Adobe 2004 Annual Report Download - page 82

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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.
Currently, we grant options from the 1) 2003 Equity Incentive Plan (“2003 Plan”), under which
options could be granted to all employees, including executive officers, and outside consultants and 2) 1996
Outside Directors Stock Option Plan (the “Directors Plan”), as amended, under which options are granted
automatically under a pre-determined formula to non-employee directors. 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 the Plans. As of December
3, 2004, we had reserved 18.5 million and 2.2 million shares of common stock for issuance under our 2003
Plan and the Directors Plan, respectively. As of December 3, 2004, we had 7.9 million and 0.5 million
shares available for grant under 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. 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, in exchange for such cancelled options to purchase approximately 3.4
million shares of common stock with an exercise price of $39.10.
The Directors Plan provides for the granting of nonqualified stock options to non-employee directors.
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.
Options granted to directors for fiscal 2004, 2003 and 2002 are as follows:
As of December 3, 2004, approximately 1.1 million shares were reserved for issuance upon exercise of
outstanding options under the Directors Plan. The Directors Plan will continue until the earlier of (i)
termination by the Board or (ii) the date on which all of the shares available for issuance under the plan
have been issued and restrictions on issued shares have lapsed.
2004 2003 2002
Options granted to existing directors............
.
175,000 280,000 240,000
Exercise price...............................................
.
$ 41.65 $ 32.41 $ 39.04
Options granted to new directors..................
.
50,000 — 60,000
Exercise price ..............................................
.
$ 42.09 $ — $ 33.00