Adobe 2003 Annual Report Download - page 83

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Profit Sharing Plan
We have a profit sharing plan that provides for profit sharing payments to all eligible employees
following each quarter in which we achieve at least 80% of our budgeted earnings for the quarter. The plan,
as well as the annual operating budget on which the plan is based, is approved by our Board of Directors.
We contributed approximately $28.8 million, $18.8 million and $11.6 million to the plan in fiscal 2003,
2002 and 2001, respectively.
Note 11. Employee and Director Stock Plans
Stock Options
Our stock option program is a long-term retention program that is intended to attract, retain and
provide incentives for talented employees, officers and directors, and to align stockholder and employee
interests. In April 2003, the 2003 Equity Incentive Plan (“2003 Plan”) was approved by our stockholders
which replaced 1) the 1994 Stock Option Plan (“1994 Plan”), under which officers and key employees were
granted options to purchase shares of our stock and 2) the 1999 Equity Incentive Plan (“1999 Plan”), our
plan under which options could be granted to all employees, excluding executive officers, and outside
consultants. As of November 28, 2003, we had reserved 12.6 million shares of common stock under our
2003 Plan.
Currently, we grant options from the 1) 2003 Plan, under which options could be granted to all
employees, including executive officers, and outside consultants and 2) the 1996 Outside Directors Stock
Option Plan, as amended, under which options are granted automatically under a pre-determined formula to
non-employee directors. In addition, our stock option program includes the Adobe 1984 Stock Option Plan,
as amended, and the Aldus 1984 Restated Stock Option Plan from which we currently do not grant options.
The plans listed above are collectively referred to in the following discussion as “the Plans.” We consider
the Plans critical to our operation and productivity. Option vesting periods are generally three years for all
of the Plans.
All stock option grants to current executive officers are made after a review by and with the approval
of the Executive Compensation Committee of the Board of Directors. All members of the Executive
Compensation Committee are independent directors, as defined in the current and proposed rules applicable
to issuers traded on the Nasdaq Stock Market.
In May 2003, a stock option exchange program was initiated that allowed eligible employees to
exchange options granted with an option price greater than $40 per share for a lesser number of new
options, according to specified exchange ratios. The program excluded executive officers and members of
our Board of Directors. The cancellation date for the program was June 16, 2003. On June 17, 2003 we
accepted for cancellation, options to purchase approximately 7.1 million shares of common stock. Eligible
employees, subject to their continued employment with Adobe on December 17, 2003, the grant date of the
new options, received new options to purchase shares of common stock in exchange for such cancelled
options. See Note 17 for final results of the stock option exchange program. The tables include options to
purchase 3.5 million shares as estimated as of November 28, 2003.
As of November 28, 2003, we had reserved 3.3 million shares of common stock for issuance under our
1996 Outside Directors Stock Option Plan, as amended (the “Directors Plan”). The Directors Plan provides
for the granting of nonqualified stock options to non-employee directors. Option grants are limited to
40,000 shares per person in each fiscal year, except for a new non-employee director, who is granted to
whom 60,000 shares are granted upon election as a director. Effective fiscal 2004, option grants are limited
to 25,000 shares per person in each fiscal year, except for the new non-employee director to whom 50,000
shares are granted upon election as a director. Options have a ten-year term and are exercisable and vest
over three years: 25% on the day preceding each of Adobe’s next two annual meetings of stockholders and
50% on the day preceding Adobe’s third annual meeting of stockholders after the grant of the option. The
exercise price of the options that are issued is equal to the fair market value of our common stock on the
date of grant. In fiscal 2003, we granted options for an aggregate of 280,000 shares with an exercise of
$32.41 to existing directors. In fiscal 2002, we granted options for an aggregate of 240,000 shares with an
exercise price of $39.04 to existing directors and an option for 60,000 shares to a new director with an
exercise price of $33.00. In fiscal 2001, we granted options for an aggregate of 200,000 shares with an
exercise price of $41.06 to existing directors. As of November 28, 2003, approximately 1.0 million shares