Adobe 2001 Annual Report Download - page 88

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
Note 10. Employee Stock Plans (Continued)
Black-Scholes option pricing model. The assumptions used to value the option grants and purchase rights
are stated as follows:
Years Ended
November 30, December 1, December 3,
2001 2000 1999
Expected life of options ................ 3 years 3 years 3 years
Expected life of restricted stock .......... 3 years 3 years 3 years
Expected life of purchase rights .......... 1.23 years 0.75 years 0.75 years
Volatility ........................... 80% 68% 51%
Risk-free interest rate .................. 2.9 - 5.3% 5.7 - 6.8% 4.5 - 5.9%
Dividend yield ....................... 0.125% 0.125% 0.125%
Options and restricted stock grants vest over several years, and new option and restricted stock grants
are generally made each year. Because of this, the pro forma amounts shown above may not be
representative of the pro forma effect on reported net income in future years.
Note 11. Stockholders’ Equity
Stockholder Rights Plan
Our Stockholder Rights Plan is intended to protect stockholders from unfair or coercive takeover
practices. In accordance with this plan, the Board of Directors declared a dividend distribution of one
common stock purchase right on each outstanding share of our common stock held as of July 24, 1990 and
on each share of common stock issued by Adobe thereafter. In July 2000, the Stockholder Rights Plan was
amended to extend it for ten years so that each right entitles the holder to purchase one unit of Series A
Preferred Stock, which is equal to 1/1000 share of Series A Preferred Stock, par value $0.0001 per share, at
a price of $700 per unit. As adjusted for our 2000 stock split in the form of a dividend, each share of
common stock now entitles the holder to one-half of such a purchase right. Each whole right still entitles
the registered holder to purchase from Adobe a unit of preferred stock at $700. The rights become
exercisable in certain circumstances, including upon an entity acquiring or announcing the intention to
acquire beneficial ownership of 15% or more of our common stock without the approval of the Board of
Directors or upon us being acquired by any person in a merger or business combination transaction. The
rights are redeemable by Adobe prior to exercise at $0.01 per right and expire on July 23, 2010.
Stock Repurchase Program I—On-going Dilution Coverage
To facilitate our stock repurchase program, which is designed to minimize dilution from employee
stock plans, we sold put warrants to independent third parties in fiscal 2001, 2000, and 1999. Each put
warrant entitles the holder to sell one share of Adobe’s common stock to Adobe at a specified price for
cash or stock at Adobe’s option. Approximately 5.6 million, 7.0 million, and 10.3 million put warrants were
written in fiscal 2001, 2000, and 1999, respectively. At November 30, 2001, approximately 3.8 million put
warrants were outstanding that expire through July 2002, with an average exercise price of $22.28 per
share, resulting in a total potential cash outlay of approximately $84.0 million in fiscal 2002 if all put
warrants are exercised.
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