ADBE » Topics » Warrants

This excerpt taken from the ADBE 8-K filed Jan 4, 2010.



Concurrent with the execution of the Purchase Agreement, the Company and WPP USA also entered into an Enterprise Channel Partner Agreement (the “Enterprise Agreement”), which specifies the terms under which WPP will resell and market the Company’s online business optimization services.  In the event WPP USA achieves certain performance milestones under the Enterprise Agreement, the Company will issue to WPP a warrant (the “Warrant”) to purchase a number of shares of the Company’s common stock to be determined by dividing an amount ranging from $0 to $10,000,000, with the exact amount to be based on WPP USA’s achievement of certain performance milestones under the Enterprise Agreement, by the exercise price per share of the Warrant. The exercise price of the Warrant equals the arithmetic average of the daily volume weighted-average prices of the Company’s common stock for the five consecutive trading days immediately prior to April 15, 2010.


The Enterprise Agreement contemplates that if the performance milestones are met, the Warrant will be issued on or around April 15, 2010, and will be subject to periodic vesting over a period of 21 months following its issuance, so long as the Enterprise Agreement remains in effect, subject to certain exceptions.  Through September 30, 2009, the Company did not record any expense associated with the Warrant because management does not believe the recognition criteria for recording an expense under applicable accounting guidance has yet been met.  At each balance sheet date, the Company will reassess the likelihood of WPP achieving the performance milestones.  If the Company determines at that time that it is likely the milestones will be achieved, the fair value of the warrant will be amortized as a reduction to revenues over the period the warrant is earned beginning on the date of the Enterprise Agreement.


During 2002, the Company entered into a settlement agreement related to outstanding notes payable that required the Company to issue warrants to purchase 245,495 shares of the Company’s common stock. The warrants became exercisable on March 31, 2004. The fair value of the warrants of $14,730 was calculated using the Black-Scholes-Merton valuation method with the following assumptions: risk-free interest rate of 5.02%; expected volatility of 0.7%; no dividend yield; and an expected life of the warrants of ten years. The warrants have an exercise price of $0.40 per share and expire on February 26, 2012. At December 31, 2008 and September 30, 2009, these warrants to purchase 245,495 shares of the Company’s common stock were outstanding.


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