Percentage of total revenue		22	%		27	%
Enterprise Solutions			54.2			42.5		28	%
	Percentage of total revenue		6	%		7	%
Mobile and Device Solutions			15.2			13.7		11	%
	Percentage of total revenue		2	%		2	%
Platform			28.1			15.8		78	%
	Percentage of total revenue		3	%		2	%
Print Publishing			53.9			56.2		(4	)%
	Percentage of total revenue		6	%		9	%
Total Revenue		$	890.4		$	649.4

        Revenue from Creative Solutions increased during the three months ended February 29, 2008 as compared to the three months ended March 2, 2007 primarily due to the ongoing success of our CS3 family of products which first shipped in the second quarter of fiscal 2007.

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        Revenue from Knowledge Worker Solutions increased during the three months ended February 29, 2008 as compared to the three months ended March 2, 2007 primarily due to an increase in licensing of our Acrobat 8 family of products.

        Revenue from Enterprise Solutions increased during the three months ended February 29, 2008 as compared to the three months ended March 2, 2007 primarily due to continued adoption of our LiveCycle family of products.

        Revenue from Mobile and Device Solutions increased during the three months ended February 29, 2008 as compared to the three months ended March 2, 2007, primarily due to strong shipments of hand-held units and continued adoption of our Flash Lite by mobile and non-PC device manufacturers.

        Revenue from Platform increased during the three months ended February 29, 2008 as compared to the three months ended March 2, 2007, primarily due to increased revenue from our Flash Player, Reader and ColdFusion products.

        Revenue from Print Publishing decreased during the three months ended February 29, 2008 as compared to the three months ended March 2, 2007, primarily due to lower revenue with our sustaining products, offset in part by increases in our Technical Communications Suite.

Geographical Information

		2008			2007			Percent Change
Americas		$	396.9		$	298.3		33	%
	Percentage of total revenue		45	%		46	%
EMEA			323.9			215.7		50	%
	Percentage of total revenue		36	%		33	%
Asia			169.6			135.4		25	%
	Percentage of total revenue		19	%		21	%
Total revenue		$	890.4		$	649.4

        Overall revenue for the three months ended February 29, 2008 increased when compared to the three months ended March 2, 2007 primarily due to continued adoption of our CS3 family of products, strong adoption of Acrobat, LiveCycle and mobile products.

        Revenue in the Americas increased during the three months ended February 29, 2008 compared to the three months ended March 2, 2007 primarily due to the ongoing success of our CS3 and Acrobat families of products. Revenue in the Americas also increased in the Knowledge Worker Solutions, Mobile and Device Solutions and Platform products, due to higher sales volumes.

        Revenue in EMEA increased during the three months ended February 29, 2008 compared to the three months ended March 2, 2007 due to solid demand in all our major product categories. Additionally, revenue in EMEA measured in U.S. dollars increased approximately $25.4 million during the three months ended February 29, 2008 over the same reporting period last year due to the strength of the Euro over the U.S. dollar.

        Revenue in Asia increased during the three months ended February 29, 2008 compared to the three months ended March 2, 2007 due to solid demand. Additionally, revenue in Asia measured in U.S. dollars increased approximately $6.5 million during the three months ended February 29, 2008 over the same reporting period last year due to the strength of the Yen over the U.S. dollar.

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Product Backlog

        With regard to our product backlog, the actual amount of backlog at any particular time may not be a meaningful indicator of future business prospects. Our backlog of unfulfilled orders at the end of the first quarter of fiscal 2008, other than those associated with new product releases, those pending credit review and those not shipped due to the application of our global inventory policy, was approximately 5% of first quarter fiscal 2008 revenue. The comparable backlog at the end of the fourth quarter of fiscal 2007 was approximately 7% of fourth quarter fiscal 2007 revenue.

Cost of Revenue for the Three Months Ended February 29, 2008 and March 2, 2007

		2008			2007			Percent Change
Product		$	59.8		$	53.8		11	%
	Percentage of total revenue		7	%		8	%
Services and support			22.7			18.5		23	%
	Percentage of total revenue		3	%		3	%
Total cost of revenue		$	82.5		$	72.3

Product

        Cost of product revenue includes product packaging, third-party royalties, excess and obsolete inventory, amortization related to localization costs and acquired technologies and the costs associated with the manufacturing of our products.

        Cost of product revenue fluctuated due to the following:

		% Change 2007 to 2008 QTD
Increased localization costs related to our product launches		15	%
Increased royalties for licensed technologies		4
Increased excess and obsolete inventory		2
Decreased material costs due to product mix		(2	)
Decreased amortization of purchased technology		(11	)
Various individually insignificant items		3
	Total change	11	%

        Localization costs increased during the first quarter of fiscal 2008 as compared to the first quarter of fiscal 2007, primarily due to the release of the localized versions of our CS3 family of products beginning in the second quarter of fiscal 2007.

        Amortization expense decreased during the first quarter of fiscal 2008 as compared to the first quarter of fiscal 2007, due to a decrease in amortization expense associated with Macromedia.

Services and Support

        Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to provide consulting services, training and product support.

        Cost of services and support revenue increased during the three months ended February 29, 2008 as compared to the three months ended March 2, 2007, due to increases in compensation and related benefits primarily as a result of headcount increases.

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Operating Expenses for the Three Months Ended February 29, 2008 and March 2, 2007

Overview

        The increase in compensation costs for the three months ended February 29, 2008 relates to (i) higher expense for profit sharing and employee bonuses based on company performance to date, when compared to the three months ended March 2, 2007 and (ii) increased headcount in all functions.

Research and Development

		2008			2007			Percent Change
Expenses		$	168.5		$	137.1		23	%
	Percentage of total revenue		19	%		21	%

        Research and development expenses consist primarily of salary and benefit expenses for software developers, contracted development efforts, related facilities costs and expenses associated with computer equipment used in software development.

        Research and development expenses fluctuated due to the following:

		% Change 2007 to 2008 QTD
Increased compensation and related benefits associated with headcount growth		10	%
Increased compensation associated with higher incentive compensation and stock-based compensation		8
Increased depreciation and amortization		1
Increased facility costs		1
Various individually insignificant items		3
	Total change	23	%

        We believe that investments in research and development, including the recruiting and hiring of software developers, are critical to remain competitive in the marketplace and are directly related to continued timely development of new and enhanced products. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our desktop application and server-based software products.

Sales and Marketing

		2008			2007			Percent Change
Expenses		$	262.6		$	214.7		22	%
	Percentage of total revenue		29	%		33	%

        Sales and marketing expenses consist primarily of salary and benefit expenses, sales commissions, travel expenses and related facilities costs for our sales, marketing, order management and global supply chain management personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs.

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        Sales and marketing expenses fluctuated due to the following:

		% Change 2007 to 2008 QTD
Increased compensation associated with higher incentive compensation and stock- based compensation		9	%
Increased marketing spending related to product launches and overall marketing efforts to further increase revenue		6
Increased compensation and related benefits associated with headcount growth		5
Increased facility costs		2
	Total change	22	%

General and Administrative

		2008			2007			Percent Change
Expenses		$	82.9		$	61.3		35	%
	Percentage of total revenue		9	%		9	%

        General and administrative expenses consist primarily of compensation and benefit expenses, travel expenses and related facilities costs for our finance, facilities, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for bad debts, expenses associated with computer equipment and software used in the administration of the business, charitable contributions and various forms of insurance.

        General and administrative expenses fluctuated due to the following:

		% Change 2007 to 2008 QTD
Increased compensation associated with higher incentive compensation and stock- based compensation		14	%
Increased charitable contributions		12
Increased compensation and related benefits associated with headcount growth		4
Increased professional and consulting fees		2
Increased depreciation and amortization		1
Various individually insignificant items		2
	Total change	35	%

Restructuring and Other Charges

		2008		2007		Percent Change
Expenses		$	1.4	$	—	*
	Percentage of total revenue		*		*

*

Percentage is not meaningful.

        During the three months ended February 29, 2008, there was an adjustment to previous estimates associated with closing redundant facilities as a result of the Macromedia acquisition. We have an $18.0 million liability for restructuring as of February 29, 2008 associated with the Macromedia restructured facilities. We expect to pay this liability through fiscal 2011.

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Amortization of Purchased Intangibles

		2008			2007			Percent Change
Expenses		$	17.1		$	17.7		(3	)%
	Percentage of total revenue.		2	%		3	%

Non-operating Income for the Three Months Ended February 29, 2008 and March 2, 2007

		2008			2007			Percent Change
Interest and other income, net		$	13.3		$	22.5		(41	)%
	Percentage of total revenue		1	%		3	%
Interest expense			(1.8	)		—		*
	Percentage of total revenue		*			*
Investment gains, net			8.7			5.6		55	%
	Percentage of total revenue		1	%		1	%
	Total non-operating income	$	20.2		$	28.1

*

Percentage is not meaningful.

Interest and Other Income, net

        The largest component of interest and other income, net, is interest earned on cash, cash equivalents and short-term fixed income investments, but also includes gains and losses on the sale of fixed income investments and foreign exchange gains and losses, including those from hedging revenue transactions primarily denominated in Yen and Euro currencies.

        Interest and other income, net, decreased during the three months ended February 29, 2008 as compared to the three months ended March 2, 2007 primarily as a result of lower interest rates and lower average invested balances due to cash used for our share repurchase programs.

Interest Expense

        Interest expense as of February 29, 2008, primarily represents interest associated with our outstanding balance of $450.0 million as of January 2008 on our credit facility. Interest due under the credit facility is to be paid quarterly.

Investment Gains, net

        Investment gains, net, consists principally of realized gains or losses from the sale of marketable equity investments, other-than-temporary declines in the value of marketable and non-marketable equity securities and gains and losses of Adobe Ventures. In the three months ended February 29, 2008, investment gains, net, increased as compared to the three months ended March 2, 2007 due to investment impairments recorded in the first quarter of fiscal 2007 that did not recur in the first quarter of fiscal 2008.

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Provision for Income Taxes for the Three Months Ended February 29, 2008 and March 2, 2007

		Three Months
								Percent Change
		2008			2007
Provision		$	76.3		$	30.6		149	%
	Percentage of total revenue		9	%		5	%
	Effective tax rate		25.8	%		17.5	%

        Our effective tax rate increased approximately 8% during the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007. There was an increase of approximately 6% related to a one time tax benefit for the reinstatement of the U.S. research and development tax credit that was reflected in its entirety in the first quarter of fiscal 2007, an increase of approximately 1% related to the expiration of the U.S. research and development tax credit on December 31, 2007 and an increase of approximately 1% due to reductions in estimated tax exempt interest income for fiscal 2008.

LIQUIDITY AND CAPITAL RESOURCES

        This data should be read in conjunction with the consolidated statements of cash flows.

	February 29, 2008		November 30, 2007
Cash, cash equivalents and short-term investments	$	1,715.2	$	1,993.9
Working capital	$	1,556.7	$	1,720.6
Stockholders' equity	$	3,814.2	$	4,650.0

        Summary of our cash flows:

	February 29, 2008			March 2, 2007
Net cash provided by operating activities	$	399.3		$	271.1
Net cash provided by (used for) investing activities		328.8			(310.4	)
Net cash used for financing activities		(646.5	)		(205.9	)
Effect of foreign currency exchange rates on cash and cash equivalents		4.7			(1.3	)
Net increase (decrease) in cash and cash equivalents	$	86.3		$	(246.5	)

        Our primary source of cash is receipts from revenue. The primary uses of cash are payroll related expenses; general operating expenses including marketing, travel and office rent; and cost of product revenue. Another source of cash is proceeds from the exercise of employee options and participation in the ESPP and another use of cash is our stock repurchase program, which is detailed below.

Cash flows from operating activities

        Net cash provided by operating activities of $399.3 million for the three months ended February 29, 2008, was primarily comprised of net income, plus the net effect of non-cash expenses. The primary working capital sources of cash were increases in net income, decreases in trade receivables and increases in income taxes payable and deferred revenue. The decrease in accounts receivable was due to strong collections in the first quarter of fiscal 2008. Our days sales outstanding in trade receivables was 30 days for the first quarter of fiscal 2008. The increase in income taxes payable relates primarily to the higher income tax provision in the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 and the net effect of increases in deferred revenue related to maintenance and support, offset in part by decreases in deferred revenue for our Education products and Adobe Photoshop Lightroom.

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        The primary working capital uses of cash were payments of trade payables, accrued expenses and accrued restructuring costs and outlays for prepaid expenses and other current assets. Accrued expenses decreased primarily due to payments for employee bonuses and commissions and a reduction in the employee stock purchase accrual because of the January 2008 ESPP purchase, offset in part by an increase in charitable contributions to the Adobe Foundation. Accrued restructuring decreased primarily due to payments for facility costs for the three months ended February 29, 2008. Outlays for prepaid expenses and other current assets were primarily for payments made for prepaid payroll expenses which include employee benefits.

Cash flows from investing activities

        Net cash from investing activities increased from cash used for the three months ended March 2, 2007 of $310.4 million to cash provided for the three months ended February 29, 2008 of $328.8 million. Sources of cash during the three months ended February 29, 2008 primarily represented maturities and sales of short-term investments and to a lesser extent, proceeds from the sale of equity securities. Sources of cash were offset in part by purchases of short-term investments, property and equipment and long-term investments and other assets.

Cash flows from financing activities

        Net cash used for financing activities increased $440.6 million for a total of $646.5 million in the three months ended February 29, 2008 as compared to cash used for the same period last year, primarily due to increased purchases of treasury stock when compared to the prior year. (See sections entitled "Stock Repurchase Program I" and "Stock Repurchase Program II" discussed below). Cash used during the three months ended February 29, 2008 was partially offset by $450.0 million of proceeds from borrowings under our credit facility and the issuance of the treasury stock. Cash used during the three months ended March 2, 2007 was partially offset by the proceeds related to the issuance of the treasury stock.

        We expect to continue our investing activities, including short-term and long-term investments and purchases of computer systems for research and development, sales and marketing, product support and administrative staff. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase programs and strategically acquire software companies, products or technologies that are complementary to our business. The Board of Directors has approved a facilities expansion for our operations in India, which may include the purchase of land and buildings. As previously disclosed, we plan to invest $100.0 million directly in venture capital, of which, approximately $19.7 million has already been spent. The remaining balance will be invested over the next three to five years.

        Our existing cash, cash equivalents and investment balances may decline during fiscal 2008 in the event of weakening of the economy or changes in our planned cash outlay. However, based on our current business plan and revenue prospects, we believe that our existing balances, our anticipated cash flows from operations and our available credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve months. Cash from operations could be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part II, Item 1A titled "Risk Factors". During the third quarter of fiscal 2007, we also increased our existing $500.0 million credit facility to $1.0 billion. The purpose of the credit facility is to provide backup liquidity for general corporate purposes including stock repurchases. In January 2008, we drew down $450.0 million under this facility, of which the total amount is outstanding as of February 29, 2008 and is included in long-term liabilities on our condensed consolidated balance sheet.

        We use professional investment management firms to manage most of our invested cash. External investment firms managed, on average, 53% of our consolidated invested balances during the first quarter of fiscal 2008. Within the U.S., the portfolio is invested primarily in money market funds for working

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capital purposes. Outside of the U.S., our fixed income portfolio is primarily invested in U.S. treasury securities. All investments are made according to policies approved by the Board of Directors.

Stock Repurchase Program I

        During the three months ended February 29, 2008, we entered into several structured repurchase agreements with large financial institutions, whereupon we provided the financial institutions with prepayments of $150.0 million. We entered into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the Volume Weighted Average Price ("VWAP") of our common stock over a specified period of time. We only enter into such transactions when the discount that we receive is higher than the foregone return on our cash prepayments to the financial institutions. There were no explicit commissions or fees on these structured repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.

        The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval, and the average VWAP of our stock during the interval less the agreed upon discount.

        The prepayments were classified as treasury stock on our balance sheet at the payment date, though only shares physically delivered to us by February 29, 2008 are excluded from the denominator in the computation of earnings per share. All outstanding structured repurchase agreements as of February 29, 2008 under this program will expire on or before June 19, 2008. As of February 29, 2008 approximately $325.8 million of up-front payments remained under the agreements. During the three months ended February 29, 2008, we repurchased 6.7 million shares at an average price per share of $36.78 through structured repurchase agreements which included prepayments from fiscal 2007.

        Subsequent to February 29, 2008, we entered into additional structured stock repurchase agreements with large financial institutions whereupon we provided the financial institutions with prepayments of $100.0 million. The $100.0 million will be classified as treasury stock on our balance sheet. See Notes 10 and 17 of our Notes to Condensed Consolidated Financial Statements for further information regarding our structured stock repurchase agreements.

Refer to Part II, Item 2 in this report for share repurchases during the quarter ended February 29, 2008.

Stock Repurchase Program II

        Under this stock repurchase program, we are authorized to repurchase 50.0 million shares of our common stock. From the inception of this program, we have repurchased 44.3 million shares and provided prepayments of $1.85 billion under structured share repurchase agreements to large financial institutions. During the first quarter of fiscal 2008, we provided prepayments of $1.0 billion and repurchased 26.6 million shares under these structured agreements at an average price per share of $37.56. As of February 29, 2008, approximately $133.3 million of up-front payments remained under these agreements. All outstanding structured repurchase agreements as of February 29, 2008 under this program will expire on or before April 24, 2008. There were no prepayments under this program as of March 2, 2007.

        Subsequent to February 29, 2008, we entered into additional structured stock repurchase agreements with large financial institutions whereupon we provided the financial institutions with prepayments of $50.0 million. The $50.0 million will be classified as treasury stock on our balance sheet. See Notes 10 and 17 of our Notes to Condensed Consolidated Financial Statements for further information regarding our structured stock repurchase agreements.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

        Our principal commitments as of February 29, 2008 consist of obligations under operating leases, royalty agreements and various service agreements. See Note 13 of our Notes to Condensed Consolidated Financial Statements for more detailed information.

Contractual Commitments

        With the exception of our adoption of FIN 48 and the borrowings under our credit facility, there have been no other significant changes in our contractual commitments during the three months ended February 29, 2008 as compared to the contractual commitments disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended November 30, 2007.

        As of February 29, 2008, the principal outstanding under the credit facility was $450.0 million which is due in full not later than February 16, 2013. Interest associated with this facility cannot be estimated with certainty by period throughout the term since it is based on a fluctuating interest rate calculation. As of February 29, 2008, the outstanding and accrued interest due was approximately $1.7 million.

        As a result of adopting FIN 48, we reclassified $197.7 million from current income taxes payable to long-term income taxes payable related to unrecognized tax benefits. We cannot estimate the payments due by period because the total income tax payable and timing of tax payments depend on the resolution of current and future tax examinations which cannot be estimated with certainty.

Lease Commitments

        Two of our lease agreements discussed in Note 13 of our Notes to Condensed Consolidated Financial Statements are subject to standard financial covenants. As of February 29, 2008, we were in compliance with all of our financial covenants and we expect to remain in compliance during the next 12 months. We believe these limitations will not impact our credit or cash in the coming fiscal year or restrict our ability to execute our business plan.

Royalties

        We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue.

Guarantees

        The lease agreements for our corporate headquarters provide for residual value guarantees. Under FIN 45, the fair value of a residual value guarantee in lease agreements entered into after December 31, 2002 must be recognized as a liability on our consolidated balance sheet. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the East and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to the income statement over the life of the leases. As of February 29, 2008, the unamortized portion of the fair value of the residual value guarantees remaining in other long-term liabilities and prepaid rent was $3.8 million.

Indemnifications

        In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable

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to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

        To the extent permitted under Delaware law, we have agreements whereby we indemnify our directors and officers for certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the director's or officer's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

        As part of our limited partnership interest in Adobe Ventures, we have provided a general indemnification to Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences while Granite Ventures is, or was serving, at our request in such capacity provided that Granite Ventures acts in good faith on behalf of the partnership. We are unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but believe the risk of having to make any payments under this general indemnification to be remote.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We believe that there have been no significant changes in our market risk exposures for the three months ended February 29, 2008.

ITEM 4.    CONTROLS AND PROCEDURES

        Based on their evaluation as of February 29, 2008, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations, and were also effective to ensure that information required to be disclosed by us in this quarterly report on Form 10-Q was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

        There were no changes in our internal control over financial reporting during the quarter ended February 29, 2008 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

        Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Adobe have been detected.

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PART II—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

See Note 13 "Commitments and Contingencies" of our Notes to Condensed Consolidated Financial Statements regarding our legal proceedings.

ITEM 1A.    RISK FACTORS

        As previously discussed, our actual results could differ materially from our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed below. These and many other factors described in this report could adversely affect our operations, performance and financial condition.

Delays in development or shipment of new products or upgrades to existing products could cause a decline in our revenue.

        Any delays or failures in developing new products or new features for existing products or marketing our products may have a harmful impact on our results of operations. Our inability to extend our core technologies into new applications and new platforms and to anticipate or respond to technological changes could affect continued market acceptance of our products and our ability to develop new products. Delays in product or upgrade introductions could cause a decline in our revenue, earnings or stock price.

Introduction of new products and business models by existing and new competitors could harm our competitive position and results of operations.

        The markets for our products are characterized by intense competition, evolving industry standards and business models, rapid software and hardware technology developments and frequent new product introductions. Our future success will depend on our ability to enhance our existing products, introduce new products on a timely and cost-effective basis, meet changing customer needs, extend our core technology into new applications, and anticipate and respond to emerging standards, business models and other technological changes. For example, Microsoft Windows Vista operating system which contains a fixed document format, XPS, competes with Adobe PDF, and Microsoft Office 2007, which offers a feature to save Microsoft Office documents as PDF files through a freely distributed plug-in, competes with Adobe PDF creation. Microsoft Expression Studio competes with our Adobe Creative Suite products and Microsoft Silverlight, a web development tool for rich internet applications, competes with Adobe Flash and Adobe Flex. In addition, companies, such as Google and Microsoft, may introduce competing software offerings for free or "open source" vendors may introduce competitive products. For example, Microsoft recently made available Microsoft Expression Studio free of charge to students. If these competing products achieve widespread acceptance, our operating results could suffer. In addition, consolidation has occurred among some of the competitors in our markets. Any further consolidations among our competitors may result in stronger competitors and may therefore harm our results of operations. For additional information regarding our competition and the risks arising out of the competitive environment in which we operate, see the section entitled "Competition" contained in Item 1 of our Annual Report on Form 10-K for fiscal 2007.

If we fail to successfully manage transitions to new business models and markets, our results of operations could be negatively impacted.

        We are devoting significant resources to the development of technologies and service offerings where we have a limited operating history, including the enterprise and government markets, the mobile and device markets and software as service offerings. In the enterprise and government markets, we intend to increase our focus on vertical markets such as education, financial services, manufacturing, and the architecture, engineering and construction markets and horizontal markets such as training and marketing.

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These new offerings and markets require a considerable investment of technical, financial and sales resources, and a scalable organization. Many of our competitors may have advantages over us due to their larger presence, larger developer network, deeper experience in the enterprise and government markets and the mobile and device markets, and greater sales and marketing resources. In the mobile and device markets, our intent is to persuade device makers, manufacturers and telecommunications carriers to embed our technology on their platforms, and in the enterprise and government market our intent is to form strategic alliances with leading enterprise and government solutions and service providers to provide additional resources to further enable penetration of such markets. If we are unable to successfully enter into strategic alliances with device makers, manufacturers, telecommunication carriers and leading enterprise and government solutions and service providers, or if they are not as productive as we anticipate, our market penetration may not proceed as rapidly as we anticipate and our results of operations could be negatively impacted. Another development is the software as a service business model, by which companies provide applications, data and related services over the Internet. Providers use primarily advertising or subscription-based revenue models. Recent advances in computing and communications technologies have made this model viable and could enable the rapid growth of some of our competitors. We are exploring the deployment of our own software as a service strategies, but may not be able to develop the infrastructure and business models as quickly as our competitors. It is uncertain whether these strategies will prove successful. Additionally, from time to time we "open source" certain of our technology initiatives and release selected technology for industry standardization. These changes may make it easier for our competitors to produce products similar to ours, and if we are unable to respond to these competitive threats, our business could be harmed.

If we fail to anticipate and develop new products and services in response to changes in demand for application software and software delivery, computers, printers, or other non PC-devices, our business could be harmed.

        Any failure to anticipate changing customer requirements and develop and deploy new products in response to changing market conditions may have a material impact on our results of operations. We plan to release numerous new product offerings in connection with our transition to new business models. Market acceptance of these new product and service offerings will be dependent on our ability to include functionality and usability in such releases that address the requirements of customer demographics with which we have limited prior experience. To the extent we incorrectly estimate customer requirements for such products or services or if there is a delay in market acceptance of such products or services, our business could be harmed. Additionally, customer requirements for "open standards" or "open source" products could impact adoption or use with respect to some of our products.

        We offer our desktop application-based products primarily on Windows and Macintosh platforms. We generally offer our server-based products on the Linux platform as well as the Windows and UNIX platforms. To the extent that there is a slowdown of customer purchases of personal computers on either the Windows or Macintosh platform or in general, or to the extent that significant demand arises for our products or competitive products on the Linux desktop platform before we choose and are able to offer our products on this platform, our business could be harmed. Additionally, to the extent that we have difficulty transitioning product or version releases to new Windows and Macintosh operating systems, or to the extent new releases of operating systems or other third party products make it more difficult for our products to perform, our business could be harmed.

Adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our operating results.

        As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic and political conditions. For example, the direction and relative strength of the U.S. economy has recently been increasingly uncertain due to softness in the housing

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markets, rising oil prices, difficulties in the financial services sector and credit markets and continuing geopolitical uncertainties. If economic growth in the United States and other countries' economies is slowed, many customers may delay or reduce technology purchases. This could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies and increased price competition. Any of these events would likely harm our business, results of operations and financial condition. Political instability in any of the major countries we do business would also likely harm our business, results of operations and financial condition.

Revenue from our new businesses may be difficult to predict.

        As previously discussed, we are devoting significant resources to the development of product and service offerings where we have a limited operating history. This makes it difficult to predict revenue and revenue may decline quicker than anticipated. Additionally, we have a limited history of licensing products in certain markets such as the enterprise market and may experience a number of factors that will make our revenue less predictable, including longer than expected sales and implementation cycles, potential deferral of revenue due to multiple-element revenue arrangements and alternate licensing arrangements.

We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings.

        In connection with the enforcement of our own intellectual property rights, the acquisition of third-party intellectual property rights, or disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation are typically very costly and can be disruptive to our business operations by diverting the attention and energies of management and key technical personnel. Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. In addition, we may incur significant costs in acquiring the necessary third party intellectual property rights for use in our products. Third party intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from manufacturing or licensing certain of our products, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various license arrangements. Any of these could seriously harm our business.

We may not be able to protect our intellectual property rights, including our source code, from third-party infringers, or unauthorized copying, use, disclosure or malicious attack.

        Although we defend our intellectual property rights and combat unlicensed copying and use of software and intellectual property rights through a variety of techniques, preventing unauthorized use or infringement of our rights is inherently difficult. We actively pursue software pirates as part of our enforcement of our intellectual property rights, but we nonetheless lose significant revenue due to illegal use of our software. If piracy activities increase, it may further harm our business.

        Additionally, we take significant measures to protect the secrecy of our confidential information and trade secrets, including our source code. If unauthorized disclosure of our source code occurs, we could potentially lose future trade secret protection for that source code. The loss of future trade secret protection could make it easier for third parties to compete with our products by copying functionality, which could adversely affect our revenue and operating margins. We also seek to protect our confidential information and trade secrets through the use of non-disclosure agreements with our customers, contractors, vendors, and partners. However there is a risk that our confidential information and trade secrets may be disclosed or published without our authorization, and in these situations it may be difficult and or costly for us to enforce our rights.

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        We also devote significant resources to maintaining the security of our products from malicious hackers who develop and deploy viruses, worms, and other malicious software programs that attack our products. Nevertheless, actual or perceived security vulnerabilities in our products could harm our reputation and lead some customers to seek to return products, to reduce or delay future purchases, to use competitive products or to make claims against us. Also, with the introduction of hosted services with some of our product offerings, our customers may use such services to share confidential and sensitive information. If a breach of security occurs on these hosted systems, we could be held liable to our customers. Additionally, such breaches could lead to interruptions, delays and data loss and protection concerns as well as harm to our reputation.

We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our business and management.

        We have in the past and may in the future acquire additional companies, products or technologies. We may not realize the anticipated benefits of an acquisition and each acquisition has numerous risks. These risks include:

•

difficulty in assimilating the operations and personnel of the acquired company;



•

difficulty in effectively integrating the acquired technologies or products with our current products and technologies;



•

difficulty in maintaining controls, procedures and policies during the transition and integration;



•

disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues;



•

difficulty integrating the acquired company's accounting, management information, human resources and other administrative systems;



•

inability to retain key technical and managerial personnel of the acquired business;



•

inability to retain key customers, distributors, vendors and other business partners of the acquired business;



•

inability to achieve the financial and strategic goals for the acquired and combined businesses;



•

incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;



•

potential impairment of our relationships with employees, customers, partners, distributors or third-party providers of technology or products;



•

potential failure of the due diligence processes to identify significant issues, including but not limited to, product quality, architecture and development, or legal and financial contingencies;



•

incurring significant exit charges if products acquired in business combinations are unsuccessful;



•

potential inability to assert that internal controls over financial reporting are effective;



•

potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions; and



•

potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product offerings.

        Mergers and acquisitions of high technology companies are inherently risky, and ultimately, if we do not complete the integration of acquired businesses successfully and in a timely manner, we may not realize the benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financial condition or results of operations.

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We rely on distributors to sell our products and any adverse change in our relationship with our distributors could result in a loss of revenue and harm to our business.

        We distribute our application products through distributors, resellers, retailers and increasingly systems integrators, ISVs and VARs (collectively referred to as "distributors"). A significant amount of our revenue for application products is from two distributors, Ingram Micro, Inc. and Tech Data Corporation which represented 18% and 9% of our net revenue for the first quarter of fiscal 2008, respectively. In addition, our channel program focuses our efforts on larger distributors, which has resulted in our dependence on a relatively small number of distributors licensing a large amount of our products. Our distributors also sell our competitors' products, and if they favor our competitors' products for any reason, they may fail to market our products as effectively or to devote resources necessary to provide effective sales, which would cause our results to suffer. In addition, the financial health of these distributors and our continuing relationships with them are important to our success. Some of these distributors may be unable to withstand adverse changes in business conditions. Our business could be seriously harmed if the financial condition of some of these distributors substantially weakens.

Catastrophic events may disrupt our business.

        We are a highly automated business and rely on our network infrastructure and enterprise applications, internal technology systems and our Website for our development, marketing, operational, support, hosted services and sales activities. A disruption or failure of these systems in the event of a major earthquake, fire, telecommunications failure, cyber-attack, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, delays in our product development and loss of critical data and could prevent us from fulfilling our customers' orders. Our corporate headquarters, a significant portion of our research and development activities, our data centers, and certain other critical business operations are located in San Jose, California, which is near major earthquake faults. We have developed certain disaster recovery plans and certain backup systems to reduce the potentially adverse effect of such events, but a catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected.

Our future operating results are difficult to predict and are likely to fluctuate substantially from quarter to quarter and as a result the market price of our common stock may be volatile and our stock price could decline.

        As a result of a variety of factors discussed herein, our quarterly revenue and operating results for a particular period are difficult to predict. Our revenue may grow at a slower rate than experienced in previous periods and, in particular periods, may decline. Additionally, we periodically provide operating model targets. These targets reflect a number of assumptions, including assumptions about product pricing and demand, economic and seasonal trends, competitive factors, the mix of shrink-wrap and licensing revenue, full and upgrade products, distribution channels and geographic markets. If one or more of these assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated or projected.

        Due to the factors noted above, our future earnings and stock price may be subject to volatility, particularly on a quarterly basis. Shortfalls in revenue or earnings or delays in the release of products or upgrades compared to analysts' or investors' expectations have caused, and could cause in the future, an immediate and significant decline in the trading price of our common stock. Additionally, we may not learn of such shortfalls or delays until late in, or after the end of, the fiscal quarter, which could result in an even more immediate and greater decline in the trading price of our common stock. Finally, we participate in a highly dynamic industry. In addition to factors specific to us, changes in analysts' earnings estimates for us or our industry, and factors affecting the corporate environment, our industry, or the securities markets in general, have resulted, and may in the future result, in volatility of our common stock price.

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We are subject to risks associated with international operations which may harm our business.

        We generate over 50% of our total revenue from sales to customers outside of the Americas. Sales to these customers subject us to a number of risks, including:

•

foreign currency fluctuations;



•

changes in government preferences for software procurement;



•

international economic and political conditions;



•

unexpected changes in, or impositions of, international legislative or regulatory requirements;



•

failure of foreign laws to protect our intellectual property rights adequately;



•

inadequate local infrastructure;



•

delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;



•

transportation delays;



•

the burdens of complying with a variety of foreign laws, including more stringent consumer and data protection laws; and



•

other factors beyond our control, including terrorism, war, natural disasters and diseases.

        If sales to any of our customers outside of the Americas are delayed or cancelled because of any of the above factors, our revenue may be negatively impacted.

        In addition, approximately 42% of our employees are located outside the United States. This means we have exposure to changes in foreign laws governing our relationships with our employees, including wage and hour laws and regulations, fair labor standards, unemployment tax rates, workers' compensation rates, citizenship requirements and payroll and other taxes, which likely would have a direct impact on our operating costs. We also intend to expand our international operations and international sales and marketing activities. Expansion in international markets has required, and will continue to require, significant management attention and resources. Moreover, local laws and customs in many countries differ significantly from those in the United States. We incur additional legal compliance costs associated with our international operations and could become subject to legal penalties in foreign countries if we do not comply with local laws and regulations, which may be substantially different from those in the United States. In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by United States regulations applicable to us such as the Foreign Corrupt Practices Act. Although we implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations, including those based in or from countries where practices which violate such United States laws may be customary, will not take actions in violation of our policies. Any such violation, even if prohibited by our policies, could have an adverse effect on our business.

We may incur losses associated with currency fluctuations and may not be able to effectively hedge our exposure.

        Our operating results are subject to fluctuations in foreign currency exchange rates. We attempt to mitigate a portion of these risks through foreign currency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity and expense. We have established a hedging program to partially hedge our exposure to foreign currency exchange rate fluctuations primarily for the Japanese Yen and the Euro. We regularly review our hedging program and make adjustments as necessary based on the judgment factors discussed above. Our hedging activities may not offset more than a portion of the adverse

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financial impact resulting from unfavorable movement in foreign currency exchange rates, which could adversely affect our financial condition or results of operations.

Changes in, or interpretations of, accounting principles could result in unfavorable accounting charges.

        We prepare our consolidated financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions. Our accounting principles that recently have been or may be affected by changes in the accounting principles are as follows:

•

software revenue recognition;



•

accounting for stock-based compensation;



•

accounting for income taxes; and



•

accounting for business combinations and related goodwill.

        For example, in the first quarter of fiscal 2006, we adopted Statements of Financial Accounting Standards ("SFAS") No. 123 (revised 2004) ("SFAS 123R"), "Share-Based Payment" which requires the measurement of all stock-based compensation to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statements of income. The adoption of SFAS 123R has had, and will continue to have, a significant adverse effect on our reported financial results.

        We also adopted FIN 48 in the first quarter of fiscal 2008. The adoption of FIN 48 resulted in an increase to both assets and liabilities in our condensed consolidated balance sheet as of the beginning of fiscal 2008 and may have an adverse effect on our future operating results and financial position.

If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.

        Under GAAP, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a decline in stock price and market capitalization, future cash flows, and slower growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, resulting in an impact on our results of operations. For example, our Mobile and Device Solutions segment, which primarily consists of assets acquired in the Macromedia acquisition, is in an emerging market with high growth potential. Revenue is based on the introduction of new products and future royalties. If future revenue or revenue forecasts for this segment do not meet our expectations, we will be required to record a charge to earnings reflecting an impairment of this recorded goodwill or intangible assets.

Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.

        Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in, or interpretation of, tax rules and regulations, by unanticipated decreases in the amount of revenue or earnings in countries with low statutory tax rates, by lapses of the availability of the U.S. research and development tax credit, or by changes in the valuation of our deferred tax assets and liabilities.

        In addition, we are subject to the continual examination of our income tax returns by the Internal Revenue Service and other domestic and foreign tax authorities, including a current examination by the

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Internal Revenue Service for our fiscal 2001, 2002 and 2003 tax returns, primarily related to our intercompany transfer pricing. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current examination. We believe such estimates to be reasonable; however, there can be no assurance that the final determination of any of these examinations will not have an adverse effect on our operating results and financial position.

If we are unable to recruit and retain key personnel our business may be harmed.

        Much of our future success depends on the continued service and availability of our senior management, including our Chief Executive Officer and other members of our executive team. These individuals have acquired specialized knowledge and skills with respect to Adobe. The loss of any of these individuals could harm our business. Our business is also dependent on our ability to retain, hire and motivate talented, highly skilled personnel. Experienced personnel in the information technology industry are in high demand and competition for their talents is intense, especially in the Bay Area, where many of our employees are located. We have relied on our ability to grant equity compensation as one mechanism for recruiting and retaining such highly skilled personnel. Recently enacted accounting regulations requiring the expensing of equity compensation may impair our ability to provide these incentives without incurring significant compensation costs. If we are unable to continue to successfully attract and retain key personnel, our business may be harmed.

Our investment portfolio may become impaired by further deterioration of the capital markets.

        Our cash equivalent and short-term investment portfolio as of February 29, 2008 consisted of US treasury securities, bonds of government agencies, obligations of foreign governments, corporate bonds and taxable money market mutual funds. We follow an established investment policy and set of guidelines to monitor, manage and limit our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes.

        As a result of current adverse financial market conditions, investments in some financial instruments, such as structured investment vehicles, sub-prime mortgage-backed securities and collateralized debt obligations, may pose risks arising from liquidity and credit concerns. As of February 29, 2008, we had no direct holdings in these categories of investments and our indirect exposure to these financial instruments through our holdings in money market mutual funds was immaterial. As of February 29, 2008, we had no impairment charge associated with our short-term investment portfolio. Although we believe our current investment portfolio has very little risk of impairment, we cannot predict future market conditions or market liquidity and can provide no assurance that our investment portfolio will remain unimpaired.

We may suffer losses from our equity investments which could harm our business.

        We have investments and plan to continue to make future investments in privately-held companies, many of which are considered in the start-up or development stages. These investments are inherently risky, as the market for the technologies or products these companies have under development is typically in the early stages and may never materialize. Our investment activities can impact our net income. Future price fluctuations in these securities and any significant long-term declines in value of any of our investments could reduce our net income in future periods.

We rely on turnkey assemblers and any adverse change in our relationship with our turnkey assemblers could result in a loss of revenue and harm our business.

        We currently rely on six turnkey assemblers of our products, with at least two turnkeys located in each major region we serve. If any significant turnkey assembler terminates its relationship with us, or if our supply from any significant turnkey assembler is interrupted or terminated for any other reason, we may not have enough time or be able to replace the supply of products replicated by that turnkey assembler to avoid serious harm to our business.

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        Below is a summary of stock repurchases for the quarter ended February 29, 2008. See Notes 10 and 17 of our Notes to Condensed Consolidated Financial Statements for information regarding our stock repurchase programs.

Plan/Period(1)			Shares Repurchased(2)	Average Price Per Share		Maximum Number of Shares that May Yet Be Purchased Under the Plan
Stock Repurchase Program I
Beginning shares available to be repurchased as of November 30, 2007						153,555,036	(3)
December 1—December 28, 2007
	Structured repurchases		2,167,119	$	41.09
December 29, 2007—January 25, 2008
	From employees(4)		560	$	37.90
	Structured repurchases		1,434,033	$	38.28
January 26—February 29, 2008
	From employees(4)		31	$	35.09
	Structured repurchases		3,110,197	$	33.09
	Adjustments to repurchase authority for net dilution		—			(196,016)	(5)
		Total shares repurchased	6,711,940			(6,711,940	)
Ending shares available to be repurchased under Program I as of February 29, 2008						146,647,080	(6)
Stock Repurchase Program II
Beginning shares available to be repurchased as of November 30, 2007						32,315,623
December 1—December 28, 2007
	Structured repurchases		820,560	$	40.62
December 29, 2007—January 25, 2008
	Structured repurchases		12,992,044	$	39.54
January 26—February 29, 2008
	Structured repurchases		12,825,242	$	35.35
		Total shares repurchased	26,637,846			(26,637,846	)
Ending shares available to be repurchased under Program II as of February 29, 2008						5,677,777

⁽¹⁾

Stock Repurchase Program I

46

In December 1997, our Board of Directors authorized Stock Repurchase Program I which is not subject to expiration. However, this repurchase program is limited to covering net dilution from stock issuances and is subject to business conditions and cash flow requirements as determined by our Board of Directors form time to time.


Stock Repurchase Program II

In April 2007, our Board of Directors authorized Stock Repurchase Program II which is not subject to expiration. Under Stock Repurchase Program II, we are authorized to repurchase in aggregate up to 20.0 million shares of our common stock. In November 2007, the Board of Directors approved a 30.0 million share increase to Stock Repurchase Program II. This increases the authorization under this program from the original 20.0 million shares to 50.0 million shares.

⁽²⁾

All shares were purchased as part of publicly announced plans.

⁽³⁾

Additional 109.0 million shares were issued for the acquisition of Macromedia which accounted for the majority of the repurchase authorization.

⁽⁴⁾

The repurchases from employees represent shares cancelled when surrendered in lieu of cash payments for withholding taxes due.

⁽⁵⁾

Adjustment of authority to reflect changes in the dilution from outstanding shares and options.

⁽⁶⁾

The remaining authorization for the ongoing stock repurchase program is determined by combining all stock issuances, net of any cancelled, surrendered or exchanged shares less all stock repurchases under the ongoing plan, beginning in the first quarter of fiscal 1998.

ITEM 5.    OTHER INFORMATION

        None.

ITEM 6.    EXHIBITS

		Incorporated by Reference**
Exhibit Number					Filed Herewith
	Exhibit Description	Form	Date	Number
3.1	Amended and Restated Bylaws	8-K	1/15/08	3.1
3.2	Restated Certificate of Incorporation of Adobe Systems Incorporated	10-Q	7/16/01	3.6
3.2.1	Certificate of Correction of Restated Certificate of Incorporation of Adobe Systems Incorporated	10-Q	4/11/03	3.6.1
3.3	Certificate of Designation of Series A Preferred Stock of Adobe Systems Incorporated	10-Q	7/08/03	3.3
4.1	Fourth Amended and Restated Rights Agreement between Adobe Systems Incorporated and Computershare Investor Services, LLC	8-K	7/03/00	1
4.1.1	Amendment No. 1 to Fourth Amended and Restated Rights Agreement between Adobe Systems Incorporated and Computershare Investor Services, LLC	8-A/2G/A	5/23/03	7

47

10.1	1984 Stock Option Plan, as amended*	10-Q	7/02/93	10.1.6
10.2	Amended 1994 Performance and Restricted Stock Plan*				X
10.3	Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan*	10-Q	10/07/04	10.3
10.4	1994 Stock Option Plan, as amended*	S-8	5/30/97	10.40
10.5	1997 Employee Stock Purchase Plan, as amended*	10-K	1/24/08	10.5
10.6	1996 Outside Directors Stock Option Plan, as amended*	10-Q	4/12/06	10.6
10.7	Forms of Stock Option Agreements used in connection with the 1996 Outside Directors Stock Option Plan*	S-8	6/16/00	4.8
10.8	1999 Nonstatutory Stock Option Plan, as amended*	S-8	10/29/01	4.6
10.9	1999 Equity Incentive Plan, as amended*	10-K	2/26/03	10.37
10.10	2003 Equity Incentive Plan, as amended and restated*	DEF 14A	2/27/08	Appendix A
10.11	Form of Stock Option Agreement used in connection with the 2003 Equity Incentive Plan*				X
10.12	Form of Indemnity Agreement*	10-Q	5/30/97	10.25.1
10.13	Forms of Retention Agreement*	10-K	11/28/97	10.44
10.14	Second Amended and Restated Master Lease of Land and Improvements by and between SMBC Leasing and Finance, Inc. and Adobe Systems Incorporated	10-Q	10/07/04	10.14
10.15	Lease between Adobe Systems Incorporated and Selco Service Corporation, dated March 26, 2007	8-K	3/28/07	10.1
10.16	Participation Agreement among Adobe Systems Incorporated, Selco Service Corporation, et al. dated March 26, 2007	8-K	3/28/07	10.2
10.17	Lease Agreement by and between Allaire Corporation and EOP Riverside Project LLC dated November 23, 1999	10-K	3/30/00	10.23

48

10.18	First Amendment to Lease Agreement by and between Allaire Corporation and EOP Riverside Project LLC dated May 31, 2000	10-Q	8/14/00	10.3
10.19	Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan*				X
10.20	Form of Restricted Stock Unit Agreement used in connection with the 2003 Equity Incentive Plan*				X
10.21	Form of Restricted Stock Agreement used in connection with the 2003 Equity Incentive Plan*	10-Q	10/07/04	10.11
10.22	2008 Executive Officer Annual Incentive Plan*	8-K	1/30/08	10.4
10.23	2005 Equity Incentive Assumption Plan*				X
10.24	Form of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan*				X
10.25	Allaire Corporation 1997 Stock Incentive Plan*	S-8	03/27/01	4.06
10.26	Allaire Corporation 1998 Stock Incentive Plan*	S-8	03/27/01	4.07
10.27	Allaire Corporation 2000 Stock Incentive Plan*	S-8	03/27/01	4.08
10.28	Andromedia, Inc. 1996 Stock Option Plan*	S-8	12/07/99	4.07
10.29	Andromedia, Inc. 1997 Stock Option Plan*	S-8	12/07/99	4.08
10.30	Andromedia, Inc. 1999 Stock Plan*	S-8	12/07/99	4.09
10.31	ESI Software, Inc. 1996 Equity Incentive Plan*	S-8	10/18/99	4.08
10.32	eHelp Corporation 1999 Equity Incentive Plan*	S-8	12/29/03	4.08
10.33	Blue Sky Software Corporation 1996 Stock Option Plan*	S-8	12/29/03	4.07
10.34	Bright Tiger Technologies, Inc. 1996 Stock Option Plan*	S-8	03/27/01	4.11

49

10.35	Live Software, Inc. 1999 Stock Option/Stock Issuance Plan*	S-8	03/27/01	4.10
10.36	Macromedia, Inc. 1999 Stock Option Plan*	S-8	08/17/00	4.07
10.37	Macromedia, Inc. 1992 Equity Incentive Plan*	10-Q	08/03/01	10.01
10.38	Macromedia, Inc. 2002 Equity Incentive Plan*	S-8	08/10/05	4.08
10.39	Form of Macromedia, Inc. Stock Option Agreement*	S-8	08/10/05	4.09
10.40	Middlesoft, Inc. 1999 Stock Option Plan*	S-8	08/17/00	4.09
10.41	Form of Macromedia, Inc. Revised Non-Plan Stock Option Agreement*	S-8	11/23/04	4.10
10.42	Form of Macromedia, Inc. Restricted Stock Purchase Agreement*	10-Q	2/08/05	10.01
10.43	Adobe Systems Incorporated Form of Performance Share Program pursuant to the 2003 Equity Incentive Plan*	8-K	1/30/08	10.1
10.44	Form of Award Grant Notice and Performance Share Award used in connection with grants under the Adobe Systems Incorporated 2008 Performance Share Program pursuant to the 2003 Equity Incentive Plan*	8-K	1/30/08	10.2
10.45	2008 Award Calculation Methodology Exhibit A to the 2008 Performance Share Program pursuant to the 2003 Equity Incentive Plan*	8-K	1/30/08	10.3
10.46	Adobe Systems Incorporated Deferred Compensation Plan*	10-K	1/24/08	10.52
10.47	Adobe Systems Incorporated 2007 Performance Share Program pursuant to the 2003 Equity Incentive Plan*	8-K	1/30/07	10.1
10.48	Form of Award Grant Notice and Performance Share Award Agreement used in connection with grants under the Adobe Systems Incorporated 2007 Performance Share Program pursuant to the 2003 Equity Incentive Plan*	8-K	1/30/07	10.2

50

10.49	Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan*	8-K	1/30/07	10.3
10.50	Form of Award Grant Notice and Performance Share Award Agreement used in connection with grants under the Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan*	8-K	1/30/07	10.4
10.51	Adobe Systems Incorporated Executive Cash Bonus Plan*	DEF 14A	2/24/06	Appendix B
10.52	First Amendment to Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective as of February 11, 2008*	8-K	2/13/08	10.1
10.53	Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control*	8-K	2/13/08	10.2
10.54	Employment offer letter between Adobe Systems Incorporated and Richard Rowley, dated October 30, 2006*	8-K	11/16/06	10.1
10.55	Employment offer letter between Adobe Systems Incorporated and Mark Garrett dated January 5, 2007*	8-K	1/26/07	10.1
10.56	Credit Agreement, dated as of February 16, 2007, among Adobe Systems Incorporated and Certain Subsidiaries as Borrowers; BNP Paribas, Keybank National Association, and UBS Loan Finance LLC as Co-Documentation Agents; JPMorgan Chase Bank, N.A. as Syndication Agent; Bank of America, N.A. as Administrative Agent and Swing Line Lender; the Other Lenders Party Thereto; and Banc of America Securities LLC and J.P. Morgan Securities Inc. as Joint Lead Arrangers and Joint Book Managers	8-K	8/16/07	10.1

51

10.57		Amendment to Credit Agreement, dated as of August 13, 2007, among Adobe Systems Incorporated, as Borrower; each Lender from time to time party to the Credit Agreement; and Bank of America, N.A. as Administrative Agent	8-K	8/16/07	10.2
10.58		Second Amendment to Credit Agreement, dated as of February 26, 2008, among Adobe Systems Incorporated, as Borrower; each Lender from time to time party to the Credit Agreement; and Bank of America, N.A. as Administrative Agent	8-K	2/29/08	10.1
31.1		Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934				X
31.2		Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934				X
32.1		Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†				X
32.2		Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†				X
	100.INS	XBRL Instance††				X
100.SCH		XBRL Taxonomy Extension Schema††				X
100.CAL		XBRL Taxonomy Extension††				X
100.LAB		XBRL Taxonomy Extension Labels††				X
100.PRE		XBRL Taxonomy Extension††				X

*

Compensatory plan or arrangement.

**

References to Exhibits 10.17 and 10.18 are to filings made by the Allaire Corporation. References to Exhibits 10.25 through 10.42 are to filings made by Macromedia, Inc.

†

The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Adobe Systems Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

††

Furnished, not filed.

52

SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ADOBE SYSTEMS INCORPORATED
By	/s/  MARK GARRETT Mark Garrett Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: April 4, 2008

53

SUMMARY OF TRADEMARKS

        The following trademarks of Adobe Systems Incorporated or its subsidiaries, which may be registered in the United States and/or other countries, are referenced in this Form 10-Q:

Adobe
Acrobat
Acrobat Connect
ColdFusion
Creative Suite
Flash
Flash Cast
Flash Lite
Flex
Flex Builder
Lightroom
LiveCycle
Macromedia
Reader

        All other trademarks are the property of their respective owners.

54

QuickLinks

ADOBE SYSTEMS INCORPORATED FORM 10-Q TABLE OF CONTENTS
ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited)
ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
ADOBE SYSTEMS INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS OVERVIEW
OPERATIONS OVERVIEW
CRITICAL ACCOUNTING ESTIMATES
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS

SIGNATURE
SUMMARY OF TRADEMARKS

EX-10.2

EX-10.11

Exhibit 10.11

ADOBE SYSTEMS INCORPORATED

NONSTATUTORY STOCK OPTION AGREEMENT

(STANDARD U.S.)

THIS NONSTATUTORY STOCK OPTION AGREEMENT (the “Option Agreement”) is made and entered into as of the Date of Option Grant by and between Adobe Systems Incorporated and

%%FIRST_NAME%-% %%LAST_NAME %-%                  (the “Participant”).  The Company has granted to the Participant pursuant to the Adobe Systems Incorporated 2003 Equity Incentive Plan (the “Plan”) an option to purchase certain shares of Stock (the “Option”), upon the terms and conditions set forth in this Option Agreement, but subject in any event to the Superseding Agreement, if any, described below.

1.DEFINITIONS AND CONSTRUCTION.

1.1Definitions.  Whenever used herein, the following terms shall have their respective meanings set forth below:

(a)“Date of Option Grant” means %%OPTION_DATE,’Month DD, YYYY’%-%

(b)“Number of Option Shares” means %%TOTAL_SHARES_GRANTED%-% shares of Stock, as adjusted from time to time pursuant to Section 9.

(c)“Exercise Price” means $%%OPTION_PRICE%-% per share of Stock, as adjusted from time to time pursuant to Section 9.

(d)“Initial Vesting Date” means the date occurring one (1) year after the Date of Option Grant.

(e)“Vested Shares” means, on any relevant date, that portion (disregarding any fractional share) of the Number of Option Shares determined by multiplying the Number of Option Shares by the “Vested Percentage” determined as of such date as follows:

	Vested Percentage
Prior to Initial Vesting Date	0
On Initial Vesting Date, provided the Participant’s Service has not terminated prior to such date	25	%
Plus:
For each of the next 36 full months of the Participant’s continuous Service from the Initial Vesting Date until the Vested Percentage equals 100%	2.08	%

(f)“Affiliate” means (i) an entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) an entity, other than a Subsidiary Corporation, that is controlled by the Company directly, or indirectly through one or more intermediary entities.  For this purpose, the term “control” (including the term “controlled by”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the relevant entity, whether through the ownership of voting securities, by contract or otherwise; or shall have such other meaning assigned such term for the purposes of registration in the United States (“U.S.”) on Form S-8 under the Securities Act.

(g)“Board” means the Board of Directors of the Company.

(h)“Code” means the U.S. Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

(i)“Committee” means the Executive Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board.  If no committee of the Board has been appointed to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.

(j)“Company” means Adobe Systems Incorporated, a Delaware corporation, or any successor corporation thereto.

(k)“Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a member of the Board) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on registration on a Form S-8 Registration Statement under the Securities Act.

(l)“Disability” means the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code.

(m)“Employee” means any person treated as an employee (including an Officer or a member of the Board who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a member of the Board nor payment of a director’s fee shall be sufficient to constitute employment.

(n)“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

(o)“Fair Market Value” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:

(i)If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq Global Select Market, the Nasdaq SmallCap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported on www.Nasdaq.com 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 Committee, in its discretion.

If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Committee in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse.

(p)“Officer” means any person designated by the Board as an officer of the Company.

(q)“Option Expiration Date” means the date seven (7) years after the Date of Option Grant.

(r)“Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.

2

(s)“Participating Company” means the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.

(t)“Participating Company Group” means, at any point in time, all corporations collectively which are then Participating Companies.

(u)“Securities Act” means the U.S. Securities Act of 1933, as amended.

(v)“Service” means the Participant’s employment or service with the Participating Company Group as an Employee or a Consultant, whichever such capacity the Participant held on the Date of Option Grant or, if later, the date on which the Participant commenced Service.  The Participant’s Service shall be deemed to have terminated if the Participant ceases to render Service to the Participating Company Group in such initial capacity.  However, the Participant’s Service shall not be deemed to have terminated merely because of a change in the Participating Company for which the Participant renders Service in such initial capacity, provided that there is no interruption or termination of the Participant’s Service.  Furthermore, the Participant’s Service with the Participating Company Group shall not be deemed to have terminated if the Participant takes any bona fide leave of absence approved by the Company of ninety (90) days or less.  In the event of a leave in excess of ninety (90) days, the Participant’s Service shall be deemed to terminate on the ninety-first (91st) day of the leave unless the Participant’s right to return to Service with the Participating Company Group is guaranteed by statute or contract.  Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Option Agreement.  The Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company.  Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated and the effective date of such termination.

(w)“Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 9.

(x)“Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.

(y)“Superseding Agreement” means the Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control and/or the individual written retention agreement in effect on the Date of Option Grant between the Company and the Participant, to the extent applicable to the Participant.

1.2Construction.  Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

2.TAX STATUS OF OPTION.

This Option is intended to be a nonstatutory stock option and shall not be treated as an incentive stock option within the meaning of Section 422(b) of the Code.

3.ADMINISTRATION.

All questions of interpretation concerning this Option Agreement shall be determined by the Committee.  All determinations by the Committee shall be final and binding upon all persons having an interest in the Option.  Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.

3

4.EXERCISE OF THE OPTION.

4.1Right to Exercise.  Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 7) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option.  In no event shall the Option be exercisable for more shares than the Number of Option Shares.

4.2Method of Exercise.  Exercise of the Option shall be by means of electronic notice in a form authorized by the Company, which shall be digitally signed or authenticated by the Participant in such manner as required by the notice and transmitted to the Equity Compensation Department of the Company or other authorized representative of the Company (including a third-party administrator designated by the Company).  In the event that the Participant is not authorized or is unable to provide electronic notice of exercise, the Option shall be exercised by written notice to the Company, which shall be signed by the Participant and delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Equity Compensation Department of the Company, or other authorized representative of the Company (including a third-party administrator designated by the Company).  Each such notice, whether electronic or written, must state the Participant’s election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Participant’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement.  Further, each such notice must be received by the Company prior to the termination of the Option as set forth in Section 7 and must be accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased.  The Option shall be deemed to be exercised upon receipt by the Company of such electronic or written notice and the aggregate Exercise Price.

4.3Payment of Exercise Price.

(a)Forms of Consideration Authorized.  Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check or by cash equivalent or (ii) by means of a Cashless Exercise, as defined in Section 4.3(b).

(b)Cashless Exercise.  A “Cashless Exercise” means the delivery of a properly executed notice of exercise together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System).  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any such program or procedure, including with respect to the Participant notwithstanding that such program or procedures may be available to others.

4.4Tax Withholding.  Regardless of any action taken by the Participating Company Group with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), the Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by the Participant is and remains the Participant’s responsibility and that the Participating Company Group (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting or exercise of the Option, the subsequent sale of shares acquired pursuant to such exercise, or the receipt of any dividends and (ii) does not commit to structure the terms of the grant or any other aspect of the Option to reduce or eliminate the Participant’s liability for Tax-Related Items.  At the time of exercise of the Option, the Participant shall pay or make adequate arrangements satisfactory to the Participating Company Group to satisfy all withholding obligations of the Participating Company Group.  In this regard, at the time the Option is exercised, in whole or in part, or at any other time as reasonably requested by the Company, the Participant hereby authorizes withholding of all applicable Tax-Related Items from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for withholding of all applicable Tax Related Items by the Participating Company Group, if any, which arise in connection with the Option.  Alternatively, or in addition, if permissible under applicable law, the Participating Company Group may

4

(i) sell or arrange for the sale of shares acquired by the Participant to meet the withholding obligation of Tax-Related Items and/or (ii) withhold in shares, provided that only the amount of shares necessary to satisfy the minimum withholding amount are withheld.  Finally, the Participant shall pay to the Participating Company Group any amount of the Tax-Related Items that the Participating Company Group may be required to withhold as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described.  The Company shall have no obligation to process the exercise of the Option or to deliver shares of Stock until the obligations in connection with the Tax-Related Items as described in this section have been satisfied by the Participant.

4.5Beneficial Ownership of Shares; Certificate Registration.  The Participant hereby authorizes the Company, in its sole discretion, to deposit for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice any or all shares acquired by the Participant pursuant to the exercise of the Option.  Except as provided by the preceding sentence, a certificate for the shares as to which the Option is exercised shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.

4.6Restrictions on Grant of the Option and Issuance of Shares.  The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities.  The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed.  In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.  ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.  As a condition to the exercise of the Option, the Company may require the 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.

4.7Fractional Shares.  The Company shall not be required to issue fractional shares upon the exercise of the Option.

5.NONTRANSFERABILITY OF THE OPTION.

The Option may be exercised during the lifetime of the Participant only by the Participant or the Participant’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution.  Following the death of the Participant, the Option, to the extent provided in Section 8, may be exercised by the Participant’s legal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.

6.NATURE OF OPTION.

In accepting the Option, the Participant acknowledges that:

6.1the Plan is established voluntarily by the Company; it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Option Agreement;

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6.2the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of Options, or benefits in lieu of Options, even if Options have been granted repeatedly in the past;

6.3all decisions with respect to future Option grants, if any, will be at the sole discretion of the Company;

6.4the Participant’s participation in the Plan shall not create a right to further employment with the Participating Company Group and shall not interfere with any ability of the Participating Company Group to terminate the Participant’s employment relationship at any time with or without cause;

6.5the Participant is voluntarily participating in the Plan;

6.6the Option is not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;

6.7in the event that the Participant is not an employee of the Company, the Option grant will not be interpreted to form an employment contract or relationship with the Company; and furthermore, the Option grant will not be interpreted to form an employment contract with the other members of the Participating Company Group;

6.8the future value of the underlying shares is unknown and cannot be predicted with certainty;

6.9if the underlying shares do not increase in value, the Option will have no value;

6.10if the Participant exercises the Option and obtains shares, the value of those shares acquired upon exercise may increase or decrease in value, even below the Option price; and

6.11in consideration of the grant of the Option, no claim or entitlement to compensation or damages arises from termination of the Option or diminution in value of the Option or shares purchased through exercise of the Option resulting from termination of the Participant’s Service with the Participating Company Group (for any reason whether or not in breach of applicable labor laws) and the Participant irrevocably releases the Participating Company Group from any such claim that may arise.  If, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen then, by signing this Option Agreement, the Participant shall be deemed irrevocably to have waived his or her entitlement to pursue such a claim.

7.TERMINATION OF THE OPTION.

The Option shall terminate and may no longer be exercised after the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Participant’s Service as described in Section 8, or (c) a Change of Control to the extent provided in Section 11.2(c) of the Plan.

8.EFFECT OF TERMINATION OF SERVICE.

8.1Option Exercisability.

(a)Normal Retirement.  If the Participant’s Service terminates at or after the normal retirement age sixty-five (65) years (“Normal Retirement”), then (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) solely for the purpose of computing the Vested Percentage, the Participant will be given credit for an additional twelve (12) months of continuous Service; provided, however, that in no event shall the Vested Percentage exceed 100%.

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(b)Early Retirement.  If the Participant’s Service terminates by reason of the early retirement of the Participant pursuant to an early retirement program established by the Participating Company to which the Participant renders Service (“Early Retirement”), then (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such longer period as shall be established pursuant to such early retirement program) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) solely for the purpose of computing the Vested Percentage, the Participant will be given credit for such additional months of continuous Service, if any, as shall be established pursuant to the early retirement program; provided, however, that in no event shall the Vested Percentage exceed 100%.

(c)Disability.  If the Participant’s Service terminates because of the Disability of the Participant, then (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) solely for the purpose of computing the Vested Percentage, the Participant will be given credit for an additional twelve (12) months of continuous Service; provided, however, that in no event shall the Vested Percentage exceed 100%.

(d)Death.  If the Participant’s Service terminates because of the death of the Participant, then (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) solely for the purpose of computing the Vested Percentage, the Participant will be given credit for an additional twelve (12) months of continuous Service; provided, however, that in no event shall the Vested Percentage exceed 100%.  The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participant’s termination of Service.

(e)Other Termination of Service.  If the Participant’s Service terminates for any reason, except Normal Retirement, Early Retirement, Disability, or death, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such other longer period of time as determined by the Committee, in its discretion) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.

8.2Extension if Exercise Prevented by Law.  Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 8.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.

8.3Extension if Participant Subject to Section 16(b).  Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 8.1 of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or (iii) the Option Expiration Date.

8.4Termination for Cause.  Notwithstanding any other provision of this Option Agreement, if the Participant’s Service is terminated for Cause, the Option shall terminate and cease to be exercisable on the effective date of such termination of Service. “Cause” shall mean any of the following: (i) the Participant’s conviction of a felony; (ii) the Participant’s material act of fraud, dishonesty or other malfeasance; or (iii) the Participant’s willful, improper disclosure of a Participating Company’s confidential or proprietary information.

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9.ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.

In the event of any change in the Stock through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate adjustments shall be made in the number, Exercise Price and class of shares subject to the Option.  If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the Committee may unilaterally amend the Option to provide that the Option is exercisable for New Shares.  In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Committee, in its discretion.  Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Committee pursuant to this Section 9 shall be final, binding and conclusive.

10.RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT.

The Participant shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 9.  If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participant’s employment is “at will” and is for no specified term.  Nothing in this Option Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participant’s Service as an Employee or Consultant, as the case may be, at any time.

11.MISCELLANEOUS PROVISIONS.

11.1Designation of Beneficiary.  Subject to local laws and procedures, the Participant may file with the Company a written designation of a beneficiary who, in the event of the death of the Participant, shall thereafter be entitled to exercise the Option to the extent that it remains exercisable in accordance with this Option Agreement.  Each designation will revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime.  If the Participant is married and designates a beneficiary other than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse.  If the Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the Option may be exercised by the Participant’s legal representative to the extent that it remains exercisable in accordance with this Option Agreement.  If the designated beneficiary survives the Participant but dies before exercising the Option to the full extent that it remains exercisable in accordance with this Option Agreement, then the Option shall be exercisable by the legal representative of such deceased designated beneficiary to the extent that it remains exercisable in accordance with this Option Agreement.  The determination of the Company as to which person, if any, qualifies as a designated beneficiary shall be final, conclusive and binding on all persons.

11.2Binding Effect.  This Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

11.3Termination or Amendment.  The Committee may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in connection with a Change of Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Participant unless such termination or amendment is necessary to comply with any applicable law or government regulation.  No amendment or addition to this Option Agreement shall be effective unless in writing.

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11.4Delivery of Documents and Notices.  Any document relating to participating in the Plan and/or notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the e-mail address, if any, provided for the Participant by a Participating Company or at the address shown below that party’s signature to this Option Agreement or at such other address as such party may designate in writing from time to time to the other party.

(a)Description of Electronic Delivery.  The Plan documents, which may include but do not necessarily include: the Plan Prospectus, this Option Agreement and U.S. financial reports of the Company, may be delivered to the Participant electronically.  In addition, the Participant may deliver electronically the notice called for by Section 4.2 (the “Notice of Exercise”) to the Company or to such third party involved in administering the Plan as the Company may designate from time to time.  Such means of delivery may include but do not necessarily include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Committee’s discretion.

(b)Consent to Electronic Delivery.  The Participant acknowledges that the Participant has read Section 11.4 of this Option Agreement and consents to the electronic delivery of the Plan documents and the delivery of the Notice of Exercise, as described in Section 11.4(a) of this Option Agreement.  The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost if the Participant contacts the Company by telephone, through a postal service or electronic mail at equity@adobe.com.  The Participant further acknowledges that the Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, the Participant understands that the Participant must provide the Company or any designated third party with a paper copy of any documents delivered electronically if electronic delivery fails.  Also, the Participant understands that the Participant’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@adobe.com.  Finally, the Participant understands that he or she is not required to consent to electronic delivery.

11.5Data Privacy Consent.  The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in this document by and among the members of the Participating Company Group for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan.

The Participant understands that the Company and the Participating Company Group hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Stock or directorships held in the Company, details of all Options or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Data”).  The Participant understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Participant’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country.  The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting the Participant’s local human resources representative.  The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any shares of Stock acquired upon exercise of the Option.  The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan.  The Participant understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Participant’s local human resources representative.  The Participant understands, however, that refusing or withdrawing the Participant’s consent may affect the Participant’s ability to participate in the Plan.  For more information on the consequences of the Participant’s refusal to consent or withdrawal of consent, the Participant understands that he or she may contact the Participant’s local human resources representative.

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11.6Headings.  The headings of the Sections in this Option Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Option Agreement or to affect the meaning of this Option Agreement.

11.7Integrated Agreement.  This Option Agreement, together with the Superseding Agreement, if any, and the Plan constitutes the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein.  To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. Any capitalized terms not defined herein shall have the definition as set forth in the Plan and/or the Superseding Agreement. In the event of any conflict between the provisions of this Option Agreement and those of the Plan, the provisions of the Plan shall control.

11.8Applicable Law and Venue.  This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties as evidenced by this Option Agreement, the parties herby submit to and consent to the jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of Santa Clara County, California, or the federal courts of the United States for the Northern District of California, and no other courts, where this Option Agreement is made and/or performed.

ADOBE SYSTEMS INCORPORATED
By:	/s/ Shantanu Narayen
	Shantanu Narayen
Title:	Chief Executive Officer
Address:	345 Park Avenue
	San Jose, CA 95110-2704

The Participant represents that the Participant is familiar with the terms and provisions of this Option Agreement and hereby accepts the Option subject to all of the terms and provisions thereof.  The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under this Option Agreement.

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EX-10.19

Exhibit 10.19

ADOBE SYSTEMS INCORPORATED

AMENDED 1994 PERFORMANCE AND RESTRICTED STOCK PLAN
RESTRICTED STOCK UNIT GRANT NOTICE

(STANDARD U.S.)

Adobe Systems Incorporated (the “Company”), pursuant to its Amended 1994 Performance and Restricted Stock Plan (the “Plan”), hereby awards to Participant the Restricted Stock Unit Award (the “Award”) covering the number of Restricted Stock Units set forth below.  This Award is subject to all of the terms and conditions as set forth herein and in the Restricted Stock Unit Award Agreement (the “Award Agreement”) and the Plan, each of which are attached hereto and incorporated herein in their entirety.  Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Plan or the Program, as applicable.

Participant:	%%FIRST_NAME%-%%%LAST_NAME%-%
Date of Grant:	%%OPTION_DATE,’Month DD, YYYY’%-%
Vesting Commencement Date:	%%VEST_BASE_DATE,’Month DD, YYYY%-%
Number of Restricted Stock Units:	%%TOTAL_SHARES_GRANTED%-%
Payment for Stock:	Participant’s services to the Company (to the
	greatest extent permitted by applicable law)

Vesting Schedule:  This Award shall vest as to twenty-five percent of the Restricted Stock Units on the first (1^st) anniversary of the Vesting Commencement Date and the remaining seventy-five percent of the Restricted Stock Units shall vest annually on each anniversary of the Vesting Commencement Date thereafter, so that the Restricted Stock Units are fully vested on the fourth anniversary of  the Vesting Commencement Date; provided, however, that the Participant’s service has not terminated prior to each such vesting date.

Delivery Schedule:  Except as otherwise provided in Section 5 of the Award Agreement, the Company shall deliver on each vesting date one share of Stock for each Restricted Stock Unit that vests on such date, less any shares to be withheld pursuant to Section 11 of the Award Agreement.

Additional Terms/Acknowledgements:  The undersigned Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Award Agreement, and the Plan.  Participant further acknowledges that as of the Date of Grant, this Grant Notice, the Award Agreement, and the Plan set forth the entire understanding between Participant and the Company regarding the Award and supersede all prior oral and written agreements on that subject with the exception of the Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control and/or the individual written retention agreement in effect on the Date of Grant between the Company and the Participant, to the extent applicable to the Participant.

ADOBE SYSTEMS INCORPORATED:

By:	/s/ Shantanu Narayen
	Shantanu Narayen
Title:	Chief Executive Officer

ADOBE SYSTEMS INCORPORATED

AMENDED 1994 PERFORMANCE AND RESTRICTED STOCK PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

(STANDARD U.S.)

Pursuant to the Grant Notice (“Grant Notice”) and this Award Agreement (“Award Agreement”), Adobe Systems Incorporated (the “Company”) has awarded you, pursuant to its Amended 1994 Performance and Restricted Stock Plan (the “Plan”), a Restricted Stock Unit Award for that number of Restricted Stock Units as indicated in the Grant Notice. Unless otherwise defined herein or the Grant Notice, capitalized terms shall have the meanings set forth in the Plan. Subject to adjustment and the terms and conditions as provided herein and in the Plan, each Restricted Stock Unit shall represent the right to receive one (1) share of Stock.

The details of your Award, in addition to those set forth in the Grant Notice, are as follows.

1.NUMBER OF STOCK UNITS AND SHARES OF STOCK.

(a)The number of Restricted Stock Units subject to your Award and the number of shares of Stock deliverable with respect to such Restricted Stock Units will be adjusted from time to time for capitalization adjustments as described in the Plan. You shall receive no benefit or adjustment to your Award with respect to any cash dividend or other distribution that does not result in a capitalization adjustment pursuant to the Plan; provided, however, that this sentence shall not apply with respect to any shares of Stock that are subject to your Award after such shares have been delivered to you.

(b)Any additional Restricted Stock Units, shares of Stock, cash or other property that become subject to the Award pursuant to this Section 1 shall be subject, in a manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Restricted Stock Units and shares of Stock covered by your Award.

(c)Notwithstanding the provisions of this Section 1, no fractional Restricted Stock Units or rights for fractional shares of Stock shall be created pursuant to this Section 1. The Board shall, in its discretion, determine an equivalent benefit for any fractional Restricted Stock Units or fractional shares that might be created by the adjustments referred to in this Section 1.

2.PAYMENT BY YOU. Except as otherwise provided in the Grant Notice, this Award has been granted in consideration of your services to the Company (or any other Participating Company, as applicable). Subject to Section 11 below, and except as otherwise provided in the Grant Notice, you will not be required to make any payment to the Company (other than your past and future services with the Company (or any other Participating Company, as applicable)) with respect to your receipt of the Award, the vesting of the Restricted Stock Units, or the delivery of the shares of Stock underlying the Restricted Stock Units.

3.VESTING.

(a)The Restricted Stock Units shall vest, if at all, as provided in the Vesting Schedule set forth in your Grant Notice and the Plan, provided that vesting shall cease upon the termination of your service.

(b)The determination that your service was terminated shall be made by the Company (or any Participating Company, as applicable) in its sole discretion. Any such determination by the Company (or any Participating Company, as applicable) for the purposes of this Award Agreement shall have no effect upon any determination of the rights or obligations of you or the Company (or any Participating Company, as applicable) for any other purpose.

4.DISTRIBUTION OF SHARES OF STOCK. Subject to the provisions of this Award Agreement (including Sections 5 and 11 below) and the Plan, the Company shall deliver to you on the applicable vesting date one (1) share of Stock for each Restricted Stock Unit that vests on such date.

5.DEFERRAL ELECTION. If permitted by the Company to do so, you may elect to defer receipt of the shares of Stock that would otherwise be issued pursuant to the vesting of your Award in accordance with the terms and conditions, including the applicable eligibility requirements, of the Company’s Deferred Compensation Plan. The Board (or an appropriate committee thereof) will, in its sole discretion, establish the rules and procedures for such deferrals.

6.SECURITIES LAW COMPLIANCE. The grant of your Award and the issuance of any shares of Stock thereunder shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. You may not be issued any shares of Stock if such issuance would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, you may not be issued any shares of Stock unless (i) a registration statement under the Securities Act shall at the time of issuance be in effect with respect to the shares or (ii) in the opinion of legal counsel to the Company, the shares may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. YOU ARE CAUTIONED THAT THE SHARES MAY NOT BE ISSUED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. 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 of Stock 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 issuance of any shares of Stock pursuant to this Award, the Company may require you 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

7.RESTRICTIVE LEGENDS. The shares of Stock issued pursuant to this Award shall be endorsed with appropriate legends, if any, determined by the Company.

8.TRANSFER RESTRICTIONS. Prior to the time that shares of Stock have been delivered to you pursuant to this Award, you may not transfer, pledge, sell or otherwise dispose of such shares. For example, you may not use shares that may be issued in respect of your Restricted Stock Units as security for a loan, nor may you transfer, pledge, sell or otherwise dispose of such shares. This restriction on transfer will lapse upon delivery to you of shares in respect of your vested Restricted Stock Units. Your Award is not transferable, except by will or by the laws of descent and distribution, unless otherwise required by applicable law. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to receive any distribution of Stock pursuant to this Award Agreement.

9.AWARD NOT A SERVICE CONTRACT. Your Award is not an employment or service contract, and nothing in your Award shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or the Participating Company Group, or on the part of the Company or Participating Company Group to continue such service. In addition, nothing in your Award shall obligate the Company or the Participating Company Group, their respective stockholders, boards of directors, Officers or Employees to continue any relationship that you might have as an Employee, Director or Consultant for the Company or the Participating Company Group.

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10.UNSECURED OBLIGATION. Your Award is unfunded, and even as to any Restricted Stock Units that vest, you shall be considered an unsecured creditor of the Company with respect to the Company’s obligation, if any, to issue Stock pursuant to this Award Agreement. You shall not have voting or any other rights as a stockholder of the Company with respect to the Stock acquired pursuant to this Award Agreement until such Stock is issued to you pursuant to this Award Agreement. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company with respect to the Stock so issued. Nothing contained in this Award Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.

11.WITHHOLDING OBLIGATIONS.  Regardless of any action taken by the Company or the Participating Company Group with respect to any or all income, employment, social insurance, or payroll taxes, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and Participating Company Group (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of your Award, the subsequent sale of shares acquired pursuant to this Award, or the receipt of any dividends and (ii) do not commit to structure the terms of the grant or any other aspect of your Award to reduce or eliminate your liability for Tax-Related Items. At the time you vest in this Award, at the time you receive a distribution of shares of Stock pursuant to this Award, or at any other time as reasonably requested by the Company or the Participating Company Group, you shall pay or make adequate arrangements satisfactory to the Participating Company Group to satisfy all withholding obligations of the Participating Company Group. In this regard, at the time you vest in and/or receive a distribution of shares of Stock pursuant to this Award, or at any other time as reasonably requested by the Company or the Participating Company Group, you hereby authorize the withholding of that number of whole vested shares otherwise deliverable to you pursuant to this Award Agreement having a fair market value not in excess of the amount of the Tax-Related Items determined by the applicable minimum statutory rates. In no event may shares of Stock shall be withheld with a value exceeding the minimum amount of tax required to be withheld by law. Finally, you shall pay to the Company or Participating Company Group (as applicable) any amount of the Tax-Related Items that the Company or the Participating Company Group may be required to withhold as a result of your participation in the Plan that cannot be satisfied by the means previously described. You expressly acknowledge and agree that the Company may withhold from any compensation paid to you by the Company in partial or full satisfaction of the withholdings contemplated by this Section 11. The Company and the Participating Company Group shall have no obligation to deliver shares of Stock until you have satisfied the obligations in connection with the Tax-Related Items as described in this section.

12.NATURE OF AWARD. In accepting your Award, you acknowledge that:

(a)the Plan is established voluntarily by the Company; it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Award Agreement;

(b)the grant of your Award is voluntary and occasional and does not create any contractual or other right to receive future grants of awards, or benefits in lieu of awards, even if awards have been granted repeatedly in the past;

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(c)all decisions with respect to future Awards under the Plan, if any, will be at the sole discretion of the Committee;

(d)your participation in the Plan shall not create a right to further employment with the Company or the Participating Company Group and shall not interfere with any ability of the Company or the Participating Company Group to terminate your employment relationship at any time with or without cause;

(e)you are voluntarily participating in the Plan;

(f)this Award is not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;

(g)in the event that you are not an employee of the Company, your Award will not be interpreted to form an employment contract or relationship with the Company; and furthermore, your Award will not be interpreted to form an employment contract with the other members of the Participating Company Group;

(h)the future value of the shares of Stock subject to your Award is unknown and cannot be predicted with certainty; and

(i)no claim or entitlement to compensation or damages arises from termination of your Award or diminution in value of your Award or shares of Stock issued pursuant to your Award resulting from termination of your service with the Company or the Participating Company Group (for any reason whether or not in breach of applicable labor laws), and you irrevocably release the Company and the Participating Company Group from any such claim that may arise. If, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen then, by executing the Grant Notice, you shall be deemed irrevocably to have waived your entitlement to pursue such a claim.

13.DELIVERY OF DOCUMENTS AND NOTICES. Any document relating to participating in the Plan or Program and/or notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Award Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the e-mail address, if any, provided for you by the Company or a Participating Company or at such other address as such party may designate in writing from time to time to the other party.

(a)Description of Electronic Delivery. The Plan and Program documents, which may include but do not necessarily include the Plan prospectus, Grant Notice, Award Agreement and U.S. financial reports of the Company, may be delivered to you electronically. Such means of delivery may include but do not necessarily include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Committee’s discretion.

(b)Consent to Electronic Delivery. You acknowledge that you have read Section 13 of this Award Agreement and consent to the electronic delivery of the Plan and Program documents, as described in this Section 13. You acknowledge that you may receive from the Company a paper copy of

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any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at equity@adobe.com. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide the Company or any designated third party with a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@adobe.com. Finally, you understand that you are not required to consent to electronic delivery.

14.DATA PRIVACY CONSENT. You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among the members of the Participating Company Group for the exclusive purpose of implementing, administering and managing your participation in the Plan and Program.

You understand that the Company and the Participating Company Group hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Stock or directorships held in the Company, details of all awards or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan and Program (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan or Program, that these recipients may be located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom you may elect to deposit any shares of Stock pursuant to this Award. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

15.HEADINGS. The headings of the Sections in this Award Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Award Agreement or to affect the meaning of this Award Agreement.

16.MISCELLANEOUS.

(a)The rights and obligations of the Company under your Award shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company’s successors and assigns.

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(b)You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.

(c)You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.

17.GOVERNING PLAN DOCUMENT. Your Award is subject to all the provisions of the Plan, which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control.

18.APPLICABLE LAW AND VENUE.  This Award Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California.  For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties as evidenced by this Award Agreement, the parties herby submit to and consent to the jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of Santa Clara County, California, or the federal courts of the United States for the Northern District of California, and no other courts, where this Award Agreement is made and/or performed.

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EX-10.20

Exhibit 10.20

ADOBE SYSTEMS INCORPORATED

AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT GRANT NOTICE

(STANDARD U.S.)

Adobe Systems Incorporated (the “Company”), pursuant to its Amended and Restated 2003 Equity Incentive Plan (the “Plan”), hereby awards to Participant the Restricted Stock Unit Award (the “Award”) covering the number of Restricted Stock Units set forth below.  This Award is subject to all of the terms and conditions as set forth herein and in the Restricted Stock Unit Award Agreement (the “Award Agreement”) and the Plan, each of which are attached hereto and incorporated herein in their entirety.  Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Plan or the Program, as applicable.

Participant:	%%FIRST_NAME%-%%%LAST_NAME%-%
Date of Grant:	%%OPTION_DATE,’Month DD, YYYY’%-%
Vesting Commencement Date:	%%VEST_BASE_DATE,’Month DD, YYYY%-%
Number of Restricted Stock Units:	%%TOTAL_SHARES_GRANTED%-%
Payment for Stock:	Participant’s services to the Company (to the
	greatest extent permitted by applicable law)

Vesting Schedule:  This Award shall vest as to twenty-five percent of the Restricted Stock Units on the first (1^st) anniversary of the Vesting Commencement Date and the remaining seventy-five percent of the Restricted Stock Units shall vest annually on each anniversary of the Vesting Commencement Date thereafter, so that the Restricted Stock Units are fully vested on the fourth anniversary of  the Vesting Commencement Date; provided, however, that the Participant’s Service has not terminated prior to each such vesting date.

Delivery Schedule:  Except as otherwise provided in Section 5 of the Award Agreement, the Company shall deliver on each vesting date one share of Stock for each Restricted Stock Unit that vests on such date, less any shares to be withheld pursuant to Section 11 of the Award Agreement.

Additional Terms/Acknowledgements:  The undersigned Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Award Agreement, and the Plan.  Participant further acknowledges that as of the Date of Grant, this Grant Notice, the Award Agreement, and the Plan set forth the entire understanding between Participant and the Company regarding the Award and supersede all prior oral and written agreements on that subject with the exception of the Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control and the individual written retention agreement in effect on the Date of Grant between the Company and the Participant.

ADOBE SYSTEMS INCORPORATED:

By:	/s/ Shantanu Narayen
	Shantanu Narayen
Title:	Chief Executive Officer

ADOBE SYSTEMS INCORPORATED

AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

(STANDARD U.S.)

Pursuant to the Grant Notice (“Grant Notice”) and this Award Agreement (“Award Agreement”), Adobe Systems Incorporated (the “Company”) has awarded you, pursuant to its Amended and Restated 2003 Equity Incentive Plan (the “Plan”), a Restricted Stock Unit Award for that number of Restricted Stock Units as indicated in the Grant Notice. Unless otherwise defined herein or the Grant Notice, capitalized terms shall have the meanings set forth in the Plan. Subject to adjustment and the terms and conditions as provided herein and in the Plan, each Restricted Stock Unit shall represent the right to receive one (1) share of Stock.

The details of your Award, in addition to those set forth in the Grant Notice, are as follows.

1.NUMBER OF STOCK UNITS AND SHARES OF STOCK.

(a)The number of Restricted Stock Units subject to your Award and the number of shares of Stock deliverable with respect to such Restricted Stock Units will be adjusted from time to time for capitalization adjustments as described in the Plan. You shall receive no benefit or adjustment to your Award with respect to any cash dividend or other distribution that does not result in a capitalization adjustment pursuant to the Plan; provided, however, that this sentence shall not apply with respect to any shares of Stock that are subject to your Award after such shares have been delivered to you.

(b)Any additional Restricted Stock Units, shares of Stock, cash or other property that become subject to the Award pursuant to this Section 1 shall be subject, in a manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Restricted Stock Units and shares of Stock covered by your Award.

(c)Notwithstanding the provisions of this Section 1, no fractional Restricted Stock Units or rights for fractional shares of Stock shall be created pursuant to this Section 1. The Board shall, in its discretion, determine an equivalent benefit for any fractional Restricted Stock Units or fractional shares that might be created by the adjustments referred to in this Section 1.

2.PAYMENT BY YOU. Except as otherwise provided in the Grant Notice, this Award has been granted in consideration of your services to the Company (or any other Participating Company, as applicable). Subject to Section 11 below, and except as otherwise provided in the Grant Notice, you will not be required to make any payment to the Company (other than your past and future services with the Company (or any other Participating Company, as applicable)) with respect to your receipt of the Award, the vesting of the Restricted Stock Units, or the delivery of the shares of Stock underlying the Restricted Stock Units.

3.VESTING.

(a)The Restricted Stock Units shall vest, if at all, as provided in the Vesting Schedule set forth in your Grant Notice and the Plan, provided that vesting shall cease upon the termination of your Service.

(b)The determination that your Service was terminated shall be made by the Company (or any Participating Company, as applicable) in its sole discretion. Any such determination by

the Company (or any Participating Company, as applicable) for the purposes of this Award Agreement shall have no effect upon any determination of the rights or obligations of you or the Company (or any Participating Company, as applicable) for any other purpose.

4.DISTRIBUTION OF SHARES OF STOCK. Subject to the provisions of this Award Agreement (including Sections 5 and 11 below) and the Plan, the Company shall deliver to you on the applicable vesting date one (1) share of Stock for each Restricted Stock Unit that vests on such date.

5.DEFERRAL ELECTION. If permitted by the Company to do so, you may elect to defer receipt of the shares of Stock that would otherwise be issued pursuant to the vesting of your Award in accordance with the terms and conditions, including the applicable eligibility requirements, of the Company’s Deferred Compensation Plan. The Board (or an appropriate committee thereof) will, in its sole discretion, establish the rules and procedures for such deferrals.

6.SECURITIES LAW COMPLIANCE. The grant of your Award and the issuance of any shares of Stock thereunder shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. You may not be issued any shares of Stock if such issuance would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, you may not be issued any shares of Stock unless (i) a registration statement under the Securities Act shall at the time of issuance be in effect with respect to the shares or (ii) in the opinion of legal counsel to the Company, the shares may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. YOU ARE CAUTIONED THAT THE SHARES MAY NOT BE ISSUED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. 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 of Stock 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 issuance of any shares of Stock pursuant to this Award, the Company may require you 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

7.RESTRICTIVE LEGENDS. The shares of Stock issued pursuant to this Award shall be endorsed with appropriate legends, if any, determined by the Company.

8.TRANSFER RESTRICTIONS. Prior to the time that shares of Stock have been delivered to you pursuant to this Award, you may not transfer, pledge, sell or otherwise dispose of such shares. For example, you may not use shares that may be issued in respect of your Restricted Stock Units as security for a loan, nor may you transfer, pledge, sell or otherwise dispose of such shares. This restriction on transfer will lapse upon delivery to you of shares in respect of your vested Restricted Stock Units. Your Award is not transferable, except by will or by the laws of descent and distribution, unless otherwise required by applicable law. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to receive any distribution of Stock pursuant to this Award Agreement.

9.AWARD NOT A SERVICE CONTRACT. Your Award is not an employment or service contract, and nothing in your Award shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or the Participating Company Group, or on the part of the Company or Participating Company Group to continue such service. In addition, nothing in your Award shall obligate the Company or the Participating Company Group, their respective stockholders, boards of directors, Officers or Employees to continue any relationship that you might have as an Employee, Director or Consultant for the Company or the Participating Company Group.

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10.UNSECURED OBLIGATION. Your Award is unfunded, and even as to any Restricted Stock Units that vest, you shall be considered an unsecured creditor of the Company with respect to the Company’s obligation, if any, to issue Stock pursuant to this Award Agreement. You shall not have voting or any other rights as a stockholder of the Company with respect to the Stock acquired pursuant to this Award Agreement until such Stock is issued to you pursuant to this Award Agreement. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company with respect to the Stock so issued. Nothing contained in this Award Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.

11.WITHHOLDING OBLIGATIONS.  Regardless of any action taken by the Company or the Participating Company Group with respect to any or all income, employment, social insurance, or payroll taxes, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and Participating Company Group (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of your Award, the subsequent sale of shares acquired pursuant to this Award, or the receipt of any dividends and (ii) do not commit to structure the terms of the grant or any other aspect of your Award to reduce or eliminate your liability for Tax-Related Items. At the time you vest in this Award, at the time you receive a distribution of shares of Stock pursuant to this Award, or at any other time as reasonably requested by the Company or the Participating Company Group, you shall pay or make adequate arrangements satisfactory to the Participating Company Group to satisfy all withholding obligations of the Participating Company Group. In this regard, at the time you vest in and/or receive a distribution of shares of Stock pursuant to this Award, or at any other time as reasonably requested by the Company or the Participating Company Group, you hereby authorize the withholding of that number of whole vested shares otherwise deliverable to you pursuant to this Award Agreement having a fair market value not in excess of the amount of the Tax-Related Items determined by the applicable minimum statutory rates. In no event may shares of Stock shall be withheld with a value exceeding the minimum amount of tax required to be withheld by law. Finally, you shall pay to the Company or Participating Company Group (as applicable) any amount of the Tax-Related Items that the Company or the Participating Company Group may be required to withhold as a result of your participation in the Plan that cannot be satisfied by the means previously described. You expressly acknowledge and agree that the Company may withhold from any compensation paid to you by the Company in partial or full satisfaction of the withholdings contemplated by this Section 11. The Company and the Participating Company Group shall have no obligation to deliver shares of Stock until you have satisfied the obligations in connection with the Tax-Related Items as described in this section.

12.NATURE OF AWARD. In accepting your Award, you acknowledge that:

(a)the Plan is established voluntarily by the Company; it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Award Agreement;

(b)the grant of your Award is voluntary and occasional and does not create any contractual or other right to receive future grants of awards, or benefits in lieu of awards, even if awards have been granted repeatedly in the past;

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(c)all decisions with respect to future Awards under the Plan, if any, will be at the sole discretion of the Committee;

(d)your participation in the Plan shall not create a right to further employment or service with the Company or the Participating Company Group and shall not interfere with any ability of the Company or the Participating Company Group to terminate your employment or service relationship at any time with or without cause;

(e)you are voluntarily participating in the Plan;

(f)this Award is not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;

(g)in the event that you are not an employee of the Company, your Award will not be interpreted to form an employment contract or relationship with the Company; and furthermore, your Award will not be interpreted to form an employment contract with the other members of the Participating Company Group;

(h)the future value of the shares of Stock subject to your Award is unknown and cannot be predicted with certainty; and

(i)no claim or entitlement to compensation or damages arises from termination of your Award or diminution in value of your Award or shares of Stock issued pursuant to your Award resulting from termination of your Service with the Company or the Participating Company Group (for any reason whether or not in breach of applicable labor laws), and you irrevocably release the Company and the Participating Company Group from any such claim that may arise. If, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen then, by executing the Grant Notice, you shall be deemed irrevocably to have waived your entitlement to pursue such a claim.

13.DELIVERY OF DOCUMENTS AND NOTICES. Any document relating to participating in the Plan or Program and/or notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Award Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the e-mail address, if any, provided for you by the Company or a Participating Company or at such other address as such party may designate in writing from time to time to the other party.

(a)Description of Electronic Delivery. The Plan and Program documents, which may include but do not necessarily include the Plan prospectus, Grant Notice, Award Agreement and U.S. financial reports of the Company, may be delivered to you electronically. Such means of delivery may include but do not necessarily include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Committee’s discretion.

(b)Consent to Electronic Delivery. You acknowledge that you have read Section 13 of this Award Agreement and consent to the electronic delivery of the Plan and Program documents, as described in this Section 13. You acknowledge that you may receive from the Company a paper copy of

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any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at equity@adobe.com. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide the Company or any designated third party with a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@adobe.com. Finally, you understand that you are not required to consent to electronic delivery.

14.DATA PRIVACY CONSENT. You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among the members of the Participating Company Group for the exclusive purpose of implementing, administering and managing your participation in the Plan and Program.

You understand that the Company and the Participating Company Group hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Stock or directorships held in the Company, details of all awards or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan and Program (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan or Program, that these recipients may be located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom you may elect to deposit any shares of Stock pursuant to this Award. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

15.HEADINGS. The headings of the Sections in this Award Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Award Agreement or to affect the meaning of this Award Agreement.

16.MISCELLANEOUS.

(a)The rights and obligations of the Company under your Award shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company’s successors and assigns.

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(b)You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.

(c)You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.

17.GOVERNING PLAN DOCUMENT. Your Award is subject to all the provisions of the Plan, which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control.

18.APPLICABLE LAW AND VENUE.  This Award Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California.  For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties as evidenced by this Award Agreement, the parties herby submit to and consent to the jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of Santa Clara County, California, or the federal courts of the United States for the Northern District of California, and no other courts, where this Award Agreement is made and/or performed.

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EX-10.23

Exhibit 10.23

ADOBE SYSTEMS INCORPORATED

2005 EQUITY INCENTIVE ASSUMPTION PLAN

(as amended January 24, 2008)

1.ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

1.1         Establishment.  Adobe Systems Incorporated, a Delaware corporation, hereby establishes the Adobe Systems Incorporated 2005 Equity Incentive Assumption Plan (the “Plan”) effective as of December 3, 2005 (the “Effective Date”).

1.2Background and Purpose.  The Plan is established in connection with the acquisition by the Company of Macromedia, Inc. and is intended to comply with Rule 4350(i)(1)(A)(iii) of the Nasdaq Qualitative Listing Requirements.  The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group.  The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Stock Appreciation Rights, Stock Purchase Rights, Stock Bonuses, Performance Shares and Performance Units.  Outstanding Awards shall continue to be governed by and administered under the terms of the Macromedia Plans pursuant to which they originally were granted.  Awards granted on or after the Effective Date shall be subject to the terms of this Plan.

1.3Term of Plan.  The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Awards granted under the Plan have lapsed; provided, however, that no Awards may be made from Reserve A after August 1, 2009, and no Awards may be made from Reserve B after November 10, 2014.

2.DEFINITIONS AND CONSTRUCTION.

2.1Definitions.  Whenever used herein, the following terms shall have their respective meanings set forth below:

(a)“Affiliate” means (i) an entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) an entity, other than a Subsidiary Corporation, that is controlled by the Company directly, or indirectly through one or more intermediary entities.  For this purpose, the term “control” (including the term “controlled by”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the relevant entity, whether through the ownership of voting securities, by contract or otherwise; or shall have such other meaning assigned such term for the purposes of registration on Form S-8 under the Securities Act.

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(b)“Award” means any Option, SAR, Stock Purchase Right, Stock Bonus, Performance Share or Performance Unit granted under the Plan.

(c)“Award Agreement” means a written agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Award granted to the Participant.  An Award Agreement may be an “Option Agreement,” an “SAR Agreement,” a “Stock Purchase Agreement,” a “Stock Bonus Agreement,” a “Performance Share Agreement” or a “Performance Unit Agreement.”

(d)“Board” means the Board of Directors of the Company.

(e)“Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

(f)“Committee” means the Executive Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board.  If no committee of the Board has been appointed to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.

(g)“Company” means Adobe Systems Incorporated, a Delaware corporation, or any successor corporation thereto.

(h)“Disability” means the permanent and total disability of the Participant, within the meaning of Section 22(e)(3) of the Code.

(i)“Dividend Equivalent” means a credit, made at the discretion of the Committee or as otherwise provided by the Plan, to the account of a Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant.

(j)“Employee” means any person treated as an employee in the records of a Participating Company (including an Officer or a member of the Board who is also an employee); provided, however, that neither service as a member of the Board nor payment of a director’s fee shall be sufficient to constitute employment for purposes of the Plan.

(k)“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(l)“Fair Market Value” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:

(i)If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, The Nasdaq

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SmallCap 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 Committee, in its discretion.

(ii)If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Committee in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse.

(m)“Insider” means an Officer, a member of the Board or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act.

(n)“Macromedia Plans” means the equity incentive plans of Macromedia, Inc described in Section 4.1 of the Plan.

(o)“Nonstatutory Stock Option” means an Option not intended to be (as set forth in the Award Agreement) an incentive stock option within the meaning of Section 422(b) of the Code.

(p)“Officer” means any person designated by the Board as an officer of the Company.

(q)“Option” means the right to purchase Stock at a stated price for a specified period of time granted to a participant pursuant to Section 6 of the Plan.  All Options shall be Nonstatutory Stock Options.

(r)“Outstanding Award” means an award outstanding immediately prior to the Effective Date under the Macromedia Plans.

(s)“Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.

(t)“Participant” means any eligible person who has been granted one or more Awards.

(u)“Participating Company” means the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.

(v)“Participating Company Group” means, at any point in time, all corporations collectively which are then Participating Companies.

(w)“Performance Award” means an Award of Performance Shares or Performance Units.

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(x)“Performance Award Formula” means, for any Performance Award, a formula or table established by the Committee pursuant to Section 9.3 of the Plan which provides the basis for computing the value of a Performance Award at one or more threshold levels of attainment of the applicable Performance Goal(s) measured as of the end of the applicable Performance Period.

(y)“Performance Goal” means a performance goal established by the Committee pursuant to Section 9.3 of the Plan.

(z)“Performance Period” means a period established by the Committee pursuant to Section 9.3 of the Plan at the end of which one or more Performance Goals are to be measured.

(aa)“Performance Share” means a bookkeeping entry representing a right granted to a Participant pursuant to Section 9 of the Plan to receive a payment equal to the value of a Performance Share, as determined by the Committee, based on performance.

(bb)“Performance Unit” means a bookkeeping entry representing a right granted to a Participant pursuant to Section 9 of the Plan to receive a payment equal to the value of a Performance Unit, as determined by the Committee, based upon performance.

(cc)“Reserve A” means the shares of Stock described in Section 4.1 of the Plan as being allocated to such reserve.

(dd)“Reserve B” means the shares of Stock described in Section 4.1 of the Plan as being allocated to such reserve.

(ee)“Restriction Period” means the period established in accordance with Section 8.5 of the Plan during which shares subject to a Stock Award are subject to Vesting Conditions.

(ff)“Rule 16b-3” means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.

(gg)“SAR” or “Stock Appreciation Right” means a bookkeeping entry representing, for each share of Stock subject to such SAR, a right granted to a Participant pursuant to Section 7 of the Plan to receive payment of an amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the SAR over the exercise price.

(hh)“Section 162(m)” means Section 162(m) of the Code.

(ii)“Securities Act” means the Securities Act of 1933, as amended.

(jj)“Service” means a Participant’s employment with the Participating Company Group as an Employee.  Unless otherwise determined by the Board, a Participant’s Service shall be deemed to have terminated if the Participant ceases to render service to the Participating Company Group as an Employee.  However, a Participant’s Service

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shall not be deemed to have terminated merely because of a change in the Participating Company for which the Participant renders such Service as an Employee, provided that there is no interruption or termination of the Participant’s Service.  Furthermore, a Participant’s Service shall not be deemed to have terminated if the Participant takes any bona fide leave of absence approved by the Company of ninety (90) days or less.  In the event of a leave in excess of ninety (90) days, the Participant’s Service shall be deemed to terminate on the ninety-first (91st) day of the leave unless the Participant’s right to return to Service is guaranteed by statute or contract.  Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Award Agreement.  A Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company.  Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated and the effective date of such termination.

(kk)“Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2 of the Plan.

(ll)“Stock Award” means an Award of a Stock Bonus or a Stock Purchase Right.

(mm)“Stock Bonus” means Stock granted to a Participant pursuant to Section 8 of the Plan.

(nn)“Stock Purchase Right” means a right to purchase Stock granted to a Participant pursuant to Section 8 of the Plan.

(oo)“Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.

(pp)“Vesting Conditions” mean those conditions established in accordance with Section 8.5 of the Plan prior to the satisfaction of which shares subject to a Stock Award remain subject to forfeiture or a repurchase option in favor of the Company.

2.2Construction.  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.

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3.ADMINISTRATION.

3.1Administration by the Committee.  The Plan shall be administered by the Committee.  All questions of interpretation of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Award.

3.2Authority of Officers.  Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election.  The Board may, in its discretion, delegate to a committee comprised of one or more Officers the authority to grant one or more Options, without further approval of the Board or the Committee, to any Employee, other than a person who, at the time of such grant, is an Insider; provided, however, that (i) such Awards shall not be granted for shares in excess of the maximum aggregate number of shares of Stock authorized for issuance pursuant to Section 4.1, (ii) the exercise price per share of each Option shall be not less than the Fair Market Value per share of the Stock on the effective date of grant (or, if the Stock has not traded on such date, on the last day preceding the effective date of grant on which the Stock was traded, pursuant to Section 2.1(n)(1) above), and (iii) each such Award shall be subject to the terms and conditions of the appropriate standard form of Award Agreement approved by the Board or the Committee and shall conform to the provisions of the Plan and such other guidelines as shall be established from time to time by the Board or the Committee.

3.3Administration with Respect to Insiders.  With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.

3.4Powers of the Committee.  In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:

(a)to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock or units to be subject to each Award;

(b)to determine the type of Award granted;

(c)to determine the Fair Market Value of shares of Stock or other property;

(d)to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares purchased pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the

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Performance Award Formula and Performance Goals applicable to any Award and the extent to which such Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the effect of the Participant’s termination of Service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;

(e)to determine whether an Award of SARs, Performance Shares or Performance Units will be settled in shares of Stock, cash, or in any combination thereof;

(f)to approve one or more forms of Award Agreement;

(g)to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto;

(h)to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participant’s termination of Service;

(i)to prescribe, amend or rescind rules, guidelines and policies relating to the plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws of or to accommodate the laws, regulations, tax or accounting effectiveness, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards; and

(j)to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.

3.5Option Repricing.  Without the affirmative vote of holders of a majority of the shares of Stock cast in person or by proxy at a meeting of the stockholders of the Company at which a quorum representing a majority of all outstanding shares of Stock is present or represented by proxy, the Board shall not approve a program providing for either (a) the cancellation of outstanding Options and the grant in substitution therefore of new Options having a lower exercise price or (b) the amendment of outstanding Options to reduce the exercise price thereof.  This paragraph shall not be construed to apply to “issuing or assuming a stock option in a transaction to which section 424(a) applies,” within the meaning of Section 424 of the Code.

3.6Indemnification.  In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Participating Company Group, members of the Board or the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Board, the Committee 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 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

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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.

4.SHARES SUBJECT TO PLAN.

4.1Maximum Number of Shares Issuable.  The Plan shall have two separate share reserves (“Reserve A” and “Reserve B”) reflecting the unused share reserves and potential reversions to such reserves, as of the Effective Date, with respect to the following equity incentive plans that were maintained by Macromedia, Inc. prior to the Effective Date:

Reserve A:Andromedia, Inc. 1999 Stock Plan

Reserve B:Macromedia, Inc. 2002 Equity Incentive Plan; Allaire Corp. 1997 Stock Incentive Plan; Allaire Corporation 1998 Stock Incentive Plan; Allaire Corporation 2000 Stock Incentive Plan

Accordingly, as of the Effective Date, Reserve A consists of 190,678 shares of Stock, of which there are Outstanding Awards covering 186,279 shares of Stock and 4,399 shares of Stock remaining available for Awards; and Reserve B consists of 8,648,196 shares of Stock, of which there are Outstanding Awards covering 8,382,090 shares of Stock and 266,106 shares of Stock remaining available for Awards.  Outstanding Awards shall continue to be governed by and administered under the terms of the Macromedia Plans pursuant to which they originally were granted, but in the event of their forfeiture or expiration unexercised, the shares of Stock associated with such forfeited or expired Outstanding Awards shall become available for award pursuant to the terms of this Plan from Reserve A or Reserve B, as applicable.  Reserve A and Reserve B shall both be subject to adjustment as provided in Section 4.2 of the Plan.  Such shares shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  If an Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company at the Participant’s purchase price to effect a forfeiture of unvested shares upon termination of Service, the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan from Reserve A or Reserve B, as applicable.  Shares of Stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award (other than an SAR that may be settled in shares of Stock or cash) that is settled in cash.  Shares withheld in satisfaction of tax withholding obligations pursuant to Section 13.2 shall not again become available for issuance under the Plan.  Upon payment in shares of Stock pursuant to the exercise of an SAR, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the SAR is exercised.  If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the Option is exercised.

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4.2Adjustments for Changes in Capital Structure.  In the event of any change in the Stock through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate adjustments shall be made in the number and class of shares subject to the Plan, in the Award limits set forth in Section 5.3 and in the number of shares of Stock subject to, and the exercise or purchase price per share under, any Award then outstanding under this Plan.  Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise or purchase price under any Award be decreased to an amount less than the par value, if any, of the stock subject to such Award.  The adjustments determined by the Committee pursuant to this Section 4.2 shall be final, binding and conclusive.

5.ELIGIBILITY AND AWARD LIMITATIONS.

5.1Persons Eligible for Awards.  Awards may be granted only to Employees who were not employed by or providing service to any Participating Company (other than Macromedia, Inc. and its Affiliates and Subsidiaries) prior to the Effective Date.  For purposes of the foregoing sentence, “Employees” shall include prospective Employees to whom Awards are granted in connection with written offers of an employment with the Participating Company Group; provided, however, that no Stock subject to any such Award shall vest, become exercisable or be issued prior to the date on which such person commences Service.

5.2Participation.  Awards are granted solely at the discretion of the Committee.  Eligible persons may be granted more than one (1) Award.  However, eligibility in accordance with this Section shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.

5.3Award Limits.  Subject to adjustment as provided in Section 4.2, in no event shall more than one hundred thousand (100,000) shares of Stock in the aggregate be issued under the Plan pursuant to the exercise or settlement of Stock Awards and Performance Awards.

6.TERMS AND CONDITIONS OF OPTIONS.

Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby, in such form as the Committee shall from time to time establish.  No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Options may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

6.1Exercise Price.  The exercise price for each Option shall be established in the discretion of the Committee; provided, however, that the exercise price per share shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option.

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Notwithstanding the foregoing, an Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 409A and 424(a) of the Code.

6.2Exercisability and Term of Options.  Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of seven (7) years after the effective date of grant of such Option, and (b) no Option granted to a prospective Employee may become exercisable prior to the date on which such person commences Service.  Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, any Option granted hereunder shall terminate seven (7) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.

6.3Payment of Exercise Price.

(a)Forms of Consideration Authorized.  Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant having a Fair Market Value not less than the exercise price, (iii) by delivery of a properly executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a “Cashless Exercise”), (iv) by such other consideration (including, without limitation, a net exercise) as may be approved by the Committee from time to time to the extent permitted by applicable law, or (v) by any combination thereof.  The Committee may at any time or from time to time grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.

(b)Limitations on Forms of Consideration.

(i)Tender of Stock.  Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  Unless otherwise provided by the Committee, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for more than six (6) months (and not used for another Option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.

(ii)Cashless Exercise.  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise.

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6.4Effect of Termination of Service.  An Option shall be exercisable after a Participant’s termination of Service to such extent and during such period as determined by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Option.

6.5Transferability of Options.  During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative.  No Option shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution.  Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Option, an Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 Registration Statement under the Securities Act.

7.TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.

SARs shall be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award, in such form as the Committee shall from time to time establish.  No SAR or purported SAR shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing SARs may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

7.1Types of SARs Authorized.  SARs may be granted in tandem with all or any portion of a related Option (a “Tandem SAR”) or may be granted independently of any Option (a “Freestanding SAR”).  A Tandem SAR may be granted either concurrently with the grant of the related Option or at any time thereafter prior to the complete exercise, termination, expiration or cancellation of such related Option.

7.2Exercise Price.  The exercise price for each SAR shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share subject to a Tandem SAR shall be the exercise price per share under the related Option and (b) the exercise price per share subject to a Freestanding SAR shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the SAR.

7.3Exercisability and Term of SARs.

(a)Tandem SARs.  Tandem SARs shall be exercisable only at the time and to the extent, and only to the extent, that the related Option is exercisable, subject to such provisions as the Committee may specify where the Tandem SAR is granted with respect to less than the full number of shares of Stock subject to the related Option.  The Committee may, in its discretion, provide in any Award Agreement evidencing a Tandem SAR that such SAR may not be exercised without the advance approval of the Company and, if such approval is not given, then the Option shall nevertheless remain exercisable in accordance with its terms.  A Tandem SAR shall terminate and cease to be exercisable no later than the date on which the related Option expires or is terminated or canceled.  Upon the exercise of a Tandem SAR with

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respect to some or all of the shares subject to such SAR, the related Option shall be canceled automatically as to the number of shares with respect to which the Tandem SAR was exercised.  Upon the exercise of an Option related to a Tandem SAR as to some or all of the shares subject to such Option, the related Tandem SAR shall be canceled automatically as to the number of shares with respect to which the related Option was exercised.

(b)Freestanding SARs.  Freestanding SARs shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such SAR; provided, however, that no Freestanding SAR shall be exercisable after the expiration of eight (8) years after the effective date of grant of such SAR.

7.4Exercise of SARs.  Upon the exercise (or deemed exercise pursuant to Section 7.5) of an SAR, the Participant (or the Participant’s legal representative or other person who acquired the right to exercise the SAR by reason of the Participant’s death) shall be entitled to receive payment of an amount for each share with respect to which the SAR is exercised equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the SAR over the exercise price.  Payment of such amount shall be made in cash, shares of Stock, or any combination thereof as determined by the Committee.  Unless otherwise provided in the Award Agreement evidencing such SAR, payment shall be made in a lump sum as soon as practicable following the date of exercise of the SAR.  The Award Agreement evidencing any SAR may provide for deferred payment in a lump sum or in installments.  When payment is to be made in shares of Stock, the number of shares to be issued shall be determined on the basis of the Fair Market Value of a share of Stock on the date of exercise of the SAR.  For purposes of Section 7, an SAR shall be deemed exercised on the date on which the Company receives notice of exercise from the Participant.

7.5Deemed Exercise of SARs.  If, on the date on which an SAR would otherwise terminate or expire, the SAR by its terms remains exercisable immediately prior to such termination or expiration and, if so exercised, would result in a payment to the holder of such SAR, then any portion of such SAR which has not previously been exercised shall automatically be deemed to be exercised as of such date with respect to such portion.

7.6Effect of Termination of Service.  An SAR shall be exercisable after a Participant’s termination of Service to such extent and during such period as determined by the Committee, in its discretion, and set forth in the Award Agreement evidencing such SAR.

7.7Nontransferability of SARs.  SARs may not be assigned or transferred in any manner except by will or the laws of descent and distribution, and, during the lifetime of the Participant, shall be exercisable only by the Participant or the Participant’s guardian or legal representative.

8.TERMS AND CONDITIONS OF STOCK AWARDS.

Stock Awards shall be evidenced by Award Agreements specifying whether the Award is a Stock Bonus or a Stock Purchase Right and the number of shares of Stock subject to the Award, in such form as the Committee shall from time to time establish.  No Stock Award or

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purported Stock Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Stock Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

8.1Types of Stock Awards Authorized.  Stock Awards may be in the form of either a Stock Bonus or a Stock Purchase Right.  Stock Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 9.4.  If either the grant of a Stock Award or the lapsing of the Restriction Period is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 9.3 through 9.5(a).

8.2Purchase Price.  The purchase price for shares of Stock issuable under each Stock Purchase Right shall be established by the Committee in its discretion.  No monetary payment (other than applicable tax withholding) shall be required as a condition of receiving shares of Stock pursuant to a Stock Bonus, the consideration for which shall be services actually rendered to a Participating Company or for its benefit.  Notwithstanding the foregoing, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock subject to such Stock Award.

8.3Purchase Period.  A Stock Purchase Right shall be exercisable within a period established by the Committee, which shall in no event exceed thirty (30) days from the effective date of the grant of the Stock Purchase Right; provided, however, that no Stock Purchase Right granted to a prospective Employee may become exercisable prior to the date on which such person commences Service.

8.4Payment of Purchase Price.  Except as otherwise provided below, payment of the purchase price for the number of shares of Stock being purchased pursuant to any Stock Purchase Right shall be made (i) in cash, by check, or cash equivalent, (ii) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (iii) by any combination thereof.  The Committee may at any time or from time to time grant Stock Purchase Rights which do not permit all of the foregoing forms of consideration to be used in payment of the purchase price or which otherwise restrict one or more forms of consideration.  Stock Bonuses shall be issued in consideration for past services actually rendered to a Participating Company or for its benefit.

8.5Vesting and Restrictions on Transfer.  Shares issued pursuant to any Stock Award may or may not be made subject to vesting conditioned upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 9.4 (the “Vesting Conditions”), as shall be established by the Committee and set forth in the Award Agreement evidencing such Award.  During any period (the “Restriction Period”) in which shares acquired pursuant to a Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to a Change of Control as provided in Section 11, or as provided in Section 8.8.  Upon request by the Company,

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each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.

8.6Voting Rights; Dividends and Distributions.  Except as provided in this Section, Section 8.5 and any Award Agreement, during the Restriction Period applicable to shares subject to a Stock Award, the Participant shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares.  However, in the event of a dividend or distribution paid in shares of Stock or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.2, then any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant is entitled by reason of the Participant’s Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Stock Award with respect to which such dividends or distributions were paid or adjustments were made.

8.7Effect of Termination of Service.  Unless otherwise provided by the Committee in the grant of a Stock Award and set forth in the Award Agreement, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then (i) the Company shall have the option to repurchase for the purchase price paid by the Participant any shares acquired by the Participant pursuant to a Stock Purchase Right which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service and (ii) the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to a Stock Bonus which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service.  The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.

8.8Nontransferability of Stock Award Rights.  Rights to acquire shares of Stock pursuant to a Stock Award may not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participant’s beneficiary, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, shall be exercisable only by the Participant or the Participant’s guardian or legal representative.

9.TERMS AND CONDITIONS OF PERFORMANCE AWARDS.

Performance Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish.  No Performance Award or purported Performance Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement.  Award Agreements evidencing Performance Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:

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9.1           Types of Performance Awards Authorized.  Performance Awards may be in the form of either Performance Shares or Performance Units.  Each Award Agreement evidencing a Performance Award shall specify the number of Performance Shares or Performance Units subject thereto, the Performance Award Formula, the Performance Goal(s) and Performance Period applicable to the Award, and the other terms, conditions and restrictions of the Award.

9.2Initial Value of Performance Shares and Performance Units.  Unless otherwise provided by the Committee in granting a Performance Award, each Performance Share shall have an initial value equal to the Fair Market Value of one (1) share of Stock, subject to adjustment as provided in Section 4.2, on the effective date of grant of the Performance Share, and each Performance Unit shall have an initial value of one hundred dollars ($100).  The final value payable to the Participant in settlement of a Performance Award determined on the basis of the applicable Performance Award Formula will depend on the extent to which Performance Goals established by the Committee are attained within the applicable Performance Period established by the Committee.

9.3Establishment of Performance Period, Performance Goals and Performance Award Formula.  In granting each Performance Award, the Committee shall establish in writing the applicable Performance Period, Performance Award Formula and one or more Performance Goals which, when measured at the end of the Performance Period, shall determine on the basis of the Performance Award Formula the final value of the Performance Award to be paid to the Participant.  Although Performance Awards under the Plan will not qualify as performance-based compensation for purposes of Section 162(m) because stockholders of the Company have not approved certain provisions of the Plan as required by Section 162(m), the Committee shall seek to comply with Section 162(m) with respect to Performance Awards, except as otherwise provided herein.  Accordingly, unless otherwise permitted in compliance with the requirements under Section 162(m) with respect to “performance-based compensation,” the Committee shall establish the Performance Goal(s) and Performance Award Formula applicable to each Performance Award no later than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period or (b) the date on which 25% of the Performance Period has elapsed, and, in any event, at a time when the outcome of the Performance Goals remains substantially uncertain.  Once established, the Performance Goals and Performance Award Formula shall not be changed during the Performance Period.  The Company shall notify each Participant granted a Performance Award of the terms of such Award, including the Performance Period, Performance Goal(s) and Performance Award Formula.

9.4Measurement of Performance Goals.  Performance Goals shall be established by the Committee on the basis of targets to be attained (“Performance Targets”) with respect to one or more measures of business or financial performance (each, a “Performance Measure”), subject to the following:

(a)Performance Measures.  Performance Measures shall have the same meanings as used in the Company’s financial statements, or, if such terms are not used in the Company’s financial statements, they shall have the meaning applied pursuant to generally accepted accounting principles, or as used generally in the Company’s industry.  Performance Measures shall be calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for financial reporting purposes or such division or other business unit as

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may be selected by the Committee.  For purposes of the Plan, the Performance Measures applicable to a Performance Award shall be calculated in accordance with generally accepted accounting principles, but prior to the accrual or payment of any Performance Award for the same Performance Period and excluding the effect (whether positive or negative) of any change in accounting standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the Performance Goals applicable to the Performance Award.  Performance Measures may be one or more of the following, as determined by the Committee:

(i)growth in revenue;

(ii)growth in the market price of the Stock;

(iii)operating margin;

(iv)gross margin;

(v)operating income;

(vi)pre-tax profit;

(vii)earnings before interest, taxes and depreciation;

(viii)net income;

(ix)total return on shares of Stock relative to the increase in an appropriate index as may be selected by the Committee;

(x)earnings per share;

(xi)return on stockholder equity;

(xii)return on net assets;

(xiii)expenses;

(xiv)return on capital;

(xv)economic value added;

(xvi)market share; and

(xvii)cash flow, as indicated by book earnings before interest, taxes, depreciation and amortization.

(b)Performance Targets.  Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the final value of a Performance Award determined under the applicable Performance Award Formula by the level attained during the applicable Performance Period.  A Performance Target may be stated as an absolute value or as a value determined relative to a standard selected by the Committee.

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9.5Settlement of Performance Awards.

(a)Determination of Final Value.  As soon as practicable following the completion of the Performance Period applicable to a Performance Award, the Committee shall certify in writing the extent to which the applicable Performance Goals have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement in accordance with the applicable Performance Award Formula.

(b)Discretionary Adjustment of Award Formula.  In its discretion, the Committee may, either at the time it grants a Performance Award or at any time thereafter, provide for the positive or negative adjustment of the Performance Award Formula applicable to a Performance Award granted to any Participant who is not a “covered employee” within the meaning of Section 162(m) (a “Covered Employee”) to reflect such Participant’s individual performance in his or her position with the Company or such other factors as the Committee may determine.  If permitted under a Covered Employee’s Award Agreement, the Committee shall have the discretion, on the basis of such criteria as may be established by the Committee, to reduce some or all of the value of the Performance Award that would otherwise be paid to the Covered Employee upon its settlement notwithstanding the attainment of any Performance Goal and the resulting value of the Performance Award determined in accordance with the Performance Award Formula.  No such reduction may result in an increase in the amount payable upon settlement of another Participant’s Performance Award.

(c)Effect of Leaves of Absence.  Unless otherwise required by law, payment of the final value, if any, of a Performance Award held by a Participant who has taken in excess of thirty (30) days of leaves of absence during a Performance Period shall be prorated on the basis of the number of days of the Participant’s Service during the Performance Period during which the Participant was not on a leave of absence.

(d)Notice to Participants.  As soon as practicable following the Committee’s determination and certification in accordance with Sections 9.5(a) and (b), the Company shall notify each Participant of the determination of the Committee.

(e)Payment in Settlement of Performance Awards.  As soon as practicable following the Committee’s determination and certification in accordance with Sections 9.5(a) and (b), payment shall be made to each eligible Participant (or such Participant’s legal representative or other person who acquired the right to receive such payment by reason of the Participant’s death) of the final value of the Participant’s Performance Award.  Payment of such amount shall be made in cash, shares of Stock, or a combination thereof as determined by the Committee.  Unless otherwise provided in the Award Agreement evidencing a Performance Award, payment shall be made in a lump sum.  An Award Agreement may provide for deferred payment in a lump sum or in installments.  If any payment is to be made on a deferred basis, the Committee may, but shall not be obligated to, provide for the payment during the deferral period of Dividend Equivalents or interest.

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(f)Provisions Applicable to Payment in Shares.  If payment is to be made in shares of Stock, the number of such shares shall be determined by dividing the final value of the Performance Award by the value of a share of Stock determined by the method specified in the Award Agreement.  Such methods may include, without limitation, the closing market price on a specified date (such as the settlement date) or an average of market prices over a series of trading days.  Shares of Stock issued in payment of any Performance Award may be fully vested and freely transferable shares or may be shares of Stock subject to Vesting Conditions as provided in Section 8.5.  Any shares subject to Vesting Conditions shall be evidenced by an appropriate Award Agreement and shall be subject to the provisions of Sections 8.5 through 8.8 above.

9.6Dividend Equivalents.  In its discretion, the Committee may provide in the Award Agreement evidencing any Performance Share Award that the Participant shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Stock having a record date prior to the date on which the Performance Shares are settled or forfeited.  Dividend Equivalents may be paid currently or may be accumulated and paid to the extent that Performance Shares become nonforfeitable, as determined by the Committee.  Settlement of Dividend Equivalents may be made in cash, shares of Stock, or a combination thereof as determined by the Committee, and may be paid on the same basis as settlement of the related Performance Share as provided in Section 9.5.  Dividend Equivalents shall not be paid with respect to Performance Units.

9.7Effect of Termination of Service.  The effect of a Participant’s termination of Service on the Participant’s Performance Award shall be as determined by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Performance Award.

9.8Nontransferability of Performance Awards.  Prior to settlement in accordance with the provisions of the Plan, no Performance Award may be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except by will or by the laws of descent and distribution.  All rights with respect to a Performance Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.

10.STANDARD FORMS OF AWARD AGREEMENT.

10.1Award Agreements.  Each Award shall comply with and be subject to the terms and conditions set forth in the appropriate form of Award Agreement approved by the Committee and as amended from time to time.  Any Award Agreement may consist of an appropriate form of Notice of Grant and a form of Agreement incorporated therein by reference, or such other form or forms as the Committee may approve from time to time.

10.2Authority to Vary Terms.  The Committee shall have the authority from time to time to vary the terms of any standard form of Award Agreement either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Award Agreement are not inconsistent with the terms of the Plan.

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11.CHANGE OF CONTROL.

11.1Awards Granted Prior to January 24, 2008.  The following provisions shall control for Awards granted prior to January 24, 2008:

(a)Except as otherwise provided in a Participant’s Award Agreement:

(i)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 by the stockholders of the Company of all or substantially all 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 (other than a sale, exchange or transfer to one or more subsidiaries of the Company); or (iv) a liquidation or dissolution of the Company.

(ii)A “Change in Control” shall mean an Ownership Change Event or series of related Ownership Change Events (collectively, a “Transaction”) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of an Ownership Change Event described in Section 11.1(a)(iii), the entity to which the assets of the Company were transferred.

(b)Effect of Change in Control on Options, SARs and Restricted Stock Units.  In the event of a Change in Control, the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of any Participant, either assume the Company’s rights and obligations under outstanding Options, SARs and Restricted Stock Units or substitute for outstanding Options, SARs and Restricted Stock Units substantially equivalent equity awards for the Acquiror’s stock.  In the event the Acquiror elects not to assume or substitute for outstanding Options, SARs or Restricted Stock Units in connection with a Change in Control, the Committee shall provide that any unexercised and/or unvested portions of such outstanding Awards shall be immediately exercisable and vested in full as of the date thirty (30) days prior to the date of the Change in Control.  The exercise and/or vesting of any Option, SAR or Restricted Stock Unit that was permissible solely by reason of this paragraph shall be conditioned upon the consummation of the Change in Control.  Any Options, SARs or Restricted Stock Units which are not assumed or replaced by the Acquiror in connection with the Change in Control nor exercised as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.

(c)Effect of Change in Control on Stock Awards.  The Committee may, in its discretion, provide in any Award Agreement evidencing a Stock Award that, in the event of a Change in Control, the lapsing of the Restriction Period applicable to the shares subject to the Stock Award held by a Participant whose Service has not terminated prior to such

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date shall be accelerated effective as of the date of the Change in Control to such extent as specified in such Award Agreement.  Any acceleration of the lapsing of the Restriction Period that was permissible solely by reason of this Section 11.1(c) and the provisions of such Award Agreement shall be conditioned upon the consummation of the Change in Control.

(d)Effect of Change in Control on Performance Awards.  The Committee may, in its discretion, provide in any Award Agreement evidencing a Performance Award that, in the event of a Change in Control, the Performance Award held by a Participant whose Service has not terminated prior to such date shall become payable effective as of the date of the Change in Control to such extent as specified in such Award Agreement.

11.2Awards Granted On or After January 24, 2008.  The following provisions shall control for Awards granted on or after January 24, 2008:

(a)Except as otherwise provided in a Participant’s Award Agreement, “Change of Control” shall mean a change of control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement; provided, however, that anything in this Plan to the contrary notwithstanding, a Change of Control shall be deemed to have occurred if:

(i)any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity or person, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities entitled to vote in the election of directors of the Company;

(ii)during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least three-fourths (3/4ths) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (the “Incumbent Directors”), cease for any reason to constitute a majority thereof;

(iii)there occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a “Transaction”), in each case with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own securities representing more than 50% of the combined voting power of the Company, a parent of the Company or other corporation resulting from such Transaction (counting, for this purpose, only those securities held by the Company’s stockholders immediately after the Transaction that were received in exchange for, or represent their continuing ownership of, securities of the Company held by them immediately prior to the Transaction);

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(iv)all or substantially all of the assets of the Company are sold, liquidated or distributed; or

(v)there is a “Change of Control” or a “change in the effective control” of the Company within the meaning of Section 280G of the Code and the regulations promulgated thereunder.

(b)The Committee or the Board may, in its discretion, provide in any Award Agreement, severance plan or other individual agreement, that, in the event of a Change of Control of the Company, the Award held by a Participant shall become vested, exercisable and/or payable to such extent as specified in such document.

(c)In the event of a Change of Control, the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of any Participant, either assume the Company’s rights and obligations under outstanding Awards or substitute for outstanding Awards substantially equivalent equity awards for the Acquiror’s stock.  In the event the Acquiror elects not to assume or substitute for outstanding Awards in connection with a Change of Control, any unexercised and/or unvested portions of such outstanding Awards shall become immediately exercisable and vested in full as of immediately prior to the effective date of the Change of Control.  The exercise and/or vesting of any Award that was permissible solely by reason of this paragraph 11.2 shall be conditioned upon the consummation of the Change in Control.  Any Awards which are not assumed or replaced by the Acquiror in connection with the Change of Control nor exercised as of the time of consummation of the Change of Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change of Control.

12.COMPLIANCE WITH SECURITIES LAW.

The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed.  In addition, no Award may be exercised or shares issued pursuant to an Award unless (i) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award or (ii) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities 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 hereunder 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 issuance of any Stock, 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.

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13.TAX WITHHOLDING.

13.1Tax Withholding in General.  The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise of an Option, to make adequate provision for, the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to an Award or the shares acquired pursuant thereto.  The Company shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Group’s tax withholding obligations have been satisfied by the Participant.

13.2Withholding in Shares.  The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of the Participating Company Group.  The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates.

14.TERMINATION OR AMENDMENT OF PLAN.

The Committee may terminate or amend the Plan at any time.  However, without the approval of the Company’s stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Awards, and (c)  no other amendment of the Plan that would require approval of the Company’s stockholders under any applicable law, regulation or rule; provided, however, that the maximum aggregate number of shares of Stock that may be issued under the Plan may be increased without stockholder approval in accordance with Rule 4350(i)(1)(A)(iii) of the Nasdaq Qualitative Listing Requirements (or any other applicable rule of the securities exchange on which shares of Stock are then trading) in connection with business acquisitions by the Company following the Effective Date.  No termination or amendment of the Plan shall affect any then outstanding Award unless expressly provided by the Committee.  In any event, no termination or amendment of the Plan may adversely affect any then outstanding Award without the consent of the Participant, unless such termination or amendment is necessary to comply with any applicable law, regulation or rule.

15.MISCELLANEOUS PROVISIONS.

15.1Repurchase Rights.  Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Committee in its discretion at the time the Award is granted.  The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.  Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.

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15.2Provision of Information.  Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company’s common stockholders.

15.3Rights as Employee.  No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant.  Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee, or interfere with or limit in any way any right of a Participating Company to terminate the Participant’s Service at any time.  To the extent that an Employee of a Participating Company other than the Company receives an Award under the Plan, that Award can in no event be understood or interpreted to mean that the Company is the Employee’s employer or that the Employee has an employment relationship with the Company.

15.4Rights as a Stockholder.  A Participant shall have no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of such shares (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 shares are issued, except as provided in Section 4.2 or another provision of the Plan.

15.5Fractional Shares.  The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.

15.6Beneficiary Designation.  Subject to local laws and procedures, each Participant may file with the Company a written designation of a beneficiary who is to receive any benefit under the Plan to which the Participant is entitled in the event of such Participant’s death before he or she receives any or all of such benefit.  Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime.  If a married Participant designates a beneficiary other than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse.  If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the Company will pay any remaining unpaid benefits to the Participant’s legal representative.

15.7Unfunded Obligation.  Participants shall have the status of general unsecured creditors of the Company.  Any amounts payable to Participants pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974.  No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations.  The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder.  Any investments or the creation or

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maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of any Participating Company.  The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.

15.8Section 409A. To the extent that the Committee determines that any Award granted under the Plan is, or may reasonably be, subject to Section 409A of the Code (together, with any state law of similar effect, “Section 409A”), the Award Agreement evidencing such Award shall incorporate the terms and conditions necessary to avoid the consequences described in Section 409A(a)(1) of the Code (or any similar provision).  To the extent applicable and permitted by law, the Plan and Award Agreements shall be interpreted in accordance with Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued or amended after the date of grant of any Award hereunder.

Notwithstanding any provision of the Plan to the contrary, in the event that the Committee determines that any Award is, or may reasonably be, subject to Section 409A and related Department of Treasury guidance (including such Department of Treasury guidance issued from time to time), the Committee may, without the Participant’s consent, adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (A) exempt the Award from Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (B) comply with the requirements of Section 409A and related Department of Treasury guidance.

In addition, and except as otherwise set forth in the applicable Award Agreement, if the Company determines that any Award granted under this Plan constitutes, or may reasonably constitute, “deferred compensation” under Section 409A and the Participant is a “specified employee” of the Company at the relevant date, as such term is defined in Section 409A(a)(2)(B)(i), then any payment or benefit resulting from such Award will be delayed until the earliest date following the Participant’s “separation from service” with the Participating Company Group within the meaning of Section 409A on which the Company can provide such payment or benefit to the Participant without the Participant’s incurrence of any additional tax or interest pursuant to Section 409A, with all payments or benefits due thereafter occurring in accordance with the original schedule.  In addition, this Plan and the benefits to be provided hereunder are intended to comply in all respects with the applicable provisions of Section 409A.

Notwithstanding anything to the contrary contained herein, neither the Company nor any of its Affiliates shall be responsible for, or required to reimburse or otherwise make any Participant whole for, any tax or penalty imposed on, or losses incurred by, any Participant that arises in connection with the potential or actual application of Section 409A to any Award granted hereunder.

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IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing Adobe Systems Incorporated Amended 2005 Equity Incentive Assumption Plan, as amended, was duly adopted by the Executive Compensation Committee of the Board of Directors of the Company on January 24, 2008.

/s/ Karen Cottle

Karen Cottle, Secretary

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EX-10.24

Exhibit 10.24

ADOBE SYSTEMS INCORPORATED

NONSTATUTORY STOCK OPTION AGREEMENT

(STANDARD U.S.)

THIS NONSTATUTORY STOCK OPTION AGREEMENT (the “Option Agreement”) is made and entered into as of the Date of Option Grant by and between Adobe Systems Incorporated and

%%FIRST_NAME%-% %%LAST_NAME%-%                           (the “Participant”).  The Company has granted to the Participant pursuant to the Adobe Systems Incorporated Adobe Systems Incorporated 2005 Equity Incentive Assumption Plan (the “Plan”) an option to purchase certain shares of Stock (the “Option”), upon the terms and conditions set forth in this Option Agreement, but subject in any event to the Superseding Agreement, if any, described below.

1.DEFINITIONS AND CONSTRUCTION.

1.1Definitions.  Whenever used herein, the following terms shall have their respective meanings set forth below:

(a)“Date of Option Grant” means %%OPTION_DATE,’Month DD, YYYY’%-%

(b)“Number of Option Shares” means %%TOTAL_SHARES_GRANTED%-%          shares of Stock, as adjusted from time to time pursuant to Section 9.

(c)“Exercise Price” means $%%OPTION_PRICE%-%per share of Stock, as adjusted from time to time pursuant to Section 9.

(d)“Initial Vesting Date” means the date occurring one (1) year after the Date of Option Grant.

(e)“Vested Shares” means, on any relevant date, that portion (disregarding any fractional share) of the Number of Option Shares determined by multiplying the Number of Option Shares by the “Vested Percentage” determined as of such date as follows:

	Vested Percentage
Prior to Initial Vesting Date	0
On Initial Vesting Date, provided the Participant’s Service has not terminated prior to such date	25	%
Plus:
For each of the next 36 full months of the Participant’s continuous Service from the Initial Vesting Date until the Vested Percentage equals 100%	2.08	%

(f)“Affiliate” means (i) an entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) an entity, other than a Subsidiary Corporation, that is controlled by the Company directly, or indirectly through one or more intermediary entities.  For this purpose, the term “control” (including the term “controlled by”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the relevant entity, whether through the ownership of voting securities, by contract or otherwise; or shall have such other meaning assigned such term for the purposes of registration in the United States (“U.S.”) on Form S-8 under the Securities Act.

(g)“Board” means the Board of Directors of the Company.

(h)“Code” means the U.S. Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

(i)“Committee” means the Executive Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board.  If no committee of the Board has been appointed to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.

(j)“Company” means Adobe Systems Incorporated, a Delaware corporation, or any successor corporation thereto.

(k)“Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a member of the Board) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on registration on a Form S-8 Registration Statement under the Securities Act.

(l)“Disability” means the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code.

(m)“Employee” means any person treated as an employee (including an Officer or a member of the Board who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a member of the Board nor payment of a director’s fee shall be sufficient to constitute employment.

(n)“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

(o)“Fair Market Value” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:

(i)If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq Global Select Market, the Nasdaq SmallCap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported on www.Nasdaq.com 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 Committee, in its discretion.

If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Committee in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse.

(p)“Officer” means any person designated by the Board as an officer of the Company.

(q)“Option Expiration Date” means the date seven (7) years after the Date of Option Grant.

(r)“Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.

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(s)“Participating Company” means the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.

(t)“Participating Company Group” means, at any point in time, all corporations collectively which are then Participating Companies.

(u)“Securities Act” means the U.S. Securities Act of 1933, as amended.

(v)“Service” means the Participant’s employment or service with the Participating Company Group as an Employee or a Consultant, whichever such capacity the Participant held on the Date of Option Grant or, if later, the date on which the Participant commenced Service.  The Participant’s Service shall be deemed to have terminated if the Participant ceases to render Service to the Participating Company Group in such initial capacity.  However, the Participant’s Service shall not be deemed to have terminated merely because of a change in the Participating Company for which the Participant renders Service in such initial capacity, provided that there is no interruption or termination of the Participant’s Service.  Furthermore, the Participant’s Service with the Participating Company Group shall not be deemed to have terminated if the Participant takes any bona fide leave of absence approved by the Company of ninety (90) days or less.  In the event of a leave in excess of ninety (90) days, the Participant’s Service shall be deemed to terminate on the ninety-first (91st) day of the leave unless the Participant’s right to return to Service with the Participating Company Group is guaranteed by statute or contract.  Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Option Agreement.  The Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company.  Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated and the effective date of such termination.

(w)“Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 9.

(x)“Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.

(y)“Superseding Agreement” means the Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control and/or the individual written retention agreement in effect on the Date of Option Grant between the Company and the Participant, to the extent applicable to the Participant.

1.2Construction.  Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

2.TAX STATUS OF OPTION.

This Option is intended to be a nonstatutory stock option and shall not be treated as an incentive stock option within the meaning of Section 422(b) of the Code.

3.ADMINISTRATION.

All questions of interpretation concerning this Option Agreement shall be determined by the Committee.  All determinations by the Committee shall be final and binding upon all persons having an interest in the Option.  Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.

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4.EXERCISE OF THE OPTION.

4.1Right to Exercise.  Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 7) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option.  In no event shall the Option be exercisable for more shares than the Number of Option Shares.

4.2Method of Exercise.  Exercise of the Option shall be by means of electronic notice in a form authorized by the Company, which shall be digitally signed or authenticated by the Participant in such manner as required by the notice and transmitted to the Equity Compensation Department of the Company or other authorized representative of the Company (including a third-party administrator designated by the Company).  In the event that the Participant is not authorized or is unable to provide electronic notice of exercise, the Option shall be exercised by written notice to the Company, which shall be signed by the Participant and delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Equity Compensation Department of the Company, or other authorized representative of the Company (including a third-party administrator designated by the Company).  Each such notice, whether electronic or written, must state the Participant’s election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Participant’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement.  Further, each such notice must be received by the Company prior to the termination of the Option as set forth in Section 7 and must be accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased.  The Option shall be deemed to be exercised upon receipt by the Company of such electronic or written notice and the aggregate Exercise Price.

4.3Payment of Exercise Price.

(a)Forms of Consideration Authorized.  Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check or by cash equivalent or (ii) by means of a Cashless Exercise, as defined in Section 4.3(b).

(b)Cashless Exercise.  A “Cashless Exercise” means the delivery of a properly executed notice of exercise together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System).  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any such program or procedure, including with respect to the Participant notwithstanding that such program or procedures may be available to others.

4.4Tax Withholding.  Regardless of any action taken by the Participating Company Group with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), the Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by the Participant is and remains the Participant’s responsibility and that the Participating Company Group (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting or exercise of the Option, the subsequent sale of shares acquired pursuant to such exercise, or the receipt of any dividends and (ii) does not commit to structure the terms of the grant or any other aspect of the Option to reduce or eliminate the Participant’s liability for Tax-Related Items.  At the time of exercise of the Option, the Participant shall pay or make adequate arrangements satisfactory to the Participating Company Group to satisfy all withholding obligations of the Participating Company Group.  In this regard, at the time the Option is exercised, in whole or in part, or at any other time as reasonably requested by the Company, the Participant hereby authorizes withholding of all applicable Tax-Related Items from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for withholding of all applicable Tax Related Items by the Participating Company Group, if any, which arise in connection with the Option.  Alternatively, or in addition, if permissible under applicable law, the Participating Company Group may

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(i) sell or arrange for the sale of shares acquired by the Participant to meet the withholding obligation of Tax-Related Items and/or (ii) withhold in shares, provided that only the amount of shares necessary to satisfy the minimum withholding amount are withheld.  Finally, the Participant shall pay to the Participating Company Group any amount of the Tax-Related Items that the Participating Company Group may be required to withhold as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described.  The Company shall have no obligation to process the exercise of the Option or to deliver shares of Stock until the obligations in connection with the Tax-Related Items as described in this section have been satisfied by the Participant.

4.5Beneficial Ownership of Shares; Certificate Registration.  The Participant hereby authorizes the Company, in its sole discretion, to deposit for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice any or all shares acquired by the Participant pursuant to the exercise of the Option.  Except as provided by the preceding sentence, a certificate for the shares as to which the Option is exercised shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.

4.6Restrictions on Grant of the Option and Issuance of Shares.  The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities.  The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed.  In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act.  THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.  ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.  The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.  As a condition to the exercise of the Option, the Company may require the 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.

4.7Fractional Shares.  The Company shall not be required to issue fractional shares upon the exercise of the Option.

5.NONTRANSFERABILITY OF THE OPTION.

The Option may be exercised during the lifetime of the Participant only by the Participant or the Participant’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution.  Following the death of the Participant, the Option, to the extent provided in Section 8, may be exercised by the Participant’s legal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.

6.NATURE OF OPTION.

In accepting the Option, the Participant acknowledges that:

6.1the Plan is established voluntarily by the Company; it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Option Agreement;

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6.2the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of Options, or benefits in lieu of Options, even if Options have been granted repeatedly in the past;

6.3all decisions with respect to future Option grants, if any, will be at the sole discretion of the Company;

6.4the Participant’s participation in the Plan shall not create a right to further employment with the Participating Company Group and shall not interfere with any ability of the Participating Company Group to terminate the Participant’s employment relationship at any time with or without cause;

6.5the Participant is voluntarily participating in the Plan;

6.6the Option is not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;

6.7in the event that the Participant is not an employee of the Company, the Option grant will not be interpreted to form an employment contract or relationship with the Company; and furthermore, the Option grant will not be interpreted to form an employment contract with the other members of the Participating Company Group;

6.8the future value of the underlying shares is unknown and cannot be predicted with certainty;

6.9if the underlying shares do not increase in value, the Option will have no value;

6.10if the Participant exercises the Option and obtains shares, the value of those shares acquired upon exercise may increase or decrease in value, even below the Option price; and

6.11in consideration of the grant of the Option, no claim or entitlement to compensation or damages arises from termination of the Option or diminution in value of the Option or shares purchased through exercise of the Option resulting from termination of the Participant’s Service with the Participating Company Group (for any reason whether or not in breach of applicable labor laws) and the Participant irrevocably releases the Participating Company Group from any such claim that may arise.  If, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen then, by signing this Option Agreement, the Participant shall be deemed irrevocably to have waived his or her entitlement to pursue such a claim.

7.TERMINATION OF THE OPTION.

The Option shall terminate and may no longer be exercised after the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Participant’s Service as described in Section 8, or (c) a Change of Control to the extent provided in Section 11.2(c) of the Plan.

8.EFFECT OF TERMINATION OF SERVICE.

8.1Option Exercisability.

(a)Normal Retirement.  If the Participant’s Service terminates at or after the normal retirement age sixty-five (65) years (“Normal Retirement”), then (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) solely for the purpose of computing the Vested Percentage, the Participant will be given credit for an additional twelve (12) months of continuous Service; provided, however, that in no event shall the Vested Percentage exceed 100%.

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(b)Early Retirement.  If the Participant’s Service terminates by reason of the early retirement of the Participant pursuant to an early retirement program established by the Participating Company to which the Participant renders Service (“Early Retirement”), then (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such longer period as shall be established pursuant to such early retirement program) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) solely for the purpose of computing the Vested Percentage, the Participant will be given credit for such additional months of continuous Service, if any, as shall be established pursuant to the early retirement program; provided, however, that in no event shall the Vested Percentage exceed 100%.

(c)Disability.  If the Participant’s Service terminates because of the Disability of the Participant, then (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) solely for the purpose of computing the Vested Percentage, the Participant will be given credit for an additional twelve (12) months of continuous Service; provided, however, that in no event shall the Vested Percentage exceed 100%.

(d)Death.  If the Participant’s Service terminates because of the death of the Participant, then (i) the Option, to the extent unexercised and exercisable on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date, and (ii) solely for the purpose of computing the Vested Percentage, the Participant will be given credit for an additional twelve (12) months of continuous Service; provided, however, that in no event shall the Vested Percentage exceed 100%.  The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participant’s termination of Service.

(e)Other Termination of Service.  If the Participant’s Service terminates for any reason, except Normal Retirement, Early Retirement, Disability, or death, the Option, to the extent unexercised and exercisable by the Participant on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such other longer period of time as determined by the Committee, in its discretion) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.

8.2Extension if Exercise Prevented by Law.  Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 8.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Participant is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.

8.3Extension if Participant Subject to Section 16(b).  Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 8.1 of shares acquired upon the exercise of the Option would subject the Participant to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Participant would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Participant’s termination of Service, or (iii) the Option Expiration Date.

8.4Termination for Cause.  Notwithstanding any other provision of this Option Agreement, if the Participant’s Service is terminated for Cause, the Option shall terminate and cease to be exercisable on the effective date of such termination of Service. “Cause” shall mean any of the following: (i) the Participant’s conviction of a felony; (ii) the Participant’s material act of fraud, dishonesty or other malfeasance; or (iii) the Participant’s willful, improper disclosure of a Participating Company’s confidential or proprietary information.

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9.ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.

In the event of any change in the Stock through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate adjustments shall be made in the number, Exercise Price and class of shares subject to the Option.  If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the Committee may unilaterally amend the Option to provide that the Option is exercisable for New Shares.  In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Committee, in its discretion.  Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Committee pursuant to this Section 9 shall be final, binding and conclusive.

10.RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT.

The Participant shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 9.  If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participant’s employment is “at will” and is for no specified term.  Nothing in this Option Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participant’s Service as an Employee or Consultant, as the case may be, at any time.

11.MISCELLANEOUS PROVISIONS.

11.1Designation of Beneficiary.  Subject to local laws and procedures, the Participant may file with the Company a written designation of a beneficiary who, in the event of the death of the Participant, shall thereafter be entitled to exercise the Option to the extent that it remains exercisable in accordance with this Option Agreement.  Each designation will revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime.  If the Participant is married and designates a beneficiary other than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse.  If the Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the Option may be exercised by the Participant’s legal representative to the extent that it remains exercisable in accordance with this Option Agreement.  If the designated beneficiary survives the Participant but dies before exercising the Option to the full extent that it remains exercisable in accordance with this Option Agreement, then the Option shall be exercisable by the legal representative of such deceased designated beneficiary to the extent that it remains exercisable in accordance with this Option Agreement.  The determination of the Company as to which person, if any, qualifies as a designated beneficiary shall be final, conclusive and binding on all persons.

11.2Binding Effect.  This Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

11.3Termination or Amendment.  The Committee may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in connection with a Change of Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Participant unless such termination or amendment is necessary to comply with any applicable law or government regulation.  No amendment or addition to this Option Agreement shall be effective unless in writing.

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11.4Delivery of Documents and Notices.  Any document relating to participating in the Plan and/or notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the e-mail address, if any, provided for the Participant by a Participating Company or at the address shown below that party’s signature to this Option Agreement or at such other address as such party may designate in writing from time to time to the other party.

(a)Description of Electronic Delivery.  The Plan documents, which may include but do not necessarily include: the Plan Prospectus, this Option Agreement and U.S. financial reports of the Company, may be delivered to the Participant electronically.  In addition, the Participant may deliver electronically the notice called for by Section 4.2 (the “Notice of Exercise”) to the Company or to such third party involved in administering the Plan as the Company may designate from time to time.  Such means of delivery may include but do not necessarily include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Committee’s discretion.

(b)Consent to Electronic Delivery.  The Participant acknowledges that the Participant has read Section 11.4 of this Option Agreement and consents to the electronic delivery of the Plan documents and the delivery of the Notice of Exercise, as described in Section 11.4(a) of this Option Agreement.  The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost if the Participant contacts the Company by telephone, through a postal service or electronic mail at equity@adobe.com.  The Participant further acknowledges that the Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, the Participant understands that the Participant must provide the Company or any designated third party with a paper copy of any documents delivered electronically if electronic delivery fails.  Also, the Participant understands that the Participant’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@adobe.com.  Finally, the Participant understands that he or she is not required to consent to electronic delivery.

11.5Data Privacy Consent.  The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in this document by and among the members of the Participating Company Group for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan.

The Participant understands that the Company and the Participating Company Group hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Stock or directorships held in the Company, details of all Options or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Data”).  The Participant understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Participant’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country.  The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting the Participant’s local human resources representative.  The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any shares of Stock acquired upon exercise of the Option.  The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan.  The Participant understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Participant’s local human resources representative.  The Participant understands, however, that refusing or withdrawing the Participant’s consent may affect the Participant’s ability to participate in the Plan.  For more information on the consequences of the Participant’s refusal to consent or withdrawal of consent, the Participant understands that he or she may contact the Participant’s local human resources representative.

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11.6Headings.  The headings of the Sections in this Option Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Option Agreement or to affect the meaning of this Option Agreement.

11.7Integrated Agreement.  This Option Agreement, together with the Superseding Agreement, if any, and the Plan constitutes the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein.  To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. Any capitalized terms not defined herein shall have the definition as set forth in the Plan and/or the Superseding Agreement. In the event of any conflict between the provisions of this Option Agreement and those of the Plan, the provisions of the Plan shall control.

11.8Applicable Law and Venue.  This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties as evidenced by this Option Agreement, the parties herby submit to and consent to the jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of Santa Clara County, California, or the federal courts of the United States for the Northern District of California, and no other courts, where this Option Agreement is made and/or performed.

ADOBE SYSTEMS INCORPORATED
By:	/s/ Shantanu Narayen
	Shantanu Narayen
Title:	Chief Executive Officer
Address:	345 Park Avenue
	San Jose, CA 95110-2704

The Participant represents that the Participant is familiar with the terms and provisions of this Option Agreement and hereby accepts the Option subject to all of the terms and provisions thereof.  The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under this Option Agreement.

10

EX-31.1

EX-31.2

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EXHIBIT 31.2

CERTIFICATION

I, Mark Garrett, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Adobe Systems Incorporated;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: April 4, 2008 /s/  MARK GARRETT Mark Garrett
Executive Vice President and
Chief Financial Officer

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EXHIBIT 31.2

EX-32.1

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EXHIBIT 32.1

CERTIFICATION PURSUANT TO
RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350

        In connection with the Quarterly Report of Adobe Systems Incorporated (the "Registrant") on Form 10-Q for the quarterly period ended February 29, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Shantanu Narayen, certify, in accordance with Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that to the best of my knowledge:

        (1)   The Report, to which this certification is attached as Exhibit 32.1, fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

        (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: April 4, 2008 /s/  SHANTANU NARAYEN Shantanu Narayen
President and Chief Executive Officer

A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

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EXHIBIT 32.1

CERTIFICATION PURSUANT TO RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350

EX-32.2

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EXHIBIT 32.2

CERTIFICATION PURSUANT TO
RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350

        In connection with the Quarterly Report of Adobe Systems Incorporated (the "Registrant") on Form 10-Q for the quarterly period ended February 29, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark Garrett, certify, in accordance with Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that to the best of my knowledge:

(1)

The Report, to which this certification is attached as Exhibit 32.2, fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: April 4, 2008 /s/  MARK GARRETT Mark Garrett
Executive Vice President and
Chief Financial Officer

A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

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EXHIBIT 32.2

CERTIFICATION PURSUANT TO RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350