<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 June 2, 1995
OR
[ ] 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: 33-6885
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
California 77-0019522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1585 Charleston Road, Mountain View, California 94043-1225
(Address of principal executive offices)
(Zip Code)
(415) 961-4400
(Registrant's 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 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
SHARES OUTSTANDING
CLASS JUNE 2, 1995
----- ------------
Common stock, no par value 63,344,298
<PAGE>
TABLE OF CONTENTS
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits and Reports on Form 8-K 29
Signature 36
Summary of Trademarks 37
EXHIBITS
Exhibit 10.33 Sale of Rights under Software Development and
Acquisition Agreement By and Between Adobe
Systems Incorporated and Thomas Knoll and John
Knoll (confidential treatment granted)
Exhibit 11 Computation of Earnings per Common Share
Exhibit 27 Financial Data Schedules
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included under this item are as
follows:
Sequentially
Numbered
Financial Statement Description Page
- ------------------------------------------------------------------- ------------
- - Condensed Consolidated Statements of Income
Quarters Ended June 2, 1995 and May 27, 1994
and Six Months Ended June 2, 1995 and May 27, 1994 4
- - Condensed Consolidated Balance Sheets
June 2, 1995 and November 25, 1994 5
- - Condensed Consolidated Statements of Cash Flows
Six Months Ended June 2, 1995 and May 27, 1994 6
- - Notes to Condensed Consolidated Financial Statements 8
3
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
------------------------------- --------------------------
June 2 May 27 June 2 May 27
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing $ 45,081 $ 40,257 $ 91,395 $ 76,583
Application products 122,911 109,536 245,189 209,102
------------ ----------- ----------- -----------
Total revenue 167,992 149,793 336,584 285,685
Direct costs 30,804 27,894 63,555 53,899
------------ ----------- ----------- -----------
Gross margin 137,188 121,899 273,029 231,786
------------ ----------- ----------- -----------
Operating expenses:
Software development costs:
Research and development 26,494 23,486 52,862 45,184
Amortization of capitalized
software development
costs 2,595 4,152 5,155 6,773
Sales, marketing and
customer support 49,256 51,450 95,288 97,118
General and administrative 12,092 14,152 23,666 26,140
Write-off of acquired in-
process research and
development -- 3,045 -- 3,045
------------ ----------- ----------- -----------
Total operating expenses 90,437 96,285 176,971 178,260
------------ ----------- ----------- -----------
Operating income 46,751 25,614 96,058 53,526
Nonoperating income:
Interest, investment and
other income 7,098 1,839 12,274 3,868
------------ ----------- ----------- -----------
Income before income taxes 53,849 27,453 108,332 57,394
Provision for income taxes 19,947 10,147 40,080 20,995
------------ ----------- ----------- -----------
Net income $ 33,902 $ 17,306 $ 68,252 $ 36,399
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Net income per share $ .51 $ .28 $ 1.04 $ .59
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Shares used in computing net
income per share 66,324 61,768 65,343 61,529
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 2 November 25
1995 1994
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 129,339 $ 190,091
Short-term investments 314,025 210,269
Receivables 91,523 96,585
Inventories 6,339 9,619
Other current assets 9,547 7,837
Deferred income taxes 18,472 17,962
---------- ----------
Total current assets 569,245 532,363
Property and equipment 44,119 39,104
Other assets 86,782 45,561
Deferred income taxes 10,226 8,475
---------- ----------
$ 710,372 $ 625,503
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables $ 21,721 $ 30,840
Accrued expenses 82,549 79,000
Accrued restructuring costs 11,834 28,457
Income taxes payable 13,611 23,083
Deferred revenue 7,738 7,352
---------- ----------
Total current liabilities 137,453 168,732
---------- ----------
Put warrants 3,447 --
Shareholders' equity:
Preferred stock, no par value;
2,000,000 shares authorized; none issued -- --
Common stock, no par value;
200,000,000 shares authorized;
63,344,298 and 61,150,049 shares issued
and outstanding as of June 2, 1995,
and November 25, 1994, respectively 189,650 142,207
Unrealized gains (losses) on investments 1,480 (1,088)
Retained earnings 381,620 319,704
Cumulative foreign currency translation adjustments (3,278) (4,052)
---------- ----------
Total shareholders' equity 569,472 456,771
---------- ----------
$ 710,372 $ 625,503
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
June 2 May 27
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 68,252 $ 36,399
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock compensation expense 1,481 509
Depreciation and amortization 23,472 24,217
Deferred income taxes (2,252) (3,521)
Provision for losses on accounts receivable 817 437
Tax benefit from employee stock plans 16,775 5,192
Write-off of acquired in-process research
and development -- 3,045
Changes in operating assets and liabilities:
Receivables 3,833 (16,288)
Inventories 3,294 (119)
Other current assets (2,437) (2,900)
Trade and other payables (9,056) 442
Accrued expenses 1,779 8,963
Accrued restructuring costs (14,793) --
Income taxes payable (9,625) 1,298
Deferred revenue 312 (587)
---------- ----------
Net cash provided by operating activities 81,852 57,087
---------- ----------
Cash flows from investing activities:
Purchases of short-term investments (1,943,670) (643,221)
Maturities and sales of short-term investments 1,842,482 630,731
Acquisitions of property and equipment (15,151) (14,222)
Capitalization of software development costs -- (7,271)
Additions to other assets (54,538) (1,870)
Acquisitions, net of cash acquired -- (6,297)
---------- ----------
Net cash used for investing activities (170,877) (42,150)
---------- ----------
(Continued)
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
June 2 May 27
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ 46,265 $ 15,688
Proceeds from sales of put warrants -- 718
Repurchase of common stock (13,631) (6,630)
Payment of dividends (6,333) (4,561)
---------- ----------
Net cash provided by financing activities 26,301 5,215
---------- ----------
Effect of foreign currency exchange rates on
cash and cash equivalents 1,972 179
---------- ----------
Net increase (decrease) in cash and cash equivalents (60,752) 20,331
Adjustment for change in Aldus Corporation
fiscal year-end -- (3,554)
Cash and cash equivalents at beginning of period 190,091 134,039
---------- ----------
Cash and cash equivalents at end of period $ 129,339 $ 150,816
---------- ----------
---------- ----------
Supplemental disclosures:
Cash paid during the period for income taxes $ 32,023 $ 14,945
---------- ----------
---------- ----------
Noncash investing and financing activities:
Dividends declared but not paid $ 3,185 $ 2,302
---------- ----------
---------- ----------
Reclassification of put warrants $ 3,447 $ 3,581
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated statements of income, balance
sheets and statements of cash flows reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the condensed
consolidated financial position at June 2, 1995, and the condensed consolidated
statements of income and cash flows for the interim periods ended June 2, 1995
and May 27, 1994.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not include all information and footnotes necessary for a complete presentation
of the results of operations, the financial position, and cash flows, in
conformity with generally accepted accounting principles. The Company filed
audited consolidated financial statements which included all information and
footnotes necessary for such a presentation of the results of operations,
financial position, and cash flows for the years ended November 25, 1994,
November 26, 1993 and November 27, 1992, in the Company's 1994 Annual Report on
Form 10-K.
The results of operations for the interim period ended June 2, 1995, are not
necessarily indicative of the results to be expected for the full year.
8
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 2.
MERGER WITH ALDUS CORPORATION
On August 31, 1994, the Company issued approximately 14.2 million shares of its
common stock in exchange for all of the common stock of Aldus Corporation
("Aldus"). This business combination has been accounted for as a pooling of
interests, and accordingly, the condensed consolidated financial statements for
the periods prior to the merger have been restated to include the results of
operations, the financial position and cash flows of Aldus.
Prior to the combination, Aldus' fiscal year ended on December 31. In recording
the business combination, Aldus' financial statements for the interim periods
ended May 27, 1994 were combined with the Company's for the same periods. Aldus'
financial statements for the year ended December 31, 1993 were combined with the
Company's for the year ended November 26, 1993. Revenue and net income for Aldus
for the month ended December 31, 1993 were $26.1 million and $4.4 million,
respectively. Net income, the foreign currency translation adjustment, the
issuance of common stock and the net increase in cash and cash equivalents were
adjusted to eliminate the effect of including Aldus' results of operations,
financial position and cash flows for the month ended December 31, 1993 in the
interim periods ended May 27, 1994 and the year ended November 26, 1993.
9
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 3.
RECEIVABLES
Receivables consisted of the following:
<TABLE>
<CAPTION>
June 2 November 25
1995 1994
---------- -----------
<S> <C> <C>
Trade receivables $ 56,638 $ 69,628
Royalty receivables 30,394 26,800
Interest and other receivables 8,334 3,410
---------- -----------
95,366 99,838
Less allowance for doubtful accounts 3,843 3,253
---------- -----------
$ 91,523 $ 96,585
---------- -----------
---------- -----------
</TABLE>
NOTE 4.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
June 2 November 25
1995 1994
---------- -----------
<S> <C> <C>
Land $ 782 $ 782
Building 4,615 4,615
Equipment 96,257 88,285
Furniture and fixtures 17,738 15,487
Leasehold improvements 7,902 4,146
---------- ----------
127,294 113,315
Less accumulated depreciation and amortization 83,175 74,211
---------- ----------
$ 44,119 $ 39,104
---------- ----------
---------- ----------
</TABLE>
10
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 5.
OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
June 2 November 25
1995 1994
---------- -----------
<S> <C> <C>
Licensing agreements $ 15,608 $ 15,565
Goodwill 22,034 22,034
Purchased technology 34,726 325
Software development costs 27,199 27,199
Miscellaneous other assets 36,528 16,123
---------- ----------
136,095 81,246
Less accumulated amortization 49,313 35,685
---------- ----------
$ 86,782 $ 45,561
---------- ----------
---------- ----------
</TABLE>
Unamortized software development costs were $4.3 million and $9.1 million at
June 2, 1995 and November 25, 1994, respectively. Amortization of software
development costs was $2.6 million and $4.2 million for the quarters ended June
2, 1995 and May 27, 1994, respectively, and $5.2 million and $6.8 million for
the six months ended June 2, 1995 and May 27, 1994, respectively.
NOTE 6.
ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
June 2 November 25
1995 1994
---------- -----------
<S> <C> <C>
Royalties $ 5,612 $ 10,824
Accrued compensation and benefits 20,558 17,039
Sales and marketing allowances 20,705 19,445
Miscellaneous accrued expenses 35,674 31,692
---------- -----------
$ 82,549 $ 79,000
---------- -----------
---------- -----------
</TABLE>
11
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 7.
ACCRUED RESTRUCTURING COSTS
On August 31, 1994, the Company merged with Aldus, described in "Note 2 --
Merger with Aldus Corporation," and initiated a plan to combine the operations
of the two companies. On this date, the Company recorded a $72.2 million charge
to operating expenses related to the merger transaction and restructuring costs.
Merger transaction costs consist principally of transaction fees for investment
bankers, attorneys, accountants, financial printing and other related charges.
Restructuring costs include the elimination of redundant information systems and
equipment, severance and outplacement of terminated employees, the write-off of
certain assets related to product lines to be divested or eliminated, and
cancellation of certain contractual agreements.
Activity in accrued restructuring costs is as follows:
<TABLE>
<CAPTION>
Six Months Ended June 2, 1995
Accrued as of ----------------------------- Accrued as of
November 25 Cash June 2
1994 Write-offs Payments 1995
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Merger transaction
costs $ 5,863 $ 168 $ 5,455 $ 240
Restructuring costs:
Severance and
outplacement 11,548 -- 7,320 4,228
Impaired assets and
cancellation of
facility leases 11,046 1,662 2,018 7,366
------------- ------------- ------------- --------------
$ 28,457 $ 1,830 $ 14,793 $ 11,834
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
The nature, timing and extent of restructuring costs follows:
SEVERANCE AND OUTPLACEMENT
As a result of the merger, certain technical support, customer service,
distribution and administrative functions were combined and reduced.
Restructuring included severance and outplacement charges related to
approximately 500 terminated employees. Affected employees had received
notification of their termination by September 9, 1994.
12
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 7.
ACCRUED RESTRUCTURING COSTS (CONTINUED)
IMPAIRED ASSETS AND CANCELLATION OF FACILITY LEASES
The Company plans to consolidate duplicate offices in Europe, Japan, Canada and
the United States. Lease payments resulting from the planned closure of these
facilities are expected to continue through the lease term or negotiated early
termination date, if applicable.
NOTE 8.
ACQUISITION OF ADOBE PHOTOSHOP-TM- TECHNOLOGY
On March 31, 1995, the Company entered into an agreement with the developers of
the technology underlying its Adobe Photoshop product under which the Company
obtained all rights to the technology for a lump sum payment of $34.5 million.
This transaction has been recorded on the balance sheet in other assets as part
of purchased technology. The purchased technology is being amortized over 36
months. Prior to this agreement, the Company paid the developers a royalty for
each copy of Adobe Photoshop sold by the Company.
NOTE 9.
SUBSEQUENT EVENT
On June 22, 1995, the Company and Frame Technology Corporation ("Frame")
announced a definitive agreement under which the Company will acquire Frame
through an exchange of common stock of the two companies. Frame, a California
corporation established in 1986, provides document creation, management and
distribution software for individuals and workgroups.
13
<PAGE>
ADOBE SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(CONTINUED)
NOTE 9.
SUBSEQUENT EVENT (CONTINUED)
Under the agreement, which has been approved by the Board of Directors of both
companies, the Company will exchange .52 shares of its common stock for each
share of Frame common stock. The acquisition is intended to qualify as a tax-
free reorganization and a pooling of interests for accounting purposes. This
transaction is subject to conditions customary for acquisitions of publicly-held
companies, including expiration or termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Securities and
Exchange Commission approval and approval by Frame's shareholders.
Assuming no adverse regulatory proceedings and that shareholder approval is
obtained, the Company expects the acquisition to be effective in the fourth
quarter of 1995.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION (PRESENTED IN MILLIONS, EXCEPT PER SHARE
AMOUNTS) SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
RESULTS OF OPERATIONS
OVERVIEW
Adobe develops, markets and supports computer software products and technologies
that enable users to create, display, print and communicate electronic
documents. The Company licenses its technology to major computer, printing and
publishing suppliers, and markets a line of application software and typeface
products for authoring visually rich documents. The Company has subsidiaries in
Europe and the Pacific Rim serving a worldwide network of dealers and
distributors.
In August 1994, the Company merged with Aldus Corporation ("Aldus"). Aldus began
operations in 1984 and created computer software solutions that help people
throughout the world effectively communicate information and ideas. Aldus
focused on three lines of business: applications for the professional print
publishing, graphics and prepress markets; applications for the general consumer
market; and applications for the interactive publishing market. To effect the
combination, approximately 14.2 million shares of Adobe's common stock were
issued in exchange for all of the outstanding common stock of Aldus. The merger
was accounted for by the pooling of interests method, and accordingly, all
interim financial information prior to the merger has been restated to combine
the results of the Company and Aldus.
REVENUE
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
TOTAL REVENUE $168.0 $149.8 12%
Six month period:
TOTAL REVENUE $336.6 $285.7 18%
</TABLE>
Revenue growth for the second quarter and six month periods was due to increases
in both licensing activity and shipments of application products. The
divestiture of FreeHand effective January 1, 1995, and the discontinuance of
PhotoStyler in late 1994, as further discussed below, partially offset the
revenue increase. Product unit volume (as opposed to price) growth was the
principal factor in the Company's revenue growth in application products
revenue.
15
<PAGE>
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
PRODUCT GROUP REVENUE -- LICENSING $45.1 $40.3 12%
Percentage of total revenue 26.8% 26.9%
Six month period:
PRODUCT GROUP REVENUE -- LICENSING $91.4 $76.6 19%
Percentage of total revenue 27.2% 26.8%
</TABLE>
Licensing revenue is derived from shipments by original equipment manufacturers
("OEM") of products containing the Adobe-TM- PostScript-TM- interpreter and the
Display PostScript-TM- system. Such products include printers in both Roman and
Japanese languages, imagesetters and workstations. Licensing revenue is also
derived from shipments of products containing the Configurable PostScript
Interpreter ("CPSI") by OEM customers. CPSI is a fully functional PostScript
interpreter that resides on the host computer system rather than in a dedicated
controller integrated into an output device. The configuration flexibility of
CPSI allows OEMs and software developers to create and market a variety of
PostScript products independently of controller hardware development.
The number of units shipped by OEMs continued to grow on a quarterly basis.
Royalty per unit is generally calculated as a percentage of the end user list
price of a printer, although there are some components of licensing revenue
based on a flat dollar amount per unit which typically do not change with list
price changes. Some OEMs continued to reduce list prices on their lower-end
printers, which resulted in lower royalties per unit on such printers. However,
in the second quarter and first six months of 1995, this trend was offset by
increased demand for CPSI and color capability, as well as increased penetration
into the Japanese market, all of which have higher royalties per unit.
The Company has seen year-to-year increases in the number of OEM customers from
which it is receiving licensing revenue, demonstrating continued acceptance of
PostScript software, as well as reflecting a diversification of the Company's
customer base across Macintosh, IBM PC and compatibles, and multiple platform
markets.
16
<PAGE>
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
PRODUCT GROUP REVENUE --
APPLICATION PRODUCTS $122.9 $109.5 12%
Percentage of total revenue 73.2% 73.1%
Six month period:
PRODUCT GROUP REVENUE --
APPLICATION PRODUCTS $245.2 $209.1 17%
Percentage of total revenue 72.8% 73.2%
</TABLE>
Application products revenue is derived from shipments of application software
programs through retail and distribution channels; however, the information
products are becoming more widely distributed through VARs and systems
integrators.
During the second quarter and first six months of 1995, application products
revenue grew primarily due to increased demand for Adobe Photoshop-TM-, the
Company's image editing product. In the first quarter of 1995, the Company
released Adobe Premiere-TM- 4.0 for the Windows platform and the Adobe
PageMaker-TM- Enhancement Package Volume 2 for both Macintosh and Windows
platforms. The enhancement package is designed to update Adobe PageMaker
features between major releases. In addition, the Company released Japanese
versions of several of its products during the first quarter of 1995, including
Adobe Premiere 4.0 and Adobe Persuasion-TM- 3.0 for the Macintosh, and Adobe
Photoshop 3.0 for the Windows platform. Continued strong demand for these
releases as well as for versions of Adobe Illustrator-TM-, Adobe Photoshop and
Adobe Premiere for the Macintosh platform released in the second half of fiscal
1994 all contributed to the increased revenue from application products. The
second quarter and first six months of 1994 include revenue from FreeHand, which
was divested effective January 1, 1995, and PhotoStyler, which was discontinued
in late 1994. These two products aggregated revenue of $16.1 million and $30.4
million in the second quarter and first six months of 1994, respectively.
17
<PAGE>
DIRECT COSTS
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
DIRECT COSTS $30.8 $27.9 10%
Percentage of total revenue 18.3% 18.6%
Six month period:
DIRECT COSTS $63.6 $53.9 18%
Percentage of total revenue 18.9% 18.9%
</TABLE>
Direct costs include royalties; amortization of acquired technologies; and
direct product, packaging and shipping costs. During 1994, direct costs also
included amortization of typeface production costs, which totaled $1.5 million
and $2.6 million in the second quarter and first six months of 1994,
respectively.
Gross margins are affected by the mix of licensing revenue versus application
products revenue, as well as the product mix within application products. In the
second quarter and first half of 1995, direct costs remained relatively constant
as a percentage of total revenue while the revenue mix between licensing and
application products changed only slightly.
The Company also delivers its type library on its Type On Call-TM- CD-ROM media,
and end users wishing to license typeface designs call the Company with a credit
card number to receive the unlocking code for the desired typeface. This method
of delivery also contributes to reduced direct costs. Other applications are
also available through the Company's distributors on CD-ROM.
On March 31, 1995, the Company entered into an agreement with the developers of
the technology underlying its Adobe Photoshop product under which the Company
obtained all rights to the technology for a lump sum payment of $34.5 million.
This transaction has been recorded on the balance sheet in other assets as part
of purchased technology. The purchased technology is being amortized over 36
months. Prior to this agreement, the Company paid the developers a royalty for
each copy of Adobe Photoshop sold by the Company. The Company expects that the
amortization expense related to the purchased technology will not exceed the
per-copy royalty expense which would otherwise have been incurred.
18
<PAGE>
OPERATING EXPENSES
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
SOFTWARE DEVELOPMENT COSTS --
RESEARCH AND DEVELOPMENT $26.5 $23.5 13%
Percentage of total revenue 15.8% 15.7%
Six month period:
SOFTWARE DEVELOPMENT COSTS --
RESEARCH AND DEVELOPMENT $52.9 $45.2 17%
Percentage of total revenue 15.7% 15.8%
</TABLE>
Research and development expenses consist principally of salaries and benefits
for software developers, contracted development efforts, related facilities
costs, and expenses associated with computer equipment used in software
development.
Research and development expense has increased in absolute dollars as the
Company invested in new technologies, new product development and the
infrastructure to support such activities. The increase reflects the expansion
of the Company's engineering staff and related costs required to support its
continued emphasis on developing new products and enhancing existing products.
Many of these engineers are working with OEM customers to design and implement
PostScript Level 2 devices. The Company continues to work with many of its OEM
customers in a co-development program. This allows customers to be more self-
sufficient in new device development by taking on more of the implementation
task themselves rather than relying so heavily on the Company's engineers. While
this mitigates certain costs, the Company continues to make significant
investments in development of its PostScript and application software products.
The Company believes that continued investments in research and development are
necessary to remain competitive in the marketplace, and are directly related to
continued, timely development of new and enhanced products. The Company intends
to continue recruiting and hiring experienced software developers, but expects
that research and development expenditures for all of 1995 will approximate
current spending levels as a percentage of revenue.
19
<PAGE>
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
SOFTWARE DEVELOPMENT COSTS --
AMORTIZATION OF CAPITALIZED
SOFTWARE DEVELOPMENT COSTS $2.6 $4.2 -38%
Percentage of total revenue 1.5% 2.8%
Six month period:
SOFTWARE DEVELOPMENT COSTS --
AMORTIZATION OF CAPITALIZED
SOFTWARE DEVELOPMENT COSTS $5.2 $6.8 -24%
Percentage of total revenue 1.5% 2.4%
</TABLE>
In the implementation of Statement of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," software development expenditures on Adobe products, after
achieving technological feasibility, were deemed to be immaterial. Certain
software development expenditures on Aldus products have been capitalized and
are being amortized over the lives of the respective products. In the second
quarter and first six months of 1995, software development expenditures on all
products, after reaching technological feasibility, were immaterial and the
Company anticipates that this trend will continue in the future. Accordingly,
1995 will reflect the expense of amortizing software development costs acquired
in connection with the Company's merger with Aldus in addition to the actual
development expenditures (classified as research and development) made prior to
achieving technological feasibility.
It is expected that amortization of software development costs will decrease
both in absolute dollars and as a percentage of total revenue during 1995 as
these costs become fully amortized.
20
<PAGE>
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
SALES, MARKETING AND
CUSTOMER SUPPORT $49.3 $51.5 -4%
Percentage of total revenue 29.3% 34.3%
Six month period:
SALES, MARKETING AND
CUSTOMER SUPPORT $95.3 $97.1 -2%
Percentage of total revenue 28.3% 34.0%
</TABLE>
Sales, marketing and customer support expenses generally include salaries and
benefits, sales commissions, travel expenses and related facilities costs for
the Company's sales, marketing, customer support and distribution personnel.
Sales, marketing and customer support expenses also include the costs of
programs aimed at increasing revenues, such as advertising, trade shows and
other market development programs.
Sales, marketing and customer support expenses decreased for the second quarter
and first six months of 1995 compared with the same periods of 1994. These
decreases reflect the timing of product release schedules as well as reduced
costs resulting from the restructuring of the combined company following the
merger with Aldus.
Continuing efforts to expand markets and increase penetration into targeted
software markets, as well as increasing competition in the software industry are
expected to cause sales, marketing and customer support expenditures for all of
1995 to approximate 1994 spending levels in absolute dollars.
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
GENERAL AND ADMINISTRATIVE $12.1 $14.2 -15%
Percentage of total revenue 7.2% 9.4%
Six month period:
GENERAL AND ADMINISTRATIVE $23.7 $26.1 -9%
Percentage of total revenue 7.0% 9.1%
</TABLE>
General and administrative expenses consist principally of salaries and
benefits, travel expenses, and related facility costs for the finance, human
resources, legal, information services and administrative personnel of the
Company. General and administrative expenses also include outside legal and
accounting fees, bad debts and expenses associated with computer equipment and
software used in the administration of the business.
21
<PAGE>
In the second quarter and first six months of 1995, general and administrative
expenses reflect savings related to the restructuring of the combined company
after the merger with Aldus. The Company expects general and administrative
spending to be a lower percentage of revenue for all of 1995 than was achieved
in 1994, although the percentage is expected to increase over that of the first
half of 1995.
NONOPERATING INCOME
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
INTEREST, INVESTMENT AND
OTHER INCOME $ 7.1 $1.8 286%
Percentage of total revenue 4.2% 1.2%
Six month period:
INTEREST, INVESTMENT AND
OTHER INCOME $12.3 $3.9 217%
Percentage of total revenue 3.6% 1.4%
</TABLE>
The increase in interest, investment and other income is primarily due to
generally higher interest rates and a larger investment base. In 1995, the
Company has increased the weighted average days-to-maturity of its investments,
which has generated higher rates of return, and, in addition, has placed more of
its invested cash in higher-yielding taxable securities because it has become
beneficial to do so on an after-tax basis.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
PROVISION FOR INCOME TAXES $19.9 $10.1 97%
Percentage of total revenue 11.9% 6.8%
Effective tax rate 37.0% 37.0%
Six month period:
PROVISION FOR INCOME TAXES $40.1 $21.0 91%
Percentage of total revenue 11.9% 7.3%
Effective tax rate 37.0% 36.6%
</TABLE>
The Company's effective tax rate was slightly higher in the first six months of
1995 compared with 1994 due to a decrease in research and development tax
credits and lower tax exempt investment earnings in the current year.
22
<PAGE>
NET INCOME AND NET INCOME PER SHARE
<TABLE>
<CAPTION>
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
Second quarter period:
NET INCOME $33.9 $17.3 96%
Percentage of total revenue 20.2% 11.6%
NET INCOME PER SHARE $0.51 $0.28 82%
Weighted shares (In thousands) 66,324 61,768
Six month period:
NET INCOME $68.3 $36.4 88%
Percentage of total revenue 20.3% 12.7%
NET INCOME PER SHARE $1.04 $0.59 76%
Weighted shares (In thousands) 65,343 61,529
</TABLE>
Net income for the second quarter of 1995 increased 96% from the second quarter
of 1994. Earnings per share were $.51, an 82% increase from the second quarter
of 1994. Net income for the six months ended June 2, 1995 increased 88% over the
same period in 1994 and earnings per share increased 76% for the same period.
The increase in earnings per share was caused by increased revenue, lower
expense levels as a percentage of revenue and a relatively constant tax rate.
ANNOUNCED ACQUISITION OF FRAME TECHNOLOGY CORPORATION
On June 22, 1995, the Company and Frame Technology Corporation ("Frame")
announced a definitive agreement under which the Company will acquire Frame
through an exchange of common stock of the two companies. Frame, a California
corporation established in 1986, provides document creation, management and
distribution software for individuals and workgroups.
Under the agreement, which has been approved by the Board of Directors of both
companies, the Company will exchange .52 shares of its common stock for each
share of Frame common stock. The acquisition is intended to qualify as a tax-
free reorganization and a pooling of interests for accounting purposes. This
transaction is subject to conditions customary for acquisitions of publicly-held
companies, including expiration or termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Securities and
Exchange Commission approval and approval by Frame's shareholders.
Assuming no adverse regulatory proceedings and that shareholder approval is
obtained, the Company expects the acquisition to be effective in the fourth
quarter of 1995.
23
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company believes that in the future its results of operations could be
impacted by factors such as the ability of the Company to integrate Adobe, Aldus
and Frame product lines, renegotiation of royalty arrangements, delays in
shipment of the Company's new products and major new versions of existing
products, market acceptance of new products and upgrades, growth in worldwide
personal computer and printer sales and sales price adjustments, consolidation
in the OEM printer business, and adverse changes in general economic conditions
in any of the countries in which the Company does business.
In connection with the acquisition of Frame, the Company intends to seek to
reduce expenses by the elimination of duplicate or unnecessary facilities,
employees, marketing programs and other expenses. There can be no assurance that
the Company will be able to reduce expenses in this fashion, that there will not
be high costs associated with such activities, that such reductions will not
result in a decrease in revenue or that there will not be other material adverse
effects of the Company's integration efforts. Such effects could materially
reduce the earnings of the combined company. The Company will incur estimated
merger transaction costs of approximately $13.5 million related to the
acquisition, which will be charged to operations in the fourth quarter of 1995.
In addition, the Company expects to incur a restructuring charge during the
fourth quarter of 1995, currently estimated to be in the range of $15.0 million
to $25.0 million, to reflect the costs associated with combining the two
companies, including severance and outplacement costs and the elimination of
duplicate facilities (including cancellation of leases). These amounts are
preliminary estimates only and are therefore subject to change. In addition,
there can be no assurance that the Company will not incur additional charges in
subsequent quarters to reflect costs associated with the acquisition.
In connection with the merger with Aldus, the Company has sought to reduce
combined expenses by the elimination of duplicate or unnecessary facilities,
employees, marketing programs and other expenses. The Company believes that the
major impact of such reductions occurred in the fourth quarter of 1994 but
experienced some additional impact in the first half of 1995. The Company
expects that these reductions will benefit future operating results, but the
reductions could adversely impact the earnings of the combined company. In
addition, there can be no assurance that the integration of the product lines of
the two companies will not have a material adverse effect on the results of
operations.
As previously stated, effective January 1, 1995, the Company no longer markets
FreeHand and discontinued marketing PhotoStyler in late 1994. These two products
aggregated $53.2 million of revenue and $35.4 million of gross profit in fiscal
year 1994. There can be no assurance that the Company will be able to continue
to replace this lost revenue or that it will be able to do so as profitably.
The Company's OEM customers on occasion seek to renegotiate their royalty
arrangements. The Company evaluates these requests on a case-by-case basis. If
an agreement is not reached, a customer may decide to pursue other options,
including licensing a PostScript language compatible interpreter from a third
party, which could result in lower licensing revenue for the Company.
24
<PAGE>
With the acquisition of Aldus, the Company derives a larger portion of its
revenue from its subsidiaries located in Europe and the Pacific Rim. While most
of the revenue of these subsidiaries is denominated in U.S. dollars, the
majority of their expense transactions are denominated in foreign currencies. As
a result, the Company's operating results are subject to fluctuations in foreign
currency exchange rates. To date, the Company has not engaged in any significant
activities to hedge its exposure to foreign currency exchange rate fluctuations.
The Company's ability to develop and market products, including upgrades of
currently shipping products, that successfully adapt to current market needs may
also have an impact on the results of operations. A portion of the Company's
future revenue will come from these products. Delays in such introductions could
have an adverse effect on the Company's revenue, earnings or stock price. The
Company cannot determine the ultimate effect that these new products or upgrades
will have on its sales or results of operations.
Due to the factors noted above, the Company's future earnings and stock price
may be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in any given period. Additionally, the Company may
not learn of such shortfalls until late in the fiscal quarter, which could
result in an even more immediate and adverse effect on the trading price of the
Company's common stock. Finally, the Company participates in a highly dynamic
industry, which often results in significant volatility of the Company's common
stock price.
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
June 2 November 25
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
CASH, CASH EQUIVALENTS AND
SHORT-TERM INVESTMENTS $443.4 $400.4 11%
</TABLE>
The Company's cash balances and short-term investments have increased each year
due to profitable operations, partially offset by expenditures for capital
outlays and other investments. Cash equivalents consist of highly liquid money
market instruments. Certain cash equivalents and all of the Company's short-
term investments, consisting principally of municipal bonds, commercial paper,
auction rate securities, United States government and government agency
securities and asset-backed securities, are classified as available-for-sale
under the provisions of SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The securities are carried at fair value with the
unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. The Company does not invest in securities which involve a
high degree of risk or complexity.
25
<PAGE>
NONCURRENT LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 2 November 25
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
NONCURRENT LIABILITIES AND
SHAREHOLDERS' EQUITY $572.9 $456.8 25%
</TABLE>
Included above are put warrants and shareholders' equity. The Company has no
long-term debt.
The Board of Directors of the Company declared a cash dividend on the Company's
common stock of $.05 per common share on June 21, 1995, for the second quarter
of 1995. The dividend will be for shareholders of record as of July 7, 1995, and
will be paid on July 21, 1995. The declaration of future dividends is within
the discretion of the Board of Directors of the Company and will depend upon
business conditions, results of operations, the financial condition of the
Company and other factors.
Under its stock repurchase program, the Company repurchased 364,003 shares at a
cost of $13.6 million in the first six months of 1995. These share repurchases
are intended to fund the employee stock purchase and stock option plans.
Additional repurchases of the Company's common stock in the open market to
provide shares for issuance under its stock plans will continue subsequent to
the completion of the announced acquisition of Frame.
WORKING CAPITAL
<TABLE>
<CAPTION>
June 2 November 25
1995 1994 Change
---------- ----------- -----------
<S> <C> <C> <C>
WORKING CAPITAL $431.8 $363.6 19%
</TABLE>
Net working capital grew to $431.8 million as of June 2, 1995, compared to
$363.6 million as of November 25, 1994. Cash flow provided by operations during
the first six months of 1995 was $81.9 million. Expenditures for property and
equipment totaled $15.2 million. Such expenditures are expected to continue,
including computer systems for development, sales and marketing, product
support, and administrative staff.
In the future, cash may be used to acquire technology, or to invest in companies
owning key technologies, where appropriate. On March 31, 1995, the Company
entered into an agreement with the developers of the technology underlying its
Adobe Photoshop product to obtain that technology for a lump sum payment of
$34.5 million (see Note 8--Acquisition of Adobe Photoshop Technology).
Net cash provided by financing activities during the first six months of 1995
was $26.3 million; $46.3 million was provided by proceeds from issuance of
common stock; $13.6 million was used to repurchase common stock; and $6.3
million was used to pay cash dividends.
26
<PAGE>
The Company's principal commitments as of June 2, 1995, consisted of obligations
under operating leases for facilities, a real estate development agreement and
various service and lease guarantee agreements with a related party. The Company
has entered into a real estate development agreement for the construction of an
office facility and in 1996 will enter into an operating lease agreement for
this facility. The Company will have the option to purchase the facility at the
end of the lease term. In the event the Company chooses not to exercise this
option, the Company is obligated to arrange the sale of the facility to an
unrelated party and is required to pay the lessor any difference between the
net sales proceeds and the lessor's net investment in the facility, in an amount
not to exceed that which would preclude classification of the lease as an
operating lease, approximately $52.0 million. The Company also is required,
periodically during the construction period, to deposit funds with the lessor to
secure the performance of its obligations under the lease and as of June 2,
1995, the Company had deposited approximately $11.7 million in time deposit
securities. The Company has also entered into various agreements with McQueen
Holdings Limited ("McQueen"), a European operating entity, whereby the Company
has agreed to guarantee obligations under operating leases for certain European
facilities utilized by McQueen, and to guarantee certain levels of business
between Adobe and McQueen. The Company currently owns approximately 16 percent
of the outstanding stock in McQueen.
The Company believes that existing cash, cash equivalents and short-term
investments, together with cash generated from operations, will provide
sufficient funds for the Company to meet its operating cash requirements in the
foreseeable future.
27
<PAGE>
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on April 5, 1995.
A proposal to elect four (4) Class II directors of the Company to serve for a
two-year term expiring at the Annual Meeting of Shareholders in 1997 was
approved by shareholders. This proposal received the following votes:
For Withheld
--------------- -------------
John E. Warnock 56,773,929 368,152
Robert Sedgewick 56,771,446 370,635
William J. Spencer 56,771,446 370,635
Gene P. Carter 56,774,010 368,071
Incumbent Class I directors Charles M. Geschke, William R. Hambrecht, Delbert W.
Yocam and Paul Brainerd are currently serving for a term expiring at the Annual
Meeting of Shareholders in 1996.
Also, a proposal to amend the Company's Restricted Stock Option Plan increasing
the number of shares reserved for issuance under the Plan from 250,000 to
500,000, increasing the number of shares subject to options automatically
granted each year to non-employee directors and available to be granted to a
consultant from 7,500 to 10,000 and increasing the number of shares subject to
options automatically granted to a new non-employee director upon joining the
Board from 7,500 to 15,000 was approved by shareholders. This proposal received
the following votes:
For: 38,647,703
Against: 16,857,197
Abstain: 376,844
In addition, shareholders ratified the appointment of KPMG Peat Marwick LLP as
independent public accountants of the Company for fiscal 1995. This proposal
received the following votes:
For: 56,931,886
Against: 78,153
Abstain: 132,042
Broker non-votes are included in the determination of the number of shares
present and voting for purposes of determining the presence of a quorum at the
Company's annual meeting of shareholders. They are not, however, counted for
purposes of determining the number of votes cast for a proposal.
28
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
<TABLE>
<CAPTION>
Sequentially Incorporated by Reference
Exhibit Numbered -----------------------------
Number Exhibit Description Page Form Date Number
-------- ------------------------------ ------------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
10.1 1984 Stock Option Plan N/A S-1 07/01/86 10.1
10.1.1 1984 Stock Option Plan, N/A 10-K 11/30/87 10.1.1
as amended
10.1.2 1984 Stock Option Plan, N/A 10-K 11/30/88 10.1.2
as amended
10.1.3 1984 Stock Option Plan, N/A 10-K 11/30/89 10.1.3
as amended
10.1.4 1984 Stock Option Plan, N/A 10-K 11/30/90 10.1.4
as amended
10.1.5 1984 Stock Option Plan, N/A 10-K 11/27/92 10.1.5
as amended
10.1.6 1984 Stock Option Plan, N/A 10-Q 07/02/93 10.1.6
as amended
10.1.7 1994 Stock Option Plan N/A 10-Q 07/06/94 10.1.7
10.2 Common Stock Purchase N/A S-1 07/01/86 10.2
Agreement of John E.
Warnock dated December
29, 1982, and, as amended
November 30, 1983
10.3 Common Stock Purchase N/A S-1 07/01/86 10.3
Agreement of Charles M.
Geschke dated December
29, 1982, and, as amended
November 30, 1983
10.4 Common Stock Purchase N/A S-1 07/01/86 10.4
Agreement of Q.T. Wiles
dated December 29, 1982
10.5 Common Stock Purchase N/A S-1 07/01/86 10.5
Agreement of David Evans
dated December 29, 1982
</TABLE>
(Continued)
29
<PAGE>
a) Index to Exhibits (Continued)
<TABLE>
<CAPTION>
Sequentially Incorporated by Reference
Exhibit Numbered -----------------------------
Number Exhibit Description Page Form Date Number
-------- ------------------------------ ------------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
10.6 Common Stock Purchase N/A S-1 07/01/86 10.6
Agreement of William
Hambrecht dated December
29, 1982
10.7 Exchange Agreement N/A S-1 07/01/86 10.7
dated December 29,
1983, for John E.
Warnock
10.8 Exchange Agreement N/A S-1 07/01/86 10.8
dated December 29,
1983, for Charles M.
Geschke
10.9 Form of Shareholders N/A S-1 07/01/86 10.9
Exchange Agreement used
in connection with the
exchange of shares of Old
Adobe for shares of the
Company
10.10 Form of Agreement for N/A S-1 07/01/86 10.10
Assignment of Limited
Partnership Interest used
in connection with exchange
of limited partnership
interests in Adobe Systems
Limited, a California limited
partnership, for shares of the
Series B Preferred Stock of
the Company
10.11 Registration Rights N/A S-1 07/01/86 10.11
Agreement dated December
29, 1983
10.12 Old Adobe's 1983 Stock N/A S-1 07/01/86 10.12
Purchase Plan and the
Company's 1984 Stock
Purchase Plan with standard
form of Stock Purchase
Agreement
10.12.1 1988 Employee Stock N/A 10-Q 07/06/94 10.12.1
Purchase Plan, as amended
</TABLE>
(Continued)
30
<PAGE>
a) Index to Exhibits (Continued)
<TABLE>
<CAPTION>
Sequentially Incorporated by Reference
Exhibit Numbered -----------------------------
Number Exhibit Description Page Form Date Number
-------- ------------------------------ ------------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
10.13 Form of Employee N/A S-1 07/01/86 10.13
Common Stock Purchase
Agreement dated July 23,
1984
10.14 Warrant to Purchase Series N/A S-1 07/01/86 10.14
C Preferred Stock to Apple
Computer, Inc., dated
November 26, 1984, with
executed subscription form
dated November 28, 1984
10.15 Warrant to Purchase N/A S-1 07/01/86 10.15
Series C Preferred Stock
to Evans & Sutherland
Computer Corporation
dated April 25, 1984,
with executed subscription
form dated June 19, 1986
10.16 License Agreement N/A S-1 07/01/86 10.16
between the Company
and Evans & Sutherland
Computer Corporation
dated April 25, 1984
10.17 License Agreement N/A S-1 07/01/86 10.17
between the Company and
Apple Computer, Inc., dated
November 12, 1985
(confidential treatment
granted)
10.17.1 License Agreement N/A 10-K 11/30/88 10.17.1
Restatement between the
Company and Apple
Computer, Inc., dated April
1, 1987 (confidential
treatment granted)
</TABLE>
(Continued)
31
<PAGE>
(a) Index to Exhibits (Continued)
<TABLE>
<CAPTION>
Sequentially Incorporated by Reference
Exhibit Numbered -----------------------------
Number Exhibit Description Page Form Date Number
-------- ------------------------------ ------------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
10.17.2 Amendment No. 1 to the N/A 10-K 11/30/90 10.17.2
License Agreement
Restatement between the
Company and Apple
Computer, Inc., dated
November 27, 1990
(confidential treatment
granted).
10.18 Lease Agreement dated N/A S-1 07/01/86 10.18
November 11, 1983,
between Mozart Family
Trust and Epson America
Inc.
10.19 Assignment of Lease N/A S-1 07/01/86 10.19
dated November 11, 1983,
between Epson America
Inc. and the Company
dated February 1, 1986
10.20 Lease Agreement N/A S-1 07/01/86 10.20
between Mozart Family
Trust and the Company
dated November 30, 1983
10.21 Bonus Plans N/A S-1 07/01/86 10.21
10.21.1 Revised Bonus Plan N/A 10-K 11/27/92 10.21.1
10.21.2 Revised Bonus Plan N/A 10-K 11/26/93 10.21.2
10.22 Restricted Stock Option N/A 10-K 11/30/87 10.22
Plan
10.22.1 Restricted Stock Option N/A 10-K 11/30/89 10.22.1
Plan, as amended
10.22.2 Restricted Stock Option N/A 10-K 11/30/90 10.22.2
Plan, as amended
10.22.3 Restricted Stock Option N/A 10-K 11/29/91 10.22.3
Plan, as amended
10.22.4 Restricted Stock Option N/A 10-Q 07/06/94 10.22.4
Plan, as amended
</TABLE>
(Continued)
32
<PAGE>
(a) Index to Exhibits (Continued)
<TABLE>
<CAPTION>
Sequentially Incorporated by Reference
Exhibit Numbered -----------------------------
Number Exhibit Description Page Form Date Number
-------- ------------------------------ ------------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
10.23 Amended and Restated N/A 10-K 11/30/88 10.23
Software License Agree-
ment between the Company
and QMS, Inc., dated May
15, 1987 (confidential
treatment granted)
10.24 1989 Restricted Stock Plan N/A 10-K 11/30/88 10.24
10.24.1 1994 Performance and N/A S-4 07/27/94 10.1
Restricted Stock Plan
10.25 Form of Indemnity Agree- N/A 10-K 11/30/88 10.25
ment
10.26 Lease Agreement by and N/A 10-K 11/30/88 10.26
between Charleston Place
Associates and Adobe
Systems Incorporated dated
April 14, 1987
10.26.1 Amendment One to Lease N/A 10-K 11/30/88 10.26.1
Agreement dated March 1,
1988
10.26.2 Amendment Two to Lease N/A 10-K 11/30/88 10.26.2
Agreement dated
September 1, 1988
10.27 Lease Agreement by and N/A 10-K 11/30/88 10.27
between John Mozart and
Adobe Systems
Incorporated dated July
20, 1988
10.28 Limited Partnership N/A 10-K 11/29/91 10.28
Agreement of University
Circle Building I, Ltd.,
dated May 22, 1991
10.29 University Centre N/A 10-K 11/29/91 10.29
Building I Lease Agree-
ment dated May 22, 1991
10.30 University Circle N/A 10-K 11/27/92 10.30
Termination and Security
Agreement and Mutual
Release dated January 7,
1993
</TABLE>
(Continued)
33
<PAGE>
(a) Index to Exhibits (Continued)
<TABLE>
<CAPTION>
Sequentially Incorporated by Reference
Exhibit Numbered -----------------------------
Number Exhibit Description Page Form Date Number
-------- ------------------------------ ------------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
10.31 Restated Agreement and N/A S-4 07/13/94 10.31
and Plan of Merger and
Reorganization By and
Among Adobe Systems
Incorporated, P Acquisition
Corp and Aldus
Corporation
10.32 Sublease of the Land and N/A 10-K 11/25/94 10.32
Lease of the Improvements
By and Between Sumitomo
Bank Leasing and Finance
Inc. and Adobe Systems
Incorporated
10.33 Sale of Rights under N/A N/A N/A N/A
Software Development
and Acquisition Agreement
By and Between Adobe
Systems Incorporated and
Thomas Knoll and John
Knoll (confidential
treatment granted)
11 Computation of Earnings N/A N/A N/A N/A
Per Common Share
27 Financial Data Schedule N/A N/A N/A N/A
</TABLE>
34
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended June 2, 1995.
35
<PAGE>
SIGNATURE
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.
ADOBE SYSTEMS INCORPORATED
Date: July 14, 1995
By /s/ M. Bruce Nakao
----------------------------------
M. Bruce Nakao,
Senior Vice President, Finance and
Administration, Chief Financial
Officer, Treasurer and Assistant
Secretary
(Principal Financial Officer)
36
<PAGE>
SUMMARY OF TRADEMARKS
The following trademarks of Adobe Systems Incorporated, which may be registered
in certain jurisdictions, are referenced in this Form 10-Q:
Adobe
Adobe Illustrator
Adobe PageMaker
Adobe Persuasion
Adobe Photoshop
Adobe Premiere
Display PostScript
PostScript
Type On Call
All other brand or product names are trademarks or registered trademarks of
their respective holders.
37
<PAGE>
*Certain confidential material contained
in this document has been omitted and
filed separately with the Securities and
Exchange Commission pursuant to
Rule 24b-2 of the Exchange Act of 1934,
as amended.
EXHIBIT 10.33
SALE OF RIGHTS UNDER SOFTWARE
DEVELOPMENT AND ACQUISITION AGREEMENT
The parties to this agreement (the "Agreement") are Adobe Systems
Incorporated, a California corporation having a place of business at 1585
Charleston Road, Mountain View, California 94039-7900 and its subsidiaries
("Adobe"), and Thomas Knoll, a resident of Ann Arbor, Michigan ("Knoll") and
John Knoll, a resident of San Rafael, California. Knoll and John Knoll shall
together be referred to as the "Developers."
RECITALS:
A. The parties to this Agreement are parties to a Software
Development and Acquisition Agreement effective as of April 18, 1989 and as
amended by three amendments (the "1989 Agreement").
B. Pursuant to the 1989 Agreement, Knoll and John Knoll assigned to
Adobe all of their rights in a certain software program referred to as the
"Work" (as defined in the 1989 Agreement.)
C. Knoll is the inventor of the Work.
D. Pursuant to the 1989 Agreement, a patentable invention that had
been actually reduced to practice within the meaning of the U.S. patent laws, 35
U.S.C. Section 102(g), and was also considered a trade secret, was assigned to
Adobe.
<PAGE>
E. A U.S. Patent was issued to Knoll, Patent No. 5,146,346, and such
Patent was assigned to Adobe.
F. The Developers also agreed to assign to Adobe any patent or
patents they might obtain for any existing and future versions, derivations,
modifications, and enhancements of the Work developed by the Developers or by or
for Adobe, whether in the U.S. or abroad.
G. Pursuant to the 1989 Agreement, the Developers have been paid
certain [ * ]
[ * ]
H. The parties now wish to further amend the 1989 Agreement to
provide for a [ * ] and to make other revisions to reflect
their current business relationship.
THEREFORE, for valuable consideration, the parties agree as follows:
AGREEMENT:
1. DEFINITIONS. Capitalized terms used in this Agreement have the
same definitions set forth in the 1989 Agreement.
2. PROJECT ASSIGNMENT. Section 3.2 of the 1989 Agreement is
deleted.
3. DEVELOPMENT OBLIGATIONS. Paragraph 3.4(b) and 3.4(c) of the 1989
Agreement are deleted and the Developers have no outstanding obligations under
those provisions Paragraph 3.4(d) is renumbered paragraph 3.4(b).
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
2
<PAGE>
4. ROYALTIES. Adobe shall [ * ]
the Developers [ * ] for copies of the Work accrued during or payable
with respect to Adobe's fourth fiscal quarter of 1994 or any subsequent period.
Section 4 of the 1989 Agreement ("Payments"), and all subsections thereof
(4.1-4.6) are deleted in their entirety and replaced by the following:
"4. PAYMENTS.
4.1 INSTALLMENT PAYMENTS. Adobe shall pay the Developers the
following payments on the date specified:
Payment Date Knoll John Knoll
------------ ------------ --------------
[ * ] [ * ] [ * ]
5. FUTURE PRODUCTS. Section 6 of the 1989 Agreement ("Future
Products"), including all subsections thereof (6.1-6.5), is deleted in its
entirety.
6. INFRINGEMENT INDEMNITY. Section 8 of the 1989 Agreement
("Infringement Indemnity"), including all subsections thereof (8.1 and 8.2), is
deleted in its entirety and replaced with the following:
"8.1 INDEMNITY. Adobe agrees to defend and otherwise hold the
Developers harmless from and against any claims by third parties
pertaining to the infringement of the Work or any version thereof of
any third party's intellectual property rights, provided that:
(a) Adobe is notified immediately in
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
3
<PAGE>
writing of any notice of threatened claim of actual suit; and
(b) Adobe is given the sole control of, and the Developers'
full cooperation (at Adobe's expense) in, the investigation,
preparation, defense and settlement of such claim or suit; and
(c) Adobe shall not be responsible for any compromise made
without its consent.
8.2 EXCEPTION. Notwithstanding the foregoing, Adobe will have no
liability to Developers under this Section 7 if any alleged
infringement or claim thereof is based on a Developer's knowing,
willful misappropriation of a third party's intellectual property."
7. TERM AND TERMINATION. Section 12 of the 1989 Agreement ("Term
and Termination"), including all subsections thereof (12.1-12.4), is deleted in
its entirety and replaced with the following:
"12.1 TERM AND TERMINATION. This Agreement will be effective
from the effective date, and shall terminate on [ * .]
12.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION. Section 8,
including all subsections thereof (8.1-8.2), Section 7, Section 2.2
and Section 10 and Section 11, including all subsections thereof
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
4
<PAGE>
(11.1-11.2) shall survive any termination of the Agreement."
8. GOVERNING LAW; MODIFICATIONS. Section 13.3 of the 1989 Agreement
shall be deleted in its entirety and replaced with the following:
"13.3 GOVERNING LAW; MODIFICATION. This Agreement (a) shall
be governed by and construed in accordance with the laws of the State of
Michigan, without giving effect to principles of conflict of laws, and (b) may
be modified or amended only by a written agreement executed by an authorized
representative of Adobe and the Developers."
9. CONFIDENTIALITY OF AGREEMENT AND AMENDMENTS. The following
section shall be added to the 1989 Agreement after Section 13.12:
"13.13 CONFIDENTIALITY OF AGREEMENT AND AMENDMENTS. The terms,
but not the existence, of this Agreement, and all amendments thereto,
shall be maintained in confidence by the parties, and may not be
disclosed to any third party except (a) to the attorneys and
accountants of the parties and (b) by Adobe as required to comply with
the securities and other laws of the United States and other
jurisdictions."
10. EXECUTION OF RIGHTS ASSIGNMENT. Concurrently with the execution
of this Agreement, the Developers shall each execute the Assignment of Rights
attached hereto as Exhibit A. Developers' obligations under Section 2.2 of the
1989 Agreement
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
5
<PAGE>
shall pertain to the rights granted Adobe under such Assignment of Rights. This
Section 10 and Section 2.3 shall survive termination of the 1989 Agreement for
any reason.
11. EFFECT, SIGNATURES. All other terms and conditions of the 1989
Agreement, as amended by Amendment Nos. 1, 2 and 3, will remain in full force
and effect. This Agreement and the Assignment of Rights may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument.
The parties have executed this Agreement effective as of March 31,
1995.
ADOBE: DEVELOPERS:
ADOBE SYSTEMS, INCORPORATED
/s/ David B. Pratt /s/ Thomas Knoll
- ----------------------------- -----------------------------
Authorized Signature Thomas Knoll
David B. Pratt 3/27/95
- ----------------------------- -----------------------------
Printed Name Date
Sr. V.P.
- -----------------------------
Title
3-31-95 /s/ John Knoll
- ----------------------------- -----------------------------
Date John Knoll
3/28/95
-----------------------------
Date
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
6
<PAGE>
EXHIBIT A
ASSIGNMENT OF RIGHTS
For good and valuable consideration which has been received, each of the
undersigned sells, assigns and transfers to Adobe Systems Incorporated
("Adobe"), a California corporation, and its successors and assigns, all the
right, title and interest of the undersigned, vested and contingent, including,
without limitation, patents, copyrights, trade secrets and any other
intellectual property rights, in and to the following works (the "Works"), which
were or will be created by Thomas Knoll and/or John Knoll (the "Developers"):
1. The [ * ]
[ * ] as well as all existing and future versions, derivatives,
modifications and enhancements of [ * ] and all associated
documentation.
2. Any designs, artwork, software programs, brochures, manuals, products,
procedures, drawings, notes, documents, information, materials, discoveries and
inventions made, conceived or developed pursuant to that certain Software
Development and Acquisition Agreement dated April 18, 1989, between Adobe and
the Developers, as amended, (the "Agreement"), or pursuant to any Project
Assignments occurring under the Agreement, or pursuant to any past or future
Project Assignment, including without limitation, 1995-96 Project Assignments,
1996-97 Project Assignments, or additional Project Assignments as such terms are
defined in that certain Consulting Agreement by and between Thomas Knoll and
Adobe dated March 31, 1995.
In addition, the Developers hereby irrevocably transfer and assign to Adobe
any and all Moral Rights (as defined below) the Developers may have in or with
respect to the Works or any version thereof. To the extent the Developers
cannot assign such rights, the Developers hereby waive and agree never to assert
such rights against Adobe or any of Adobe's licensees. "Moral Rights" means any
right to (i) divulge such Work or any version to the public; (ii) retract such
Work or version from the public; (iii) claim authorship of such Work or version;
(iv) object to any distortion, mutilation or other modification of such Work or
version, and (v) any and all similar rights, existing under judicial or
statutory law or any country or jurisdiction in the world, or under any treaty
regardless of whether or not such right is called or generally referred to as a
"moral right."
Executed this 31st day of March, 1995.
/s/ Thomas Knoll
-----------------------------------
Thomas Knoll
/s/ John Knoll
-----------------------------------
John Knoll
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
<PAGE>
CONSULTING AGREEMENT
The parties to this agreement (the "Agreement") are Adobe Systems,
Incorporated, a California corporation having a place of business at 1585
Charleston Road, Mountain View, California 94039-7900 and its subsidiaries
("Adobe") and Thomas Knoll, a resident of Ann Arbor, Michigan ("Knoll").
RECITALS:
A. Adobe wishes to continue to engage the services of Knoll as a
consultant, and Knoll is willing to continue to provide consulting services to
Adobe.
THEREFORE, for valuable consideration, the parties agree as follows:
AGREEMENT:
1. PROJECT ASSIGNMENTS.
Attached to this Agreement as Exhibit A is a list of Project
Assignments to be completed by Knoll on or before March 31, 1996 (the "1995-96
Project Assignments"). Knoll and Adobe shall agree, on or before April 1, 1996,
on additional Project Assignments to be completed by Knoll between April 1, 1996
through March 31, 1997 (the "1996-97 Project Assignments"). In addition, Adobe
may, but is not required to, propose additional Project Assignments to Knoll to
be completed by Knoll on or after April 1, 1997 ("Additional Project
Assignments"). If Adobe proposes Additional Project Assignments, Knoll, in his
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
<PAGE>
sole and absolute discretion, shall choose whether to accept or reject such
Additional Project Assignments.
2. PAYMENTS.
2.1. FIRST PROJECT ASSIGNMENT PAYMENT. Adobe shall pay Knoll
[ * ] on or before
[ * ] if Knoll has timely
and satisfactorily completed the 1995-96 Project Assignments.
2.2. SECOND PROJECT ASSIGNMENT PAYMENTS. Adobe shall pay Knoll
[ * ] on or before [ * ]
if Knoll has timely and satisfactorily completed the 1996-97
Project Assignments.
2.3. ADDITIONAL PROJECT ASSIGNMENT PAYMENT. Adobe shall pay Knoll
[ * ] [ * ] on or before
[ * ] [ * ]
in which Adobe has proposed, and Knoll has accepted, Additional
Project Assignments and Knoll has timely and satisfactorily
completed all such Additional Project Assignments.
3. INVENTIONS. All designs, artwork, software programs, brochures,
manuals, products, procedures, drawings, notes, documents, information,
materials, discoveries and inventions (hereafter "Designs and Inventions") made,
conceived or developed by Knoll alone or with others which result from or
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
2
<PAGE>
relate to any Project Assignment, or which Knoll may receive from Adobe while
performing the Project Assignments, shall be the sole property of Adobe. Knoll
hereby assigns and agrees to assign all his rights, title and interest to all
such Designs and Inventions. Knoll agrees (i) to disclose promptly in writing
to Adobe all such Designs and Inventions, (ii) that Adobe has a power of
attorney to apply for in Knoll's name, and to execute any applications and/or
assignments reasonably necessary to obtain any patent, copyright, trademark or
other statutory protection for such Designs and Inventions in Adobe's name as
Adobe deems appropriate. These obligations to disclose, assist, and execute
shall survive termination of this Agreement.
4. PROPRIETARY INFORMATION; NONDISCLOSURE
(a) CONFIDENTIAL INFORMATION DEFINED. Knoll acknowledges that,
in the course of his performance under this Agreement, he shall obtain certain
information relating to Adobe's business which is confidential and proprietary
information of Adobe and is not generally known to the public, including without
limitation technical and business information relating to Adobe's technology,
products, research and development, production, manufacturing and engineering
processes, computer software, business plans, finances, customers and employees
("Confidential Information"). Knoll agrees that he will not use any
Confidential Information of Adobe except in accordance with the provisions of
this
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
3
<PAGE>
Agreement and will not disclose any such Confidential Information to any third
party. This Section 4 shall survive any termination of this Agreement.
(b) EXCEPTION. Notwithstanding the other provisions of this
Agreement, information shall not be deemed Confidential Information, and Knoll
shall have no confidentiality obligation with respect to any information, other
than [ * ] or Designs and Inventions created for Adobe by Knoll under
Project Assignments or otherwise, and any associated documentation, which
(a) was in Knoll's possession or was known by Knoll prior to his receipt from
Adobe, (b) is or becomes publicly known through no act or omission of Knoll,
(c) is received by Knoll without restriction on disclosure from a third party
who disclosed the information without violating any confidentiality restriction,
(d) is independently developed by Knoll without reference to the Confidential
Information and without violation of any confidentiality restriction or covenant
not to compete, or (e) is divulged by Knoll pursuant to statute, regulation, or
the order of a court of competent jurisdiction, provided Knoll previously
notifies Adobe to take appropriate protective measures.
5. SOURCE CODE LICENSE
(a) LIMITED LICENSE TO USE ADOBE SOURCE CODE. Adobe hereby
grants to Knoll a [ * ] license, during the term of this
Agreement and subject to his compliance with Section (b) below and other terms
of this
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
4
<PAGE>
Agreement, to use the source code of [ * ] in Knoll's possession or any
other source code owned by Adobe or provided by Adobe to Knoll, (the "Source")
at the facilities listed in EXHIBIT B ("Development Site") for the sole purpose
of performing Project Assignments under this Agreement.
(b) SECURITY. Knoll agrees that he will not (i) disclose the Source,
any portion of the Source, or any source code containing any portion of the
Source to third parties, (ii) reproduce the Source, or any portion of the Source
in any form or medium, except as necessary for the purpose specified in Section
(a) above and for archival storage, or (iii) use the Source for any purpose not
specifically authorized by this Agreement. Knoll agrees to keep the Source on
secure computer(s) with password access only by Knoll. Knoll acknowledges that
the Source shall be and remain the property of Adobe and shall be considered
Adobe's Confidential Information under Section 4 of this Agreement. Knoll shall
return or destroy all copies of any Source in his possession promptly upon the
earlier of Adobe's request or upon termination of this Agreement, and shall,
upon Adobe's request, certify to Adobe the fact of such return or destruction.
6. RELATIONSHIP OF THE PARTIES. Each party will perform its
obligations as an independent contractor and will be solely responsible for its
own financial obligations. This Agreement will not create a joint venture,
partnership, or principal and agent relationship between the parties. Neither
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
5
<PAGE>
party will have the authority or will represent that it has the authority or
will represent that it has the authority to assume or create any obligation,
express or implied, on behalf of the other, except as expressly provided herein.
7. GOVERNING LAW; MODIFICATION; NON-ASSIGNABLE. This Agreement (a)
shall be governed by and construed in accordance with the laws of the State of
Michigan, without giving effect to the principles of conflict of laws, (b) may
be modified or amended only by a written agreement executed by an authorized
representative of Adobe and Knoll, and (c) may not be assigned by either party
without the prior written consent of the other party, except that Adobe may
assign its rights or obligations under this Agreement in connection with a
merger, sale of all or substantially all of its assets, or other corporate
reorganization, or in connection with the sale or substantially exclusive
licensing of [ * ] Derived Products.
8. INJUNCTIVE RELIEF. It is understood and agreed that
notwithstanding any other provisions of this Agreement, a breach by Knoll of
Section 4 or 5 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.
9. MISCELLANEOUS.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
6
<PAGE>
(a) 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.
(b) 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 provisions shall be changed and interpreted so as to best accomplish the
objectives of such unenforceable or intended provision within the limits of
applicable law or applicable court decisions.
(c) ATTORNEYS' FEES. In the event any proceeding or lawsuit is
brought by Adobe or Knoll in connection with this Agreement, 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.
(d) HEADINGS. The section 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 section or in any way affect such
section.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
7
<PAGE>
(e) ENTIRE AGREEMENT. This Agreement completely and exclusively
states the agreement of all 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 Knoll by their duly
authorized representative.
(f) 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.
(g) COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which will be considered an original, but all
of which together will constitute one and the same instrument.
The parties have executed this Agreement effective as of March 31, 1995.
ADOBE SYSTEMS, INCORPORATED
/s/ David B. Pratt /s/ Thomas Knoll
- ----------------------------------- -----------------------------------
Authorized Signature Thomas Knoll
David B. Pratt 3/27/95
- ----------------------------------- -----------------------------------
Printed Name Date
Sr. V.P.
- -----------------------------------
Title
3/31/95
- -----------------------------------
Date
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
8
<PAGE>
EXHIBIT A
1995-96 LIST OF PROJECT ASSIGNMENTS
Thomas Knoll will work on a full-time basis on features for the next revision of
[ * ] The exact set of features that Thomas Knoll will work on will be
determined by Adobe engineering management.
The first feature assigned to Thomas Knoll is to design and implement, with the
assistance of Douglas Olson [ * ] [ * ],
and implement a sufficient number of [ * ] functions to test the
architecture and verify its completeness and performance.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT B
DEVELOPMENT SITES
1. 415 Columbus Drive
Ann Arbor, Michigan 48103
2. 495 Woodgrove
Ann Arbor, Michigan 48103
3. 390 Meadow Creek
Ann Arbor, Michigan 48105
<PAGE>
COVENANT NOT TO COMPETE
The parties to this agreement (the "Agreement") are Adobe Systems,
Incorporated, a California corporation having a place of business at 1585
Charleston Road, Mountain View, California 94039-7900 and its subsidiaries
("Adobe") and Thomas Knoll, a resident of Ann Arbor, Michigan ("Knoll").
RECITALS:
A. The parties have entered into an Agreement to Sell Rights Under
Software Development and Acquisition Agreement and a separate Consulting
Agreement.
B. Adobe wishes to restrict the ability of Knoll to compete with
respect to the subject matter described in this Agreement.
THEREFORE, for valuable consideration, the parties agree as follows:
AGREEMENT:
1. COVENANT NOT TO COMPETE.
1.1 NO DEVELOPMENT OF PRODUCTS WHICH COMPETE WITH [ * ] RELATED
PRODUCTS. From the effective date of this Agreement until
[ * ] Knoll may not, whether for himself or a third
party, develop or participate in the development of any software
product which competes with [ * ]
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
<PAGE>
[ * ] as it exists on or before the termination of
this Agreement or any version of [ * ] proposed or planned as
of the termination of this Agreement, or which competes with any
Adobe product which exists, is proposed, or planned on or before
the termination of this Agreement and which is or will be derived
in whole or in part from [ * ] or any [ * ] technology or
software ([ * ] Related Products").
1.2 NO DEVELOPMENT OF [ * ] SOFTWARE. From the effective
date of this Agreement until [ * ] Knoll may not, whether
for himself or a third party, develop or participate in the
development of any image processing software. Knoll may request
from time to time that Adobe waive the restrictions set forth in
this Section 1.2 with respect to a specific image processing
software product, and Adobe agrees that it will discuss such
request with Knoll, but it shall be at Adobe's sole and absolute
discretion as to whether it shall grant such request.
1.3 NO DEVELOPMENT OF PRODUCTS WHICH COMPETE WITH ADOBE PRODUCTS.
From the effective date of this Agreement until April 1, 2002,
Knoll may not, whether for himself or a third party, develop or
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
2
<PAGE>
participate in the development of any software product which
competes with any Adobe product which exists on or before the
termination of this Agreement other than [ * ] or [ * ]-
Related Products (which are separately addressed above in Section
1.1) or any Adobe product proposed or planned as of the
termination of this Agreement.
1.4 NON-COMPETING PRODUCTS. Adobe acknowledges that during and after
the term of this Agreement, Knoll may independently develop
software products other than those described in Sections 1.1, 1.2
and 1.3.
1.5 SALE OF BUSINESS. Knoll acknowledges and agrees that he has
entered into this Covenant Not To Compete in conjunction with the
Agreement to Sell Rights Under Software Development and
Acquisition Agreement and that the payments to him under that
agreement represent payments for the sale of his software
development business related to [ * ]
2. PAYMENTS. Adobe will pay Knoll the following amount on the date
specified:
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
3
<PAGE>
Payment Date Amount
------------ ------
[ * ] [ * ]
3. TERM. This Agreement shall terminate on April 1, 2007.
4. GOVERNING LAW; MODIFICATION; NON-ASSIGNABLE. This Agreement (a)
shall be governed by and construed in accordance with the laws of the State of
Michigan, without giving effect to the principles of conflict of laws, (b) may
be modified or amended only by a written agreement executed by an authorized
representative of Adobe and Knoll, and (c) may not be assigned by either party
without the prior written consent of the other party, except that Adobe may
assign its rights or obligations under this Agreement in connection with a
merger, sale of all or substantially all of its assets, or other corporate
reorganization, or in connection with the sale or substantially exclusive
licensing of [ * ] or [ * ] Derived Products.
5. MISCELLANEOUS.
(a) 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.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
4
<PAGE>
(b) 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
objectives of such unenforceable or intended provision within the limits of
applicable law or applicable court decisions.
(c) INJUNCTIVE RELIEF. It is understood and agreed that
notwithstanding any other provisions of this Agreement, a breach by Knoll 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.
(d) ATTORNEYS' FEES. In the event any proceeding or lawsuit is
brought by Adobe or Knoll in connection with this Agreement, 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.
(e) HEADINGS. The section headings appearing in this Agreement
are inserted only as a matter of convenience and
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
5
<PAGE>
in no way define, limit, construe or describe the scope or extent of such
section or in any way affect such section.
(f) ENTIRE AGREEMENT. This Agreement completely and exclusively
states the agreement of all 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 Knoll by their duly
authorized representative.
(g) 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.
(h) COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which will be considered an original, but
all of which together will constitute one and the same instrument.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
6
<PAGE>
The parties have entered into this Agreement effective as of March 31,
1995.
ADOBE SYSTEMS, INCORPORATED
/s/ David B. Pratt /s/ Thomas Knoll
- ----------------------------------- -----------------------------------
Authorized Signature Thomas Knoll
David B. Pratt 3/27/95
- ----------------------------------- -----------------------------------
Printed Name Date
Sr. V.P.
- -----------------------------------
Title
3/31/95
- -----------------------------------
Date
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
<PAGE>
COVENANT NOT TO COMPETE
The parties to this agreement (the "Agreement") are Adobe Systems,
Incorporated, a California corporation having a place of business at 1585
Charleston Road, Mountain View, California 94039-7900 and its subsidiaries
("Adobe") and John Knoll, a resident of San Rafael, California ("Knoll").
RECITALS:
A. The parties have entered into an Agreement to Sell Rights Under
Software Development and Acquisition Agreement.
B. Adobe wishes to restrict the ability of Knoll to compete with
respect to the subject matter described in this Agreement.
THEREFORE, for valuable consideration, the parties agree as follows:
AGREEMENT:
1. COVENANT NOT TO COMPETE.
1.1 NO DEVELOPMENT OF PRODUCTS WHICH COMPETE WITH [ * ] RELATED
PRODUCTS. From the effective date of this Agreement until
[ * ] Knoll may not, whether for himself or a third
party, develop or participate in the development of any software
product which competes with [ * ]
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
<PAGE>
[ * ] as it exists on or before April 1, 1995 or
any version of [ * ] proposed or planned as of April 1,
1995, or which competes with any Adobe product which exists, is
proposed, or planned on or before April 1, 1995 and which is or
will be derived in whole or in part from [ * ] or any
[ * ] technology or software [ * ]-Related Products").
1.2 NO DEVELOPMENT OF PRODUCTS WHICH COMPETE WITH ADOBE PRODUCTS.
From the effective date of this Agreement until April 1, 2002,
Knoll may not, whether for himself or a third party, develop or
participate in the development of any software product which
competes with any Adobe product which exists on or before April
1, 1995 other than [ * ] or [ * ]-Related Products (which
are separately addressed above in Section 1.1) or any Adobe
product proposed or planned as of April 1, 1995.
1.3 NON-COMPETING PRODUCTS. Adobe acknowledges that during and after
the term of this Agreement, Knoll may independently develop
software products other than those described in Sections 1.1 and
1.2.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
2
<PAGE>
1.4 SALE OF BUSINESS. Knoll acknowledges and agrees that he has
entered into this Covenant Not To Compete in conjunction with the
Agreement to Sell Rights Under Software Development and
Acquisition Agreement and that the payments to him under that
agreement represent payments for the sale of his software
development business related to [ * ]
2. PAYMENTS. Adobe will pay Knoll the following amount on the date
specified:
Payment Date Amount
------------ ------
[ * ] [ * ]
3. PROPRIETARY INFORMATION; NONDISCLOSURE.
(a) CONFIDENTIAL INFORMATION DEFINED. Knoll acknowledges that
from time to time, he may obtain certain information relating to Adobe's
business which is confidential and proprietary information of Adobe and is not
generally known to the public, including without limitation technical and
business information relating to Adobe's technology, products, research and
development, production, manufacturing and engineering processes, computer
software, business plans, finances, customers and employees ("Confidential
Information"). Knoll agrees that he will not use any Confidential Information
of Adobe for any purpose and will not
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
3
<PAGE>
disclose any such Confidential Information to any third party. This Section 3
shall survive any termination of this Agreement.
(b) EXCEPTION. Notwithstanding the other provisions of this
Agreement, information shall not be deemed Confidential Information, and Knoll
shall have no confidentiality obligation with respect to any information, other
than [ * ] or inventions, technology, materials, or information
previously created for Adobe by Knoll which (a) was in Knoll's possession or was
known by Knoll prior to his receipt from Adobe, (b) is or becomes publicly known
through no act or omission of Knoll, (c) is received by Knoll without
restriction on disclosure from a third party who disclosed the information
without violating any confidentiality restriction, (d) is independently
developed by Knoll without reference to the Confidential Information and without
violation of any confidentiality restriction or covenant not to compete; or (e)
is divulged by Knoll pursuant to statute, regulation, or the order of a court of
competent jurisdiction, provided Knoll previously notifies Adobe to take
appropriate protective measures.
4. TERM. This Agreement shall terminate on April 1, 2007.
5. GOVERNING LAW; MODIFICATION; NON-ASSIGNABLE. This Agreement
(a) shall be governed by and construed in accordance with the laws of the State
of California, without giving effect to the principles of conflict of laws,
(b) may be
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
4
<PAGE>
modified or amended only by a written agreement executed by an authorized
representative of Adobe and Knoll, and (c) may not be assigned by either party
without the prior written consent of the other party, except that Adobe may
assign its rights or obligations under this Agreement in connection with a
merger, sale of all or substantially all of its assets, or other corporate
reorganization, or in connection with the sale or substantially exclusive
licensing of [ * ] or [ * ] Derived Products.
6. MISCELLANEOUS.
(a) 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.
(b) 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
objectives of such unenforceable or intended provision within the limits of
applicable law or applicable court decisions.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
5
<PAGE>
(c) INJUNCTIVE RELIEF. It is understood and agreed that
notwithstanding any other provisions of this Agreement, a breach by Knoll of
this Agreement will cause Adobe irreparable damage for which recovery or 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.
(d) ATTORNEYS' FEES. In the event any proceeding or lawsuit is
brought by Adobe or Knoll in connection with this Agreement, 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.
(e) HEADINGS. The section 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 section or in any way affect
such section.
(f) ENTIRE AGREEMENT. This Agreement completely and exclusively
states the agreement of all 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 Knoll by their duly
authorized representative.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Exchange Act of 1934, as amended.
6
<PAGE>
(g) 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.
(h) COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which will be considered an original, but
all of which together will constitute one and the same instrument.
The parties have entered into this Agreement effective as of March 31,
1995.
ADOBE SYSTEMS, INCORPORATED
/s/ David B. Pratt /s/ John Knoll
- ----------------------------------- -----------------------------------
Authorized Signature John Knoll
David B. Pratt 3/28/95
- ----------------------------------- -----------------------------------
Printed Name Date
Sr. V.P.
- -----------------------------------
Title
3/31/95
- -----------------------------------
Date
SEG. 3486
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of th
<PAGE>
ADOBE SYSTEMS INCORPORATED
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
------------------------------- --------------------------
June 2 May 27 June 2 May 27
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 33,902 $ 17,306 $ 68,252 $ 36,399
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary shares outstanding:
Weighted average shares
outstanding during the
period 62,981 59,411 62,246 59,128
Common stock equivalent
shares 3,343 2,357 3,097 2,401
----------- ----------- ------------ -----------
66,324 61,768 65,343 61,529
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Fully diluted shares outstanding:
Weighted average shares
outstanding during the
period 62,981 59,411 62,246 59,128
Common stock equivalent
shares 3,464 2,432 3,756 2,640
----------- ----------- ------------ -----------
66,445 61,843 66,002 61,768
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Primary net income per
common stock and
common stock equivalent
share $ .51 $ .28 $ 1.04 $ .59
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Fully diluted net income per
common stock and common
stock equivalent share $ .51 $ .28 $ 1.03 $ .59
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 2, 1995, and the Consolidated Statement of
Income for the six months ended June 2, 1995, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-01-1995
<PERIOD-START> NOV-26-1994
<PERIOD-END> JUN-02-1995
<CASH> 129,339
<SECURITIES> 314,025
<RECEIVABLES> 95,366
<ALLOWANCES> 3,843
<INVENTORY> 6,339
<CURRENT-ASSETS> 569,245
<PP&E> 127,294
<DEPRECIATION> 83,175
<TOTAL-ASSETS> 710,372
<CURRENT-LIABILITIES> 137,453
<BONDS> 0
<COMMON> 189,650
0
0
<OTHER-SE> 379,822
<TOTAL-LIABILITY-AND-EQUITY> 710,372
<SALES> 91,395
<TOTAL-REVENUES> 336,584
<CGS> 63,555
<TOTAL-COSTS> 63,555
<OTHER-EXPENSES> 176,143
<LOSS-PROVISION> 828
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 108,332
<INCOME-TAX> 40,080
<INCOME-CONTINUING> 68,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,252
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
</TABLE>
