Adobe 2002 Annual Report Download - page 128

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Note 12. 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’s 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 our 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 designed to minimize dilution from stock issuance primarily from
employee stock plans, we sold put warrants to independent third parties in fiscal 2002, 2001, and 2000. 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 7.5 million, 5.6 million, and 7.0 million put warrants were written in fiscal 2002,
2001, and 2000, respectively. At November 29, 2002, approximately 1.9 million put warrants were outstanding that
expire through December 2002, with an average exercise price of $26.71 per share, resulting in a total potential cash
outlay of approximately $50.5 million in fiscal 2003 if all puts warrants are exercised.
In addition, in fiscal 2002, 2001, and 2000, we purchased call options from independent third parties that
entitled us to buy 4.9 million, 3.9 million, and 4.2 million shares, respectively, of our common stock on certain dates
at specified prices. At November 29, 2002, approximately 1.2 million call options were outstanding that expire on
various dates through December 2002 with an average exercise price of $28.08 per share, resulting in a total
potential cash outlay of approximately $34.1 million in fiscal 2003 if all calls options are exercised.
Our put and call option contracts provide that, at our option, we can settle with physical delivery or net shares
equal to the difference between the exercise price and the value of the option as determined by the contract.
We repurchased approximately 8.6 million, 5.9 million, and 7.2 million shares in fiscal 2002, 2001, and 2000,
respectively, at a cost of $255.0 million, $319.9 million, and $255.5 million, respectively. Subsequent to
November 29, 2002, we repurchased 1.6 million shares at a cost of $45.1 million through the exercise of outstanding
put warrants and call options under this plan. As of December 18, 2002, no put warrants or call options remained
outstanding under this plan. The authorization to repurchase shares to cover on-going dilution is not subject to
expiration. However, this repurchase program is limited to covering net dilution from stock issuances. As of
November 29, 2002, 9.6 million shares remained authorized for repurchase, based on net stock issuances less
repurchases under this plan.
Stock Repurchase Program II – Additional Authorization above Dilution Coverage
In April 1999, the Board authorized a 5.0 million share repurchase program, which allowed us to purchase
shares in the open market and enter into contracts to repurchase shares during future quarters by selling put warrants
and buying call options. During fiscal 2001, approximately 4.9 million put warrants were written and 3.5 million call
options were purchased at prices ranging from $32.60 to $39.58. As of November 30, 2001, there were no put
warrants or options outstanding in this program. During fiscal 2001, we repurchased approximately 4.7 million
shares at a cost of $165.2 million. We did not repurchase any shares under this program in fiscal 2000. This program
expired in fiscal 2001.