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March 16, 1992



The opinion of the court was delivered by: SAUNDRA BROWN ARMSTRONG

This is a class action on behalf of those who bought stock in Adobe Systems, Inc. ("Adobe") between March 6 and May 24, 1990. The plaintiffs allege that during that period defendants artificially inflated the price of Adobe's stock by issuing false or misleading public statements in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and 78t(a), Rule 10b-5 thereunder ("Rule 10b-5"), and California fraud and negligent misrepresentation laws.

 In addition to Adobe, the defendants are certain of Adobe's officers and directors ("the Individual Defendants"): John E. Warnock ("Warnock"), Chairman of the Board and Chief Executive Officer and Director of Adobe; Charles M. Geschke ("Geschke"), President and Chief Operating Officer and a Director of Adobe; M. Bruce Nakao ("Nakao"), Vice President of Finance and Administration, Chief Financial Officer, Treasurer and Assistant Secretary of Adobe; and Stephen A. MacDonald ("MacDonald"), Senior Vice President, International Systems Division of Adobe.

 The matter is currently before the court on defendants' motion for summary judgment. *fn1"

 Having carefully considered the arguments of the parties, defendants' motion for summary judgment is HEREBY GRANTED.


 Adobe was founded in 1982 and manufactures and develops software for the computer industry. Adobe's main product, the PostScript interpreter, is the page description language for electronic printing and publishing and computer displays. Adobe licenses the Postscript interpreter to original equipment manufacturers ("OEMs") who incorporate Adobe's technology into their products and pay Adobe a royalty based on the volume of printers or other incorporating devices sold to end users.

 On March 6, 1990, Adobe's common stock opened at $ 33 per share. The stock closed at $ 36.375 on that day, and then fluctuated within the range of $ 36.50 and $ 45.00 between March 6 and April 19, 1990, before steadily climbing to a peak price of $ 50.50 on May 24, 1990.

 On May 24, 1990, Adobe announced that earnings for the second quarter of its 1990 fiscal year, ending June 1, 1990, would be lower than previously expected. Adobe stated that three of its significant customers had reduced their product shipments. *fn2" After the market opened on May 25, 1990, the price of Adobe stock dropped over 15 points, or around 30% of its value, from $ 50.50 per share to $ 35.25 per share at the close on May 25.

 Plaintiffs allege that during the period between March 6 and May 24 ("the Class Period"), defendants issued a series of public statements regarding Adobe's prospects in press releases, interviews, filings with the Securities and Exchange Commission, and a quarterly report, which were false or misleading in light of undisclosed "adverse information" known to defendants at the time the statements were made. The alleged purpose and result of the false and misleading statements was to enable the Individual Defendants to sell significant amounts of their Adobe stock at inflated prices, prior to the public disclosure of the adverse information about Adobe's earnings prospects. The "adverse information" whose nondisclosure plaintiffs allege rendered defendants' statements false or misleading is: (1) Adobe's internal analysis of its prospects for Fiscal 1990 and in particular the projected 1990 earnings of $ 1.47 to $ 1.68 per share identified in the 1990 Adobe Financial Plan ("the 1990 Financial Plan"); (2) short-term adverse information being received from certain of Adobe's significant OEMs; (3) the prospect of losing or receiving substantially reduced royalties from Adobe's largest customer, Apple Computer ("Apple"); and (4) the fact that 40% of Adobe's employees (at least 170 persons) were selling significant shares into the market without any public disclosure of such sales.


 Defendants argue for summary judgment by asserting that defendants' statements are not inherently actionable under Rule 10b-5 because the financial community could not have regarded them as projections. Defendants argue next that a reasonable jury could not, in any event, conclude that defendants' statements were either untrue or misleading. Defendants also argue that plaintiffs cannot establish the requisite scienter to succeed on their 10b-5 action. Defendants contend, finally, that plaintiff's pendent state claims should be dismissed in the event the federal claims are dismissed.

 Because plaintiffs have not provided evidence from which a reasonable jury could conclude that defendants made statements that are actionably misleading under Rule 10b-5, the court hereby ...

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