<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended: May 31, 1996
------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From ___ To ___
Commission File Number: 0-14779
-------
DATA TRANSLATION, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2532613
------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
organization or incorporation) Number)
100 Locke Drive
Marlborough, Massachusetts
-----------------------------------------------------------
(Address of principal executive offices)
01752
-----------------------------------------------------------
(Zip code)
(508) 481-3700
----------------
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
the registrant was required to file such 90 days. 1934 during the preceding 12
months (or for reports), and (2) has been subject to such such shorter period
that filing requirements for the past
Yes X No_______
--------
Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 8,046,205 shares
- -------------------------------------- --------------------------------------
Class Outstanding at June 30,1996
<PAGE>
Page 2 of 15
DATA TRANSLATION, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information:
Consolidated Balance Sheets as of
May 31, 1996 and November 30, 1995.....................................3
Consolidated Statements of Operations for the
Three and Six Months Ended May 31, 1996 and 1995.......................4
Consolidated Statements of Stockholders' Equity
For the Fiscal Year Ended November 30, 1995
and the Six Months Ended May 31, 1996.................................5
Consolidated Statements of Cash Flows for the Six Months
Ended May 31, 1996 and 1995............................................6
Notes to Consolidated Financial Statements..............................7-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................10-12
Part II - Other Information.............................................13-14
Signatures..............................................................15
</TABLE>
<PAGE>
Page 3 of 15
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
--------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,287,000 $ 28,606,000
Marketable securities 28,241,000 6,559,000
Accounts receivable, net of reserves of
$545,000 in 1996 and $505,000 in 1995 15,803,000 15,057,000
Inventories 7,595,000 5,532,000
Prepaid expenses 2,480,000 1,060,000
Prepaid income taxes 90,000 60,000
--------------- ----------------
Total current assets 62,496,000 56,870,000
Equiptment and Leasehold Improvements, net 4,889,000 3,897,000
Other Assets - net 430,000 217,000
--------------- ----------------
Total Assets $ 67,815,000 $ 60,984,000
=============== ================
Current Liabilities:
Accounts payable $ 4,515,000 $ 5,133,000
Borrowing from bank 1,819,000 696,000
Accrued expenses 6,639,000 7,233,000
Deferred revenue 1,133,000 1,010,000
--------------- ----------------
Total current Liabilities 14,106,000 14,072,000
Deferred Income Taxes 3,000 3,000
Stockholders' Equity:
Preferred Stock, $.01 par value,
Authorized - 1,000,000 shares, none issued - -
Common Stock, $.01 par value
Authorized - 10,000,000 shares, issued -
8,043,205 in 1996 and 8,491,208 in 1995 80,000 85,000
Capital in excess of par value 39,712,000 37,062,000
Retained earnings 14,137,000 11,665,000
Cumulative translation adjustment 85,000 (5,000)
Treasury stock, at cost, 869,096
shares in 1995 - (1,843,000)
Unrealized holding loss on available for
sale securities (308,000) (55,000)
--------------- ----------------
Total stockholders' equity 53,706,000 46,909,000
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 67,815,000 $ 60,984,000
=============== ================
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
Page 4 of 15
DATA TRANSLATION, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended May 31, Six Months Ended May 31,
1996 1995 1996 1995
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales:
Digital media $ 12,922,000 $ 6,979,000 $ 23,612,000 $ 12,186,000
Data acquisition and imaging 5,063,000 5,001,000 10,757,000 10,776,000
Networking distribution 5,314,000 5,396,000 12,705,000 9,251,000
-------------- ------------- -------------- --------------
Total net sales 23,299,000 17,376,000 47,074,000 32,213,000
Cost of sales 11,578,000 9,035,000 24,397,000 16,746,000
-------------- ------------- -------------- --------------
Gross profit 11,721,000 8,341,000 22,677,000 15,467,000
Research and development expenses 2,131,000 1,844,000 4,342,000 3,527,000
Selling and marketing expenses 6,495,000 4,666,000 12,096,000 8,602,000
General and administrative expenses 2,054,000 958,000 3,903,000 1,874,000
-------------- ------------- -------------- --------------
Operating income 1,041,000 873,000 2,336,000 1,464,000
Interest income 497,000 217,000 1,023,000 359,000
Interest expense (35,000) - (71,000) (8,000)
Other income (expense) (68,000) 3,000 (221,000) (2,000)
-------------- ------------- -------------- --------------
Income before tax provision 1,435,000 1,093,000 3,067,000 1,813,000
Tax provision 113,000 62,000 595,000 75,000
-------------- ------------- -------------- --------------
Net income $ 1,322,000 $ 1,031,000 $ 2,472,000 $ 1,738,000
============= ============ ============= ==============
Net income per common and
common equivalent share $ 0.15 $ 0.15 $ 0.29 $ 0.27
============= ============ ============= ==============
Weighted average number of common
and common equivalent shares outstanding 8,731,000 6,686,000 8,669,000 6,548,000
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
Page 5 of 15
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value
------------------------
Capital in Cumulative
Issued Excess of Retained Translation Treasury
Shares Amount Par Value Earnings Adjustment Stock
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1994 6,765,472 $68,000 $8,739,000 $6,894,000 $64,000 ($4,781,000)
Proceeds from stock plans 325,736 3,000 1,166,000 - - -
Public sale of treasury stock, net
of issuance costs of $375,000 - - 5,864,000 - - 2,938,000
Public sale of common stock, net
of issuance costs of $400,000 1,400,000 14,000 21,293,000 - - -
Translation adjustment - - - - (69,000) -
Net income - - - 4,771,000 - -
Reserve for unrealized
investment losses - - - - - -
------------------------------------------------------------------------------------------------
Balance, November 30, 1995 8,491,208 $85,000 $37,062,000 $11,665,000 ($5,000) ($1,843,000)
Proceeds from stock plans 197,593 2,000 1,036,000 - - -
Retirement of treasury stock (869,096) (9,000) (1,834,000) - - 1,843,000
Public sale of common stock 223,500 2,000 3,448,000 - - -
Translation adjustment - - - - 90,000 -
Net income - - - 2,472,000 - -
Reserve for unrealized
investment losses - - - - - -
------------------------------------------------------------------------------------------------
Balance, May 31, 1996 8,043,205 $80,000 $39,712,000 $14,137,000 $85,000 -
================================================================================================
<CAPTION>
Unrealized
Holding Loss
on Available Total
for Sale Stockholders'
Securities Equity
----------------------------
<C> <C>
Balance, November 30, 1994 - $10,984,000
Proceeds from stock plans - 1,169,000
Public sale of treasury stock, net
of issuance costs of $375,000 - 8,802,000
Public sale of common stock, net of
issuance costs of $400,000 - 21,307,000
Translation adjustment - (69,000)
Net income - 4,771,000
Reserve for unrealized
investment losses (55,000) (55,000)
----------------------------
Balance, November 30, 1995 ($55,000) $46,909,000
Proceeds from stock plans - 1,038,000
Retirement of treasury stock - -
Public sale of common stock - 3,450,000
Translation adjustment - 90,000
Net income - 2,472,000
Reserve for unrealized
investment losses (253,000) (253,000)
----------------------------
Balance, May 31, 1996 ($308,000) $53,706,000
============================
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
Page 6 of 15
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended May 31,
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,472,000 $ 1,738,000
Adjustments to reconcile net income to
net cash used in operating activities-
Depreciation and amortization 961,000 846,000
Loss (gain) on sale of equipment 1,000 (2,000)
Loss on sale of marketable securities 5,000 34,000
Change in assets and liabilities-
Accounts receivable (746,000) (1,673,000)
Inventories (2,063,000) (2,807,000)
Prepaid expenses (1,420,000) (578,000)
Prepaid income taxes (30,000) (4,000)
Accounts payable (618,000) 178,000
Due to related party - (546,000)
Accrued expenses (594,000) 3,201,000
Deferred revenue 123,000 68,000
-------------- --------------
Net cash provided by (used in) operating activities $ (1,909,000) $ 455,000
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (1,888,000) (1,295,000)
Proceeds from sale of equipment - 5,000
Increase in other assets (278,000) (75,000)
Purchases of marketable securities (27,698,000) (7,898,000)
Proceeds from sales of marketable securities 5,758,000 3,730,000
-------------- --------------
Net cash used in investing activities $ (24,106,000) $ (5,533,000)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from bank 1,123,000 -
Proceeds from stock plans 1,038,000 435,000
Net proceeds from public sale of treasury stock - 8,802,000
Net proceeds from public sale of common stock 3,450,000 -
-------------- --------------
Net cash provided by financing activites $ 5,611,000 $ 9,237,000
-------------- --------------
EXCHANGE RATE EFFECTS 89,000 26,000
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (20,315,000) $ 4,185,000
CASH AND CASH EQUIVALENTS, beginning of period 28,602,000 1,592,000
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 8,287,000 $ 5,777,000
============== ==============
OTHER TRANSACTIONS NOT PROVIDING (USING) CASH
Decrease in value of marketable securities 253,000 52,000
Increase in unrealized holding loss on
available for sale securities (253,000) (52,000)
-------------- --------------
$ - $ -
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 485,000 $ 21,000
============== ==============
Cash paid for interest $ 71,000 $ 8,000
============== ==============
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
Page 7 of 15
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, these unaudited consolidated financial
statements and disclosures reflect all adjustments necessary for fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
audited financial statements, which are contained in the Company's 1995 Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on
February 26, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Cash Equivalents and Marketable Securities
Cash equivalents are carried at cost which approximates market value
and have maturities of less than three months. Cash equivalents include money
market accounts and U.S. Treasury bills.
The Company accounts for marketable securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. SFAS No. 115 requires
enterprises to classify debt and equity securities as either held-to-maturity,
available-for-sale or trading. Under SFAS No. 115, the accounting for the
effects of unrealized gains and losses reported on investment holdings differs
according to the nature of an investment classification.
Marketable securities held as of May 31, 1996, consist of the
following:
<TABLE>
<CAPTION>
Maturity Market Value
---------------------------------------------------
<S> <C> <C>
Investments available for sale:
U.S. Treasury Bills 1 - 5 years $ 7,890,000
U.S. Agency Bonds 1 - 5 years 546,000
U.S. Agency Bonds 6 - 10 years 289,000
-----------
Total U.S. Agency Bonds 835,000
Utility Bonds 1 - 5 years 97,000
Utility Bonds 6 - 10 years 204,000
-----------
Total Utility Bonds 301,000
Municipal Bonds Less than 1 year 1,000,000
Municipal Bonds 1 - 5 years 1,977,000
Municipal Bonds 10+ years 4,000,000
-----------
Total Municipal Bonds 6,977,000
Corporate Obligations 1 - 5 years 5,556,000
Corporate Obligations 6 - 10 years 3,204,000
Corporate Obligations 10+ years 3,478,000
-----------
Total Corporate Obligations 12,238,000
-----------
Total investments available for sale $28,241,000
===========
</TABLE>
Marketable securities had a cost of $28,549,000 and $6,614,000 at May
31, 1996 and November 30, 1995, respectively, and a market value of $28,241,000
and $6,559,000, respectively. To reduce the carrying amount of the portfolio to
market value, a valuation allowance has been reflected as a separate component
of stockholders' equity.
<PAGE>
Pages 8 of 15
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market and consist of the following:
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
---- ----
<S> <C> <C>
Raw material $1,974,000 $1,763,000
Work-in-process 965,000 383,000
Finished goods 4,656,000 3,386,000
---------- ----------
$7,595,000 $5,532,000
========== ==========
</TABLE>
Work-in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing and marketing plan.
4. Net Income Per Common Share
Net income per common share is determined by dividing net income by
the weighted average number of common and common equivalent shares outstanding
during each period. Common equivalent shares have been calculated in accordance
with the treasury stock method and are included for all periods where their
effect is dilutive. Fully diluted net income per share has not been separately
presented, as the amounts would not be materially different from net income per
share.
5. Contingencies
On June 7, 1995, a lawsuit was filed against the Company by Avid
Technology, Inc. (Avid), in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media
100/(R)/ product. The complaint includes requests for injunctive relief, treble
damages, interest, costs and fees. In July, 1995 the Company filed an Answer and
Counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit.
Discovery by the parties is currently underway. In addition, Avid is seeking
reissue of the patent, including claims that it asserts are broader than in the
existing patent, and these reissue proceedings remain pending. Based on issues
recently raised by the examiner in the United States Patent and Trademark
Office, the Company on July 2, 1996 moved for a stay of the lawsuit pending
conclusion of the reissue proceedings. The court's determination of the
Company's motion is pending.
Also, on April 5, 1996, the Company asserted, by motion for leave to
file a supplemental counterclaim, its own claims against Avid for infringement
of a newly-issued Company patent relating to the Companys Media 100 digital
video system. The court denied the Companys motion for a leave to proceed by
supplemental counterclaim, following which the Company on April 23, 1996 filed
its own, separate complaint against Avid, in the United States District Court
for the District of Massachusetts, asserting these infringement claims. The
Company contends that the products infringing this newly-issued Company patent
include certain versions of Avids Media Composer product. In May, 1996, Avid
filed a responsive Answer and Counterclaim denying infringement and asserting
that the Company patent in question is invalid.
There can be no assurance that the Company will prevail on the lawsuit
asserted by Avid, or that the expense or other effects of the lawsuits, whether
or not the Company prevails, will not be material.
From time to time the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's financial condition or
results of operations.
<PAGE>
Pages 9 of 15
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Capitalized Software Development Costs
The Company capitalizes certain computer software development costs.
Such costs, net of accumulated amortization, were approximately $405,000 and
$190,000 as of May 31, 1996 and November 30, 1995, respectively and are included
in other assets. These costs are amortized on a straight-line basis over two
years which approximates the life of the product. Amortization expense, included
in cost of goods sold, was approximately $65,000 and $70,000 for the six months
ended May 31, 1996 and 1995, respectively.
7. Income Taxes
Based on the projected taxable income for fiscal 1996, the Company has
provided for income taxes using an effective tax rate of approximately 18%
taking into consideration full utilization of its remaining net operating loss
carryforwards, research and development tax credit carryforwards, and other
general business tax credits. During fiscal 1995, substantially all of the
potential tax provision resulting from profitable operations in the Companys
domestic operations were offset by net operating loss carryforwards.
<PAGE>
Page 10 of 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table shows certain consolidated statement of operations data
as a percentage of total net sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales:
Digital media.............................. 55.5% 40.2% 50.1% 37.8%
Data acquisition and imaging............... 21.7 28.8 22.9 33.5
Networking distribution.................... 22.8 31.0 27.0 28.7
----- ----- ----- -----
Total net sales.......................... 100.0 100.0 100.0 100.0
Gross margin................................ 50.3 48.0 48.2 48.0
Research and development expenses........... 9.1 10.6 9.2 11.0
Selling and marketing expenses.............. 27.9 26.9 25.7 26.7
General and administrative expenses......... 8.8 5.5 8.3 5.8
----- ----- ----- -----
Income from operations...................... 4.5 5.0 5.0 4.5
Interest income and other, net.............. 1.7 1.3 1.5 1.1
Provision for income taxes.................. 0.5 0.4 1.2 0.2
----- ----- ----- -----
Net income.................................. 5.7% 5.9% 5.3% 5.4%
===== ===== ===== =====
</TABLE>
Comparison of Second Fiscal Quarter of 1996 to Second Fiscal Quarter of 1995:
Total net sales for the fiscal quarter ended May 31, 1996 were $23,299,000,
an increase of 34.1% or $5,923,000 from the same period a year ago. The increase
was primarily a result of higher net sales from the Company's digital media
products which increased 85.2% to $12,922,000 compared to $6,979,000 in the same
period a year ago. The increase in digital media product sales were due to
higher unit sales of Media 100 and the initial shipments of the Companys newest
product, Media 100 qx, which began shipping in April 1996. Digital media product
sales now account for 55.5% of the Company's total net sales compared to 40.2%
in the same period a year ago. Networking distribution sales decreased slightly
to $5,314,000 and accounted for 22.8% of the Companys total net sales compared
to $5,396,000 or 31.0% of the Company's total net sales in the second quarter in
fiscal 1995. Net sales from the Company's data acquisition and imaging products
increased slightly to $5,063,000 compared to $5,001,000 in the comparable fiscal
quarter, but decreased as a percent of the Companys total net sales to 21.7%
from 28.8% for the comparable quarter in fiscal 1995.
Gross margin for the fiscal quarter ended May 31, 1996 was 50.3%, compared
to 48.0% in the comparable quarter of the prior year. The increase in gross
margin was primarily a result of the decrease in networking distribution sales
as a percentage of total net sales as the margins on networking distribution
sales are much lower than the Company's own manufactured product sales.
Income from operations for the second fiscal quarter of 1996 was
$1,041,000, compared to $873,000 in the comparable quarter of the prior year.
The operating income reflects the higher net sales, partially offset by
substantial start-up expenses for the Companys new MPEG-1 encoder product,
Broadway/TM/, higher legal expenses, as discussed below, and an operating loss
from the networking distribution business. Selling and marketing expenses in the
second fiscal quarter of 1996 increased by $1,829,000 representing 27.9% of
total net sales compared to 26.9% in the comparable quarter in 1995. The
increase in selling and marketing expenses were largely due to the additional
costs associated with the increased sales and promotion of Media 100 and Media
100 qx products, as well as the initial promotion of Broadway, which began
shipping in June 1996. General and administrative expenses increased to
$2,054,000, or 8.8% of total net sales up from $958,000, or 5.5% of total net
sales in the comparable quarter. The increase was primarily due to higher legal
fees associated with the pending patent lawsuits, as discussed in Note 5 to the
Consolidated Financial Statements. These higher legal expenses are expected to
continue in the foreseeable future. Research and development expenses were
$2,131,000, or 9.1% of total net sales compared to $1,844,000, or 10.6% of total
net sales in the first quarter of fiscal 1995. The dollar increase in research
and development expenses was a result of the Companys continued investment in
product development primarily in digital media technology.
<PAGE>
Page 11 of 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Comparison of Second Fiscal Quarter of 1996 to Second Fiscal Quarter of 1995
(continued):
Interest income for the fiscal quarter ended May 31, 1996 was $497,000
compared to $217,000 in the comparable quarter a year ago reflecting an increase
in cash balances including cash equivalents and marketable securities on hand
during the quarter. Interest income was partially offset by $35,000 of interest
expense and $68,000 of other expenses which was primarily a result of foreign
transaction losses relating to the purchases of inventory in the networking
distribution business.
A tax provision of $113,000 was provided for in the second fiscal quarter
of 1996 compared to a tax provision of $62,000 in the comparable period of
fiscal 1995. The tax provision for the second quarter of fiscal 1996 adjusts the
year to date effective tax rate to approximately 18% on domestic operations.
This effective tax rate takes into consideration remaining net operating loss
carryforwards, research and development tax credit carryforwards and other
business tax credits available to be used against taxable income. Any potential
tax provision resulting from operating income by the Company's domestic
operations during the second quarter of 1995 was entirely offset by net
operating loss carryforwards.
Net income for the fiscal quarter ended May 31, 1996 was $1,322,000 or
$0.15 per share, compared to $1,031,000 or $0.15 per share for the comparable
period in fiscal 1995. The comparable earnings per share in the 1996 fiscal
quarter on higher net income was due to the higher common and common equivalent
shares outstanding of 8,731,000 compared to 6,686,000 in the second fiscal
quarter of 1995.
Comparison of First Six Months of Fiscal 1996 to the First Six Months of Fiscal
1995:
Total net sales for the six months ended May 31, 1996 were $47,074,000, an
increase of 46.1% or $14,861,000 from the same period a year ago. The increase
has been primarily a result of higher net sales from Media 100 products, which
increased 93.8% to $23,612,000 and accounted for 50.1% of the Company's total
net sales compared to $12,186,000 or 37.8% in the same period a year ago.
Networking distribution sales increased to $12,705,000 from $9,251,000 in the
same period last year, but decreased as a percentage of the Companys total net
sales to 27.0% from 28.7% in the comparable period in 1995. Net sales from the
Company's data acquisition and imaging products have essentially remained the
same at $10,757,000 as compared with $10,776,000 one year ago, but have
decreased as a percentage of the Companys total net sales to 22.9% compared to
33.5% in the comparable period in fiscal 1995.
Gross margin for the six months ended May 31, 1996 was 48.2%, compared to
48.0% in the comparable period of the prior year. The slight increase in gross
margin was primarily a result of the decrease in networking distribution sales
as a percentage of total net sales as the margins on networking distribution
sales are much lower than the Company's own manufactured product sales.
Income from operations for the first six months of fiscal 1996 was
$2,336,000, compared to $1,464,000 in the comparable period of the prior year.
The operating income reflects the higher net sales, partially offset by an
increase in operating expenses of $6,338,000. Selling and marketing expenses
increased by $3,494,000 largely due to the additional costs associated with the
increased sales and promotion of Media 100 products, as well as the initial
marketing promotion of the Companys new MPEG-1 encoder product, Broadway, which
began shipping in June 1996. General and administrative expenses increased to
$3,903,000, or 8.3% of total net sales up from $1,874,000, or 5.8% of total net
sales in the comparable period. The increase has been primarily due to higher
legal fees associated with the pending patent lawsuits. Research and development
expenses were $4,342,000, or 9.2% of total net sales compared to $3,527,000, or
11.0% of total net sales in the first six months of fiscal 1995. The dollar
increase in research and development expenses was a result of the Companys
continued investment in product development primarily in digital media
technology.
Interest income for the six months ended May 31, 1996 was $1,023,000
compared to $359,000 in the comparable six month period reflecting an increase
in cash balances including cash equivalents and marketable securities on hand
during the period. Interest income has been partially offset by $71,000 of
interest expense and $221,000 of other expenses which was primarily a result of
foreign transaction losses relating to the purchase of inventory for the
networking distribution business.
<PAGE>
Page 12 0f 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Comparison of First Six Months of Fiscal 1996 to the First Six Months of Fiscal
1995 (continued):
A tax provision of $595,000 was provided for in the first six months fiscal
of fiscal 1996 compared to a tax provision of $75,000 in the comparable period
of fiscal 1995. The tax provision for the first six months in fiscal 1996
includes an effective tax rate of approximately 18% on profitable domestic
operations due to net operating loss carryforwards, research and development tax
credit carryforwards, and business tax credits available to be used against
taxable income. Any potential tax provision resulting from operating income by
the Company's domestic operations during fiscal 1995 were offset by net
operating loss carryforwards.
Net income for the six month period ended May 31, 1996 was $2,472,000 or
$0.29 per share, compared to $1,738,000 or $0.27 per share for the same period
in 1995. The lower earnings per share in fiscal 1996 on higher net income was
due to the higher common and common equivalent shares outstanding of 8,669,000
compared to 6,548,000 in the comparable quarter of 1995.
Liquidity and Capital Resources
As of May 31, 1996, the Company had $48,390,000 of working capital.
Included in working capital was $8,287,000 of cash and cash equivalents as well
as $28,241,000 of marketable securities as described in Note 2 to these
Consolidated Financial Statements. The Company used approximately $3,797,000 of
cash primarily in operating activities of $1,909,000 which reflects net income
of $2,472,000, offset by supporting higher inventory levels and other working
capital requirements for the Company's growing operations. Other use of funds
included equipment purchases of $1,888,000. Net cash of $4,573,000 was provided
by an over-allotment option exercised by the Companys underwriters as part of
the most recent public stock offering and the utilization of an overdraft
facility for the networking distribution business.
As of May 31, 1996, the Companys United Kingdom subsidiary, Data
Translation Networking Limited, had a bank overdraft facility of approximately
$1,985,000 of which $1,819,000 was outstanding. The facility is secured by the
subsidiarys accounts receivable balance and guaranteed by the Company.
Although management believes the Companys capital needs for 1996 will be
met through its credit facilities and cash flow from operations, the Company may
need to raise additional capital from equity and/or debt sources in order to
finance its anticipated growth and capital requirements beyond 1996
For a description of certain pending patent lawsuits, see Note 5 to the
Consolidated Financial Statements.
<PAGE>
Page 13 of 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On June 7, 1995, a lawsuit was filed against the Company by Avid
Technology, Inc. (Avid), in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
product. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July, 1995 the Company filed an Answer and
Counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit.
Discovery by the parties is currently underway. In addition, Avid is seeking
reissue of the patent, including claims that it asserts are broader than in the
existing patent, and these reissue proceedings remain pending. Based on issues
recently raised by the examiner in the United States Patent and Trademark
Office, the Company on July 2, 1996 moved for a stay of the lawsuit pending
conclusion of the reissue proceedings. The court's determination of the
Company's motion is pending.
Also, on April 5, 1996, the Company asserted, by motion for leave to
file a supplemental counterclaim, its own claims against Avid for infringement
of a newly-issued Company patent relating to the Companys Media 100 digital
video system. The court denied the Companys motion for a leave to proceed by
supplemental counterclaim, following which the Company on April 23, 1996 filed
its own, separate complaint against Avid, in the United States District Court
for the District of Massachusetts, asserting these infringement claims. The
Company contends that the products infringing this newly-issued Company patent
include certain versions of Avids Media Composer product. In May, 1996, Avid
filed a responsive Answer and Counterclaim denying infringement and asserting
that the Company patent in question is invalid.
There can be no assurance that the Company will prevail on the lawsuit
asserted by Avid, or that the expense or other effects of the lawsuits, whether
or not the Company prevails, will not be material.
The foregoing supplement is made to the Companys disclosure in its
Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held an annual meeting of shareholders on April 10, 1996, at
which the shareholders approved the following proposals by the number of shares
of Common Stock voted as noted below:
<TABLE>
<CAPTION>
Proposal Number of Shares
-------- ----------------------
Voted For Withheld
--------- --------
<S> <C> <C>
(1) Fix the number of directors at four and elect four directors:
a) Alfred A. Molinari, Jr. 6,529,252 323,746
b) R. Bradford Malt 6,529,252 323,746
c) Paul J. Severino 6,529,252 323,746
d) John A. Molinari 6,528,742 324,256
Number of Shares
--------------------------------------
Voted For Voted Against Abstained *
--------- ------------- ---------
(2) Increase by 1,000,000 the number of shares of the Companys
common stock, $.01 par value per share available for issuance
under the Companys Key Employee Incentive Plan (1992) for
a total of 2,000,000 shares available under such plan, and to set
the maximum number of shares for which options may be granted
thereunder in any year to any participant at 250,000 and to
limit participation therein to key employees: 4,060,029 1,570,578 1,222,391
(3) Approve an amendment to the Articles of Organization of the
Company to increase the Companys authorized Common
Stock, from 10,000,000 to 25,000,000 shares: 5,434,175 1,412,351 6,472
</TABLE>
<PAGE>
Page 14 of 15
PART II. OTHER INFORMATION (CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders (continued)
--------------------------------------------------- -
<TABLE>
<CAPTION>
Proposal Number of Shares
-------- -------------------------------------
Voted For Voted Against Abstained *
--------- ------------- ---------
<S> <C> <C> <C>
(4) Approve the transfer of the Companys digital media and other
assets related to the Media 100 business unit to a new subsidiary
of the Company to be organized in Delaware, which transfer,
although only of such assets, may be deemed to be all or
substantially all of the Companys assets pursuant to Section
75 of the Massachusetts General Laws, Chapter 156B: 5,624,825 26,586 1,201,587
(5) Approve the reincorporation of the Company from the
Commonwealth of Massachusetts to the State of Delaware
pursuant to a statutory merger of the Company into another
subsidiary to be incorporated in Delaware and wholly owned
by the Company (New DTI), by approving the Agreement
and Plan of Merger between the Company and New DTI: 5,349,846 302,321 1,200,831
</TABLE>
* Includes 1,187,981 broker nonvotes on proposals 2, 4 & 5.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- --------------------------------------------------------------
<S> <C>
10.13 Value Added Distribution Agreement with Software Product
Appendix with Adobe Systems, Incorporated dated April 18, 1996
27 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
<PAGE>
Page 15 of 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Data Translation, Inc.
Date: July 11, 1996 By: /s/ Peter J. Rice
------------------------
Peter J. Rice
Vice President & Treasurer
Date: July 11, 1996 By: /s/ Gary B. Godin
------------------------
Gary B. Godin
Chief Accounting Officer and
Corporate Controller
<PAGE>
Exhibits
<TABLE>
<CAPTION>
Exhibits
Number Description Page
----- ---------------------------------------- -----
<S> <C> <C>
10.13 Value Added Distribution Agreement
with Software Appendix with Adobe
Systems, Incorporated dated April 18, 1996
27 Financial Data Schedule
</TABLE>
<PAGE>
VALUE ADDED DISTRIBUTION AGREEMENT
BETWEEN
ADOBE SYSTEMS INCORPORATED
AND
DATA TRANSLATION, INC.
EFFECTIVE AS OF APRIL 18, 1996
--------
This Value Added Distribution Agreement (the "Agreement"), effective upon
signature by both parties hereto, ("the Effective Date"), is by and between
ADOBE SYSTEMS INCORPORATED, a California corporation having a place of business
at 1585 Charleston Road, P.O. Box 7900, Mountain View, California, 94039-7900
("Adobe") and DATA TRANSLATION, INC., a Massachusetts corporation
-------------
("Distributor") having a place of business and shipping address at 100 Locke
Drive, Marlboro, MA 01752 ("Shipping Address"), fax number (508) 481-8627.
WHEREAS, Distributor has represented to Adobe that it wishes to be appointed as
an Adobe Software Products Value Added Distributor in the territory described in
any applicable Software Product Appendix (the "Territory") and intends and
desires to add value to the Software Products by bundling these with
Distributors's hardware or software products and to make the Software Products,
as bundled, available to Distributor's customers under the terms and conditions
of this Agreement.
WHEREAS, in the event that Distributor desires to distribute the Software
Product on a non-value added basis in the European Union, Distribution agrees
that it shall apply to be appointed as an Adobe distributor pursuant to the
terms and conditions of Adobe's standard Distribution Agreement and acknowledges
that different pricing shall apply.
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
-----------
The following terms shall have a defined meaning as used in this Agreement:
(a) "End User" means a licensee of Software Products who acquires such products
for use rather than distribution or resale.
(b) "Intellectual Property Rights" means any patent copyright, trade name,
trademark, trade secret, know-how, mask work, or any other intellectual property
right or proprietary information or technology, whether registered or
unregistered.
(c) "Localized Version" means a version of the Software Products developed by
Adobe for use in a particular locality outside of the United States.
(d) "Software Product(s)" means the copy(ies) of the Adobe software listed in
any applicable Software Product Appendix in object code ("Software") and the
supporting documentation ("User Documentation") supplied to Distributor in a
commercial package.
2. Appointment. Subject to the terms and conditions set forth herein and to
-----------
the special terms and conditions set forth in any applicable appendix to this
Agreement specifying a Software Product (a "Software Product Appendix"), Adobe
hereby appoints Distributor and Distributor hereby accepts appointment as its
non-exclusive Value-Added Distributor of the Adobe Software Products bundled
with the Listed Product(s) identified in any Software Product Appendix to this
Agreement. In the event that Distributor desires to distribute the Software
Product on a non-value added basis in the European Union, Distributor agrees
that it shall apply to be appointed as an Adobe distributor pursuant to the
terms and conditions of Adobe's standard Distribution Agreement and acknowledges
that different pricing shall apply.
<PAGE>
For each Software Product to be added to this Agreement, a Software Product
Appendix will be prepared by Adobe and must be signed by both parties to this
Agreement to be effective.
3. Term. Unless a different term is specified in any applicable Software
----
Product Appendix, the term of this Agreement shall commence as of the Effective
Date of this Agreement and continue for a term of one (1) year unless sooner
terminated pursuant to PARAGRAPH 12 ("Termination"). This agreement may be
------------
extended or renewed only upon mutual consent of both parties, renewal K)
4. Rights and Restrictions of Distributor.
--------------------------------------
(a) Eligibility and Distribution Rights. Subject to the terms and conditions
-----------------------------------
of this Agreement and any Appendix hereto, Adobe grants Distributor a
non-exclusive, nontransferable license to distribute the Software Products
bundled with the Listed Products in the Territory pursuant to the terms and
conditions of Adobe's then current Software Product end user license agreement
("End User Agreement") as provided to Distributor. Distributor agrees not to
distribute the Software Products by rental or lease. In addition, Distributor
shall not distribute the Software Products in the United States on an unbundled
basis to other value-added resellers or original equipment manufacturers without
Adobe's prior written consent.
(b) Restrictions on Copying and Decompiling. DISTRIBUTOR AGREES NOT TO
---------------------------------------
TRANSLATE THE SOFTWARE INTO ANOTHER COMPUTER LANGUAGE IN WHOLE OR IN PART.
Distributor shall not make copies or make media translations of the Software
Products, including, without limitation, the User Documentation, in whole or in
part without Adobe's prior written approval. Distributor agrees that if, for any
reason, it comes into possession of any source code, or portion thereof, for any
Adobe product, not generally provided by Adobe as a part of a Software Product,
it will immediately deliver all copies of such source code to Adobe. Nothing
contained in this Agreement shall be interpreted so as to exclude or prejudice
the rights (if any) of the Distributor or any end user under the European
Directive 91/250 on the Legal Protection of Computer Programs (14 May 1991,
1991 (122/42) as implemented in the relevant jurisdiction) with respect to the
Software Products.
(c) U.S. Government Restricted Rights. Distributor will (a) identify and
---------------------------------
license the Software Products in all proposals and agreements with the United
States Government or any contractor therefor, and (b) legend or mark the
Software and User Documentation provided pursuant to any agreement with the
United States Government or any contractor therefor, as follows;
The Software Product is comprised of "commercial computer
software" and "commercial computer software documentation"
as such terms are used in 48 C.F.R. 12.212 (SEPT 1995) and
is provided to the Government (i) for acquisition by or on
behalf of civilian agencies, consistent with the policy set
forth in 48 C.F.R. 12.212; or (i) for acquisition by or on
behalf of units of the Department of Defense, consistent
with the policies set forth in 48 C.F.R. 227.7202-1 (JUN
1995) and 227.7202-3 (JUN 1995).
(d) Other Government Agreements. Distributor will take all reasonable steps in
---------------------------
making proposals and agreements with governments other than the United States
which involve the Software or User Documentation to ensure that Adobe's
proprietary rights in such Software and User Documentation receive the maximum
protection available from such governments for commercial computer software and
related documentation developed at private expense. The provisions of this
Paragraph and PARAGRAPH 4(C) ("U.S. Government Restricted Rights") above
--------------
shall not be construed to expand the scope of Distributor's rights set forth in
PARAGRAPH 4(A) ("Eligibility and Distribution Rights").
- --------------
5. Terms.
-----
(a) License Fees. Distributor shall pay Adobe, for each Software Product, the
------------
amounts set forth in any applicable Software Product Appendix. In the event that
Distributor or any of its resellers distributes the Software Product(s) in a
form other than bundled with the Listed Products, Distributor agrees that it
will pay Adobe the difference between the price it pays for such
<PAGE>
Software Product(s) pursuant to this Agreement and Adobe's then current
distributor price for such Software Product(s) when they are sold on an
unbundled basis; provided that, in no event shall Distributor distribute the
Software Product in the United States on an unbundled basis to other value-added
resellers or original equipment manufactures without prior written consent of
Adobe.
(b) Taxes, Fees, and Documentation. Distributor agrees to pay, and to
------------------------------
indemnify and hold Adobe harmless from, any sales, use, excise, import or
export, value added or similar tax, not based on Adobe's net income, as well as
the collection or withholding thereof, including penalties and interest, and
all government permit or license fees and all customs, duty, tariff and similar
fees levied upon the delivery of the Software Products and other deliverables,
and any costs associated with the collection of any of the foregoing items.
Distributor shall be responsible for obtaining, at its expense, all required
import licenses, permits or other governmental orders. If a resale certificate
or other certificate, document or other evidence of exemption or payment or
withholding of taxes by Distributor is required in order to exempt the
distribution or licensing of the Software Products from any such liability or to
enable Adobe to claim any tax exemption, credit, or other benefit, Distributor
will promptly furnish such certificate or document to Adobe.
(c) New Release. Adobe may, at its sole discretion, modify the Software
-----------
Products. For purposes of this Agreement Adobe shall have sole discretion as to
whether a product is deemed to be a new version of an existing Software Product
to be provided to Distributor under the terms of this Agreement or a new
product requiring execution of a Software Product Appendix prior to distribution
hereunder. Once a new version of a Software Product covered by this Agreement
begins shipping, Distributor has thirty (30) days from first Adobe shipment date
of the new release to Distributor or from written notification date, whichever
is later, at Distributor's expense, to return copies of the Software Product
from the prior release from Distributor's inventory that were shipped by Adobe
to Distributor within the previous ninety (90) days. Returned packages will be
swapped by Adobe (proportional with any price increase or decrease) with the new
release of the Software Product and shipped to Distributor at Adobe's expense.
Only unopened packages will be accepted.
6. Distributor Obligations.
-----------------------
(a) INTENTIONALLY OMITTED.
---------------------
(b) Records. Distributor agrees to maintain a complete, clear and accurate
-------
record for at least two (2) years of the number of packages of each Software
Product distributed, to whom they were distributed and the payments received
therefor. Distributor shall permit Adobe or persons designated by Adobe to
inspect records pertaining to the Software Products and any other materials
provided to Distributor by Adobe to ensure compliance by Distributor of its
obligations to Adobe. Any such inspection and audit shall be conducted during
regular business hours and in such a manner as not to interfere with normal
business activities of Distributor.
(c) Financial Statements. Prior to the execution of this Agreement,
--------------------
Distributor will deliver to Adobe a copy of Distributor's most recent annual
balance sheet and income statement certified by an independent certified public
accountant and by Distributor's Chief Financial Officer. Adobe agrees to keep
such information in confidence so long as such information is not released by
Distributor to the public.
(d) Notification of Infringement. Distributor shall use commercially
----------------------------
reasonable efforts to immediately inform Adobe by telephone, telex or facsimile,
with written confirmation by mail, if it becomes aware of any facts indicating
that any person is infringing any Intellectual Property Rights of Adobe and its
suppliers or is engaging in unauthorized distribution of any Software Product.
(e) Distributor's Warranty. To the best of its knowledge, Distributor hereby
---------------------
represents and warrants to Adobe that neither this Agreement (or any term
hereof) nor the performance of or exercise of rights under this Agreement, is
restricted by, contrary to, in conflict with, ineffective under, requires
registration or approval or tax withholding under, or affects Adobe's
Intellectual Property Rights (or the duration thereof) under, or will require
any
<PAGE>
compulsory licensing under, any law or regulation of any organization, country,
group of countries or political or governmental entity to which Distributor is
subject.
(f) INTENTIONALLY OMITTED.
---------------------
(g) Co-marketing. Distributor will provide Adobe with information necessary
------------
for Adobe to do a mailing to Distributor's customer base twice per year at
Adobe's expense provided Adobe does not retain, distribute or otherwise
disseminate such information and provided Distributor approves the content of
the mailing.
7. Use of Trademarks; Non-Generic Advertising.
------------------------------------------
(a) Use of Trademarks. Adobe hereby grants to Distributor a non-exclusive,
-----------------
limited license to use the trademarks Adobe, the Adobe logo and the applicable
Software Product trademarks (the "Trademarks") solely on the Software Products
and in Distributor's advertising and printed materials for the Software Products
provided Distributor complies with the terms herein. Distributor acknowledges
that Distributor's utilization of the Trademarks will not create in it, nor will
it represent it has any right, title or interest in or to the Trademarks.
Distributor acknowledges Adobe's exclusive right to use of the Trademarks and
agrees not to do anything impairing Adobe's rights in the Trademarks.
Distributor agrees to display the acknowledgment of trademark ownership adjacent
to each Trademark the first time it is used in any advertising for or on the
Software Products. Distributor agrees to include the Trademarks on all copies,
advertisements, brochures, manuals, and other appropriate uses made in the
promotion, license or use of the Software Products. Distributor agrees to use
the Trademarks so that each of such Trademarks creates a separate and distinct
impression from any other trademark that may be used or affixed by Distributor
on any advertising for the Software Products. Any use of the Trademarks must
identify Adobe as the owner of such Trademarks. Distributor's use of the
Trademarks shall be in accordance with applicable law and Adobe's policies
regarding advertising and trademark usage as established from time to time.
Distributor shall not advertise the Software Products as free.
(b) Quality. Distributor agrees that the nature and quality of any products or
-------
services it supplies in connection with the Trademarks shall conform in all
material respects to the standards set by Adobe. Distributor agrees to cooperate
with Adobe in facilitating Adobe's monitoring and control of the nature and
quality of such products and services. Unless otherwise agreed in writing by
Adobe, Distributor shall not make any change in such products or its
containers, packages, cartons, wrappers or the like from that approved by Adobe.
Distributor shall make any change in such products or its containers, packages,
cartons, wrappers or the like from that approved by Adobe. Distributor agrees
to, at any time as requested by Adobe, allow Adobe to inspect at Distributor's
facility during normal business hours with reasonable advance notice the use of
the Trademarks to allow Adobe to review the quality thereof.
8. Ownership of Intellectual Property Rights. Distributor acknowledges
-----------------------------------------
Adobe's representation that the structure, organization and code of the Software
is proprietary to Adobe and that Adobe retains exclusive ownership of the
Software Products and the Trademarks. Distributor will take all reasonable
measures to protect Adobe's Intellectual Property Rights in the Software
Products and the Trademarks, including such assistance and measures as are
reasonably requested by Adobe from time to time. Except as provided herein,
Distributor is not granted any rights to patents, copyrights, trade secrets,
trade names, trademarks (whether registered or unregistered), or any other
rights, franchises or licenses with respect to the Software or Software
Products.
9. Non-Disclosure. During the term of this Agreement, Distributor shall be
--------------
exposed to certain information concerning Adobe's Software Products and proposed
new products which are the confidential and proprietary information of Adobe and
not generally known to the public (herein "Confidential Information").
Distributor agrees that during and after the term of this Agreement, it will not
use or disclose to any third party any Confidential Information without the
prior written consent of Adobe. Adobe hereby consents to the disclosure of its
Confidential Information to the employees of Distributor as is reasonably
necessary in order to allow Distributor to perform under this Agreement and to
obtain the benefits hereof. This Paragraph shall not apply to proposed new
product
<PAGE>
information after such information is made available to the general public by
Adobe.
10. Limited Warranty.
(a) Software Products. Adobe warrents the Software Products TO END USERS ONLY
-----------------
pursuant to the terms and conditions of the End User Agreement and no warranty
is extended to Distributor except as provided below and except to the extent of
claims against the Distributor resulting from the failure by Adobe to fulfill
its warranty obligations to an and user with respect to a Software Product as
expressed in Adobe's End User Agreement for such Software Product.
(b) Limitations and Disclaimer. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH IN
--------------------------
THE END USER AGREEMENT, ADOBE EXPRESSLY DISCLAIMS ALL WARRANTIES EXPRESSED OR
IMPLIED BY ANY COUNTRY OR JURISDICTION, RELATING TO THE SOFTWARE PRODUCTS, AND
FURTHER EXPRESSLY EXCLUDES ANY WARRANTY OF NON-INFRINGEMENT, FITNESS FOR A
PARTICULAR PURPOSE OR MERCHANTABILITY. NO PERSON IS AUTHORIZED TO MAKE ANY OTHER
WARRANTY OR REPRESENTATION CONCERNING THE PERFORMANCE OF THE SOFTWARE OTHER THAN
AS PROVIDED IN THE END USER LICENSE AGREEMENT. DISTRIBUTOR SHALL MAKE NO
WARRANTY, EXPRESS OR IMPLIED, ON BEHALF OF ADOBE.
11. Indemnity; Limited Liability.
----------------------------
(a) Indemnity. Subject to the limitations set forth herein below, Adobe shall
---------
defend and hold harmless Distributor with respect to all claims, suits or
proceedings with respect to any claim that the Software Products, as designed
and licensed to Distributor in furtherance of this Agreement, infringe upon any
U.S. or European Union ("EU") trademark or U.S. or EU copyright, provided,
however, that Distributor (i) promptly notifies Adobe in writing of such claim,
suit or proceeding (ii) gives Adobe the right to control and direct
investigation, preparation, defense and settlement of any claim, suit or
proceeding; and (iii) gives assistance and full cooperation for the defense of
same and further provides that Adobe's liability with respect to portions of
Software Products provided by or licensed from third parties will be limited to
the extent Adobe is indemnified by such third parties. Adobe shall pay any
resulting damages, costs and expenses finally awarded to a third party
(including, but not limited to attorney's fees and expenses), but Adobe is not
liable for such amounts, or for settlements incurred by Distributor without
Adobe's written authorization. If such claim, suit or proceeding has occurred
or, in Adobe's opinion, is likely to occur, Adobe may, at its election and
expense, either obtain for Distributor the right to continue distributing such
allegedly infringing Software Product, replace or modify the Software Product as
it is not infringing, or remove such Software Product from this Agreement.
(b) Exclusions. The provisions of the foregoing indemnity shall not apply
----------
with respect to any instances of alleged infringement based upon or arising out
of the use of such Software Products in any manner for which the Software
Products were not designed, or for use of Software Products for other than the
uses and distributions designated by Adobe, for use of any Software Product
which has been modified by Distributor or any third party, or for use of any
Software Product in connection with or in combination with any equipment,
devices or software which have not been supplied by Adobe. Notwithstanding any
other provisions hereof, the foregoing indemnity shall not apply with respect to
any infringement based on Distributor's activities occurring subsequent to its
receipt of notice of any claimed infringement unless Adobe shall have given
Distributor written permission to continue to market and distribute the
allegedly infringing Software Product.
(c) Entire Liability. THE FOREGOING PARAGRAPHS 11(A) AND 11(B) STATE THE SOLE
----------------
AND EXCLUSIVE REMEDY OF DISTRIBUTOR AND THE ENTIRE LIABILITY AND OBLIGATION OF
ADOBE WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY PATENT,
COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE SOFTWARE
PRODUCTS OR ANY PART THEREOF. IN NO EVENT SHALL ADOBE'S LIABILITY UNDER
PARAGRAPH 11(A) FOR INDEMNITY OF DISTRIBUTOR WITH
<PAGE>
RESPECT TO INFRINGEMENT OF EU COPYRIGHT OR TRADEMARK RIGHTS EXCEED AN AGGREGATE
OF ONE MILLION DOLLARS (U.S. $1,000,000). Nothing contained in this Agreement
shall prejudice the statutory rights of any party dealing as a consumer.
(d) Indemnity by Distributor. Distributor agrees to indemnify and hold Adobe
------------------------
harmless from any claims, suits, proceedings, losses, liabilities, damages,
costs and expenses (inclusive of Adobe's reasonable attorneys' fees) made
against or incurred by Adobe as a result of negligence, misrepresentation, or
error or omission on the part of Distributor or representatives of Distributor.
Distributor shall indemnify and hold Adobe harmless from, any claims, warranties
or representations made by Distributor or Distributor's employees or agents
which differ form the warranty provided by Adobe in its End User Agreement.
12. Termination.
-----------
(a) Without Cause. This Agreement and any Software Product Appendices to this
-------------
Agreement may be terminated at any time by either party without cause upon sixty
(60) days prior written notice.
(b) With Cause.
----------
(1) Either party may terminate this Agreement and any Software Product
Appendices to this Agreement upon thirty (30) days' written notice of a material
breach of this Agreement if such breach is not cured within such thirty (30) day
period.
(2) Notwithstanding the above, Adobe may terminate this Agreement and any
Software Product Appendices to this Agreement immediately upon written notice
for breach of PARAGRAPHS 4 ("Rights and Restrictions of Distributor"), 7 ("Use
------------ -
of Trademarks; Non-Generic Advertising"), 8 ("Ownership of Intellectual Property
-
Rights"), 9 ("Non-Disclosure"), and 14(h) ("Export").
- -----
(3) Adobe may immediately terminate this Agreement and any Software
Product Appendices to this Agreement after giving written notice if Distributor
shall become insolvent or fail to pay its obligations as they arise or upon any
proceeding being commenced by or against Distributor under any law providing
relief to Distributor as debtor.
(c) Rights Upon Termination. Upon termination or expiration of this Agreement
-----------------------
or any Software Product Appendices to this Agreement.
(1) Distributor shall immediately cease using the Trademarks, discontinue
all representations that it is an Adobe distributor, and return all Confidential
Information in its possession to Adobe.
(2) The payment date of all monies due Adobe shall automatically be
accelerated so that they shall become due and payable on the affective date of
termination, even if longer terms had been provided previously. All credits
previously issued to Distributor will be canceled as of the date of termination.
(3) Each party understands that the rights of termination or expiration
hereunder are absolute. Neither party shall incur any liability whatsoever for
any damage, loss or expenses of any kind suffered or incurred by the other
arising from or incident to any termination of this Agreement by such party or
any expiration hereof which complies with the terms of the Agreement whether or
not such party is aware of any such damage, loss or expenses. In particular,
without in any way limiting the foregoing, neither party shall be entitled to
any damages on account or prospective profits or anticipated sales. Distributor
agrees to waive the benefit of any law or regulation providing compensation to
Distributor arising from the termination or failure to renew this Agreement and
Distributor hereby represents and warrants that such waiver is irrevocable and
enforceable by Adobe. Distributor also agrees to indemnify and hold harmless
Adobe from any and all claims for compensation asserted by Distributor's
employees, subrepresentatives or any dealers. However, all payments normally due
to Adobe by Distributor shall be paid in full immediately upon termination or
expiration of this Agreement.
(4) The provisions of PARAGRAPHS 8 ("Ownership of Intellectual Property
------------
Rights"), 9 ("Non-Disclosure"), 10 ("Warranty"), 13
- -- --
<PAGE>
("Consequential Damages Waiver"), and 14 ("Miscellaneous") shall survive the
--
expiration or termination of this Agreement by either party for any reason.
13. Consequential Damages Waiver. ADOBE WILL NOT BE LIABLE FOR ANY LOSS OF
----------------------------
USE, INTERRUPTION OF BUSINESS, COST OF PROCUREMENT OF SUBSTITUTE GOODS,
TECHNOLOGY OR SERVICES OR ANY INDIRECT, SPECIAL INCIDENTAL, OR CONSEQUENTIAL
DAMAGES OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION
WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR
ANY OTHER LEGAL OR EQUITABLE THEORY EVEN IF ADOBE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
14. Miscellaneous.
-------------
(a) Notices. All notices or reports permitted or required under this Agreement
-------
shall be by personal delivery, telegram, telex, telecopier, facsimile
transmission, or by certified or registered mail, return receipt requested, and
shall be deemed given upon personal delivery, five (5) days after deposit in the
mail, or upon acknowledgment of receipt of electronic transmission. Notices
shall be sent to the addresses set forth at the beginning of this Agreement or
such other address as either party may specify in writing. If notice is sent to
Adobe, it shall be sent to the person bearing the title set forth below Adobe's
signature to this Agreement, with a copy to its General Counsel.
(b) Force Majeure. Neither party shall be liable hereunder by reason of any
-------------
failure or delay in the performance of its obligations hereunder (except for the
payment of money) on account of strikes, shortages, riots, insurrection, fires,
flood, storm, explosions, acts of God, war, governmental action, labor
conditions, earthquakes, material shortages or any other cause which is beyond
the reasonable control of such party.
(c) Assignment. Neither this Agreement, any Appendices to this Agreement, nor
----------
any rights or obligations of Distributor hereunder may be assigned by
Distributor in whole or in part without the prior written approval of Adobe. Any
assignment in violation of this Paragraph shall be void and of no effect. For
the purposes of this Paragraph, a change in the persons or entities who control
fifty percent (50%) or more of the equity securities or voting interest of
Distributor shall be considered an assignment of Distributor's rights. Adobe's
rights and obligations, in whole or in part, under this Agreement and any
Appendix hereto may be assigned by Adobe. Adobe may exercise full transfer and
assignment rights in any manner at Adobe's discretion and specially may sell,
pledge, or otherwise transfer its rights to receive payments under this
Agreement.
(d) Waiver. The failure of either party to require performance by the other
------
party of any provision hereof shall not affect the full right to require such
performance at any time thereafter; nor shall the waiver by either party of a
breach of any provision hereof be taken or held to be a waiver of the provision
itself.
(e) Severability. In the event that any provision of this Agreement shall be
------------
unenforceable or invalid under any applicable law or be so held by applicable
court decision, such unenforceability or invalidity shall not render this
Agreement unenforceable, or invalid as a whole, and, in such event any such
provision shall be changed and interpreted so as to best accomplish the
objective of such unenforceable or intended provision within the limits of
applicable law or applicable court decisions.
(f) Injunctive Relief. It is understood and agreed that notwithstanding any
-----------------
other provisions of this Agreement, a breach by Distributor of PARAGRAPHS 4(a)
---------------
and 4(b) ("Rights and Restrictions of Distributor"), 7(a) ("Use of Trademarks;
- -------- ----
Non-Generic Advertising"), 8 ("Ownership of Intellectual Property Rights"), 9
- -
("Non-Disclosure") or 14(h) ("Export") of this Agreement will cause Adobe
-----
irreparable damage for which recovery of money damages would be inadequate, and
that Adobe shall therefore be entitled to obtain timely injunctive reflect to
protect Adobe's rights under this Agreement in addition to any and all remedies
available at law.
(g) Attorney's Fees. In the event any proceeding or lawsuit is brought by
---------------
Adobe, its suppliers, or Distributor in connection with this Agreement,
<PAGE>
the prevailing party in such proceeding shall be entitled to receive its costs,
expert witness fees, and reasonable attorneys fees, including costs and fees on
appeal.
(h) Export. Distributor acknowledges that the laws and regulations of the
------
United States restrict the export and re-export of commodities and technical
data of United States origin, including the Software Products. Distributor
agrees that it will not export or re-export the Software Products in any form,
without the appropriate United States and foreign governmental licenses.
Distributor agrees that its obligations pursuant to this Paragraph shall survive
and continue any termination or expiration of rights under this Agreement.
(j) Controlling Law. This Agreement shall be governed in all respects by the
---------------
laws of the United States of America and the State of California as such laws
are applied to agreements entered into and to be performed entirely within
California between California residents. The parties agrees that the United
Nations Convention on Contracts for the International Sale of Goods is
specifically excluded from application to this Agreement.
(j) No Agency. Nothing contained herein shall be construed as creating any
---------
agency, partnership, or order form of joint enterprise between the parties.
(k) Headings. The Paragraph headings appearing in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, construe or
describe the scope or extent of such Paragraph or in any way affect such
Paragraph.
(i) Warranty. EACH PARTY WARRANTS THAT IT HAS FULL POWER AND AUTHORITY TO ENTER
--------
INTO AND PERFORM THIS AGREEMENT, AND THE PERSON SIGNING THIS AGREEMENT ON SUCH
PARTY'S BEHALF HAS BEEN DULY AUTHORIZED AND EMPOWERED TO ENTER INTO THIS
AGREEMENT, DISTRIBUTOR FURTHER ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT,
UNDERSTANDS IT AND AGREES TO BE BOUND BY IT.
(m) Entire Agreement. This Agreement, together with the exhibits completely
----------------
and exclusively states the agreement of the parties regarding its subject
matter. It supersedes, and its terms govern, all prior proposals, agreements, or
other communications between the parties, oral or written, regarding such
subject matter. This Agreement shall not be modified except by a subsequently
dated written amendment or appendix signed on behalf of Adobe and Distributor by
their duly authorized representative and any provision or a purchase order
purporting to supplement or vary the provisions hereof shall be void.
(n) Choice of Forum and Venue. All disputes arising under this Agreement may
-------------------------
be brought in Superior Court of the State of California in Santa Clara County or
the United States District Court for the Northern District of California as
permitted by law. The Superior Court of Santa Clara County and the United
States District Court for the Northern District of California shall together
have non-exclusive jurisdiction over dispute under this Agreement Distributor
consents to personal jurisdiction of the above courts.
(o) Confidentiality of Agreement. Neither party will disclose any terms of
----------------------------
this Agreement, except pursuant to a mutually agreeable press release or as
otherwise required by law.
<PAGE>
(p) Inconsistency. In the event of a conflict or inconsistency between a
-------------
Software Product Appendix and this Agreement, the provision of the Software
product Appendix shall prevail with respect to the Software Product to which
such appendix partials.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
ADOBE: DISTRIBUTOR:
ADOBE SYSTEMS INCORPORATED DATA TRANSLATION, INC.
/s/ John H Brandon /s/ Steven Shea
- ------------------------------- --------------------------------
Authorized Signature Authorized Signature
John H Brandon Steven Shea
- ------------------------------- ---------------------------------
Printed Name Printed Name
Vice President Controller
- ------------------------------- ----------------------------------
Title Title
2 May 1996 April 18, 1996
- ------------------------------- ----------------------------------
Date Date
<PAGE>
SOFTWARE PRODUCT APPENDIX
TO THE
VALUE ADDED DISTRIBUTION AGREEMENT
BETWEEN
ADOBE SYSTEMS INCORPORATED
AND
DATA TRANSLATION, INC,
(the "Agreement")
for Premiere 4.2.1
Dated April 18, 1996
This Appendix sets forth additional and different terms and conditions
applicable to the Software Products described below and shall be incorporated by
reference into the Agreement. Such different or additional terms are applicable
only to the Software Products described below and in no way alter the terms and
conditions applicable to other Software Products incorporated into the Agreement
by addition of a separate Appendix.
In addition, Adobe and Distributor have previously entered into an Adobe
Premiere(TM) Plug In Linking Utilities License Agreement dated January 8, 1993
("Utilities License Agreement") and an Adobe Premiere(TM) Plug-Ins Reproduction
and License Agreement ("Reproduction License Agreement") dated January 8, 1993,
and amended on June 6, 1995, and now desire to amend, restate and supersede the
Utilities License Agreement and the Reproduction License Agreement with the
terms and conditions of the Agreement and the Appendix.
All terms used in this Appendix and not otherwise defined in this Appendix shall
retain the same meaning as defined in the Agreement.
1. Definitions.
-----------
(a) "Linking Programs" are computer software programs developed by Distributor
using the programs developed by Distributor using the Utilities Toolkit
incorporating a portion of the Utilities Software, and which link the Plug-Ins
with the Plug-In Listed Product.
(b) "Premiere Plug-In Linking Utilities Software" or "Utilities Software" is
any computer software program contained in the Premiere Plug-In Linking
Utilities Toolkit, including but not limited to any header files and libraries
contained therein.
(c) "Premiere Plug-In Linking Utilities Toolkit" or "Utilities Toolkit" is a
set of tools and instructions, including the Utilities Software, that enables a
developer to write computer software programs that will link Plug-In Listed
Products with the Plug-Ins.
(d) The "Plug-Ins" shall mean those Plug-Ins for Premiere described in EXHIBIT
-------
A to this Appendix.
- -
(e) "Premiere" shall mean Abode Premiere Version 4.2.1 for Macintosh.
(f) "Software Products" shall mean Premiere, the Plug-Ins, the Linking Programs
and the Utilities Toolkit.
(g) The "Plug-In Listed Product" shall mean the Media 100 Suite Deal.
(h) The "Premiere Listed Product" shall mean the Media 100 qx.
(i) The "Listed Products" shall mean the Plug-In Listed Product and the
Premiere Listed Product.
<PAGE>
2. INTENTIONALLY OMITTED
---------------------
3. License Grants; Territory
-------------------------
(a) Premiere and the Plug-Ins. Subject to the terms and conditions of the
-------------------------
Agreement and this Appendix, Adobe hereby grants to Distributor a non-exclusive,
worldwide, non-transferable license for (1) distribute Premiere bundled with the
Premiere Listed Product (2) reproduce at the location specified in EXHIBIT C
---------
(Reproduction Location), and distribute the Plug-Ins integrated with the Plug-In
Listed Product by use of Linking Programs.
(b) Utilities Toolkit. Subject to the terms and conditions of the Agreement
-----------------
and this Appendix, Abode grants Distributor a non-exclusive, worldwide,
non-transferable license to use and modify the Utilities Toolkit only to create
Linking Programs which will link the Plug-Ins with the Plug-In Listed Product,
and reproduce and distribute, in object code form and in conjunction with and as
part of the Plug-Ins as integrated with the Plug-In Listed Product, only those
portions of the Utilities Software that are required to link the Plug-In Listed
Product with the Plug-Ins during execution of the Plug-In Listed Product.
Distributor shall not use any portion of the Utilities Toolkit for any purpose
other than the development of Linking Programs. The license to the Utilities
Toolkit is intended as an aid to Distributor and shall not be construed to
permit customers of Distributor to make copies of the Utilities Software onto
other media (except as part of a Plug-In Listed Product, for archival purposes)
or into memory (except as a part of the execution of a Plug-In Listed Product).
When a Plug-In Listed Product has completed execution, the Utilities Software
shall not be used by any other program. Distributor further agrees that
Distributor shall not use the Utilities Software to develop any product for use
with any computer software programs other than the Plug-Ins, and then only as
linked to the Plug-In Listed Product.
4. Effective Date. This Appendix shall effective April 18 and shall have a
-------------- --------
term consistent with the term of the Agreement unless terminated earlier in
accordance with the termination provisions of the Agreement.
5. Distribution. Distributor shall only distribute Premiere with the Premiere
------------
Listed Product and the Plug-Ins with the Plug-In Listed Product.
In addition, Distributor shall not distribute any portion of the Utilities
Software separately, without the Plug-Ins as integrated with the Plug-In Listed
Product in combination with computer software programs or hardware other than
the Plug-In Listed Product, or in source code form.
Distributor hereby certifies that the United State ("US") suggested retail price
of the Premiere Listed Product is equal to or greater tha Adobe's US suggested
retail price of Premiere and that, to the extent permitted by applicable law in
a particular jurisdiction, the suggested retail price in Europe of the Premiere
Listed Product is equal to or greater than Adobe's suggested retail price in
Europe of Premiere.
Distributor shall not alter the packaging of Premiere without Adobe's prior
written approval, provided, however, that Distributor may include Premiere
within the package for the Premiere Listed Product. To the extent permitted by
applicable law in a particular jurisdiction, Distributor agrees to use it best
efforts to prevent resellers who acquire copies of Premiere bundled with the
Premiere Listed Product form distributing such copies of Premiere separately
from the Premiere Listed Product. Distributor acknowledges that different
pricing terms apply to sale or resale of unbundled copies of Premiere and agrees
to so inform any potential resellers of Premiere.
6. Payment; Royalties.
------------------
(a) The Price of copies of Premiere ordered hereunder, whether intended for
resale, demonstration, or internal use, shall be based on the quarterly volume
of orders for Premiere and an estimate of the quarterly volume of Plug-Ins
shipped. The initial price per unit of Premiere will be determined by the
initial quantity ordered by Distributor. Thereafter, prices will
<PAGE>
be determined by the volume of units ordered from Abode in the previous Adobe
fiscal quarter. Prices will be based on the following quarterly volumes:
Value Added Volume Price Schedule
per Quarter US
- ----------- -------
100-500 $140.00
501-1000 $120.00
1001-2500 $105.00
2501-3500 $ 95.00
5001 + $ 90.00
(b) For purposes of establishing discount levels, Distributor shall be deemed
to have ordered one thousand (1,000) units of Premiere per quarter, representing
approximately the estimated quarterly average of the number of copies of the
Plug-Ins on which Distributor shall owe royalties to Adobe under this Agreement,
an estimate which in turn is based on historical volumes of the Plug-Ins shipped
by Distributor under the Reproduction License Agreement, an estimate which in
turn is based on historical volumes of the Plug-Ins shipped by Distributor under
the Reproduction License Agreement. The 1,00 units number shall be aggregated
with the number or copies of Premiere actually ordered by Distributor to
determine the discount levels set forth above.
(c) During the term of this Appendix, Distributor agrees to order a minimum of
200 units of Premiere each Abode fiscal quarter. Abode shall give Distributor
ninety (90) days advance written notice of any increase in the Adobe Value Added
Premiere Volume Price Schedule.
(d) At Distributors' request, Abode will provide Distributor with a reasonable
number of not for resale copies of Premiere at the best price under which it
offers such products to its resellers.
(e) For the six month period following the data of this Appendix (the "Initial
Period"), Distributor shall pay Abode a royalty of one hundred five dollars
(U.S. $105) for each copy of a partial or full set of the Plug-Ins which it
distributes or uses internally. If the average number of royalty bearing copies
of sets of Plug-Ins distributed by Distributor exceeds one thousand (1,000) in
each of the two three-month periods in the Initial Period, such royalty shall
remain at $105 for the remainder of the term of this Appendix. Otherwise, the
royalty for copies of partial or full sets of the Plug-Ins subsequent to the
Initial Period shall be on hundred twenty dollars (U.S. $120).
(f) All royalties for Plug-Ins due in accordance with the terms of the
Agreement shall be paid in U.S. dollars by Distributor within thirty (30) days
after the end of each Adobe fiscal quarter. With each royalty payment,
Distributor shall include a written summary, stating the number of copies of the
Plug-Ins distributed in the Pacific Rim, Europe, North America, and rest of
world, the number of Plug-Ins enabled by use of the hardware key in each such
region, the number of Plug-Ins shipped disabled in such region, and the number
of the Plug-Ins used internally during the quarter. Copies of the Plug-Ins which
are returned for which refunds are made by Distributor shall be credited by
Distributor against royalties due to Adobe. At Adobe's request, Distributor
shall orally advise Adobe of its estimates of the number of copies of the
Plug-Ins which were shipped by Distributor during each month and the royalties
accrued thereby. Such oral communication shall be subject to final adjustment
by Distributor upon submission of the written summary and royalty payment.
(g) All royalties for Plug-Ins due hereunder shall be earned on the date
Distributor ships a copy of a full or partial set of the Plug-Ins to a third
party or commences internal use of a copy of a full or partial set of Plug-Ins.
Notwithstanding the foregoing, no royalties shall be earned on a particular full
or partial set of the Plug-Ins shipped to a third party which are completely
disabled in the absence of a hardware key until a hardware key is provided
enabling use of one or more of such Plug-Ins.
(h) Distributor shall maintain a complete, clear, accurate record of the number
of copies of the Plug-Ins shipped and used internally during each quarter,
whether such plug-Ins were shipped enabled or disabled, and the number of
hardware keys provided which enable use of then Plug-Ins. To ensure compliance
with the terms of this Agreement, Adobe shall have the right to have an
inspection and audit of all the
<PAGE>
relevant accounting and sales books and records of Distributor conducted by an
independent certified public accountanct reasonably acceptable to both parties
whose fee is paid by Adobe. Any such audit shall be conducted during regular
business hours at Distributor's offices and in such a manner as not to interfere
with Distributor's normal business activities. In no evnet shall audits be made
hereunder more frequently than every six (6) months. If such inspections should
discloese any underreporting. Distributor shall promptly pay Adobe such amount,
together with interest thereon at the rate 1 1/2% per month or the highest
interest rate allowed by law, whichever if lower, form the date on which such
amount became due Adobe from Distributor.
7. Localized Versions. Distributor shall distribute the English International
------------------
version of Premiere in the European Union, and the U.S. version of Premiere in
the rest of the world.
8. New Release. Adobe may, at its sole discretion, modify Premiere and
-----------
deliver modified copies to Distributor. Once a new version of Premiere delivered
to Distributor begins shipping, Distributor has thirty (30) days from first
Adobe shipment date of the new release to Distributor or form written
notification date whichever is later, at Distributor's expense, to return
copies of Premiere from the prior release from Distibutor's inventory that were
shipped by Adobe to Distributor within the previous ninety (90) days. Returned
packages will be swapped by Adobe (proportional with any price increase or
decrease) with the new release of Premiere and shipped to Distributor at Adobe's
expense. Only unopened packages will be accepted. Any new version of Premiere
delivered hereunder shall be subject to the terms and conditions of the
Agreement and this Appendix.
9. Proprietary Notices.
-------------------
(a) Plug-Ins. In order to protect Adobe's copyright and other ownership
--------
interests, Distributor agrees that as a condition of its reproduction rights
hereunder, each copy of the Plug-Ins shall contain the same proprietary notices
within the code which appear within the code of such software delivered by Adobe
to Distributor and as otherwise reasonably required by Adobe. Distributor
further agrees that the following copyright notice shall appear on the sigh on
screen of each Listed Product: "Portions Copyrights(C) Adobe Systems
Incorporated, 1991, 1992."
(b) Utilities Software. Distributor agrees not to remove any copyright notices
------------------
or proprietary legends contained within the Utilities Software. Distributor
agrees to include a copyright notice on the sign-in screen of the Linking
Programs which notice shall comply with the requirements of Section 401 of the
Copyright Act of 1976 (17 U.S.C., 401) and applicable regulations thereunder.
Abode may from time to time specify in writing additional information to be
included, and Distributor agrees to incorporate such additional information
within thirty (30) days of such written notice.
10. Sub End User Agreements. Distributor will take all steps necessary to
-----------------------
ensure that each copy of the Plug-Ins distributed by Distributor will be
accompanied by a copy of an End User License Agreement which has been translated
into the native language of the country in which the Plug-Ins are distributed
and localized to comply with any legal requirements of such country, and which
shall contain at a minimum the provisions set forth in EXHIBIT B ("Minimum Terms
of End User License Agreements") hereto. In jurisdictions where an enforceable
copyright covering the Plug-Ins that is fully visible to the End User and that
the End User accepts by opening the package or rejects by retuning the unopened
package refund. In jurisdictions with no enforceable copyright for software,
the End User License Agreement must be written agreement signed by the End User.
11. Trademarks.
----------
(a) Quality. Distributor will maintain a high-quality standard in producing
-------
copies of the Listed Products and the Plug-Ins, Adobe shall review and approve
in writing the quality of
<PAGE>
Listed Products, the product packages, and the use of the Trademarks on the
Listed Products and authorize the commencement of commercial distribution and
marketing of the Plug-In Listed Products as integrated with the Plug-Ins. On or
before the date scheduled by Distributor for commencing commercial distribution
and marketing of the Plug-Ins as integrated with the Plug-In Listed Products,
directly or indirectly to End Users, Distributor shall submit to Adobe for its
approval, sufficient samples of such products together with or including the
containers, packages, documentation, labels, advertising, press releases,
cartons, wrappers and the like. Adobe, at its sole discretion, will provide
Distributor with written acceptance or rejection of such materials. If such
materials are rejected, Distributor must immediately correct any non-conformance
of such materials to the terms of this Agreement.
(b) Registrations. Distributor, at Adobe's request and with Adobe's support
-------------
shall (a) promptly provide Adobe with any specimens, (b) execute all
applications for trademark registrations, assignments, trademark user agreements
appropriate for the jurisdiction in which the Trademark is to be used, or other
applicable documents, and (c) perform any other act reasonably necessary for
Adobe to secure or maintain any and all trademark rights in any country,
provided that Distributor is marketing Listed Products in association with such
respective Trademark in such country.
12. Distributor Orders. The terms and conditions of this Appendix shall apply to
------------------
all orders for the Software Products covered by this Appendix and supersede any
different or additional terms on purchase orders from, or any general conditions
maintained by, Distributor. Distributor shall submit written orders, by mail,
fax or other method, for Premiere in accordance with the then-current order
processing procedures established by Adobe. Orders issued by Distributor are
solely for the purpose of requesting delivery dates and quantities and
specifying destination. All orders placed with Adobe for Premiere shall be
subject to acceptance by Adobe at its principal place of business. Adobe shall
use reasonable efforts to make deliveries of orders so accepted by the requested
delivery dates, but Adobe shall not be liable for any damages to Distributor or
to any other person for Adobe's failure to fill any orders, or for any delay in
delivery or error in filling any orders for any reason whatsoever. If orders for
Premiere exceed Adobe's inventory, Adobe shall allocate available inventory on a
basis Adobe deems equitable in its absolute discretion.
13. License Fee Increases. Adobe shall give Distributor ninety (90) days advance
---------------------
written notice of any price increase to the Software Products hereunder. Such
increase will apply to all purchase orders received or royalties earned after
the effective date of such increase, but shall not affect any purchase orders
accepted or royalties earned by Adobe before the effective date of such
increase.
14. Shipments. All shipments of Premiere will be made ex-works from Adobe's
---------
facility or Adobe's designated warehouse facility to Distributor's Shipping
Address. Delivery will be deemed complete and risk of loss or damage to Premiere
will pass to Distributor upon delivery to the carrier. Portions of orders may be
filled from different Adobe facilities or warehouses. The minimum amount per
order shall be equal to five thousand US dollars (US $5,000), exclusive to tax,
duties, or shipping costs, based upon the price to be charged to Distributor
after subtracting all applicable discounts.
15. Payment Terms.
-------------
(a) Payment for Premiere or the Plug-Ins shall be made in U.S. dollars.
(b) Payment for Premiere shall be made within thirty (30) days from the date of
invoice, which date shall not be before the actual date of shipment.
(c) Within thirty (30) days of the end of each Adobe fiscal quarter,
Distributor agrees to provide Adobe with a report indicating the number of
copies of Premiere distributed by Distributor under this Agreement, if any, that
were distributed, either by Distributor or its resellers, in a form other than
bundled with the
<PAGE>
Premiere Listed Products and to pay Adobe for such copies Adobe's then current
distributor price for such copies of Premiere when they are licensed on an
unbundled basis (less any amounts already paid for such copies under PARAGRAPH
---------
6(A) ("Value Added Volume Price Schedule").
- ----
(d) All sums not paid for Premiere or the Plug-Ins when due shall accrue
interest daily at the lesser of an annual rate of eighteen percent (18%) or the
highest rate permissible by law on the unpaid balance until paid in full. Adobe
reserves the right to terminate or modify the terms or credit payments when, in
its sole discretion, Adobe believes that its payments may be at risk.
16. Retention of Title. Title to the medium in which copies of Premiere are
------------------
embodied (the "Medium") shall remain in Adobe. Should Distributor fail to pay
the amount of the Adobe invoice or any other sums due in respect of copies of
Premiere supplied pursuant to the Agreement or this Appendix, Adobe may, without
any notice of breach or court order being required, recover possession of the
Medium and the copies of Premiere, without prejudice to all other remedies
available to Adobe under the Agreement, this Appendix, or otherwise. In such
event, Adobe is hereby irrevocably authorized to enter premises and buildings of
Distributor in order to recover possession of the Medium and the copies of
Premiere. Distributor shall do all things and take all actions necessary to
assist Adobe in exercising the rights granted by this Paragraph.
17. Stock Balancing. Distributor may return, shipping prepaid, unused copies of
---------------
the current version of Premiere obtained from Adobe under this Software Product
Appendix to Adobe for full credit toward a simultaneous purchase of Software
Products from Adobe under another Software Product Appendix, or unused copies of
the current version of Premiere purchased from Adobe under another Appendix for
a full credit towards a simultaneous purchase of Software Products under this
Appendix, four times a year (January, April, July and October), without penalty,
for up to a maximum of ten percent (10%) of the invoiced amounts for Premiere
packages obtained from Adobe for the previous ninety (90) days, on the
conditions stated below:
(a) Returned Premiere packages were obtained from Adobe within the previous (90)
days and are unused, in merchantable condition and in their original
factory-sealed packaging;
(b) A return of materials authorization ("RMA") number assigned by Adobe, copies
of the original invoices for the returned packages and a serial number
inventory accompany the shipment.
(c) Distributor's return of the packages is accompanied by an order for current
Software Products at least equal to the amount credited to Distributor as a
result of the return.
18. Acceptance. Each shipment shall be deemed accepted by Distributor unless
----------
notice of defect is received within thirty (30) days of shipping thereof and the
copies of Premiere are returned to Adobe within forty-five (45) days of
shipping. In the event of discovery of defective copies of Premier,
Distributor's sole remedy shall be to exchange such product for a new one.
19. Internal Use. Distributor shall have the right to order (in the case of the
------------
Plug-Ins, reproduce) and use additional copies of Software Products for its
customary internal and business uses provided that Distributor pays Adobe the
amounts specified in this Appendix for each copy used internally.
20. Loaned Equipment. Distributor will provide Adobe with three (3) units each
----------------
of the Premiere Listed Products described in PARAGRAPH 5 ("Distribution") to aid
-----------
Adobe in its support of End Users who acquire Premiere from Distributor. In the
event Distributor orders Localized Versions, Distributor will provide Adobe with
two (2) additional units of each of the Premiere Listed Products described in
PARAGRAPH 5 ("Distribution") for any Adobe office other than Adobe's principal
- -----------
office in the United States responsible for support of such Localized Version
being distributed. Such products will be returned to Distributor at its request
after termination of this Appendix. All products loaned by
<PAGE>
Distributor to Adobe shall remain the property of Distributor. Distributor shall
pay shipping costs for delivery of the products to Adobe and Adobe will pay
shipping costs for delivery of the products to Adobe and Adobe will pay shipping
costs upon return of the equipment to Distributor. While in the possession of
Adobe, the equipment shall be maintained by Distributor in good working order
and shall be fully insured by Adobe. Prior to release and/or license of the
Plug-In Listed Products incorporating the Plug-Ins, or update of such Plug-In
Listed Products, Distributor shall provide Adobe with an archival copy of the
object code of the Plug-In Listed Product or update and an archival copy of the
manuals and end user documentation for the Plug-In Listed Product for the sole
purpose of monitoring Distributor's compliance with the terms of this Appendix.
Although such Plug-In Listed Products and updates shall not be considered
confidential or trade secret information, Adobe agrees not to disclose or
distribute them without Distributor's permission.
21. Warranty and Support Services. Distributor shall provide warranty and
-----------------------------
support service to End Users for all Software Products as follows:
(a) Premiere. If a copy of Premiere qualifies under the warranty provisions
--------
of the applicable End User Agreement for warranty service, Distributor will
return the copy of Premiere to Adobe for replacement by Adobe. Distributor must
first obtain a return of materials authorization (RMA) number from Adobe.
Distributor will provide the End User with a copy of Premiere. The entire
contents of the defective copy of Premiere and a dated sales receipt for the
defective copy of Premiere must be returned to Adobe within (30) days of
Distributor's receipt from a dealer or End User. Returned copies of Premiere
will be replaced by Adobe on a unit-for-unit basis. Distributor shall pay for
the shipping of defective product to Adobe and Adobe shall pay for the shipping
of replacement packages sent to Distributor.
(b) Plug-Ins. Adobe shall have no obligation to provide technical support for,
--------
or updates to, the Plug-Ins. Distributor will be solely responsible for
providing support to End Users who acquire copies of the Plug-Ins produced by
Distributor. Distributor agrees that any documentation distributed by
Distributor will clearly and conspicuously state that End Users should call
Distributor for technical support for Distributor Product, including the
Plug-Ins. Distributor agrees to coordinate with Adobe's customer support
department to provide a means by which Adobe can notify Distributor by telephone
or electronic mail of End Users who contact Adobe and request replacements for
defective disks containing the Plug-Ins obtained from Distributor.
(c) Utilities Toolkit. Adobe shall have no obligation to provide technical
-----------------
support for, or updates to, the Utilities Toolkit.
(d) No Warranty. NOTWITHSTANDING ANYTHING ELSE IN THE AGREEMENT OR THIS
-----------
APPENDIX, THE PLUG-INS AND UTILITIES TOOLKIT ARE PROVIDED TO DISTRIBUTOR "AS
IS," WITHOUT ANY WARRANTY OF ANY KIND, DISTRIBUTOR BEARS THE ENTIRE RISK AS TO
QUALITY AND PERFORMANCE OF THE PLUG-INS AND UTILITIES TOOLKIT, ADOBE MAKES NO
WARRANTY TO ANY PARTY, INCLUDING WITHOUT LIMITATION DISTRIBUTOR AND END USERS
REGARDING THE USE AND OPERATION OF THE PLUG-INS AND UTILITIES TOOLKIT IN
COMBINATION WITH THE PLUG-IN LISTED PRODUCT.
22. Indemnification. In addition to the indemnity provisions in the Agreement,
---------------
Distributor shall defend, indemnify and hold Adobe harmless from and against any
claims arising out of or in connection with (1) distribution or use of the
Premiere Plug-In Linking Utilities Software or the Plug-Ins not caused by
Adobe's negligence or willful misconduct, and (2) defective media or defective
duplication in copies of the Plug-Ins distributed by Distributor. Adobe shall
promptly notify Distributor of any such claims.
23. Rights Upon Termination. In addition to the termination provisions in the
-----------------------
Agreement, upon termination of this Appendix:
<PAGE>
(a) Distributor's appointment as an authorized reproducer of the Plug-Ins and
authorized distributor of the Software Products shall immediately terminate;
(b) Distributor shall return or destroy all copies of the Plug-Ins in
Distributor's inventory;
(c) Distributor shall ship no further hardware keys enabling use of the
Plug-Ins;
(d) Distributor shall promptly return to Adobe any master copy and all copies of
the Utilities Toolkit licensed to Distributor hereunder;
(e) Adobe shall be entitled to (i) reject all or part of any orders received
from Distributor after notice but prior to the effective date of termination
and/or (ii) require Distributor's performance of any outstanding orders
notwithstanding the fact that delivery date for such orders may extend beyond
the effective date of termination. Notwithstanding any credit terms made
available to Distributor prior to that time, any copies of Premiere shipped
during said period shall be paid for in full by certified or cashier's check
prior to shipment;
(f) Distributor shall submit to Adobe within thirty (30) days after the
effective date of termination, a summary of the number of copies of Premiere in
Distributor's inventory as of the effective date of the termination. Adobe may,
at its option, purchase any or all of such products from Distributor's inventory
upon written notice of its intention to do so within a reasonable period after
receiving the inventory summary, at prices to be agreed upon between the
parties, but in no event greater than the respective price paid by Distributor
for such copies of Premiere. After receipt of the copies of Premiere from
Distributor, if Distributor's account was in arrears, Adobe will issue an
appropriate credit to Distributor's account prior to making payment for the
purchase of the software products; and
(g) If Adobe chooses not to exercise its rights to repurchase Distributor's
inventory of Premiere, Distributor shall have ninety (90) days from the
effective date of termination to distribute its inventory provided Distributor
complies with the terms of this Appendix during such ninety (90) day period.
The rights of Adobe under this Paragraph are in addition to any other rights or
remedies provided by law under this Appendix or the Agreement.
24. Confidentiality of Utilities Toolkit. Distributor acknowledges that the
------------------------------------
Utilities Toolkit, including, without limitation, the Utilities Software,
contains confidential and proprietary information of Adobe and is subject to
trade secret and other intellectual property protection. Distributor also
recognizes that during the course of dealings with Adobe, Distributor may be
exposed to other confidential and proprietary information of Adobe. Distributor
agrees to hold such trade secrets, proprietary and confidential information of
Adobe, including, without limitation, the Utilities Software, ("Adobe
Confidential Information") in strict confidence and not to disclose it to any
persons except as permitted in this section. Distributor may disclose such Adobe
Confidential Information to its employees who have agreed in writing to be bound
by this provision, to the extent necessary for the development by Distributor of
Linking Programs, Distributor agrees to instruct all such employees not to
disclose the Adobe Confidential Information to other employees of Distributor or
to third parties and that the Adobe Confidential Information may only be used
for the purposes authorized in this Agreement.
25. Patents. Nothing contained herein or in the Agreement shall be construed as
-------
conferring by implication, estoppel or otherwise any license or right under any
patent, whether or not the exercise of any right herein granted necessarily
employs an invention of any existing or later issued patent. Notwithstanding the
above, Adobe agrees that Distributor and end users of Listed Products shall have
the right to exercise all rights expressly granted pursuant to this Agreement.
As used herein, "Distributor Patent Right" means any right arising under any
United States or foreign patent or patent application now owned by, later issued
or assigned to, Distributor where the Utilities Toolkit contributed to the
making of the
<PAGE>
patented invention, including any addition, continuation, continuation-in-part
or division thereof or any substitute application therefore; any reissues,
extension or patent term extension of any such patent, and any confirmation
patent or registration patent of addition based on any such patent or any
inventor's certificate containing such claims. Distributor agrees that neither
it nor its successors or assigns will (i) assert any Distributor Patent Right
against Adobe, (ii) assert any Distributor Patent Right against Adobe's
sublicensees or customers who have, directly or indirectly, purchased or
licensed products from Adobe or its sublicensees, or (iii) require any fee or
royalty from Adobe or such entities based upon any Distributor Patent Right.
26. TERMINATION OF PRIOR AGREEMENTS. The utilities License Agreement and the
Reproduction Licensing Agreement (the "Prior Agreements") are hereby terminated
and at no further force or effect, provided that all causes of action for
breaches or other matters arising under the Prior Agreements prior to this
termination shall not be extinguished by this termination and the remedies for
such breaches, where applicable shall be as determined and limited by the Prior
Agreements, and provided further that all royalties for Plulg-Ins accruing to
Adobe under the Reproduction Licensing Agreement prior to the date of this
Appendix shall be paid under the terms of the Reproduction License Agreement.
IN WITNESS WHEREOF, Distributor and Adobe have caused this Appendix to be
executed by their duly authorized representatives.
ADOBE: DISTRIBUTOR:
ADOBE SYSTEMS INCORPORATED DATA TRANSLATION, INC.
John H. Brandon Steven Shea
- ------------------------------- ---------------------------------
Authorized Signature Authorized Signature
John H. Brandon Steven Shea
- ------------------------------- ---------------------------------
Printed Name Printed Name
Vice President Controller
- ------------------------------- ---------------------------------
Title Title
2 May 1996 April 18, 1996
- ------------------------------- ---------------------------------
Date Date
<PAGE>
EXHIBIT A
---------
PLUG-INS
The standard set of plug-ins that ship with Adobe Premiere.
<PAGE>
EXHIBIT B
---------
MINIMUM TERMS OF END USER LICENSE AGREEMENTS
The structure and organization of Distributor's Products (and underlying
algorithms and ideas) are valuable trade secrets of Distributor licensed to you
on a non-exclusive basis. You agree to hold such trade secrets in confidence.
You further agree not to translate, disassemble, decompile or reverse engineer
Distributor's Products in whole or in part.
DISTRIBUTORS'S SUPPLIERS DO NOT AND CANNOT WARRANT THE PERFORMANCE OR RESULTS
YOU MAY OBTAIN BY USING DISTRIBUTOR'S PRODUCTS OR DOCUMENTATION. DISTRIBUTOR'S
SUPPLIERS MAKE NO WARRANTIES EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT OF THIRD PARTY RIGHTS, OR
FITNESS FOR ANY PARTICULAR PURPOSE.
IN NO EVENT WILL DISTRIBUTOR'S SUPPLIERS BE LIABLE TO YOU FOR ANY CONSEQUENTIAL,
INCIDENTAL OR SPECIAL DAMAGES, OR ANY LOST DATA, LOST PROFITS OR OTHER
COMMERCIAL LOSS, EVEN IF A REPRESENTATIVE OF SUCH SUPPLIERS HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY PARTY.
If this product is acquired under the terms of a: GSA contract: Use,
------------
reproduction or disclosure is subject to the restrictions set forth in the
applicable ADP Schedule contract. DoD contract: Use, duplication or disclosure
------------
by the Government is subject to restrictions as set forth in subparagraph (?)
(1)(?) of 252.227-7013. Civilian agency contract: Use, reproduction, or
------------------------
disclosure is subject to 52.227-19 (a) through (d) and restrictions set forth in
the accompanying end user agreement. Unpublished-rights reserved under the
copyright laws of the United States.
<PAGE>
EXHIBIT C
---------
REPRODUCTION LOCATION
U.S. Optical Disc Inc.
One Eagle Drive
Sandord, ME 04073-1124
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 8,287,000
<SECURITIES> 28,241,000
<RECEIVABLES> 15,803,000
<ALLOWANCES> 545,000
<INVENTORY> 7,595,000
<CURRENT-ASSETS> 62,496,000
<PP&E> 24,032,000
<DEPRECIATION> 19,143,000
<TOTAL-ASSETS> 67,815,000
<CURRENT-LIABILITIES> 14,106,000
<BONDS> 0
0
0
<COMMON> 80,000
<OTHER-SE> 53,626,000
<TOTAL-LIABILITY-AND-EQUITY> 67,815,000
<SALES> 47,074,000
<TOTAL-REVENUES> 47,074,000
<CGS> 24,397,000
<TOTAL-COSTS> 24,397,000
<OTHER-EXPENSES> 20,341,000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 71,000
<INCOME-PRETAX> 3,067,000
<INCOME-TAX> 595,000
<INCOME-CONTINUING> 2,472,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,472,000
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
