The following paragraphs provide a summary of the principal features of the Executive Bonus Plan. This summary does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the Executive Bonus Plan, a copy of which has been filed with the SEC with this proxy statement.
General. The purpose of the Executive Bonus Plan is to motivate eligible employees to achieve goals relating to the performance of Adobe or one of our business units or other objectively determinable goals, and to reward them when those objectives are satisfied, thereby increasing stockholder value and the success of Adobe. If certain requirements are satisfied, bonuses awarded under the Executive Bonus Plan to covered employees will qualify as deductible “performance-based compensation” within the meaning of Section 162(m) of the Code.
Eligibility. Participants in the Executive Bonus Plan
are members of senior management of Adobe who are chosen solely at the
discretion of the Executive Compensation Committee. As of
Administration. The Executive Bonus Plan will be administered by the Executive Compensation Committee, which consists of at least two directors, each of whom is both a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 and an “outside director” for purposes of Section 162(m) of the Code. The Executive Compensation Committee shall be responsible for the general administration and interpretation of the Plan and for carrying out its provisions. The Executive Compensation Committee has the authority to select persons to receive awards from among the eligible employees and set the terms and conditions of each award consistent with the terms of the Executive Bonus Plan. The Executive Compensation Committee may establish rules and policies for administration of the Executive Bonus Plan and adopt one or more forms of agreement to evidence awards made under the Executive Bonus Plan. The Executive Compensation Committee interprets the Executive Bonus Plan and any agreement used under the Executive Bonus Plan, and all determinations of the Executive Compensation Committee that are not inconsistent with the Executive Bonus Plan will be final and binding on all persons.
Determination of Awards. Under the Executive Bonus Plan, participants will be eligible to receive cash awards based upon the attainment and certification of certain performance goals established by the Executive Compensation Committee over the applicable performance period. The performance goals that may be selected by the Executive Compensation Committee include one or more of the following: growth in revenue; growth in the market price of stock; operating margin; gross margin; operating income; pre-tax profit; earnings before interest, taxes and depreciation; earnings before interest, taxes, depreciation and amortization; net income; total return on shares of stock relative to the increase in an appropriate index as may be selected by the Executive Compensation Committee; earnings per share; return on stockholder equity; return on net assets; expenses; return on capital; economic value added; market share; operating cash flow; cash flow, as indicated by book earnings before interest, taxes, depreciation and amortization; cash flow per share; customer satisfaction; implementation or completion of projects or processes; improvement in or attainment of working capital levels; stockholders’ equity; and other measures of performance selected by the Executive Compensation Committee.
The performance goals may be based on absolute target numbers or growth in one or more such categories compared to a prior period, and may differ for each participant. The performance goals may also, as the Executive Compensation Committee specifies, either include or exclude the effect of payment of the bonuses under the Executive Bonus Plan or any other bonus plans of Adobe. Performance goals may apply to Adobe or to one of our business units. Any performance goals that are not specifically described above must relate to a goal that is objectively determinable within the meaning of Section 162(m) of the Code.
Our Executive Compensation Committee may provide that attainment of a performance goal shall be measured by adjusting the evaluation of performance as follows: to exclude restructuring and/or other nonrecurring charges; to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; to exclude the effects of any statutory adjustments to corporate tax rates; to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles; to exclude any other unusual, non-recurring gain or loss or other extraordinary item; to respond to, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; to respond to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; to exclude the dilutive effects of acquisitions or joint ventures; to assume that any business divested by Adobe achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; to exclude the effect of any change in the outstanding shares of common stock of Adobe by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular
cash dividends; to reflect a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code); and to reflect any partial or complete corporate liquidation.
Our Executive Compensation Committee retains the discretion to reduce or eliminate any award that would otherwise be payable pursuant to the Executive Bonus Plan.
Payment of Awards. All awards will be paid in cash as soon as is practicable following their determination, but in no event later than 2 ½ months after the end of the applicable performance period, unless the Executive Compensation Committee chooses to defer the payment of awards, as it determines, in its discretion, is necessary or desirable to preserve the deductibility of such awards under Section 162(m) of the Code. In addition, the Executive Compensation Committee, in its sole discretion, may permit a participant to defer receipt of the payment of cash that would otherwise be delivered to a participant under the Executive Bonus Plan.
Maximum Award. The amounts that will be paid pursuant to the Executive Bonus Plan are not currently determinable. The maximum bonus payment that any participant may receive under the Executive Bonus Plan for any performance period is $5,000,000 multiplied by the number of our complete fiscal years contained within the performance period.
Term of Executive Bonus Plan. The Executive Bonus Plan shall first apply to fiscal 2007. The Executive Bonus Plan shall terminate with respect to fiscal 2007 and all subsequent years unless it is approved at this meeting. Once approved by our stockholders, the Executive Bonus Plan shall continue until the earlier of (i) the date as of which the Executive Compensation Committee terminates the Executive Bonus Plan and (ii) the last day of the Executive Bonus Plan fiscal year ending in 2010 unless the Executive Bonus Plan again shall be approved by our stockholders prior to such day.
Amendment and Termination. The Executive Compensation Committee may amend, modify, suspend or terminate the Executive Bonus Plan, in whole or in part, at any time and in any respect, including the adoption of amendments deemed necessary or desirable to correct any defect or supply omitted data or to reconcile any inconsistency in the Executive Bonus Plan or in any award granted thereunder. Any such amendment, modification, suspension or termination may be made without the consent of any affected participant. However, in no event may any such amendment, modification, suspension or termination result in an increase in the amount of compensation payable pursuant to any award under the Executive Bonus Plan or cause compensation that is, or may become, payable under the Executive Bonus Plan to fail to qualify as deductible “performance-based compensation” within the meaning of Section 162(m) of the Code.
Federal Income Tax Consequences. Under present federal income tax law, participants will recognize ordinary income equal to the amount of the award received in the year of receipt. That income will be subject to applicable income and employment tax withholding by Adobe. If and to the extent that the Executive Bonus Plan payments satisfy the requirements of Section 162(m) of the Code and otherwise satisfy the requirements for deductibility under federal income tax law, we will receive a deduction for the amount constituting ordinary income to the participant.
Awards under the Executive Bonus Plan are determined based on actual future performance, so it is not possible to determine the awards that would have been made had the Executive Bonus Plan been in effect in fiscal 2005. For fiscal 2006, no participants will be chosen to participate in the Executive Bonus Plan, as the Executive Bonus Plan shall first apply to fiscal 2007. We have paid and will pay for fiscal 2006, if target goals are met, discretionary bonuses, or other types of compensation, outside of the Executive