8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (date of earliest event reported): December 2, 2005

Adobe Systems Incorporated

(Exact name of Registrant as specified in its charter)

Delaware	0-15175	77-0019522
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

345 Park Avenue
San Jose, California 95110-2704
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (408) 536-6000

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

Employment Agreement

Pursuant to an Agreement and Plan of Merger and Reorganization dated April 17, 2005 (the “Merger Agreement”) by and among Adobe Systems Incorporated (“Adobe”), Avner Acquisition Sub, Inc., a wholly-owned subsidiary of Adobe (“Merger Sub”), and Macromedia, Inc. (“Macromedia”), Merger Sub merged with and into Macromedia (the “Merger”) and Macromedia became a wholly-owned subsidiary of Adobe. The Merger closed on December 2, 2005 and became effective on December 3, 2005.

Adobe entered into an Amended and Restated Employment Agreement dated May 23, 2005 (the “Employment Agreement”) with Stephen A. Elop pursuant to which Mr. Elop would serve as Adobe’s President of Worldwide Field Operations beginning upon the first business day following the closing of the Merger. The effectiveness of this agreement was contingent upon the closing of the Merger and confirmation of Mr. Elop’s work authorization and background clearance. The agreement became effective upon such closing on December 2, 2005.

Under the terms of the Employment Agreement, Mr. Elop’s base salary is $500,000 per year, and his target annual bonus will be 75% of his annual base salary, based on attainment of Adobe objectives. In addition, Mr. Elop will be eligible to participate in both the Adobe profit sharing plan (which can result in a payment to Mr. Elop of up to 10% of his annual base salary based on attainment of Adobe targets) and the Adobe Executive Severance Plan in the Event of a Change of Control of Adobe. Mr. Elop will also be granted an option to purchase 175,000 shares of Adobe common stock. Under the Employment Agreement, Adobe will reimburse Mr. Elop for his reasonable expenses in traveling between his office at corporate headquarters and his residence in Canada.

The Employment Agreement also confirms that upon the closing of the Merger, pursuant to resolutions adopted by the Macromedia compensation committee on February 26, 1997 and April 8, 2005, stock options awarded to Mr. Elop by Macromedia before January 19, 2005 will have vesting accelerated by an 18-month period.   The Employment Agreement also confirms an existing option to purchase 400,000 shares of Macromedia common stock granted to Mr. Elop in January 2005 (which was converted into an option to purchase 552,000 shares of Adobe common stock upon the consummation of the Merger) (the “New Option”), and an existing award of 100,000 shares of restricted Macromedia common stock granted to Mr. Elop in January 2005 (which was converted into 138,000 shares of restricted Adobe common stock upon the consummation of the Merger) (the “New Stock Award”), that will each continue to vest during his employment.

In the event Mr. Elop’s employment with Adobe is terminated by Adobe without cause, as a result of Mr. Elop’s death or disability, or by Mr. Elop for good reason at or before the close of business on the first anniversary of the first business day after the closing of the Merger, upon his providing a general release to Adobe, he will be entitled to receive a lump sum payment equal to the greater of $800,000 and an amount equal to the sum of his annual base salary and his annual bonus at the levels in effect immediately prior to his termination, or if greater, immediately prior to the closing of the Merger. He will also be reimbursed for any expenses incurred by him and his dependents for the one-year period following his termination date for coverage under COBRA, or Adobe will pay for comparable coverage. In addition, and provided that any termination by Mr. Elop for good reason does not occur until the close of business on the date 12 months after the first business day after the closing of the Merger, the New Option and the New Stock Award will become fully vested and the New Option will remain exercisable until the earlier of the expiration date of such option and the first anniversary of his termination date. Each other option, including the Adobe option for 175,000 shares, will remain exercisable until the earlier of the expiration date of such option and the end of the period specified in the stock option agreement.

In the event Mr. Elop’s employment with Adobe is terminated by Adobe without cause, as a result of Mr. Elop’s death or disability, or by Mr. Elop for good reason after the date 12 months after the first business day after the closing  of the Merger, upon his providing a general release to Adobe, he will be entitled to receive a lump sum payment equal to the greater of $800,000 and an amount equal to the sum of

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his annual base salary and his annual bonus at the levels in effect immediately prior to his termination. He will also be reimbursed for any expenses incurred by him and his dependents for the one-year period following his termination date for coverage under COBRA, or Adobe will pay for comparable coverage. In addition, the New Option will have its vesting schedule accelerated by 12 months and will remain exercisable until the earlier of the one-year anniversary of the termination date, and the expiration date specified in the stock option agreement.   Each other option, including the Adobe option for 175,000 shares, will remain exercisable until the earlier of the expiration date of such option and the end of the period specified in the stock option agreement.

Under the Employment Agreement, good reason is defined as either: a termination by Mr. Elop, as a result of a material adverse change in his position as President of Worldwide Field Operations, an involuntary reduction in his compensation by more than 10%, a relocation of his principal place of employment by more than 50 miles or a material breach by Adobe of its indemnification obligations to Mr. Elop, or voluntary termination by Mr. Elop for any reason during the six-month period ending on the one year anniversary of the first business day after the closing of the Merger.

Also, in the event Mr. Elop’s employment is terminated by Mr. Elop for good reason,  by Mr. Elop for any reason after January 19, 2007, by Adobe at any time without cause, or as a result of Mr. Elop’s death or disability, he will be entitled to an additional payment equal to $5,000,000 which will be reduced by

•any gain Mr. Elop receives as a result of the sale, prior to his termination date, of shares attributable to any stock options exercised by Mr. Elop or any stock award granted to Mr. Elop including options granted to Mr. Elop pursuant to the Employment Agreement;

•the difference between the fair market value of any exercised but unsold shares and any unexercised vested shares (including shares that become vested as a result of the termination of employment and shares granted by Adobe under the Employment Agreement) attributable to any stock option granted to Mr. Elop and the exercise price of the applicable stock option; and

•the fair market value of vested shares of restricted stock still held by Mr. Elop as of the termination date (including shares that become vested as a result of the termination of employment and shares granted by Adobe under the Employment Agreement).

In the event Mr. Elop remains an employee of Adobe until at least the close of business on the business day immediately preceding the one-year anniversary of the first business day following the closing of the Merger, he will receive a retention bonus payment of $1,000,000 from Adobe within 15 days of such date. If Mr. Elop’s employment is terminated by Adobe without cause during the six-month period ending on the business day immediately preceding the one-year anniversary of the first business day following the closing of the Merger, Mr. Elop will be entitled to a pro rated retention bonus payment equal to one-sixth of the total amount for each full or partial month Mr. Elop remains employed by Adobe during the six-month period ending on the business day immediately preceding the one-year anniversary of the first business day following the closing of the Merger, to be paid within 15 days of the involuntary termination date.

The summary of material terms of the Employment Agreement set forth above is qualified in its entirety by reference to the Employment Agreement, a copy of which is incorporated by reference as Exhibit 10.1 to this Report and incorporated herein by reference.

2005 Equity Incentive Assumption Plan

Effective as of the effective time of the Merger on December 3, 2005, in connection with the Merger, Adobe elected to assume the outstanding stock awards and the shares remaining available for future issuance under the following equity incentive plans maintained by Macromedia (in addition to the other outstanding options to acquire shares of Macromedia common stock assumed by Adobe in connection with the Merger): (i) Andromedia, Inc. 1999 Stock Plan, (ii) Macromedia, Inc. 2002 Equity Incentive Plan,

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(iii) Allaire Corp. 1997 Stock Incentive Plan, (iv) Allaire Corporation 1998 Stock Incentive Plan, and (v) Allaire Corporation 2000 Stock Incentive Plan (collectively, the “Macromedia Plans”).

Effective December 3, 2005, Adobe’s board of directors adopted the Adobe Systems Incorporated 2005 Equity Incentive Assumption Plan (the “Assumption Plan”). The Assumption Plan permits the grant of nonstatutory stock options, stock appreciation rights, stock purchase rights, stock bonuses, performance shares, and performance units.  The terms and conditions of such stock awards under the Assumption Plan are substantially similar to those under Adobe’s 2003 Equity Incentive Plan, which was last approved by Adobe’s stockholders on April 28, 2005.  In accordance with NASDAQ listing requirements, Adobe may grant new stock awards under the Assumption Plan to its employees who were not employed by or providing services to Adobe or any of its affiliates (other than Macromedia and its affiliates and subsidiaries) prior to December 3, 2005.

Under the Assumption Plan, an aggregate of 8,838,874 shares of Adobe common stock is reserved for issuance.  Such share reserve consists solely of the unused and converted share reserves and potential reversions to the share reserves as of December 3, 2005, with respect to the Macromedia Plans.  The share reserve is divided into Reserve A and Reserve B.   Reserve A consists of 190,678 shares of Adobe common stock which includes the unused share reserve of and potential reversions to the Andromedia, Inc. 1999 Stock Plan.  Reserve B consists of 8,648,196 shares of Adobe common stock which includes the unused share reserve of and potential reversions to the (i) Macromedia, Inc. 2002 Equity Incentive Plan, (ii) Allaire Corp. 1997 Stock Incentive Plan, (iii) Allaire Corporation 1998 Stock Incentive Plan, and (iv) Allaire Corporation 2000 Stock Incentive Plan.  In the event of the forfeiture or expiration of any stock awards granted under the Macromedia Plans, the shares of Adobe common stock associated with such forfeited or expired stock awards will become available for award pursuant to the terms of Reserve A or Reserve B, as applicable.  No stock awards may be made from Reserve A after August 1, 2009, and no stock awards may be made from Reserve B after November 10, 2014.  The Assumption Plan limits the number of shares that may be issued in the form of stock purchase rights, stock bonuses, performance shares, or performance units to 100,000 shares of Adobe common stock.

In the event of a sale of substantially all of the voting stock of Adobe, a merger involving Adobe, the sale of substantially all of the assets of Adobe, or a liquidation or dissolution of Adobe, stock awards may be assumed or substituted by a successor entity.  In the event that a successor entity elects not to assume or substitute for such stock awards, the stock awards will become fully vested.

The board of directors of Adobe may terminate or amend the Assumption Plan at any time subject to applicable rules. The summary of the Assumption Plan contained herein is qualified in its entirety by reference to the full text of the Assumption Plan, which is attached hereto as Exhibit 10.2 and incorporated herein by reference, and the form of Nonstatutory Stock Option Agreement for use in grants under the Assumption Plan is attached hereto as Exhibit 10.3.

Executive Severance Agreement

On December 5, 2005, Adobe entered into an Executive Severance Agreement and General Release of Claims (the “Resignation Agreement”) with Ivan Koon, Adobe’s Senior Vice President of Intelligent Documents Business Unit.

Pursuant to the terms of the Resignation Agreement, which is effective as of December 3, 2005 (the “Termination Date”), Mr. Koon will receive: (i) a lump sum severance payment of $350,000, less applicable withholdings; (ii) COBRA health insurance coverage premium payments through the earlier of November 30, 2006 or the date on which Mr. Koon first becomes eligible for other group health insurance coverage; and (iii) the laptop computer that was provided to Mr. Koon by Adobe and any associated Adobe software that is on the computer.

In addition, if Mr. Koon does not provide any work, services, or assistance (as an employee, director, contractor, consultant, investor, or otherwise) to any competitor of Adobe (except with the prior written consent of Adobe) during the period between the Termination Date and November 30, 2006, Adobe shall make a payment to Mr. Koon of $175,000, less applicable withholding.

The foregoing description of the Resignation Agreement is qualified in its entirety by reference to the Resignation Agreement, a copy of which is attached to this Report as Exhibit 10.4 and incorporated herein by reference.

Item 2.01. Completion of Acquisition or Disposition of Assets.

Merger with Macromedia

On December 3, 2005, pursuant to the Merger Agreement, Macromedia became a wholly-owned subsidiary of Adobe and each outstanding share of Macromedia common stock was converted into the right to receive 1.38 shares of Adobe common stock. The Merger is intended to qualify as a tax-free reorganization and Adobe will account for the Merger using the purchase method of accounting.

In connection with the Merger, approximately 79,016,310 shares of Macromedia common stock were converted into the right to receive approximately 109,042,507 shares of Adobe common stock. In addition, Adobe assumed outstanding options to acquire approximately 10,974,669 shares of Macromedia common stock, and converted those into options to acquire approximately 15,144,306 shares of Adobe common stock.

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Item 2.05. Costs Associated with Exit or Disposal Activities.

In conjunction with the acquisition of Macromedia, on December 3, 2005, the Adobe board of directors approved a restructuring plan to better align Adobe’s resources among its client and product groups (the “Restructuring Plan”). Adobe expects to incur approximately $20.0 to $25.0 million in pre-tax restructuring and related charges associated with this Restructuring Plan over the twelve months ending December 1, 2006. Included in the restructuring and other charges are (i) approximately $4.0 to $5.0 million primarily related to the consolidation of leased facilities and accelerated depreciation of tenant improvements and (ii) approximately $16.0 to $20.0 million related to employee severance arrangements. Adobe expects to complete the majority of the activities related to the Restructuring Plan in its first quarter ending March 3, 2006.

These restructuring expenses relate only to those employees and facilities that were associated with Adobe prior to the acquisition of Macromedia on December 3, 2005. These expenses will be a charge to earnings in the respective quarter in which they are incurred. Adobe expects to incur additional restructuring expenses relating to Macromedia’s operations. These costs will be included in the assumed liabilities of Macromedia as of December 3, 2005 and will be recorded as part of the total acquisition purchase price of Macromedia.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

(c) Appointment of President of Worldwide Field Operations

Effective as of December 5, 2005, Stephen A. Elop was appointed President of Worldwide Field Operations of Adobe. Mr. Elop is 41 years old. Mr. Elop served as Chief Executive Officer and a director of Macromedia, a software provider, from January 2005 until the effective time of the Merger. Mr. Elop served as Chief Operating Officer of Macromedia from July 2004 to January 2005, Executive Vice President of Worldwide Field Operations of Macromedia from April 2001 to January 2005, General Manager, eBusiness Solutions of Macromedia from December 1999 to April 2001, and Chief Information Officer of Macromedia from March 1998 to December 1999. Mr. Elop holds a bachelor’s degree from McMaster University.

As a result of the Merger, 123,428 shares of Macromedia common stock held by Mr. Elop were converted into the right to receive 170,330 shares of Adobe common stock and options to purchase 544,834 shares of Macromedia common stock held by Mr. Elop were converted into options to purchase 751,870 shares of Adobe common stock. See the section entitled “Merger with Macromedia” in Item 2.01 above.

Mr. Elop has entered into an employment agreement with Adobe pursuant to which he was appointed President of Worldwide Field Operations. The material terms of the employment agreement are described in Item 1.01 above under the heading “Employment Agreement.”

(d) Appointment of Director

Effective as of the effective time of the Merger on December 3, 2005, Robert K. Burgess, who previously served as Executive Chairman and as a director of Macromedia, was appointed to the board of directors of Adobe pursuant to the terms of the Merger Agreement. Mr. Burgess was designated as a Class II director of Adobe, to serve until Adobe’s 2007 annual meeting of stockholders, or until his successor is duly elected and qualified. Mr. Burgess has not been appointed to any committee of the board of directors.

As a result of the Merger, 114,037 shares of Macromedia common stock beneficially owned by Mr. Burgess were converted into the right to receive 157,370 shares of Adobe common stock and options to purchase 939,752 shares of Macromedia common stock held by Mr. Burgess were converted into options to purchase 1,296,856 shares of Adobe common stock. See the section entitled “Merger with Macromedia” in Item 2.01 above.

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Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

The financial statements required by Item 9.01(a) of Form 8-K will be filed by amendment on or before February 14, 2006.

(b) Pro Forma Financial Information

The pro forma financial statements required by Item 9.01(b) of Form 8-K will be filed by amendment on or before February 14, 2006.

(d) Exhibits

Exhibit		Incorporated by Reference			Filed
Number	Exhibit Description	Form	Date	Number	Herewith
2.1	Agreement and Plan of Merger and Reorganization, dated as of April 17, 2005, among Adobe Systems Incorporated, Avner Acquisition Sub, Inc. and Macromedia, Inc.	S-4	6/28/05	2.1
10.1	Amended and Restated Employment Agreement between Adobe Systems Incorporated and Stephen Elop, dated May 23, 2005.	S-4	6/28/05	10.1
10.2	Adobe Systems Incorporated 2005 Equity Incentive Assumption Plan.				X
10.3	Form of Nonstatutory Stock Option Agreement used in connection with the Adobe Systems Incorporated 2005 Equity Incentive Assumption Plan.				X
10.4	Executive Severance Agreement and General Release of Claims, dated December 5, 2005, between Adobe Systems Incorporated and Ivan Koon.				X

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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 hereunto duly authorized.

	ADOBE SYSTEMS INCORPORATED
Date: December 7, 2005	By:	/s/ MURRAY J. DEMO
		Murray J. Demo
		Executive Vice President and Chief
		Financial Officer

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EXHIBIT INDEX

Exhibit		Incorporated by Reference			Filed
Number	Exhibit Description	Form	Date	Number	Herewith
2.1	Agreement and Plan of Merger and Reorganization, dated as of April 17, 2005, among Adobe Systems Incorporated, Avner Acquisition Sub, Inc. and Macromedia, Inc.	S-4	6/28/05	2.1
10.1	Amended and Restated Employment Agreement between Adobe Systems Incorporated and Stephen Elop, dated May 23, 2005.	S-4	6/28/05	10.1
10.2	Adobe Systems Incorporated 2005 Equity Incentive Assumption Plan.				X
10.3	Form of Nonstatutory Stock Option Agreement used in connection with the Adobe Systems Incorporated 2005 Equity Incentive Assumption Plan.				X
10.4	Executive Severance Agreement and General Release of Claims, dated December 5, 2005, between Adobe Systems Incorporated and Ivan Koon.				X

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EX-10.2

Exhibit 10.2

ADOBE SYSTEMS INCORPORATED

2005 EQUITY INCENTIVE
ASSUMPTION PLAN

1.	Establishment, Purpose and Term of Plan
	1.1	Establishment
	1.2	Background and Purpose
	1.3	Term of Plan
2.	Definitions and Construction
	2.1	Definitions
	2.2	Construction
3.	Administration
	3.1	Administration by the Committee
	3.2	Authority of Officers
	3.3	Administration with Respect to Insiders
	3.4	Powers of the Committee
	3.5	Option Repricing
	3.6	Indemnification
4.	Shares Subject to Plan
	4.1	Maximum Number of Shares Issuable
	4.2	Adjustments for Changes in Capital Structure
5.	Eligibility and Award Limitations
	5.1	Persons Eligible for Awards
	5.2	Participation
	5.3	Award Limits
6.	Terms and Conditions of Options
	6.1	Exercise Price
	6.2	Exercisability and Term of Options
	6.3	Payment of Exercise Price
	6.4	Effect of Termination of Service
	6.5	Transferability of Options
7.	Terms and Conditions of Stock Appreciation Rights
	7.1	Types of SARs Authorized
	7.2	Exercise Price
	7.3	Exercisability and Term of SARs
	7.4	Exercise of SARs
	7.5	Deemed Exercise of SARs
	7.6	Effect of Termination of Service
	7.7	Nontransferability of SARs

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8.	Terms and Conditions of Stock Awards
	8.1	Types of Stock Awards Authorized
	8.2	Purchase Price
	8.3	Purchase Period
	8.4	Payment of Purchase Price
	8.5	Vesting and Restrictions on Transfer
	8.6	Voting Rights; Dividends and Distributions
	8.7	Effect of Termination of Service
	8.8	Nontransferability of Stock Award Rights
9.	Terms and Conditions of Performance Awards
	9.1	Types of Performance Awards Authorized
	9.2	Initial Value of Performance Shares and Performance Units
	9.3	Establishment of Performance Period, Performance Goals and Performance Award Formula
	9.4	Measurement of Performance Goals
	9.5	Settlement of Performance Awards
	9.6	Dividend Equivalents
	9.7	Effect of Termination of Service
	9.8	Nontransferability of Performance Awards
10.	Standard Forms of Award Agreement
	10.1	Award Agreements
	10.2	Authority to Vary Terms
11.	Change in Control
	11.1	Definitions
	11.2	Effect of Change in Control on Options and SARs
	11.3	Effect of Change in Control on Stock Awards
	11.4	Effect of Change in Control on Performance Awards
12.	Compliance with Securities Law
13.	Tax Withholding
	13.1	Tax Withholding in General
	13.2	Withholding in Shares
14.	Termination or Amendment of Plan
15.	Miscellaneous Provisions
	15.1	Repurchase Rights
	15.2	Provision of Information

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15.3	Rights as Employee
15.4	Rights as a Stockholder
15.5	Fractional Shares
15.6	Beneficiary Designation
15.7	Unfunded Obligation

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ADOBE SYSTEMS INCORPORATED

2005 EQUITY INCENTIVE ASSUMPTION PLAN

1.ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

1.1Establishment.  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.

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

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(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 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

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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.

(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

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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 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

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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.

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. 

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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), 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 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;

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(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 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.

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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.

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

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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.  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 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,

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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 eight (8) 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 eight (8) 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.

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.

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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 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.

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(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 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:

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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 an Ownership Change Event, as defined in Section 11.1, or as provided in Section 8.8.  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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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:

9.1Types 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.

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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 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

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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.

(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

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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 IN CONTROL.

11.1Definitions.

(a)An “Ownership Change Event” shall be deemed to have occurred if any of the following occurs with respect to the Company:  (i) the direct or indirect sale or exchange 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.

(b)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.

11.2Effect of Change in Control on Options and SARs.  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 and SARs or substitute for outstanding Options and SARs substantially equivalent options and SARs (as the case may be) for the Acquiror’s stock.  In the event the Acquiror elects not to assume or substitute for outstanding Options or SARs in connection with a Change in Control, the Committee shall provide that any unexercised and/or unvested portions of outstanding Options and SARs 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 or SAR that was permissible solely by reason of this paragraph 11.2 shall be conditioned upon the consummation of the Change in Control.  Any Options or SARs which are not assumed 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.

11.3Effect 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 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 11.3 and the provisions of such Award Agreement shall be conditioned upon the consummation of the Change in Control.

11.4Effect of Change in Control on Performance Awards.  The Committee may, in its discretion, provide in any Award Agreement evidencing a Performance Award that,

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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.

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.

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

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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.

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.

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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 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.

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EX-10.3

Exhibit 10.3

ADOBE SYSTEMS INCORPORATED

NONSTATUTORY STOCK OPTION AGREEMENT

(STANDARD)

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

(the “Participant”).  The Company has granted to the Participant pursuant to the 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

(b)“Number of Option Shares” means                            shares of Stock, as adjusted from time to time pursuant to Section 10.

(c)“Exercise Price” means $                           per share of Stock, as adjusted from time to time pursuant to Section 10.

(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 12 full months of the Participant’s continuous Service from the Initial Vesting Date	2.08	%
Plus:
For each of the next 12 full months of the Participant’s continuous Service from the Initial Vesting Date until the Vested Percentage equals 100%	4.17	%

(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.

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

(l)“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.

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

(n)“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 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.

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

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

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

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

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

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

(u)“Service” means the Participant’s employment with the Participating Company Group.  The 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, 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, 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.

(v)“Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 10.

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

(x)“Superseding Agreement” means the Adobe Systems Incorporated Executive Severance Plan in the Event of a Change in Control or any successor plan or agreement in which the Participant is a participant or to which the Participant is a party (in each such instance, the “Severance Plan”), or any agreement to which the Participant is a party which, by its existence alone, prevents the Participant from being eligible to participate in the Severance Plan.  The terms and conditions of any such Superseding Agreement shall, notwithstanding any provision of this Option Agreement to the contrary, supersede any inconsistent term or condition set forth in this Option Agreement to the extent intended by such Superseding Agreement.

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 time thereafter as 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 (i) sell or arrange for the sale of shares acquired by the Participant to meet the withholding obligation of Tax-Related

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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;

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;

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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;

6.7the future value of the underlying shares is unknown and cannot be predicted with certainty;

6.8if the underlying shares do not increase in value, the Option will have no value;

6.9if 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

6.10no 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, you shall be deemed irrevocably to have waived your 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 in Control to the extent provided in Section 9.

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%.

(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%.

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(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)Termination After Change in Control.  If the Participant’s Service ceases as a result of Termination After Change in Control (as defined below), 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%.

(f)Other Termination of Service.  If the Participant’s Service terminates for any reason, except Normal Retirement, Early Retirement, Disability, death or Termination After Change in Control, 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 (as defined below), the Option shall terminate and cease to be exercisable on the effective date of such termination of Service.

8.5Certain Definitions.

(a)“Termination After Change in Control” shall mean either of the following events occurring within twelve (12) months after a Change in Control:

(i)termination by the Participating Company Group of the Participant’s Service for any reason other than for Cause (as defined below); or

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(ii)the Participant’s resignation for Good Reason (as defined below) from all capacities in which the Participant is then rendering Service within a reasonable period of time following the event constituting Good Reason.

(iii)Notwithstanding any provision herein to the contrary, Termination After Change in Control shall not include any termination of the Participant’s Service which (1) is for Cause (as defined below); (2) is a result of the Participant’s Normal Retirement, Early Retirement, death or Disability; (3) is a result of the Participant’s voluntary termination of Service other than for Good Reason; or (4) occurs prior to the effectiveness of a Change in Control.

(b)“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.

(c)“Good Reason” shall mean any one or more of the following:

(i)without the Participant’s express written consent, the assignment to the Participant of any duties, or any limitation of the Participant’s responsibilities, substantially inconsistent with the Participant’s positions, duties, responsibilities and status with the Participating Company Group immediately prior to the date of the Change in Control;

(ii)without the Participant’s express written consent, the relocation by more than 35 miles of the principal place of the Participant’s Service immediately prior to the date of the Change in Control, or the imposition of travel requirements substantially more demanding of the Participant than such travel requirements existing immediately prior to the date of the Change in Control;

(iii)any failure by the Participating Company Group to pay, or any material reduction by the Participating Company Group of, (1) the Participant’s base salary in effect immediately prior to the date of the Change in Control (unless reductions comparable in amount, or percentage, and duration are concurrently made for all other employees of the Participating Company Group with responsibilities, organizational level and title comparable to the Participant’s), or (2) the Participant’s bonus compensation, if any, in effect immediately prior to the date of the Change in Control (subject to applicable performance requirements with respect to the actual amount of bonus compensation earned by the Participant); or

(iv)any failure by the Participating Company Group to (1) continue to provide the Participant with the opportunity to participate, on terms no less favorable than those in effect for the benefit of any employee or service provider group which customarily includes a person holding the employment or service provider position or a comparable position with the Participating Company Group then held by the Participant, in any benefit or compensation plans and programs, including, but not limited to, the Participating Company Group’s life, disability, health, dental, medical, savings, profit sharing, stock purchase and retirement plans, if any, in which the Participant was participating immediately prior to the date of the Change in Control, or their equivalent, or (2) provide the Participant with all other fringe benefits (or their equivalent) from time to time in effect for the benefit of any employee or service provider group which customarily includes a person holding the employment or service provider position or a comparable position with the Participating Company Group then held by the Participant.

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9.CHANGE IN CONTROL.

9.1Definitions.

(a)An “Ownership Change Event” shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange 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.

(b)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 9.1(a)(iii), the entity to which the assets of the Company were transferred.

9.2Effect of Change in Control on Option.  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 Participant, either assume the Company’s rights and obligations under outstanding the Option or substitute for the Option a substantially equivalent option for the Acquiror’s stock.  In the event the Acquiror elects not to assume or substitute for the Option in connection with a Change in Control, the Committee shall provide that any unexercised and/or unvested portions of the Option shall be immediately exercisable and vested in full as of the date thirty (30) days prior to the date of the Change in Control.  Any exercise of the Option that was permissible solely by reason of this Section 9.2 shall be conditioned upon the consummation of the Change in Control.  The Option shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control to the extent that the Option is neither assumed by the Acquiror in connection with the Change in Control nor exercised as of the time of consummation of the Change in Control.

10.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 10 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 10 shall be final, binding and conclusive.

11.RIGHTS AS A STOCKHOLDER OR EMPLOYEE.

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 10.  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

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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 at any time.

12.MISCELLANEOUS PROVISIONS.

12.1Designation 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.

12.2Binding 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.

12.3Termination or Amendment.  The Committee may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 9.2 in connection with a Change in 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.

12.4Delivery 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 12.4 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 12.4(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

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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.

12.5Data 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.

12.6Integrated Agreement.  This Option Agreement, together with the Superseding Agreement, if any, 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.

12.7Applicable Law.  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.

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12.8Counterparts.  This Option Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

ADOBE SYSTEMS INCORPORATED
By:
	Murray J. Demo
Title:	Executive Vice President, Chief Financial 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.

	PARTICIPANT
Date:
	Signature

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EX-10.4

Exhibit 10.4

EXECUTIVE SEVERANCE AGREEMENT

AND GENERAL RELEASE OF CLAIMS

1.     Ivan Koon (“Executive”) was employed by Adobe Systems Incorporated (the “Company”) on or about August 12, 2002.  The Company has determined to eliminate Executive’s position, effective December 3, 2005 (the “Termination Date”).  It is the Company’s desire to provide Executive with certain severance benefits that he would not otherwise be entitled to receive upon his termination and to resolve any claims that Executive has or may have against the Company.  Accordingly, Executive and the Company agree as set forth below.  This Agreement shall be effective on the eighth day after it is signed by Executive, but only if Executive has not previously revoked his acceptance of this Agreement.

2.     Executive’s employment with the Company and any of its subsidiaries will terminate effective as of the Termination Date. During the period between the date of this Agreement and the Termination Date, if any: (a) Executive will provide transition assistance as requested by the Company, and will take all available paid time off in accordance with the Company’s paid time off policies; and (b) the Company will continue to provide Executive with the same base salary and employee benefits that he was receiving immediately prior to his execution of this Agreement.

3.     In addition, the Company shall provide Executive with the following benefits:

(a)a lump sum severance payment of $350,000, less applicable withholding;

(b)in the event that Executive elects to obtain continued group health insurance coverage for himself and his eligible dependents in accordance with federal law (COBRA) following the Termination Date, the Company will pay the premiums for such coverage through the earlier of  November 30, 2006 or the date on which Executive first becomes eligible for other group health insurance coverage; thereafter, Executive may elect to purchase continued group health insurance coverage at his own expense in accordance with COBRA;

(c)the Company hereby assigns to Executive all right, title and interest in and to the laptop computer that was provided to Executive by the Company, and the Company also assigns to Executive any Adobe software that is on the computer; by signing this Agreement, Executive agrees that his use of such software shall be solely in accordance with the terms of the Company’s end user license agreements that apply to such software, which license agreements are hereby incorporated by reference into this Agreement; Executive must remove all non-Adobe software and all Adobe 

confidential or proprietary information, including all financial information, from the computer on or before the Termination Date;

(d)the Company agrees that it will not contest any claim for unemployment benefits that may be filed by Executive after the Termination Date; and

(e)payment for 2005 profit sharing and Annual Incentive Plan earned by Executive, if any, through the Termination Date, per the terms of all applicable plan documents.

By signing (or re-signing, as the case may be) this Agreement on or after the Termination Date, Executive acknowledges that he was paid all wages and accrued, unused PTO that Executive earned during his employment with the Company. Executive will be reimbursed by the Company for any reasonable business expenses incurred by Executive in the course of his employment with the Company, pursuant to the Company’s applicable business expense reimbursement policies. Executive’s rights with respect to any equity awards (such as stock options) shall be determined in accordance with the terms of the applicable equity award plans and/or agreements, which are not modified in any way by this Agreement.   Executive understands and acknowledges that he shall not be entitled to any payments or benefits from the Company other than those expressly set forth in this paragraph 3.  The Company shall provide the severance payment in paragraph 3(a) to Executive within 15 days of the date this Agreement is (i) signed by Executive (if such execution occurs on or after the Termination Date), or (ii) re-signed by Executive (if his original execution of this Agreement occurs prior to the Termination Date), in either case provided Executive has not revoked the Agreement prior to the eighth day following such signing or re-signing, and provided that if either Executive or the Company reasonably determines that Executive is a key employee as defined in Section 409A and that payment deferral is required according to Section 409A rules, payment will be made in accordance with those rules.

4.     Executive and his successors release the Company and its shareholders, investors, officers, directors, affiliates, employees, agents, attorneys, insurers, legal successors, and assigns of and from any and all claims, actions and causes of action, whether now known or unknown, which Executive now has, or at any other time, had or shall or may have against the released parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time up to and including the date on which Executive signs this Agreement,  including, but not limited to, any claims of breach of contract, wrongful termination, retaliation, fraud, defamation, infliction of emotional distress or national origin, race, age, sex, sexual orientation, disability or other discrimination or harassment under the Civil Rights Act of 1964, the Age Discrimination In Employment Act of 1967, the Americans With Disabilities Act, the Fair Employment and Housing Act or any other

applicable law.  In the event that Executive signs this Agreement prior to the Termination Date, as additional consideration for the severance benefits described in paragraph 3, Executive agrees that he will reaffirm this release of claims by re-signing this Agreement in the space provided at the end of the Agreement on or after the Termination Date; until the eighth day after Executive so reaffirms this release of claims without revoking it, he shall not be entitled to any of the severance benefits described in paragraph 3.

5.Executive acknowledges that he has read section 1542 of the Civil Code of the State of California, which states in full:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Executive waives any rights that he has or may have under section 1542 or any similar provision of the laws of any other jurisdiction to the full extent that he may lawfully waive such rights pertaining to this general release of claims, and affirms that he is releasing all known and unknown claims that he has or may have against the parties listed above.

6.     In the event that Executive does not provide any work, services, or assistance (as an employee, director, contractor, consultant, investor, or otherwise) to any competitor of the Company (except with the prior written consent of the Company) during the period between the date of this Agreement and November 30, 2006, the Company shall make a payment to Executive of $175,000, less applicable withholding.  Such payment, if earned, shall be made on or before December 15, 2006, and shall also be conditioned upon Executive’s execution and return of a general release of known and unknown claims against the Company and its affiliated persons and entities in a form satisfactory to the Company.

For purposes of this paragraph, (a) the determination of whether an entity constitutes a competitor of the Company shall be made by the Company in its sole discretion, and (b) Executive’s ownership of up to two percent (2%) of the stock of any publicly-traded company shall not be deemed to be the provision of work, services, or assistance to a competitor of the Company.

The parties acknowledge and agree that this paragraph 6 does not preclude Executive from accepting employment with, or otherwise working for or providing services to, a competitor of the Company.  Executive may elect to accept employment with, or provide work, services, or assistance to, any competitor of the Company, without incurring any liability to the Company; provided, however, that such

action by Executive shall excuse the Company’s performance of the payment obligation described in this paragraph 6.

7.     Executive acknowledges and agrees that he shall continue to be bound by and comply with the terms of the Employee Inventions and Proprietary Rights Assignment Agreement that Executive signed in connection with his employment by the Company, which agreement is incorporated herein by reference.  Executive acknowledges and agrees that due to the unique nature of the Company’s confidential information, there will be no adequate remedy at law for any breach of Executive’s obligations.  Executive further acknowledges that any such breach will result in irreparable harm to the Company and, therefore, that upon any such breach or any threat thereof, the Company shall be entitled to immediate equitable relief, including but not limited to injunction, in addition to whatever remedies the Company may have at law.

8.     Executive agrees that he shall not directly or indirectly disclose any of the terms of this Agreement to anyone other than his immediate family or counsel, except as such disclosure may be required for accounting or tax reporting purposes or as otherwise may be required by law, unless the Company has previously publicly disclosed such terms.

9.     Executive further agrees that he will not, at any time in the future, make any disparaging statements about the Company, its products or its employees, unless such statements are made truthfully in response to a subpoena or other legal process.  Employee further agrees that for a period of twenty-four months following the Termination Date, he shall not, either directly or indirectly, solicit or encourage any employee of the Company or any affiliate of the Company to terminate his or her employment with the Company or its affiliate.

10.   Executive agrees that in the event of his breach of any of the provisions of paragraphs 9 or 12, it will be impractical and extremely difficult to determine the actual damages suffered by the Company as a result of that breach. Accordingly, Executive agrees that if he breaches any provision of paragraphs 9 or 12, he shall repay the Company 30% of the net sum (that is, after deducting all taxes and other withholdings) that he receives pursuant to paragraph 3(a) as liquidated damages.

11.   The Company agrees that it will not, through any of its officers or directors, at any time in the future, make any disparaging statements about Executive, unless such statements are made truthfully in response to a subpoena or other legal process.

12.   Following the Termination Date, Executive agrees to provide reasonable assistance to the Company in connection with any litigation to which the Company is or may become a party and with respect to which Executive possesses any relevant knowledge or expertise.

Executive’s assistance will be provided at mutually convenient times, and the Company will reimburse Executive for any reasonable expenses incurred by him in providing such assistance.

13.   In the event of any legal action relating to or arising out of this Agreement, the prevailing party shall be entitled to recover from the losing party its attorneys’ fees and costs incurred in that action.

14.   In response to inquiries from prospective employers regarding Executive, the Company’s Human Resources Department will provide no information other than Executive’s dates of employment and positions held with the Company.

15.   This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior negotiations and agreements, whether written or oral.  This Agreement may not be modified or amended except by a document signed by an authorized officer of the Company and Executive.

EXECUTIVE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE PARTIES RELEASED ABOVE BY SIGNING THIS AGREEMENT.  EXECUTIVE FURTHER UNDERSTANDS THAT HE MAY HAVE UP TO 21 DAYS TO CONSIDER THIS AGREEMENT, THAT HE MAY REVOKE IT AT ANY TIME DURING THE 7 DAYS AFTER HE SIGNS IT, AND THAT IT SHALL NOT BECOME EFFECTIVE UNTIL THAT 7-DAY PERIOD HAS PASSED.  EXECUTIVE ACKNOWLEDGES THAT HE IS SIGNING THIS AGREEMENT KNOWINGLY, WILLINGLY, AND VOLUNTARILY IN EXCHANGE FOR THE COMPENSATION AND BENEFITS DESCRIBED IN PARAGRAPHS 2 AND 3.

Dated:	December 3, 2005
	/s/ Ivan Koon
	Ivan Koon
Dated:	December 5, 2005		ADOBE SYSTEMS INCORPORATED
		/s/ Theresa Townsley
		By:  Theresa Townsley
		Senior Vice President, Human Resources

By re-signing this Agreement on or after the Termination Date, I hereby reaffirm and extend the release of all known and unknown claims set forth in paragraphs 4 and 5 above through and including the date on which I re-sign this Agreement.  I understand that I may revoke this reaffirmation at any time during the 7 days after I re-sign this Agreement.

Dated:	December 3, 2005
	/s/ Ivan Koon
	Ivan Koon