Adobe 2012 Annual Report Download - page 105

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Employee Stock Purchase Plan
Our 1997 Employee Stock Purchase Plan (“ESPP”) allows eligible employee participants to purchase shares of our common
stock at a discount through payroll deductions. The ESPP consists of a twenty-four month offering period with four six-month
purchase periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of our
common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower. The ESPP
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.
As of November 30, 2012, we had reserved 93.0 million shares of our common stock for issuance under the ESPP and
approximately 19.2 million shares remain available for future issuance.
Stock Option Plans
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. We grant options from the 2003 Plan
and the 2005 Assumption Plan. Under these plans, options can be granted to all employees, including executive officers, outside
consultants and non-employee directors. These plans 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.
Option vesting periods are generally four years for all of these plans. Options granted under these plans generally expire seven
years from the effective date of grant.
In fiscal 2012, the Executive Compensation Committee of Adobe's Board of Directors eliminated the use of stock option
grants for all employees and stock option grants to non-employee directors were minimal.
Performance Share Programs
Effective January 24, 2012, the Executive Compensation Committee adopted the 2012 Performance Share Program (the
“2012 Program”). The purpose of the 2012 Program is to align key management and senior leadership with stockholders’ interests
and to retain key employees. The measurement period for the 2012 Program is our fiscal 2012 year. Members of our executive
management and other key senior management are participating in the 2012 Program. Awards granted under the 2012 Program
are granted in the form of performance shares pursuant to the terms of our 2003 Equity Incentive Plan. If pre-determined Adobe
specific and/or market-based performance goals are met, shares of stock will be granted to the recipient, with one third vesting on
the later of the date of certification of achievement or the first anniversary date of the grant, and the remaining two thirds vesting
evenly on the following two annual anniversary dates of the grant, contingent upon the recipient’s continued service to Adobe.
Participants in the 2012 Program generally have the ability to receive up to 150% of the target number of shares originally granted.
Issuance of Shares
Upon exercise of stock options, vesting of restricted stock and performance shares, and purchases of shares under the ESPP,
we will issue treasury stock. If treasury stock is not available, common stock will be issued. In order to minimize the impact of
on-going dilution from exercises of stock options and vesting of restricted stock and performance shares, we instituted a stock
repurchase program. See Note 13 for information regarding our stock repurchase programs.
Valuation of Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award. We use the Black-Scholes
option pricing model to determine the fair value of stock options and ESPP shares. The determination of the fair value of stock-
based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the
expected term of the awards, actual and projected employee stock option exercise behaviors, a risk-free interest rate and any
expected dividends.
We estimate the expected term of options granted by calculating the average term from our historical stock option exercise
experience. We estimate the volatility of our common stock by using implied volatility in market traded options. Our decision to
use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that
implied volatility is more representative of future stock price trends than historical volatility. We base the risk-free interest rate
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)