-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CAzgncuZ9EJy7siZz3lsx+qk/KOPPITetocQAkQ/JeeKK/RLixDqSJLUoZnNMFZz U5o53rTVjV7EFg5Shyo52A== 0000950149-97-001303.txt : 19970701 0000950149-97-001303.hdr.sgml : 19970701 ACCESSION NUMBER: 0000950149-97-001303 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970630 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MACROMEDIA INC CENTRAL INDEX KEY: 0000913949 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943155026 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22688 FILM NUMBER: 97632276 BUSINESS ADDRESS: STREET 1: 600 TOWNSEND ST STREET 2: STE 310 W CITY: SAN FRANCISCO STATE: CA ZIP: 94103 BUSINESS PHONE: 4152522000 MAIL ADDRESS: STREET 1: 600 TOWNSEND ST STREET 2: STE 310W CITY: SAN FRANCISCO STATE: CA ZIP: 94103 10-K 1 MACROMEDIA FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10 - K (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended March 31, 1997; 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 NO. 0 - 22688 MACROMEDIA, INC. (Exact name of Registrant as specified in its charter) DELAWARE 94 - 3155026 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 600 TOWNSEND STREET, SAN FRANCISCO, CALIFORNIA 94103 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 252-2000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.001 PER SHARE (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on May 30, 1997 ($10.062) as reported on the Nasdaq National Market, was approximately $332,418,868. Shares of Common Stock held by each officer and director and by certain persons who owned 5% or more of the Registrant's outstanding Common Stock on that date have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of Friday, May 30, 1997, Registrant had outstanding 37,926,651 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Registrant's 1997 Annual Meeting of Stockholders to be held at 9:00 AM, Friday, August 15, 1997 at 600 Townsend Street, San Francisco, 94103 are incorporated by reference in Part III. 2 MACROMEDIA, INC. 1997 FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business 1 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 4A. Executive Officers of the Registrant 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stock Holder Matters 12 Item 6. Selected Financial Data 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19 Item 8. Financial Statements and Supplementary Data 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 38 PART III Item 10. Directors and Executive Officers of the Registrant 39 Item 11. Executive Compensation 39 Item 12. Security Ownership of Certain Beneficial Owners and Management 39 Item 13. Certain Relationships and Related Transactions 39 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 40 Signatures 45 Index to Exhibits
3 PART I ITEM 1. BUSINESS GENERAL Macromedia, Inc. ("Macromedia" or "the Company") is a provider of software tools for Web publishing, multimedia and graphics on Windows, Windows NT, Macintosh, and the Internet. Macromedia has recently organized into four business units: Internet and Multimedia Authoring, Interactive Learning, Graphics, and Audio/Video. Each business unit is responsible for the profit or loss of its respective product lines. Internet and Multimedia Authoring-The Internet and Multimedia Authoring business unit designs and markets a full line of software that meets the needs of Web and multimedia developers. Products included in this business unit are: Director(R) Multimedia Studio(TM) - an integrated suite of tools for developing interactive multimedia applications for the Web and CD/DVD-ROM, the Backstage(TM) Internet Studio(TM) - a suite of visual tools for developing database-connected applications and Web sites, Flash(TM) - an easy way to create fast Web multimedia, and Shockwave(TM) - a family of browser components that deliver and interactive multimedia on the Internet. Interactive Learning-The Interactive Learning business unit develops and markets the Authorware(R) Interactive Studio(TM), an integrated suite of visual tools for producing Web and CD/DVD-ROM based multimedia learning applications, meeting the needs of training specialists, educators, and multimedia developers. Graphics-The Graphics business unit develops and markets the FreeHand(TM) Graphics Studio(TM), an integrated suite of design tools for creating print and Web graphics, meeting the needs of graphic designers and illustrators. Audio/Video-The Audio/Video business unit develops and markets a growing family of digital audio/video software, meeting the needs of Web and multimedia developers, digital video producers, and professional musicians. Products included in this business unit are: DECK II(TM) - software for producing multitrack digital audio, SoundEdit(TM) 16 - a tool for producing multimedia and Web audio, and Final Cut(TM), currently in development, - a next-generation tool for high-performance video editing, compositing, and special effects. With Macromedia Shockwave(TM) technology, existing and new users of the Company's products are adapting and developing interactive content for use on Web sites and corporate intranets. Authorware, Director, Flash, and FreeHand files can be translated or "shocked" for this purpose. Macromedia Studios are based on the Macromedia Open Architecture, which enables developers to write Xtras (plug-ins) to a common set of application programmer interfaces that work across the Company's product lines. Macromedia Information Exchange enables one studio application to present data to another studio application in the most appropriate form, thus enhancing ease-of-use and productivity. The Macromedia User Interface delivers a consistent look and feel across all Studio applications and numerous third-party plug-ins. These core technologies provide a framework for ensuring that the Macromedia Studios are well-integrated, user-friendly tools for customers and that developers can "Author Once, Publish Anywhere." To support its customers and distribution channels, Macromedia offers many services through its Source & Center programs: o Macromedia International User Conference o Worldwide Developer Program 1 4 o Authorized Training Program o Macromedia Priority Access(TM) o Made with Macromedia certification and branding o Macromedia Authorized Graphic Imaging Centers (MAGIC(TM)) o Macromedia User Groups o Web Forums o Industry resources on www.macromedia.com o Xtras(TM) Developer Program The Company sells its products worldwide through a variety of distribution channels, including traditional software distributors, educational distributors, value-added resellers (VARs), original equipment manufacturers (OEMs), hardware and software superstores, retail dealers, mail order, and direct sales (including electronic direct sales off its web site). The Company also enters into and maintains alliances with other key players in multimedia, the graphic arts, and publishing, as well as in related emerging industries. PRODUCTS The Company's products are used by creative professionals working independently or in organizations ranging from large corporations to small companies, as well as in educational institutions of every size. INTERNET AND MULTIMEDIA AUTHORING PRODUCTS Director--Director is used by independent multimedia developers, in-house creative departments, software developers, advertising agencies and business communicators that want to develop content for delivery on a broad range of platforms, including Windows 95, Windows NT 4.0, Power Macintosh, Macintosh, the Web, and "Shocked CDs" (hybrid Internet+CD/DVD-ROM applications). A Shockwave Director animation can be "streamed" or played over the Web without waiting for the entire file to download. These files can be delivered efficiently over small bandwidth connections while retaining full interactivity. Developers using Director have access to advanced Internet authoring capabilities; an improved, easier to use interface; and greater flexibility for design, delivery, and display of multimedia. Time-based objects, drag-and-drop object behaviors, and enhanced authoring features, including a behavior inspector and scriptless authoring, provide novices and advanced users with equal access to the most powerful capabilities in Director. Director Multimedia Studio--Director Multimedia Studio allows users to create dynamic multimedia. The Studio includes: Director, for multimedia and the Internet; SoundEdit 16 (Macintosh) or Sonic Foundry's Sound Forge XP (Windows), for audio production; xRes, for high-resolution images; and Extreme 3D, for 3D design and animations. Shockwave--Shockwave content, for delivery on the World Wide Web, corporate intranets, and other networks, is created using any one of four Macromedia tools: Director, Flash, Authorware, or FreeHand. Shockwave extends the power of these tools, delivering animation, sound, graphics, and interactivity on the Web. With Shockwave players, Web browsers can display "shocked" sites within current bandwidth-capacity limitations. Backstage--Backstage is a visual solution for developing database-driven Web sites and applications. Targeted at corporate IS professionals, Web masters, and professional Web site developers, the Backstage Internet Studio eliminates the need for programming to develop sophisticated Web-based and intranet applications. The Backstage Internet Studio is available in the Desktop Edition and the Enterprise Edition. The Desktop Edition works with desktop databases to create database-driven Web sites for small offices or workgroups within larger companies. The Enterprise Edition works with client-server databases to handle large-scale enterprise applications. The Backstage Internet Studio includes the Backstage Designer, Backstage Manager, Backstage Objects, and Backstage Object Server. The Backstage Internet Studio also ships with the 2 5 O'Reilly WebSite Web server, AppletAce customizable Java applets, a library of Shockwave movies, Macromedia xRes(TM) SE image editor, clip art, and Web templates. Flash--Professional developers and Web enthusiasts can use Flash to quickly create animated, interactive Web interfaces, advertising banners, navigation buttons, panels, logos, and cartoons. Flash supports synchronized WAV (Windows) and AIFF (Macintosh) sound, enabling users to synchronize audio effects such as voice-overs or button clicks to graphics. Flash lets developers re-use a single sound file to produce various effects like fade in and fade out, keeping file sizes small and playback fast. Flash also supports FreeHand files. Flash ships with more than 200 MB of clip art, fonts, and bitmap files. INTERACTIVE LEARNING PRODUCTS Authorware--Authorware has been designed for the development and distribution of interactive learning over the Web and or CD/DVD-ROM. Shockwave Authorware applications can be streamed so that large applications can be distributed efficiently. Additionally, "shocked" Authorware applications can directly incorporate multiple Macromedia Shockwave file formats, including animations developed in Director and Flash. External content linking provides corporate intranet users with up-to-date information through dynamic updating, and support for ActiveX(TM) provides increased functionality by leveraging the large number of existing network-based ActiveX(TM) controls. In addition to Authorware, the Authorware Interactive Studio includes Director and the Backstage Internet Studio: Enterprise Edition. Authorware Interactive Studio also includes Solis' Pathway MV, a computer-managed instruction system that enables trainers to manage multiple networked Authorware training courses, track student enrollment and progress, centrally control course delivery and track each student's performance. Macromedia xRes image editing software for Web-ready content and SoundEdit 16 (Macintosh) or Sonic Foundry's Sound Forge XP (Windows) for audio production are also in the Studio. GRAPHICS PRODUCTS FreeHand--FreeHand is a cross-platform design tool for publishing documents and creating graphics for print and the Web. Artists can create illustrations, logos, and artwork as well as graphics-intensive layouts like brochures, posters, and advertisements. The flexible environment encompasses traditional vector illustration as well as multiple page layouts of variable sizes including bitmapped and vector artwork. FreeHand's separation engine and color-matching system ensures high quality output to print and onscreen display with reliable and consistent color across platforms and devices. FreeHand 7 includes unique Internet functionality like WYSIWYG HTML export (via an add on) and native support for Shockwave Flash. With the acceptance of Shockwave Flash as an Internet format, FreeHand artwork and layouts can be displayed within a web browser without sacrificing resolution or quality. Web designers can create "hot links" and add URLs to graphics or layouts, eliminating image mapping techniques. Standard Web formats like GIF, JPEG, and multipage PDF, as well as animated GIFs and VRML 2.0 (in Extreme 3D) are also supported. FreeHand features integration with leading graphics applications, streamlining workflow and data exchange between applications that feature drag-and-drop, copy and paste, launch and edit. FreeHand also supports a broad range of vector and bitmap import and export filters. Productivity features include a full-color integrated autotrace for converting bitmaps into fully editable line art, universal graphic search and replace, and dynamic redraw of blends. Special effects functions include multicolor gradients, blend along a path, 3D and enveloping for graphics, charting, printer/text/graphics styles, and advanced type control. 3 6 FreeHand Graphics Studio--The FreeHand Graphics Studio is a set of tools for graphic arts and design. The studio includes: FreeHand, for graphic design, illustration, and page layout; Extreme 3D, for 3D models, animations, and renderings; Macromedia xRes, for hi-res image editing and compositing; and Fontographer, for modifying existing fonts or creating new typefaces. The FreeHand Graphics Studio also includes 10,000 clip art images, 500 FreeHand templates, 500 TrueType and PostScript Type 1 fonts, 250 MB of high-resolution photography, and dozens of 3D models. AUDIO/VIDEO PRODUCTS DECK II--DECK II is an editing tool for audio production on the desktop--no additional hardware or software is required. Providing all the features associated with high-end digital audio workstations, DECK II is the solution for music recording and arranging, multimedia production, and digital video post production. DECK II offers a professional feature set which includes continuous video sync to all SMPTE formats as well as unlimited virtual tracks and playlists, moving fader automation, real-time effects, direct video support, and automated punch in and out. SoundEdit 16--SoundEdit 16 is a full-featured audio content production tool for multimedia and digital video productions. With Shockwave, it also delivers voice- to CD-quality streaming audio and up to 176:1 compression to the Web. Web developers, traditionally limited by the bandwidth-intensive nature of digital audio, can use SoundEdit and Shockwave to deliver streaming, high-quality audio files over standard Web servers, such as the Netscape SuiteSpot server suite or Microsoft Internet Information Server. Final Cut--Final Cut, a product currently in development, represents the next generation of digital video software. It is being developed as a cross-platform, video software technology, that will use open system media layers. Its target audience will be video professionals from broadcast and cable television, film and corporate video producers, videographers, and multimedia developers. The Company has not yet announced the delivery date for this product. PRODUCT DEVELOPMENT Macromedia is focusing its product development efforts on creating integrated software tools for the design, delivery and display of digital media. Its products are distinguished by five key design strategies: 1) Ease-of-Use--Macromedia products are designed and documented for ease-of-use in order to serve the needs of the largest number of multimedia, graphic arts, and Web publishing users. The Company's products share similar user interface conventions to facilitate learning multiple products. 2) Integration--Macromedia offers a family of multimedia, graphic arts, and Web development tools that are designed to share data formats and user interface conventions. This enables the Company's tools to work well together and reduces the learning curve from one application to the next. 3) Power/Performance--Macromedia products combine comprehensive feature sets with high performance to provide the power and efficiency necessary for creative and business professionals' use. 4) Extensibility--Macromedia products can be extended by third-party developers through built-in scripting languages and published Macromedia and industry-standard Application Programmer Interfaces such as the Macromedia Open Architecture, ActiveX, Java and Adobe Photoshop plug-ins. 5) Author Once, Publish Anywhere--Macromedia software provides the means for interactive authoring and multimedia production which can be delivered on Windows NT, Windows 95 and Macintosh, either standalone, on corporate networks, or the World Wide Web. 4 7 The Company's principal product development efforts include (i) utilizing its core technology to develop a common graphical user interface across all products on all platforms, (ii) developing enhanced, fully integrated versions of its existing authoring and media creation tools, (iii) developing new versions of its tools for graphic arts, multimedia, Web publishing, audio and video, (iv) adapting its products to support new operating systems, and (v) developing players for delivery of applications to new platforms, including intranets and the Internet. In addition, the Company plans to continue developing, and from time to time acquiring, basic software technologies that it considers critical to building multimedia, graphic arts, Web development, and digital audio/video software tools and applications. The Company believes that its future success will depend on its ability to enhance its existing products and to develop and introduce new products on a timely basis. New products and enhancements must keep pace with competitive offerings, adapt to new hardware platforms and emerging industry standards, and provide additional functionality. If Macromedia were unable to develop and introduce such products in a timely manner, this inability would have an adverse effect on the Company's results of operations. Macromedia currently has a number of new products under development. Any delay in these new products' availability could have an adverse impact on the results of operations. For fiscal 1997, 1996, and 1995, the Company's research and development expenses were $30.0 million, $20.0 million, and $12.4 million, respectively. MARKETING Macromedia generates awareness and demand for its products through its Web site at www.macromedia.com, public relations activities, customer seminar series, advertising, and national and regional trade shows. The Company also uses direct mail, both traditional and electronic, to introduce and educate customers about new products and upgrades and to cross-sell products to current customers. In addition, Macromedia sells its products by distributing a variety of interactive multimedia demonstration materials directly to prospective customers, and then follows up through outbound telemarketing. To support users of its tools, the Company sponsors innovative programs and services through its Source & Center programs. One of the more high-profile events is the Macromedia International User Conference held in San Francisco each fall. Macromedia also manages an Authorized Developer Program which certifies third-party developers and refers prospective clients to them. In addition, the Company provides incentives to third-party developers to use the Made with Shockwave and Made with Macromedia(TM) logos respectively on Web- and CD-based multimedia applications that have been authored with the Company's products. In return, the developers pay no license fees to Macromedia. The Company also certifies Authorized Training Centers worldwide to provide third-party training on the use of Macromedia products. The MAGIC (Macromedia Authorized Graphic Imaging Center) program certifies service bureaus to provide the highest level of print service to Macromedia's graphic arts customers. The Company views the education market as a strategic opportunity to establish product and brand preferences early in the careers of future professionals. There are now close to 100 New Media Centers resulting from the Company's partnership with educational institutions committed to developing curricula focused on multimedia and digital arts. A key element of the Company's marketing strategy is to work with industry leaders to develop the digital media market and gain broad acceptance of Macromedia products on all leading platforms. Many such arrangements have been established by the Company. 5 8 SALES AND DISTRIBUTION A substantial majority of the Company's revenues is derived from the sale of its products through a variety of distribution channels, including traditional software distributors, educational distributors, VARs, OEMs, hardware and software superstores, retail dealers, mail order, and direct sales. Domestically, the Company's products are sold primarily through distributors, VARs, and OEMs. In particular, one distributor, Ingram Micro, Inc., accounted for 24%, 21% and 23% of revenues in fiscal 1997, 1996 and 1995, respectively. Internationally, the Company's products are sold through distributors. The Company's resellers generally offer products of several different companies, including in some cases products that are competitive with the Company's products. There can be no assurance that the Company's resellers will continue to purchase the Company's products or provide them with adequate levels of support. In addition, the Company believes that certain distributors are reducing their inventory in the channel and returning unsold products to better manage their inventories. In addition, distributors are increasingly seeking to return unsold product, particularly when such products have been superseded by a new version or upgrade of a product. If the Company's distributors were to seek to return increasing amounts of products, such returns could have a material adverse effect on the Company's revenues and results of operations. The loss of, or a significant reduction in sales volume to, a significant reseller could have a material adverse effect on the Company's results of operations. The Company's sales and distribution channels are targeted at the buying patterns of the Company's three principal customer types: multimedia, graphic arts, and Web publishing professionals. Software Distributors--Macromedia sells and distributes its products primarily through large national software distributors, such as Ingram Micro, Inc., Merisel, Inc., MicroAge, and Tech Data Corporation which in turn distribute the Company's products through large retail chains, mail order, national corporate resellers, and small independent dealers. The Company supports this channel by referring mail order and retail dealer sales through distributors. The Company's direct sales staff calls on large distributors and retailers and assists them in the placement of orders and the management of inventory of the Company's products. The Company receives monthly inventory and sales reports from its major distributors and major retailers to help monitor sales through this channel. As is typical in the personal computer software industry, the Company grants its distributors limited rights under a stock balancing policy to return unsold inventories of the Company's products in exchange for new purchases. In addition, the Company provides price protection to its distributors in certain instances where it reduces the price of its products. International Distributors--With distributors in more than 50 countries around the world, international sales of Macromedia products accounted for 51% of total revenues during the last fiscal year. In many cases, the distributor has exclusive distribution rights to certain products or for certain platforms in its country and, in certain cases, has the responsibility for preparing "localized" versions of Macromedia's products in the language of the country. The Company believes that the international markets for its products present a strategic opportunity and expects that international sales will continue to generate a significant percentage of its total revenues. The Company continues to actively review its international distribution arrangements. Value Added Resellers (VARs)-- Macromedia sells the Authorware Interactive Studio, Backstage Internet Studio, and Director Multimedia Studio through VARs selected by Macromedia based on their knowledge of the products and applications. During fiscal 1997, the standards for VAR selection were reviewed and refined, resulting in fewer, more highly qualified VARs. Many of the VARs have experience selling Macromedia products, computer-aided design software, and video editing systems. They add value to Macromedia products by providing complementary services, primarily training and development. 6 9 Educational Market Distributors--Macromedia sells its products to educational institutions primarily through distributors such as Ingram Micro Inc., Douglas Stewart, and Educational Technology Specialists, Inc., which specialize in selling to the education market, e.g. bookstores, campus resellers, educational mail order companies, and Macromedia education value-added resellers (VARs). The Company offers substantial educational discounts on (i) its individual products to seed the market, (ii) on ten-packs of products to stimulate adoption by computer and multimedia laboratories, and (iii) for on-site licenses under which educational institutions can obtain institution-wide licenses of a mix of Macromedia products. Further discounts are available on related materials and services. OEM Distribution--Macromedia actively maintains OEM relationships with many hardware and software vendors that bundle Macromedia products with their own complementary hardware or software products and pay the Company a per unit royalty. The Company believes that OEM sales increase the brand recognition of its products and expand its customer base. Inside Sales--The Company offers product upgrades and services, including membership in various authorized programs, directly to qualified third-parties and end users. Direct sales, by selling to repeat customers in the Company's installed base of registered users, complements Macromedia's indirect distribution channel. Technology Licensing--For certain large customers, the Company enters into licensing agreements under which the customer has the right to reproduce and use Macromedia software. TECHNICAL SERVICES The Technical Services department offers training and technical support and is dedicated to increasing customer satisfaction by supporting customers in their on-going relationship with the Company. Training--Through its Authorized Training Centers and authorized third-party training specialists, the Company offers training worldwide for Authorware, Director, and FreeHand. The training classes are led by professional instructors and provide customers with hands-on learning experiences. Technical Support--The Company provides customer support on a complimentary basis via Designers and Developers Centers for each Macromedia product on www.macromedia.com, where customers can search more than 2,000 technical documents to answer their questions and participate in discussion forums with other customers and Macromedia employees. The Company provides complimentary technical support to customers via phone and fax for a period of 90 days after the first technical support contact from a customer. Thereafter, the Company offers a technical support plan, Priority Access(TM), that provides the customer with access to a toll-free support line; priority in the call queue; priority response to e-mail, mail, and fax inquiries; and 24-hour voicemail messaging. The Company also offers high-end developer support and per-incident support. COMPETITION Sales of the Company's Director, FreeHand, and Authorware products have generally represented and are expected to continue to represent a substantial majority of the Company's total revenues. The Company expects that its revenues will continue for the foreseeable future to be substantially dependent on these products. A decline in sales of any of these products, as a result of competition, technological change, or other factors, would have a materially adverse effect on the Company's results of operations. To date, a majority of the Company's revenues has been derived from its products for the Macintosh. Although sales of the Company's products for Windows accounted for 44% of the Company's total revenues in fiscal 1997 and are expected to become an increasingly important component of the Company's revenues, a leveling-off or decline in the sales rate of Macintosh computers or shifts in mail order or other distribution mechanisms for Macintosh products could have a materially adverse effect on the Company's results of operations. 7 10 The markets for the Company's products are highly competitive and characterized by pressure to reduce prices, incorporate new features, and accelerate the release of new product versions. For example, the decrease in price of the Authorware Interactive Studio in the second quarter of fiscal 1997 led to an increase in unit sales but resulted in a decrease in revenue as the unit increase was not sufficient to offset the price decrease. A number of companies currently offer products that compete directly or indirectly with one or more of the Company's products. These companies include Adobe Systems Incorporated ("Adobe"), Aimtech Corporation, Apple Computer, Inc., Asymetrix Corporation, Autodesk, Inc., Corel Corporation ("Corel"), Microsoft Corporation ("Microsoft") and Strata Incorporated. As the Company competes with larger competitors such as Adobe, Corel, and Microsoft across a broader range of product lines and different platforms, the Company may face increasing competition from such companies. The Company believes that the principal competitive factors in the graphic arts, multimedia, and Web publishing tools categories are product features and quality, price, ease-of-use, brand name recognition, access to both physical and electronic distribution channels, reliability, and quality of support services. The Company believes that it competes favorably with respect to each of these factors. In the event that price competition significantly increases, competitive pressures could cause the Company to reduce the prices of its products, which would result in reduced profit margins. Prolonged price competition would have an adverse effect on the Company's operating results and financial condition. A variety of other potential actions by the Company's competitors, including increased promotion and accelerated introduction of new or enhanced products, could have a material adverse effect on the results of operations. Although the Company believes that its principal products have achieved market acceptance, there can be no assurance that they will continue to do so. Furthermore, there is a possibility that new personal and network computer hardware platforms or new multimedia delivery systems may provide new entrants with opportunities to make substantial inroads into the graphic arts, multimedia, or Web publishing tools market segments. PROPRIETARY RIGHTS AND LICENSES The Company relies on a combination of copyright, trade secret, and trademark laws, and employee third-party nondisclosure agreements, to protect its intellectual property rights and products. The Company distributes its software under a "shrink-wrap" license agreement and generally does not obtain signed license agreements from its end users. The Company uses a hardware lock-out device with respect to certain versions of its software that are sold internationally but otherwise does not copy-protect its software. It may be possible for unauthorized third parties to copy the Company's products or to reverse engineer or obtain and use information that the Company regards as proprietary. There can be no assurance that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which software piracy of its products exists, software piracy can be expected to be a persistent problem. In addition, the laws of certain countries in which the Company's products are or may be distributed do not protect the Company's products and intellectual rights to the same extent as the laws of the United States. The Company is a member of the Business Software Alliance (BSA) and the Software Publishers Association (SPA) and supports their efforts to stop the unauthorized distribution of software. The Company believes that its products, intellectual property, and other proprietary rights do not infringe on the proprietary rights of third parties. From time to time, however, the Company has received communications from third parties asserting that features or content of certain of its products may infringe intellectual property rights of such parties. To date, no such claim has resulted in litigation or in the payment of any claims, 8 11 and the Company believes that the impact of any such known claims will be immaterial. However, as the number of software products in the industry increases and the functionality of these products further overlaps, the Company believes that its software increasingly will become the subject of claims that such software infringes the rights of others. There can be no assurance that third parties will not assert infringement claims against the Company in the future or that any such assertion will result in costly litigation or require the Company to obtain a license to intellectual property rights of third parties. There can be no assurance that such licenses will be available on reasonable terms or at all. The Company licenses certain software products from other companies to create suites of multimedia products. There can be no assurance that upon the expiration of these licenses, such licenses will be available on reasonable terms or at all, or that similar products could be obtained to substitute into the suites. MANUFACTURING AND SHIPPING The Company is dependent on a sole source, Stream International ("Stream"), for the manufacture and shipment of its finished products. The manufacture of the Company's products typically consists of duplicating diskettes, pressing CD-ROMs, printing manuals, and packaging and assembling finished products, all of which are in accordance with the Company's specifications and forecasts. The Company currently performs quality assurance testing at its own facilities. Stream operates multiple facilities that are capable of serving the Company's needs, and the Company believes any alternative sources could not be implemented without undue delay. To date, the Company has not experienced any material difficulties or delays in the manufacture or assembly of its products or material returns due to product defects. Looking forward, the Company believes that manufacturing and shipping will include not only copying bits onto disks for physical distribution, but also copying bits onto servers for electronic distribution. EMPLOYEES As of March 31, 1997, the Company had 455 full-time employees, including 40 in North American sales; 37 in international sales; 89 in marketing; 218 in development, quality assurance, and documentation; and 71 in finance and administration. The employees and the Company are not parties to any collective bargaining agreements, and the Company believes that its relations with its employees are good. 9 12 ITEM 2. PROPERTIES The Company's primary facility consists of approximately 125,000 square feet located in a multi-story building in San Francisco, California. This space houses a majority of the Company's United States operations. The facility is leased pursuant to an agreement that expires August 31, 2005. Macromedia has two options to renew for successive five-year terms at 95 percent of the then current fair market value of the space. The Company also holds a right of first refusal to additional space when it becomes available. The Company has completed its construction of a four story 100,000 square foot facility, located on land purchased in Redwood City, California. The Company initially plans to occupy 50,000 square feet and lease the remaining 50,000 square feet. The Company occupied the building on May 5, 1997 by transferring its employees from its San Mateo locations where the Company was leasing 29,665 square feet. The Company has entered into sub-lease agreements to cover the remaining lease periods at the former San Mateo locations. In addition, the Company currently leases approximately 20,000 square feet in Richardson, Texas. The Company believes its facilities are adequate for current and near-term needs and that additional space is available to provide for anticipated growth during the life of the leases. The Company also leases space in Berkshire, England, for its European operations, Victoria, Australia, for its Asia Pacific operations and in Tokyo, Japan, for its Japanese operations. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On March 3, 1997, the Company held a Special Meeting of Stockholders. The stockholders passed the following proposal by the votes indicated.
Votes Votes Votes Broker Matter For Against Abstained Non-Votes ------ --- ------- --------- --------- Amendment to the 1992 Equity 28,297,054 3,761,018 241,306 0 Incentive Plan to increase the number of shares of Common Stock reserved for issuance thereunder from 9,000,000 shares to 10,800,000 shares (an increase of 1,800,000 shares).
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the Company's current executive officers as of May 30, 1997:
NAME AGE POSITION - ---- --- -------- Robert K. Burgess 39 President and Director John C. Colligan 42 Chairman of the Board of Directors Norman K. Meyrowitz 37 Chief Technology Officer, Senior Vice President and General Manager of the Internet and Multimedia Authoring Business John C. Parsons, Jr. 45 Vice President of Finance and Operations, Chief Financial Officer and Secretary James N. White 35 Vice President and General Manager of the Interactive Learning Business
Mr. Burgess has been President and a director of the Company since November 1996. Prior to joining the Company, Mr. Burgess was Senior Vice President of Silicon Graphics, Inc., responsible for the Silicon Interactive Strategic Business Unit. Prior to this position, he was President of Alias/Wavefront, a wholly-owned independent software subsidiary of Silicon Graphics, created from the 1995 merger of Alias Research, Inc. and Wavefront Technologies, Inc. From 1992 to 1995, he was 10 13 President, CEO, COO and Director of Alias Research. Prior to joining Alias Research, Mr. Burgess held a number of senior management positions at Silicon Graphics, including Vice President of Marketing, Applications and Business Development (1991), Vice President of Applications (1990) and President of Silicon Graphics Canada, Inc., (1984-90). A Canadian, Mr. Burgess earned a Bachelors degree in Commerce from McMaster University. Mr. Colligan has been Chairman of the Company since February 1996 and a director since March 1992. He was Chief Executive Officer from January 1993 to November 1996, President from December 1992 to November 1996 and Chief Operating Officer of the Company from March 1992 to December 1992. Mr. Colligan was President, Chief Executive Officer and a director of Authorware from December 1988 until its merger into the Company in March 1992. Prior to joining Authorware, Mr. Colligan was employed by Apple Computer, Inc. in a variety of positions from May 1983 until December 1988, most recently as Director of Marketing and Sales for Higher Education. Mr. Colligan holds a Bachelor of Science degree in international economics from Georgetown University and a Master of Business Administration from Stanford University. Mr. Colligan is a director of S3 Corporation and c/net, inc. Mr. Meyrowitz has been Chief Technology Officer since February 1996 and manages Macromedia's engineering, quality assurance, and documentation efforts for the Director Multimedia Studio, the FreeHand Graphics Studio, the Backstage Internet Studio, the Authorware Interactive Studio, SoundEdit 16, Deck II, xRes, Video, and Extreme 3D products, as well as cross-product integration and engineering operations. He has been Senior Vice President and General Manager of the Company's Internet and Multimedia Authoring Business since January 1997. From October 1994 to February 1996, he was Vice President of Product Development, San Francisco, and from October 1993 to October 1994, he was Director of Strategic Technology. From May 1991 to October 1993, he served as Director of System/User Software at GO Corporation. From October 1981 to May 1991, he served in various positions at Brown University; in his last position, he was Co-Director of the university's Institute for Research in Information and Scholarship (IRIS) where he managed and was the principal architect of IRIS's Intermedia system. Mr. Meyrowitz graduated from Brown in 1981 with a Bachelor of Science degree in computer science. He is a member of the ACM and the IEEE Computer Society. Mr. Parsons has been Vice President of Finance and Operations, Chief Financial Officer and Secretary of the Company since February 1997. Prior to joining the Company, Mr. Parsons served as Vice President, Finance and Operations and Chief Financial Officer of The Learning Company from December 1994 through February 1996, thereafter taking a one-year leave. Prior to joining The Learning Company, from October 1989 to December 1994, Mr. Parsons was a partner with Coopers & Lybrand in San Jose, California. Mr. Parsons holds degrees in Bachelor of Science in Economics from Boston College and Master of Business Administration from Babson College. Mr. White was hired as Vice President of Marketing for the Company in January 1997 and was reassigned to be the Vice President and General Manager of the Company's Interactive Learning Business in February 1997. Prior to joining the Company, Mr. White held various positions at Silicon Graphics including: Vice President of Marketing for Silicon Interactive Group from May 1996 to December 1996, Director of Marketing of the Digital Media Systems Division from July 1994 to May 1996, Director of Marketing of the Interactive Systems Division from October 1992 to July 1994 and Product Line Manager of the Entry Systems Division from December 1990 to October 1992. Mr. White holds degrees in Bachelor of Science in Industrial Engineering from Northwestern University and Master of Business Administration from Harvard University. 11 14 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the Nasdaq National Market under the symbol MACR. The following table sets forth, for the periods indicated, the high and low closing prices for the Company's common stock as reported by Nasdaq. Prices have been retroactively adjusted to reflect the 2-for-1 stock split that occurred on October 16, 1995.
FISCAL 1997 HIGH LOW - ----------- ---- --- 4th Quarter 18.25 7.50 3rd Quarter 22.00 15.75 2nd Quarter 25.63 14.13 1st Quarter 48.63 21.25 FISCAL 1996 HIGH LOW - ----------- ---- --- 4th Quarter 53.00 32.75 3rd Quarter 62.50 24.375 2nd Quarter 30.50 21.44 1st Quarter 21.75 15.38
The Company has not paid cash dividends and has no present plans to do so. There were 561 stockholders of record as of May 30, 1997, excluding stockholders whose stock is held in nominee or street name by brokers. 12 15 ITEM 6. SELECTED FINANCIAL DATA SELECTED FIVE-YEAR FINANCIAL DATA
Years ended March 31, - -------------------------------------------------------------------------------------------------- (in thousands, except per share data) 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: Total revenues $ 107,365 $116,691 $55,892 $37,542 $31,462 Total cost of revenues 23,246 19,600 9,618 6,478 6,411 Total operating expenses 98,125 69,411 39,057 27,236 24,431 Operating income (loss) (14,006) 27,680 7,217 3,828 620 Net income (loss) (5,920) 23,002 6,538 3,475 241 Net income (loss) per share $ (0.16) $ 0.59 $ 0.19 $ 0.12 $ 0.01 Shares used in computing net income (loss) per share 37,488 39,044 34,414 30,018 25,146
All income per share amounts reflect a two-for-one stock split which became effective October 16, 1995. BALANCE SHEET DATA: Cash, cash equivalents, and short-term investments $ 102,451 $116,662 $33,981 $27,172 $ 1,290 Working capital 92,611 119,005 33,273 28,217 827 Total assets 156,897 155,122 52,430 38,503 12,270 Long-term liabilities - - 136 225 118 Total stockholders' equity 131,916 133,181 39,681 31,860 4,205
13 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW. The Company completed one acquisition in fiscal 1997, which was accounted for as a pooling of interests. To effect the combination, Macromedia exchanged 600,000 shares of its common stock for all of the common stock of FutureWave Software, Inc. ("FutureWave") (see Note 2 of Notes to Consolidated Financial Statements). FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
TOTAL REVENUES - ---------------------------------------------------- (in thousands) 1997 1996 % Change - ---------------------------------------------------- Product revenue $103,234 $112,577 (8%) Service revenue 4,131 4,114 - - ------------------------------------------- Total revenues $107,365 $116,691 (8%) ======================
The Company derives revenue primarily from software sales to domestic and international distributors, VARs, OEMs, corporate accounts and registered users. To a lesser extent, revenues are also derived from training services and from contracts to provide maintenance to customers. The Company's principal products from which it derived approximately 87% of its fiscal 1997 revenues are Director, FreeHand and Authorware, in both standalone and studio format. Revenues were lower in fiscal 1997 due to an increased provision for product returns, a decline in technology licensing revenues and modest declines in FreeHand and Authorware revenues, which were partially offset by an increase in overall Director product revenues, despite the slippage of the release of the new version of Director from the fourth quarter of fiscal 1997 to the first quarter of fiscal 1998. Macintosh-based revenue fell 20%, while Windows-based revenue climbed 26%. Windows product revenues represented 44% of total revenue for fiscal 1997 compared to 34% for fiscal 1996. Service revenue remained constant between fiscal 1997 and fiscal 1996.
COST OF REVENUES ------------------------------------------------------------ (in thousands) 1997 1996 % Change - -------------------------------------------------------------------- Cost of product revenue $21,167 $17,295 22% Cost of service revenue 2,079 2,305 (10%) - ------------------------------------------------------- Total cost of revenues $23,246 $19,600 19% ===================== Percentage of total revenues 22% 17%
Cost of product revenue includes cost of goods sold, reserves for excess and obsolete inventory, royalties paid to third parties, and amortization costs related to localization and acquired technology. Cost of product revenue increased as a percentage of product revenues and in absolute dollars due primarily to additional reserves for excess and obsolete inventory built in anticipation of higher revenues. Cost of service revenue includes technical support personnel and related costs including travel and lodging associated with providing services. These costs decreased as a percentage of service revenue due to high margin Web site advertising revenue which commenced in fiscal 1997 and should continue in fiscal 1998.
OPERATING EXPENSES -------------------------------------------------- (in thousands) 1997 1996 % Change - ------------------------------------------------------------------ Sales and marketing $59,627 $41,387 44% Percentage of total revenues 56% 35% - ------------------------------------------------------- Research and development $30,013 $20,033 50% Percentage of total revenues 28% 17% - ------------------------------------------------------- General and administrative $ 8,135 $ 5,466 49% Percentage of total revenues 8% 5% - ------------------------------------------------------- Merger $ 350 $ 2,525 (86%) Percentage of total revenues - 2% - -------------------------------------------------------
14 17 Sales and marketing expenses increased in fiscal 1997 in absolute dollars due to increased headcount and related expenses, costs associated with the restructuring of the sales distribution channel including recruiting, severance costs and the resolution of disputed claims for market development funds, the timing of discretionary marketing expenses such as product launch costs, advertising, direct mail and marketing and promotional efforts associated with new product releases, the recording of uncollectible accounts receivable and increased travel. Expenses increased as a percentage of revenues due to lower sales levels and the recording of the additional expenses discussed above. Research and development expenses increased in fiscal 1997 in absolute dollars due primarily to planned increases in headcount and higher outside services costs as a result of an increase in products under development. Expenses increased as a percentage of revenues due to lower sales levels. General and administrative expenses increased in fiscal 1997 in absolute dollars due primarily to planned increases in headcount and costs associated with building the infrastructure required to support the growth of the Company. Expenses increased as a percentage of revenues due to lower sales levels. Following the acquisition of FutureWave, the Company recorded merger costs in fiscal 1997 of $350,000 which included transaction fees for financial and legal advisers and relocation expenses.
OTHER INCOME (EXPENSE) ----------------------------------------------------- (in thousands) 1997 1996 % Change - --------------------------------------------------------------- Total other income, net $4,609 $4,101 12% Percentage of total revenues 4% 4% - -----------------------------------------------------
Other income increased in fiscal 1997 due primarily to increased interest and investment income earned on higher average cash balances achieved through the Company's secondary offering of common stock in July 1995, offset by foreign exchange losses resulting from increased sales denominated in foreign currencies.
PROVISION (BENEFIT) FOR INCOME TAXES ------------------------------------------------------------ (in thousands) 1997 1996 % Change - ------------------------------------------------------------------------------ Provision (benefit) for income taxes $(3,477) $8,779 - Percentage of total revenues (3%) 8% - -------------------------------------------------------------------
The Company realized a benefit of 37% in fiscal 1997, compared to a provision of 28% in fiscal 1996. The tax expense for fiscal 1996 was reduced by $4,555,000 as a result of a reduction in the beginning of year valuation allowance. As of March 31, 1997, the balance in the valuation account is $14,551,000.
NET INCOME (LOSS) ----------------------------------------------------- (in thousands) 1997 1996 % Change - ----------------------------------------------------------------------- Net income (loss) $(5,920) $23,002 - Percentage of total revenues (6%) 20% - ------------------------------------------------------------
The decrease in net income (loss) was due primarily to lower revenues and higher operating expenses. FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
TOTAL REVENUES -------------------------------------------------- (in thousands) 1996 1995 % Change - ---------------------------------------------------------- Product revenue $112,577 $53,528 110% Service revenue 4,114 2,364 74% - ---------------------------------------------- Total revenues $116,691 $55,892 109% =======================
15 18 The growth in product revenue reflected ongoing strength across Macromedia's principal products, which grew 113% in fiscal 1996 resulting from strong market growth and the continuing development of the Company's customer base, indirect sales channels, and strategic partnerships. Service revenue increased by 74% as a result of the Company's strategy to focus on high value-added consulting and to offer additional service and support options.
COST OF REVENUES ----------------------------------------------------- (in thousands) 1996 1995 % Change - ----------------------------------------------------------------------- Cost of product revenue $17,295 $8,125 113% Cost of service revenue 2,305 1,493 54% - ---------------------------------------------------------- Total cost of revenues $19,600 $9,618 104% ====================== Percentage of total revenues 17% 17%
Cost of product revenue remained constant as a percentage of total revenues as the increase in cost attributable to bringing localization in-house was offset by cost reduction programs. Cost of service revenue decreased as a percent of service revenue due to an increased number of consulting projects and increased student to teacher class ratios.
OPERATING EXPENSES ---------------------------------------------------------------- (in thousands) 1996 1995 % Change - ---------------------------------------------------------------------------------- Sales and marketing $41,387 $20,181 105% Percentage of total revenues 35% 36% - --------------------------------------------------------------------- Research and development $20,033 $12,360 62% Percentage of total revenues 17% 22% - --------------------------------------------------------------------- General and administrative $ 5,466 $ 3,491 57% Percentage of total revenues 5% 6% - --------------------------------------------------------------------- Merger, relocation, and reorganization $ 2,525 $ 3,025 (17%) Percentage of total revenues 2% 5% - ---------------------------------------------------------------------
Sales and marketing expenses increased in fiscal 1996, but declined as a percentage of total revenues. The increase was due primarily to marketing and promotional efforts associated with new product releases, management's commitment to fund discretionary marketing, and an increase in cooperative advertising. In addition, higher revenue also led to increases in certain variable selling expenses. Research and development expenses increased in fiscal 1996, but declined as a percentage of total revenues. The increase was due primarily to additional headcount as a result of the increase of products under development. The Company released ten major products in fiscal 1996 compared to five in fiscal 1995. General and administrative expenses increased in fiscal 1996, but declined as a percentage of total revenues. The increase was due to additional headcount and costs associated with building the infrastructure required to support the growth of the Company. Following the three acquisitions of Fauve Software, Inc. ("Fauve"), OSC, Inc. ("OSC"), and iband, Inc. ("iband"), the Company recorded merger costs in 1996 which included transaction fees for financial and legal advisers and relocation and reorganization expenses, which included approximately $1.4 million relating to the issue of 40,000 shares of the Company's common stock for payment to certain entities and individuals to settle certain iband obligations.
OTHER INCOME (EXPENSE) ------------------------------------------------------ (in thousands) 1996 1995 % Change - ------------------------------------------------------------------- Total other income, net $4,101 $376 991% Percentage of total revenues 4% 1%
Other income increased in fiscal 1996 due primarily to higher interest income from higher cash balances that were generated from the Company's secondary offering of common stock and normal operations. 16 19
PROVISION FOR INCOME TAXES ------------------------------------------------------ (in thousands) 1996 1995 % Change - --------------------------------------------------------------------- Provision for income taxes $8,779 $1,055 732% Percentage of total revenues 8% 2%
After using available net operating loss carryforwards, the Company's effective tax rate for fiscal 1996 was 28%, compared to 14% in 1995. Tax expense for the year was reduced by $4,555,000 as a result of a reduction in the valuation allowance for deferred tax assets. As of March 31, 1996, the balance in the valuation account is $9,646,000. NET INCOME -------------------------------------------------------- (in thousands) 1996 1995 % Change - ---------------------------------------------------------------------- Net income $23,002 $6,538 252% Percentage of total revenues 20% 12% The increase in net income was due primarily to higher revenues. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had cash, cash equivalents and short-term investments of $102,451,000. For fiscal 1997, cash provided by operating activities of $14,045,000 was primarily attributable to increased cash collections of accounts receivable, as well as non-cash charges such as depreciation, amortization and reserves against revenues, accounts receivable and inventory, which more than offset a net loss of $5,920,000. Cash used in investment activities of $31,485,000 was due primarily to purchases totaling $15,217,000 for the land, building, and capital equipment related to the Company's new engineering facility in Redwood Shores, California. Additionally, the Company spent approximately $12,072,000 on capital equipment, primarily for management information systems and engineering equipment, and facilities expansion. The Company anticipates spending approximately $14,000,000 on capital purchases through the end of fiscal 1998. Cash provided by financing activities of $4,008,000 was due primarily to proceeds from the exercise of common stock options. The Company's working capital decreased by $26,394,000 from March 31, 1996 to $92,611,000 at March 31, 1997. In addition to cash, cash equivalents, and short-term investments, the Company has $15,000,000 available under an unsecured revolving line of credit. The line of credit bears interest at the bank's prime rate and expires on July 15, 1997. The Company anticipates that this line of credit will be renewed. As of March 31, 1997, the Company had no borrowings outstanding. Management believes that existing cash, cash equivalents, and short-term investments, available bank borrowings and cash generated from operations will be sufficient to meet the Company's cash and investment requirements through at least fiscal 1998. FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS Except for the historical information contained in this Annual Report, the matters discussed herein are forward looking statements that involve risks and uncertainties, including those related to management of growth, quarterly fluctuations of operating results, sales of Windows and Macintosh products, impact of competition, the developing multimedia, Internet and on-line services markets, and the other risks detailed below, and from time to time in the Company's other reports filed with the Securities and Exchange Commission. The actual results that the Company achieves may differ materially from any forward looking statements due to such risks and uncertainties. FLUCTUATIONS OF OPERATING RESULTS; PRODUCT INTRODUCTION DELAYS. The Company's quarterly operating results may vary significantly depending on the timing of new product introductions and enhancements by the Company. A substantial portion of the Company's revenues are derived from its three key products: Director, FreeHand and Authorware, in both standalone and studio format. The Company has in the past experienced delays in the development of new products and enhancement of existing products, and such delays may occur in the future. If the Company were unable, due to resource constraints or technological or other reasons, to develop and introduce such products in a timely manner, this inability could have a material adverse effect on the Company's results of operations. For instance, results for the third quarter were significantly affected by the shipment of a new version of FreeHand and the FreeHand Graphics Studio and by a decline in sales of Director in anticipation of a new version which was originally expected to be released in the fourth quarter of fiscal 1997. 17 20 The release of the new version of Director was delayed in order for the Company to perform additional quality assurance testing before releasing the product to the market, causing a significant decline in expected fourth quarter revenue. If the Company does not ship new versions of its products as planned, or sales of existing versions decline, the Company's results of operations in a given quarter could be materially adversely affected. The Company's quarterly results of operations also may vary significantly depending on the timing of product introductions by competitors, changes in pricing, execution of technology licensing agreements and the volume and timing of orders received during the quarter, which are difficult to forecast. The future operating results of the Company may fluctuate as a result of these and other factors, including the Company's ability to continue to develop or acquire innovative products, its product and customer mix and the level of competition. The Company's results of operations may also be affected by seasonal trends. A significant portion of the Company's operating expenses is relatively fixed, and planned expenditures are based primarily on sales forecasts. As a result, if revenues do not meet the Company's forecasts, operating results may be materially adversely affected. For example, in fiscal 1997, actual revenues were lower than plan revenues. Since operating expenses were budgeted based on plan revenues and the revenue shortfall was not mitigated by a decline in operating expenses, the Company experienced a substantial loss for fiscal 1997. DEPENDENCE ON MACINTOSH PLATFORM. A majority of the Company's revenues has been derived from its products for the Macintosh. Although sales of the Company's products for Windows accounted for approximately 44% of total revenue for fiscal 1997 and are expected to become an increasingly important component of the Company's revenues, the Company remains heavily dependent on the sale of products for the Macintosh platform. Apple Computer, Inc. continues to report declining sales of its Macintosh computers, substantial losses and additional restructurings. A continuing leveling-off or decline in the sales rate of multimedia-capable Macintosh computers or shifts in mail-order or other distribution mechanisms for Macintosh products could have a material adverse effect on the Company's results of operations. DEPENDENCE ON DISTRIBUTORS. A substantial majority of the Company's revenues is derived from the sale of its products through a variety of distribution channels, including traditional software distributors, educational distributors, VARs, OEMs, hardware and software superstores, retail dealers, mail order, and direct sales. Domestically, the Company's products are sold primarily through distributors, VARs, and OEMs. In particular, one distributor, Ingram Micro, Inc., accounted for 24%, 21% and 23% of revenues in fiscal 1997, 1996 and 1995, respectively. Internationally, the Company's products are sold through distributors. The Company's resellers generally offer products of several different companies, including in some cases products that are competitive with the Company's products. There can be no assurance that the Company's resellers will continue to purchase the Company's products or provide them with adequate levels of support. In addition, the Company believes that certain distributors are reducing their inventory in the channel and returning unsold products to better manage their inventories. In addition, distributors are increasingly seeking to return unsold product, particularly when such products have been superseded by a new version or upgrade of a product. If the Company's distributors were to seek to return increasing amounts of products, such returns could have a material adverse effect on the Company's revenues and results of operations. The loss of, or a significant reduction in sales volume to, a significant reseller could have a material adverse effect on the Company's results of operations. RISKS ASSOCIATED WITH ACQUISITIONS. Macromedia has grown in part because of combinations with other companies. In January 1995, Macromedia acquired Altsys Corporation, which developed the FreeHand graphic design and illustration product whose revenues prior to that date consisted primarily of royalties from Aldus Corporation, which had marketed FreeHand until January 1995, and revenues from Fontographer, software for creating and modifying fonts. In August 1995, the Company acquired Fauve Software, Inc., a developer of image editing software. In December 1995, the Company acquired OSC, a developer of digital audio production software. In March 1996, the Company acquired iband, Inc., a developer of Internet Web site development tools. In December 1996, the Company acquired FutureWave Software, Inc., a developer of Internet graphics and animation software. 18 21 Except for FreeHand, none of the acquired products has accounted for a significant portion of the Company's revenues to date. Additionally, there are integration risks associated with merging two companies including financial, administrative and cultural concerns. There can be no assurance that sales of the Company's existing products will either continue at historical rates or increase, or that new products introduced by the Company, whether developed internally or acquired, will achieve market acceptance. The Company's historical rates of growth should not be taken as indicative of growth rates that can be expected in the future. INTENSE COMPETITION. The markets for the Company's products are highly com- petitive and characterized by pressure to reduce prices, incorporate new features, and accelerate the release of new product versions. For example, the decrease in price of the Authorware Interactive Studio in the second quarter of fiscal 1997 led to an increase in unit sales but resulted in a decrease in revenue as the unit increase was not sufficient to offset the price decrease. A number of companies currently offer products that compete directly or indirectly with one or more of the Company's products. These companies include Adobe Systems Incorporated ("Adobe"), Aimtech Corporation, Apple Computer, Inc., Asymetrix Corporation, Autodesk, Inc., Corel Corporation ("Corel"), Microsoft Corporation ("Microsoft") and Strata Incorporated. As the Company competes with larger competitors such as Adobe, Corel and Microsoft across a broader range of product lines and different platforms, the Company may face increasing competition from such companies. RAPIDLY CHANGING TECHNOLOGY. The developing digital media, Internet and online services markets, and the personal computer industry in general, are characterized by rapidly changing technology, resulting in short product life cycles and rapid price declines. The Company must continuously update its existing products to keep them current with changing technology and must develop new products to take advantage of new technologies that could render the Company's existing products obsolete. The Company's future prospects are highly dependent on its ability to increase functionality of existing products in a timely manner and to develop new products that address new technologies and achieve market acceptance. Shorter product life cycles may lead to inventory obsolescence problems. In the fourth quarter of fiscal 1997, the Company was adversely affected by the delay in the release of the upgraded version of Director from the fourth quarter of fiscal 1997 to the first quarter of fiscal 1998. New products and enhancements must keep pace with competitive offerings, adapt to new platforms and emerging industry standards and provide additional functionality. There can be no assurance that the Company will be successful in these efforts. RISKS OF INTERNATIONAL OPERATIONS. For the twelve months ended March 31, 1997, the Company derived approximately 51% of its total revenues from international sales. The Company expects that international sales will continue to generate a significant percentage of its total revenues. The Company relies on distributors for sales of its products in foreign countries and, accordingly, is dependent on their ability to promote and support the Company's products, and in some cases, to translate them into foreign languages. International business is subject to a number of special risks, including foreign government regulation; general geopolitical risks such as political and economic instability, hostilities with neighboring countries and changes in diplomatic and trade relationships; more prevalent software piracy; unexpected changes in, or imposition of, regulatory requirements, tariffs, import and export restrictions and other barriers and restrictions; longer payment cycles, greater difficulty in accounts receivable collection, potentially adverse tax consequences, the burdens of complying with a variety of foreign laws; foreign currency risk; and other factors beyond the control of the Company. As of April 1, 1996, the Company's revenues generated through international sales in certain European countries are denominated in local currency, while expenses continue to be denominated in the local currency of the countries in which the Company has offices. As a result of this program, the Company has entered into hedging contracts to protect it from exchange rate fluctuations. As of March 31, 1997, the contracts outstanding totaled $5,022,000. These contracts are of a short-term duration and the fair value of such contracts equals the market value as of March 31, 1997. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. 19 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS Macromedia, Inc. and Subsidiaries
March 31, ---------------------------------------------------------------- (in thousands, except share data) 1997 1996 - ------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 15,397 $ 28,829 Short-term investments 87,054 87,833 Accounts receivable, less allowance for returns and doubtful accounts of $7,786 and $4,377, respectively 2,315 14,601 Inventory 1,882 1,568 Prepaid expenses and other current assets 3,407 4,275 Deferred tax assets, short-term 7,537 3,840 - ------------------------------------------------------------------------------------------------- Total current assets 117,592 140,946 Property and equipment, net 34,150 12,219 Other long-term assets 4,185 1,122 Deferred tax assets, long-term 970 835 - ------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 156,897 $ 155,122 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,486 $ 11,364 Accrued liabilities 7,537 9,342 Unearned revenue 2,958 1,235 - ------------------------------------------------------------------------------------------------- Total liabilities 24,981 21,941 Stockholders' equity: Common stock, par value $0.001 per share; 80,000,000 shares authorized; 37,742,965 and 36,413,211 shares issued and outstanding as of 1997 and 1996, respectively 38 36 Additional paid-in capital 133,962 129,591 Deferred compensation (149) (415) Unrealized gain on investments 297 - Retained earnings (accumulated deficit) (2,232) 3,969 - ------------------------------------------------------------------------------------------------- Total stockholders' equity 131,916 133,181 - ------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 156,897 $ 155,122 ===========================
See accompanying notes to consolidated financial statements. 20 23 CONSOLIDATED STATEMENTS OF OPERATIONS Macromedia, Inc. and Subsidiaries
Years ended March 31, ------------------------------------------------------------------------------------ (in thousands, except per share data) 1997 1996 1995 - ---------------------------------------------------------------------------------------------- Revenues: Product revenue $ 103,234 $ 112,577 $ 53,528 Service revenue 4,131 4,114 2,364 - ---------------------------------------------------------------------------------------------- Total revenues 107,365 116,691 55,892 - ---------------------------------------------------------------------------------------------- Cost of revenues: Cost of product revenue 21,167 17,295 8,125 Cost of service revenue 2,079 2,305 1,493 - ---------------------------------------------------------------------------------------------- Total cost of revenues 23,246 19,600 9,618 - ---------------------------------------------------------------------------------------------- Gross profit 84,119 97,091 46,274 - ---------------------------------------------------------------------------------------------- Operating expenses: Sales and marketing 59,627 41,387 20,181 Research and development 30,013 20,033 12,360 General and administrative 8,135 5,466 3,491 Merger, relocation, and reorganization 350 2,525 3,025 - ---------------------------------------------------------------------------------------------- Total operating expenses 98,125 69,411 39,057 - ---------------------------------------------------------------------------------------------- Operating income (loss) (14,006) 27,680 7,217 - ---------------------------------------------------------------------------------------------- Other income (expense): Interest and investment income, net 5,353 4,307 1,135 Reserve on related party note receivable - - (507) Foreign exchange loss (639) (98) (88) Other (105) (108) (164) - ---------------------------------------------------------------------------------------------- Total other income 4,609 4,101 376 - ---------------------------------------------------------------------------------------------- Income (loss) before taxes (9,397) 31,781 7,593 Provision (benefit) for income taxes (3,477) 8,779 1,055 - ---------------------------------------------------------------------------------------------- Net income (loss) $ (5,920) $ 23,002 $ 6,538 ============================================ Net income (loss) per share $ (0.16) $ 0.59 $ 0.19 ============================================ Weighted average common shares outstanding 37,488 39,044 34,414 ============================================
See accompanying notes to consolidated financial statements. 21 24 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Macromedia, Inc. and Subsidiaries
Years ended March 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------------------------------------------------- (in thousands, except share data) Notes Common stock Additional receivable paid-in Deferred from Shares Amount capital compensation stockholders - -------------------------------------------------------------------------------------------------------------------------- Balances as of March 31, 1994 29,459,096 $ 15 $ 55,380 $ - $ (89) Exercise of stock options 1,398,302 1 1,037 - - Repurchase of common stock (31,500) - (40) - - Common stock issued under Employee Stock Purchase Plan 83,640 - 387 - - Tax benefit from employee stock plans - - 526 - - Common stock issued under stock appreciation rights 91,070 - 976 - - Adjustment for change in Altsys Corporation fiscal year-end - - - - - Note receivable repayment - - - - 89 Foreign currency translation adjustment - - - - - Net income - - - - - - ------------------------------------------------------------------------------------------------------------------------- Balances as of March 31, 1995 31,000,608 16 58,266 - - Exercise of stock options 1,461,806 1 3,467 - - Exercise of warrants 11,680 - - - - Common stock issued under Employee Stock Purchase Plan 61,732 - 1,011 - - Tax benefit from employee stock plans - - 8,827 - - Sale of common stock in secondary offering, net of issuance costs of $435 2,442,676 2 55,844 - - Two-for-one common stock split - 15 (15) - - Adjustment for effect of poolings on prior periods 1,434,709 2 1,776 - - Deferred compensation -- iband - - 415 (415) - Net income - - - - - - ------------------------------------------------------------------------------------------------------------------------- Balances as of March 31, 1996 36,413,211 36 129,591 (415) - Exercise of stock options 595,063 1 2,492 - - Common stock issued under Employee Stock Purchase Plan 134,691 - 1,515 - - Adjustment for effect of poolings on prior periods 600,000 1 526 - - Deferred compensation -- iband - - (162) 266 - Unrealized gain on investments - - - - - Net loss - - - - - - ------------------------------------------------------------------------------------------------------------------------- Balances as of March 31, 1997 37,742,965 $ 38 $ 133,962 $ (149) $ - =========================================================================================================================
Years ended March 31, 1997, 1996 and 1995 - --------------------------------------------------------------------------------------------------------------- (in thousands, except share data) Retained Foreign Unrealized earnings currency Total gain on (accumulated translation stockholders' investments deficit) adjustments equity - --------------------------------------------------------------------------------------------------------------- Balances as of March 31, 1994 $ - $(23,237) $ (209) $ 31,860 Exercise of stock options - - - 1,038 Repurchase of common stock - - - (40) Common stock issued under Employee Stock Purchase Plan - - - 387 Tax benefit from employee stock plans - - - 526 Common stock issued under stock appreciation rights - - - 976 Adjustment for change in Altsys Corporation fiscal year-end - (1,902) - (1,902) Note receivable repayment - - - 89 Foreign currency translation adjustment - - 209 209 Net income - 6,538 - 6,538 - --------------------------------------------------------------------------------------------------------------- Balances as of March 31, 1995 - (18,601) - 39,681 Exercise of stock options - - - 3,468 Exercise of warrants - - - - Common stock issued under Employee Stock Purchase Plan - - - 1,011 Tax benefit from employee stock plans - - - 8,827 Sale of common stock in secondary offering, net of issuance costs of $435 - - - 55,846 Two-for-one common stock split - - - - Adjustment for effect of poolings on prior periods - (432) - 1,346 Deferred compensation -- iband - - - - Net income - 23,002 - 23,002 - --------------------------------------------------------------------------------------------------------------- Balances as of March 31, 1996 - 3,969 - 133,181 Exercise of stock options - - - 2,493 Common stock issued under Employee Stock Purchase Plan - - - 1,515 Adjustment for effect of poolings on prior periods - (281) - 246 Deferred compensation -- iband - - - 104 Unrealized gain on investments 297 - - 297 Net loss - (5,920) - (5,920) - --------------------------------------------------------------------------------------------------------------- Balances as of March 31, 1997 $ 297 $ (2,232) $ - $ 131,916 ===============================================================================================================
See accompanying notes to consolidated financial statements. 22 25 CONSOLIDATED STATEMENTS OF CASH FLOWS Macromedia, Inc. and Subsidiaries
Years ended March 31, ------------------------------------------------------------------------------------------ (in thousands, except share data) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income (loss) $ (5,920) $ 23,002 $ 6,538 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,766 4,013 2,110 Tax benefit from employee stock plans - 8,827 526 Provision for merger-related cost - 1,628 386 Reserve on related party note receivable - - (507) Compensation expense on stock appreciation rights - - 976 Deferred compensation 104 - - Deferred income taxes (3,832) (4,675) - Changes in operating assets and liabilities, net of effect of mergers: Accounts receivable, net 12,330 (6,561) (1,764) Inventory (279) 33 (1,139) Prepaid expenses and other current assets 868 (2,011) (1,539) Accounts payable 3,106 5,357 3,042 Accrued liabilities (1,821) 5,085 1,245 Unearned revenue 1,723 (1,532) 1,433 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 14,045 33,166 11,307 - ------------------------------------------------------------------------------------------------------------------------------
Chart continued on page 24 23 26 Macromedia, Inc. and Subsidiaries
-------------------------------------------------------------------------------------- (in thousands, except share data) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisition of property and equipment $ (27,289) $ (9,537) $ (4,266) Purchase of short-term investments (922,987) (248,741) (22,855) Maturities and sales of short-term investments 924,063 184,659 16,857 Other long-term assets (2,484) (1,273) (13) Acquisition of intangible assets (2,788) - - - -------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (31,485) (74,892) (10,277) - -------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from secondary offering, net of issuance costs - 55,846 - Proceeds from issuance of common stock 4,008 4,479 1,425 Other - - 49 - -------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 4,008 60,325 1,474 - -------------------------------------------------------------------------------------------------------------------- Foreign currency translation - - 209 - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (13,432) 18,599 2,713 Cash and cash equivalents, beginning of year 28,829 10,230 9,419 Adjustment for change in Altsys Corporation fiscal year-end - - (1,902) - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 15,397 $ 28,829 $ 10,230 ============================================ Supplemental disclosure of cash flow information: Interest paid $ - $ 3 $ 22 ============================================ Income taxes paid $ 3,935 $ 920 $ 449 ============================================ Noncash investing activities: Common stock issued in exchange for stock appreciation rights $ - $ - $ 976 ============================================ Common stock issued in exchange for FutureWave $ 526 $ - $ - ============================================
See accompanying notes to consolidated financial statements. 24 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Macromedia, Inc. and Subsidiaries Years ended March 31, 1997, 1996 and 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS. Macromedia, Inc. (the Company), is a provider of software tools for Web publishing, multimedia and graphics. The Company develops, markets and delivers software tools for digital media creation and delivery anywhere for Windows, Macintosh and the Internet and are available to business, education and government customers. The Company sells its products worldwide through a variety of distribution channels, including original equipment manufacturers (OEMs), traditional software distributors, educational distributors, value-added resellers (VARs), hardware and software superstores, retail dealers, mail order, and direct sales. PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries: Macromedia Europe Limited, located in England; Macromedia Netherlands B.V; Macromedia Ireland Limited; Macromedia Japan KK; and the Company's international branches. All significant intercompany balances and transactions have been eliminated in consolidation. FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's foreign subsidiaries is the U.S. dollar. Assets and liabilities denominated in foreign currencies are translated using the exchange rates at the balance sheet date. Translation adjustments are recorded in the statement of operations. Revenues and expenses are translated using average exchange rates prevailing during the year. USE OF ESTIMATES. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. CONCENTRATION OF CREDIT RISKS. The Company derived approximately 87% of its 1997 revenues from the sale of three products: Director, FreeHand, and Authorware, in both standalone and studio format. The Company expects that its revenues will continue for the foreseeable future to be substantially dependent on these products and that competition for those products will intensify in the future. A decline in sales of any of these products, as a result of competition, technological change, or other factors, would have a material adverse effect on the Company's results of operations. Credit risk in receivables primarily relates to OEMs, and to dealers and distributors of software products to the retail market. Distributors comprise a significant portion of the Company's revenue and trade receivables. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. The Company performs in-depth credit evaluations for all new customers and requires letters of credit, bank guarantees and advance payments, if deemed necessary. For the years ended March 31, 1997, 1996 and 1995, sales to one distributor accounted for 24%, 21% and 23%, respectively, of consolidated revenue. Accounts receivable relating to this customer were $4,019,000 and $3,934,000 as of March 31, 1997 and 1996, respectively. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash equivalents consist of certificates of deposit and money market funds with stated effective maturities of three months or less at the time of purchase. Cash equivalents and all of the Company's short-term investments are classified as "available-for-sale" under the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The amortized cost of available-for-sale debt securities are adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in net investment income. As required by SFAS No. 115, available-for-sale debt securities are recorded at fair value. Unrealized gains and losses, if material, are reported as a separate component of stockholders' equity. Realized gains and 25 28 Macromedia, Inc. and Subsidiaries losses, and declines in value judged to be other than temporary on available-for-sale securities, are included in net investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest and investment income, net. The Company's cash equivalents and short-term investments in marketable equity securities are carried at fair value, based on quoted market prices for these or similar investments. INVENTORY. Inventory consists primarily of software media, hardware product components, manuals, and related packaging materials. Inventory is recorded at the lower of cost or market, determined on a first-in, first-out basis. PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Depreciation of equipment, furniture, and fixtures is provided over estimated useful lives ranging from three to five years using the straight-line method. Leasehold improvements are amortized over the lesser of the lease term (two to nine years) or the estimated useful life of the related assets, ranging from three to nine years. Effective January 1, 1997, the Company reduced the estimated useful life of computer equipment from five to three years for future asset purchases. REVENUE RECOGNITION. In accordance with SOP 91-1, "Software Revenue Recognition," the Company recognizes revenue from product sales upon shipment provided that no significant vendor obligations remain and collection of the resulting receivable is deemed probable. Revenue from software maintenance contracts is recognized on a straight-line basis over the term of the contract, generally one year. Revenue from consulting, training, and other services is generally recognized on the percentage of completion method. The Company has entered into agreements whereby it licenses products to OEMs or provides customers the right to multiple copies. These agreements generally provide for nonrefundable fixed fees which are recognized at delivery of the product master or the first copy. If post-contract customer support (PCS) is not included, per copy royalties in excess of the fixed minimum amounts and refundable license fees are recognized as earned. If PCS is included in the contract, revenue is recognized on a straight-line basis over the term of the contract. The Company maintains an allowance for potential credit losses and an allowance for anticipated returns on products sold to distributors and direct customers. SOFTWARE DEVELOPMENT COSTS. SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, governs accounting for software development costs. This statement provides for capitalization of certain software development costs once technological feasibility is established. The Company believes that software development costs incurred subsequent to technological feasibility have not been material and thus no such costs have been capitalized to date. However, the Company capitalizes the costs paid to third parties to develop localized versions of its software and amortizes such costs to cost of sales at the greater of the amount computed using the ratio of current revenue to total projected revenue or on a straight-line basis over the estimated product life, usually 12 months. MARKETING COSTS. The Company reimburses certain qualified customers for a portion of the advertising costs related to their promotion of the Company's products. The Company's liability for reimbursement is accrued at the time revenue is recognized as a percentage of the qualified customer's net revenue derived from the Company's products. Advertising expenditures are charged to operations as incurred. Total expenses related to marketing development funds and advertising expenses for 1997 were approximately $13,179,000. INCOME TAXES. The Company utilizes SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of the asset and liability method of accounting for income taxes. 26 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Macromedia, Inc. and Subsidiaries NET INCOME (LOSS) PER SHARE. Net income per common and common equivalent share is computed using the weighted-average number of common shares outstanding, and common equivalent shares from the exercise of stock options using the treasury stock method. Net loss per common share is computed using the weighted-average number of common shares outstanding. FUTURE ADOPTION OF NEW ACCOUNTING STANDARD. The Financial Accounting Standards Board recently issued SFAS No. 128, Earnings Per Share. SFAS No. 128 requires the presentation of basic earnings per share (EPS) and, for companies with complex capital structures (or potentially dilutive securities, such as convertible debt, options and warrants), diluted EPS. SFAS No. 128 is effective for annual and interim periods ending after December 15, 1997. The Company will adopt the new standard during its fiscal 1998 third-quarter ended December 31, 1997, and has not yet determined the effect of adoption. RECLASSIFICATION. Certain amounts in the accompanying 1996 and 1995 consolidated financial statements have been reclassified in order to conform with the presentation of the 1997 consolidated financial statements. 2. BUSINESS COMBINATIONS 1997 POOLING OF INTERESTS. In December 1996, the Company issued 600,000 shares of its common stock in exchange for all of the common stock of FutureWave Software, Inc., a developer of Internet graphics and animation software. The 1997 merger expenses of $350,000 associated with this acquisition consisted principally of transaction fees for financial and legal advisers. The transaction was accounted for as a pooling of interests. The impact of the pooling on all periods prior to fiscal 1997 is immaterial; therefore, the results for those periods have not been restated. The accounts and operations of the acquired company are included in the Company's consolidated financial statements subsequent to its acquisition. 1996 POOLINGS OF INTERESTS. The Company completed three separate acquisitions in fiscal 1996, as described below, which were accounted for as poolings of interests. The impact of the poolings on all periods prior to fiscal 1996 is immaterial both in the aggregate, as well as individually, and, therefore, results for those periods have not been restated. The accounts and operations of all three of the acquired companies are included in the Company's consolidated financial statements subsequent to their acquisition. FAUVE. On August 30, 1995, the Company issued 580,000 shares of its common stock in exchange for all of the common stock of Fauve Software, Inc., the developer of xRes, a full-featured image editing and composition application for Macintosh and Windows, and Matisse, a full-color painting program for Windows. The 1996 merger expenses of $400,000 associated with this acquisition consisted principally of transaction fees for financial and legal advisers, and relocation and reorganization expenses. OSC. On December 2, 1995, the Company acquired the business and operations of OSC pursuant to the exchange of all of the outstanding shares of OSC for 62,001 shares of the Company's common stock. OSC is the developer of DECK II, software for professional quality multi-track music and sound production. The 1996 merger expenses of $225,000 related to this acquisition consisted principally of transaction fees for financial and legal advisers, and relocation and reorganization expenses. IBAND. Effective March 14, 1996, the Company merged with iband, Inc., a developer of a family of tools used to build dynamic Web sites on the Internet. The transaction was accounted for as a pooling of interests; the Company exchanged 860,000 shares of common stock and stock options for all outstanding shares and stock options of iband. The 1996 merger expenses of $1,900,000 relating to costs incurred in connection with the merger of the Company and iband, included transaction fees for financial and legal advisers and relocation and reorganization expenses, including approximately $1,400,000 relating to the issuance of an additional 40,000 shares of the Company's common stock for payment to certain entities and individuals to settle certain iband obligations. 27 30 Macromedia, Inc. and Subsidiaries MERGER WITH ALTSYS CORPORATION. On January 19, 1995, the Company issued approximately 4.3 million shares of its common stock in exchange for all of the common stock of Altsys Corporation (Altsys), a corporation that designs font editing and graphics design software programs for business use. Upon consummation of the merger, the Company issued approximately 45,000 shares of common stock in exchange for previously outstanding Altsys stock appreciation rights. In addition, the Company assumed Altsys stock options to purchase approximately 83,000 shares of the Company's common stock subsequent to the merger (see Note 8). The merger has been accounted for as a pooling of interests, and, accordingly, the consolidated financial statements for periods prior to the combination have been restated to include the results of operations, financial position, and cash flows of Altsys. Information concerning common stock, employee stock option plans, and per share data has been restated on an equivalent stock basis. Prior to the combination, Altsys' fiscal year ended on December 31. In recording the business combination, Altsys' financial statements for the nine months ended September 30, 1994 and the three months ended March 31, 1995, have been combined with the Company's consolidated financial statements for the year ended March 31, 1995. The retained earnings charge for Altsys' quarter ended December 31, 1994, to conform year-ends included a charge of approximately $1.4 million for compensation expense related to the stock appreciation rights and is summarized below (in thousands): ---------------------------------------------------- Revenue $ 1,409 ========= Expenses $ (3,311) ========= Net income $ (1,902) =========
The results of operations for the separate enterprises and the combined amounts presented in the accompanying consolidated statements of income for the nine month period ended December 31, 1994, are summarized below (in thousands): - ----------------------------------- Revenue: Macromedia, Inc. $29,622 Altsys Corporation 5,272 - ----------------------------------- Combined $34,894 ======= Net income: Macromedia, Inc. $ 4,702 Altsys Corporation 36 - ----------------------------------- Combined $ 4,738 =======
There were no significant transactions between the Company and Altsys prior to the combination, which required elimination, and no adjustments were required to conform accounting policies. The 1995 merger expense of $3,025,000 relates to costs incurred in connection with the merger of the Company and Altsys. These costs consisted principally of a finder's fee, transaction fees for advisers, financial printing and other related charges, and the cancellation of a contractual agreement. 3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash equivalents and short-term investments amounted to $9,188,000 and $87,054,000, respectively, as of March 31, 1997. As of March 31, 1996, cash equivalents and short-term investments were $16,545,000 and $87,833,000, 28 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Macromedia, Inc. and Subsidiaries respectively. Cash equivalents and short-term investments have been classified as available-for-sale securities and as of March 31, 1997 and 1996 consisted of the following:
----------------------------------------------------- (in thousands) 1997 1996 - ------------------------------------------------------------------------ Corporate notes $ 6,009 $ 7,553 Corporate bonds 16,786 31,738 Commercial paper 24,999 38,942 United States government debt securities 39,260 8,028 Money market funds 1,021 5,502 Certificate of deposit 8,167 12,615 - ------------------------------------------------------------------------ $ 96,242 $104,378 ========================
Available-for-sale securities as of March 31, 1997, consisted of the following, by contractual maturity (in thousands): ---------------------------------------------------- Due in one year or less $ 83,387 Due in one to three years 12,855 - ------------------------------------------------------ $ 96,242 ========
The Company's available-for-sale securities are carried at market value and as of March 31, 1997, included a net unrealized gain of $297,000, principally from U.S. government debt securities. 4. PROPERTY AND EQUIPMENT Property and equipment as of March 31, 1997 and 1996, consisted of the following:
-------------------------------------- (in thousands) 1997 1996 ---------------------------------------------------- Land $7,026 $ - Computer equipment 18,664 13,163 Computer software 2,979 - Office equipment and furniture 8,249 6,074 Leasehold improvements 3,357 1,237 ---------------------------------------------------- 40,275 20,474 Less accumulated depreciation 13,339 8,255 ---------------------------------------------------- 26,936 12,219 Construction in progress - building 7,214 - ---------------------------------------------------- $34,150 $12,219 ================
Depreciation and amortization expense for the years ended March 31, 1997, 1996, and 1995, was $5,084,000, $2,993,000, and $1,603,000, respectively. 5. ACCRUED LIABILITIES Accrued liabilities as of March 31, 1997 and 1996, consisted of the following:
----------------------------------------------------- (in thousands) 1997 1996 - ------------------------------------------------------------------------------- Accrued self insurance $ 384 $ 282 Accrued compensation 649 747 Accrued fringe benefits 1,255 921 Accrued marketing development funds 3,308 2,408 Taxes payable 146 3,468 Other accrued expenses 1,795 1,516 - ------------------------------------------------------------------------------- Total $7,537 $9,342 ============================
29 32 Macromedia, Inc. and Subsidiaries 6. LINE OF CREDIT The Company has a $15,000,000 unsecured line of credit with a bank with interest at the bank's prime rate which expires on July 15, 1997. Certain financial covenants under the agreement become effective when borrowings commence. As of March 31, 1997, no borrowings had been made on this line of credit. 7. INCOME TAXES The components of the provision for income taxes (benefit) for the years ended March 31, 1997, 1996, and 1995, are as follows:
-------------------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------- Current: Federal $ - $ 3,519 $ 199 State 13 765 100 Foreign 342 343 230 Total current 355 4,627 529 Deferred: Federal (3,091) (3,197) - State (741) (1,478) - - -------------------------------------------------------------------------------------------------------------- Total deferred (3,832) (4,675) - - -------------------------------------------------------------------------------------------------------------- Add charge in lieu of taxes attributable to employee stock plans - 8,827 526 - -------------------------------------------------------------------------------------------------------------- Total $(3,477) $ 8,779 $1,055 ======================================================
The provision for income taxes differs from the expected tax expense amount computed by applying the statutory federal income tax rate of 35% to income before income taxes for the years ended March 31, 1997 and 1996, and 34% for the year ended March 31, 1995, as a result of the following:
------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------- Computed tax at statutory rate $(3,289) $ 11,123 $ 2,582 State taxes (473) 497 485 Foreign taxes - - 230 Pre-acquisition taxes of Altsys - - 184 Nondeductible acquisition costs - 768 - Change in beginning of year valuation allowance on deferred tax assets - (4,555) (2,582) Alternative minimum tax - - 156 Other 285 946 - - ------------------------------------------------------------------------------------------- Total $(3,477) $ 8,779 $ 1,055 ============================================
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets as of March 31, 1997 and 1996, is presented as follows:
---------------------------------------------------- (in thousands) 1997 1996 - --------------------------------------------------------------------------- Reserves, accruals, and other $ 7,900 $ 3,995 Net operating loss carryforward (federal) 11,088 6,931 Net operating loss carryforward (state) 299 140 Credit for increasing research activities 3,225 2,854 Other credits 546 401 - --------------------------------------------------------------------------- Total deferred tax assets 23,058 14,321 Less valuation allowance 14,551 9,646 - --------------------------------------------------------------------------- Net deferred tax assets $ 8,507 $ 4,675 ========================
30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Macromedia, Inc. and Subsidiaries As of March 31, 1997, the Company has available federal and state net operating loss carryforwards of approximately $32,000,000 and $5,000,000, respectively. The Company also has unused research and alternative minimum tax credit carryforwards of approximately $2,200,000 and $1,600,000 for federal and California purposes, respectively. If not utilized, net operating loss carryforwards and the credit carry-forwards will expire in fiscal years 2002 through 2012. Approximately $13,200,000 of the valuation allowance for deferred tax assets is attributable to employee stock plans, the benefit from which will be allocated to paid-in capital rather than current earnings when subsequently recognized. The Company's ability to utilize the loss carryforwards and certain research credit carryforwards are subject to limitations pursuant to the ownership change rules of Internal Revenue Code, Section 382. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets. 8. STOCKHOLDERS' EQUITY STOCK SPLIT. Effective October 16, 1995, the Company completed a 2-for-1 stock split of its common stock which was effected in the form of a stock dividend. In this report, all per share amounts and number of shares have been retroactively restated to reflect the stock split. PREFERRED STOCK. The Company is authorized to issue 5,000,000 shares of convertible preferred stock with a par value of $0.001 per share. STOCK OPTION PLANS. As of March 31, 1997, there are stock options outstanding in connection with the following stock option plans: (i) MacroMind 1989 Incentive and Nonstatutory Stock Option Plans (ii) Paracomp 1989 Stock Option Plan (iii) Authorware 1988 Stock Option Plan (iv) 1992 Equity Incentive Plan (EIP) (v) 1993 Employee Stock Purchase Plan (ESPP) (vi) 1993 Directors Stock Option Plan The options outstanding under the plans indicated at (i) through (iii) (Prior Plans) above were assumed as a result of the Company being the successor company resulting from merger activities. The EIP provides for the grant of incentive and nonqualified stock options, restricted stock, and stock bonuses. The total number of shares reserved pursuant to the EIP as of March 31, 1997, was 10,800,000 shares. Any shares issuable upon exercise of options granted pursuant to the Prior Plans that expire or become unexercisable for any reason without having been exercised in full shall no longer be available for distribution under the Prior Plans, but shall be available for distribution under the EIP. The 1993 Employee Stock Purchase Plan and the 1993 Directors Stock Option Plan have reserved 400,000 and 300,000 shares of common stock, respectively, for issuance under those plans. Under the ESPP and subject to certain limitations, employees may purchase, through payroll deductions of 2 to 10% of compensation, shares of common stock at a price per share that is the lesser of 85% of the fair market value as of the beginning of the offering period or the end of the purchase period. As of March 31, 1997, 280,063 shares had been issued under the plan. In connection with the Altsys and iband acquisitions, all of the outstanding options to purchase Altsys and iband common stock were converted into options to purchase the Company's common stock. All of the Company's options converted from Altsys options were exercised as of March 31, 1995. During fiscal 1997, the Company granted non-plan options to its President at the time of hire, to acquire 1,000,000 shares of common stock at an exercise price of $15.00 per share, representing the fair market value of the stock at the time of grant. Stock options are granted at a price equal to fair market value at the time of the grant and normally vest over four years from the date of grant. The options expire 10 years from the date of grant and are normally canceled three months after an employee's termination. 31 34 Macromedia, Inc. and Subsidiaries The following summarizes stock option activity for the years ended March 31, 1997, 1996, and 1995:
-------------------------------------------------- Weighted- Number Exercise price average of shares per share exercise price - ---------------------------------------------------------------------------------- Options outstanding as of March 31, 1994 4,879,928 $0.20 - 9.63 $ 1.816 Granted 3,330,794 4.75 - 16.50 9.034 Exercised (1,398,302) 0.20 - 10.94 0.856 Canceled (1,067,256) 0.22 - 10.94 5.730 - --------------------------------------------------------------------------------- Options outstanding as of March 31, 1995 5,745,164 0.20 - 16.50 5.508 Granted 2,426,215 0.31 - 41.31 25.194 Exercised (1,461,806) 0.20 - 36.88 2.364 Canceled (346,547) 0.34 - 40.00 14.075 - --------------------------------------------------------------------------------- Options outstanding as of March 31, 1996 6,363,026 0.20 - 41.31 13.270 Granted 5,291,715 8.44 - 44.50 15.581 Exercised (595,063) 0.20 - 40.00 4.194 Canceled (2,600,123) 0.31 - 40.00 25.530 - --------------------------------------------------------------------------------- Options outstanding as of March 31, 1997 8,459,555 $0.20 - 44.50 $12.200 =================================================
As of March 31, 1997, 1996 and 1995 options to purchase 3,067,496, 1,869,848 and 907,499 shares of common stock, respectively, were exercisable under the plans. The weighted-average fair value of options granted during the years ended March 31, 1997 and 1996, was $9.049 and $16.084, respectively. The Company has recorded deferred compensation of $415,000 for the difference between the grant price and the deemed fair value of the common stock underlying the options issued in connection with the iband acquisition in March 1996. This amount is amortized over the vesting period of the individual options, generally four years. The remaining balance as of March 31, 1997, is $149,000. Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company is required to disclose the pro forma effects on net income (loss) and net income (loss) per share data as if the Company had elected to use the fair value approach to account for all its employee stock-based compensation plans. Had compensation cost for the Company's plans been determined consistent with the fair value approach enumerated in SFAS No. 123, the Company's pro forma net loss and pro forma net loss per share for the year ended March 31, 1997, and the pro forma net income and pro forma net income per share for the year ended March 31, 1996, would have been increased as indicated below:
----------------------------------------------------- (in thousands) 1997 1996 - ------------------------------------------------------------------------------- Pro forma net income (loss): As reported $ (5,920) $ 23,002 Adjusted pro forma (13,838) 20,602 Pro forma net income (loss) per share: As reported $ (0.16) $ 0.59 Adjusted pro forma (0.37) 0.53 ===============================
The fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997 and 1996: -------------- 1997 1996 - --------------------------------------------------------- Weighted-average risk free rate 6.27% 5.77% Expected life (years) 3.00 3.00 Volatility 83.00 83.00 Dividend yield - -
32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Macromedia, Inc. and Subsidiaries The following table summarizes information about fixed stock options outstanding as of March 31, 1997:
Options outstanding Options exercisable -------------------------------------------- -------------------------------- Weighted- average Weighted Weighted- Number of remaining average Number of average Range of exercise prices options contractual life exercise price options exercise price - ---------------------------------------------------------------------------------------------------------------- From $ 0.20 to $ 0.96 658,185 5.52 $ 0.595 642,976 $ 0.601 From $ 1.44 to $ 3.00 373,026 6.30 2.840 327,510 2.831 From $ 3.50 to $ 5.25 729,658 7.14 4.844 482,531 4.771 From $ 6.00 to $ 9.00 448,206 8.84 7.774 323,104 7.772 From $ 9.31 to $13.00 1,627,278 8.49 11.261 511,870 11.179 From $14.69 to $22.00 4,305,078 9.11 15.627 671,572 16.395 From $22.38 to $32.75 268,461 8.60 26.702 93,931 25.942 From $34.00 to $44.50 49,663 8.84 39.692 14,002 39.383 - ---------------------------------------------------------------------------------------------------------------- From $ 0.20 to $44.50 8,459,555 8.39 $ 12.200 3,067,496 $ 8.426 ========= =========
On May 6, 1997, the Company's Board of Directors approved a repricing of approximately 4.9 million outstanding stock options held by existing employees, excluding the Company's Chairman and President, to the current fair market value of the Company's stock. 33 36 Macromedia, Inc. and Subsidiaries 9. COMMITMENTS AND CONTINGENCIES ROYALTIES. The company has entered into agreements with third parties that provide for royalty payments based on a per unit wholesale price of certain products. LEASES. The Company leases office space and certain equipment under operating leases, certain of which contain renewal and purchase options. Future minimum payments under operating leases with an initial term of more than one year are summarized as follows (in thousands):
---------------------------------------------------- 1998 $ 3,676 1999 3,544 2000 3,112 2001 2,474 2002 2,539 Thereafter 10,702 ---------------------------------------------------- Total minimum lease payments $ 26,047 =========
Rent expense was $2,994,000, $1,774,000, and $1,131,000 for the years ended March 31, 1997, 1996, and 1995, respectively. LITIGATION. The Company is also subject to various legal matters that arise in the normal course of business. In the opinion of management, any liability resulting from the disposition of such matters would not have a material adverse effect on the financial position of the Company. 10. FOREIGN CURRENCY FORWARD CONTRACTS The Company entered into various forward exchange contracts as of March 31, 1997. The future value of these contracts is subject to market risk resulting from foreign currency exchange rate volatility. The Company has marked-to-market these contracts with the resulting gain (loss) recorded in the statement of operations.
----------------------- Fair Contract value amount - --------------------------------------------------- Forward contracts: Buy currency $ 658 $ 658 Sell currency 4,399 4,364
Contracts mature on May 30, 1997. Current market rates were used to estimate the fair value of foreign currency forward contracts. 11. EMPLOYEE BENEFITS The Company maintains a profit sharing salary deferral 401(k) defined contribution benefit plan that covers all employees who have attained 21 years of age and completed at least 1,000 hours of service. This plan allows employees to defer up to 15% of their pretax salary in certain investments at the discretion of the employee. Employer contributions are made at the discretion of the Company's Board of Directors. Employer contributions made to the plan during the years ended March 31, 1997, 1996, and 1995, were $447,000, $291,000, and zero respectively. 34 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Macromedia, Inc. and Subsidiaries 12. RELATED PARTY Included in other long-term assets is a full recourse loan of $2,000,000 that was extended to the Company's President during fiscal 1997 and is secured by a personal residence. The principal and accrued interest is due in full on November 1, 1999. As of March 31, 1997, the unpaid balance was $2,000,000 with additional accrued interest of $50,000. In addition, a full recourse loan of $410,000 was extended to a Vice President and General Manager in 1997 and is secured by a personal residence. The principal and accrued interest is due in full on January 28, 2002. As of March 31, 1997, the unpaid balance was $410,000 with additional accrued interest of approximately $4,000. 13. INFORMATION BY GEOGRAPHIC AREA The Company's operations outside the United States consist of sales offices of wholly owned subsidiaries in Japan, the United Kingdom, the Netherlands, the Republic of Ireland, and international branches. Domestic operations are responsible for the design and development of all products, as well as shipping to meet worldwide customer commitments. The foreign sales offices receive a commission on export sales within the territory. Accordingly, for financial statement purposes, it is not meaningful to segregate operating profit (loss) for the foreign sales offices. The distribution of net revenues and identifiable assets by geographic areas for the years ended March 31, 1997, 1996, and 1995, follows:
----------------------------------------------------- (in thousands) 1997 1996 1995 --------------------------------------------------------------------- Net revenues: United States $52,534 $67,560 $37,367 Europe 24,721 28,089 8,696 Pacific Rim 30,110 21,042 9,829 --------------------------------------------------------------------- Total net revenues $107,365 $116,691 $55,892 =========================== Identifiable assets: United States $153,615 $154,166 $54,900 Europe 5,255 470 278 Pacific Rim 2,256 1,479 228 Eliminations (4,229) (993) (2,976) --------------------------------------------------------------------- Total assets $156,897 $155,122 $52,430 ===========================
35 38 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Macromedia, Inc. and Subsidiaries Summarized quarterly financial information for fiscal years 1997 and 1996 is as follows:
Quarter ended --------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) Fiscal Fiscal Year June 30 September 30 December 31 March 31 year totals - --------------------------------------------------------------------------------------------------------------------------- 1997: Total revenues $35,010 $31,025 $ 28,104 $ 13,226 $ 107,365 Gross profit 29,576 26,520 22,542 5,481 84,119 Operating income (loss) 8,953 5,455 (3,390) (25,024) (14,006) Net income (loss) 7,120 4,610 (2,359) (15,291) (5,920) Net income (loss) per share(a) 0.18 0.12 (0.06) (0.41) (0.16) - --------------------------------------------------------------------------------------------------------------------------- 1996: Total revenues $23,857 $27,301 $ 30,926 $ 34,607 $ 116,691 Gross profit 19,632 22,626 25,651 29,182 97,091 Operating income 5,231 6,725 8,800 6,924 27,680 Net income 4,423 5,417 7,152 6,010 23,002 Net income per share(a) 0.13 0.15 0.18 0.15 0.59
(a) See Note 1 of notes to consolidated financial statements for an explanation of the determination of the number of shares used in computing net income (loss) per share. 36 39 INDEPENDENT AUDITORS' REPORT Macromedia, Inc. and Subsidiaries THE BOARD OF DIRECTORS MACROMEDIA, INC. AND SUBSIDIARIES: We have audited the accompanying consolidated balance sheets of Macromedia, Inc. and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1997. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Altsys Corporation, a company acquired by Macromedia, Inc. in a business combination accounted for as a pooling of interests as described in Note 2 to the consolidated financial statements, which statements reflect total revenues constituting 9% in fiscal 1995 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Altsys Corporation, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Macromedia, Inc. and subsidiaries as of March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG PEAT MARWICK LLP - ------------------------- Palo Alto, California May 6, 1997 37 40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not Applicable. 38 41 PART III Certain information required by Part III is omitted from this Report since the Company plans to file with the Securities and Exchange Commission the definitive proxy statement for its 1997 Annual Meeting of Stockholders (the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors required by this Item is incorporated by reference to the section in the Company's Proxy Statement entitled "Proposal No. 1 - Election of Directors." The information concerning the Company's executive officers required by this Item is incorporated by reference herein to Part I, Item 4A, entitled "Executives Officers of the Registrant." on page 10 of this Report. The information concerning compliance with Section 16 of the Securities Exchange Act of 1934 is incorporated by reference to the section in the Company's proxy statement entitled " Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the sections in the Company's Proxy Statement entitled "Executive Compensation," "Compensation of Directors," "Employment Agreements," and "Compensation Committee Interlocks and Insider Participation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the section in the Company's Proxy Statement entitled "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the section in the Company's Proxy Statement entitled "Certain Transactions." 39 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: 1. Financial Statements. The following Consolidated Financial Statements of Macromedia, Inc. and Subsidiaries are incorporated by reference from Part II, Item 8 of this Form 10-K:
PAGE ---- Consolidated Balance Sheets - March 31, 1997 and 1996 20 Consolidated Statements of Operations - Years Ended March 31, 1997, 1996, and 1995 21 Consolidated Statements of Stockholders' Equity - Years Ended March 31, 1997, 1996 and 1995 22 Consolidated Statements of Cash Flows - Years Ended March 31, 1997, 1996, and 1995 23 Notes to Consolidated Financial Statements 25 Report of KPMG Peat Marwick LLP 37
2. Financial Statement Schedule. The following financial statement schedule of Macromedia, Inc. and Subsidiaries for the fiscal years ended March 31, 1997, 1996 and 1995 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Macromedia, Inc.
SCHEDULE PAGE - -------- ---- II Valuation and Qualifying Accounts 46
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. 40 43 3. Exhibits
EXHIBIT NUMBER EXHIBIT TITLE - ------ ------------- 2.01 Agreement and Plan of Reorganization by and among the Registrant, Authorware, Inc. and MacroMind/Paracomp, Inc., dated as of February 28, 1992, and certain exhibits thereto. (Incorporated herein by reference to exhibit 2.01 to the Registrant's registration statement on Form S-1 (File number 33-70624) declared effective by the Commission on December 10, 1993 (The "Form S-1")). 2.02 Agreement and Plan of Reorganization among MacroMind, Inc., Paracomp, Inc. and Certain Shareholders of Paracomp, Inc. dated August 21, 1991, as amended October 11, 1991 and certain exhibits thereto. (Incorporated herein by reference to exhibit 2.02 to the Form S-1). 2.03 Agreement and Plan of Reorganization dated October 26, 1994 between the Registrant and Altsys Corporation. (Incorporated herein by reference to exhibit 2.03 to the Registrant's registration statement on Form S-4 (File number 33-87264) declared effective by the Commission on December 14, 1994 (The "Altsys S-4")). 2.04 Agreement of Merger and Articles of Merger dated January 20, 1995 entered into by the Registrant and Altsys Corporation. (Incorporated herein by reference to exhibit 2.04 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994 (the "December 31, 1994 10-Q")). 2.05 Agreement and Plan of Reorganization dated as of August 30, 1995, by and between Macromedia and Fauve and related documents. (Incorporated herein by reference to exhibit 2.01 to the Registrant's Current Report on Form 8-K dated August 31, 1995 (the "Fauve 8-K")). 2.06 Agreement of Merger dated as of August 30, 1995, by and between Macromedia and Fauve. (Incorporated herein by reference to exhibit 2.02 to the Fauve 8-K.) 3.01 Registrant's Certificate of Incorporation, as amended. (Incorporated herein by reference to exhibit 4.01 to the Registrant's registration statement on Form S-8 (File number 33-89092) declared effective by the Commission on February 3, 1995 (The "February 1995 S-8")). 3.02 Certificate of Amendment of Registrant's Amended and Restated Certificate of Incorporation. (Incorporated herein by reference to exhibit 3.02 to the Registrant's Amendment No. 1 to registration statement on Form 8-A filed on October 5, 1995 (the "First 8-A Amendment")). 3.03 Registrant's Bylaws. (Incorporated herein by reference to exhibit 3.02 to the Form S-1). 3.04 Amendment to Registrant's Bylaws effective October 15, 1993. (Incorporated herein by reference to exhibit 3.03 to the Form S-1). 4.01 Investor Rights Agreement, dated as of March 31, 1992, as amended April 1, 1992, between the Registrant and various investors. (Incorporated herein by reference to exhibit 4.01 to the Form S-1).
41 44
EXHIBIT NUMBER EXHIBIT TITLE - ------ ------------- 4.02 Amendment Number 2 to the Investor Rights Agreement effective January 20, 1995. (Incorporated herein by reference to exhibit 4.02 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 (the "March 31, 1995 10-K")). 4.03 Amendment Number Three to Investor Rights Agreement effective July 12, 1995. (Incorporated herein by reference to exhibit 4.03 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (the "June 30, 1995 10-Q")). 4.04 Amendment Number Four to Investor Rights Agreement effective August 31, 1995. (Incorporated herein by reference to exhibit 4.04 to the First 8-A Amendment.) 4.05 Amendment Number Five to the Investor Rights Agreement (Incorporated herein by reference to exhibit 4.06 to Form S-3 (File number 333-644), declared effective February 8, 1996). 4.06 Amendment Number Six to Investor Rights Agreement, effective March 14, 1996 (Incorporated herein by reference to exhibit 4.06 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 (the "March 31, 1996 10-K")). 4.07 Amendment Number Seven to Investor Rights Agreement, effective December 31, 1996. 10.01* 1989 Paracomp Stock Option Plan. (Incorporated herein by reference to exhibit 10.01 to the Form S-1). 10.02* 1989 MacroMind Incentive Stock Option Plan and 1989 Nonstatutory Stock Option Plan as amended March 1992. (Incorporated herein by reference to exhibit 10.02 to the Form S-1). 10.03* 1988 Authorware Stock Option Plan as amended and restated February 1992. (Incorporated herein by reference to exhibit 10.03 to the Form S-1). 10.04* 1992 Equity Incentive Plan and related documents, as amended to date. 10.05* 1993 Directors Stock Option Plan and related documents, as amended to date. (Incorporated herein by reference to exhibit 10.05 to the June 30, 1995 10-Q). 10.06* 1993 Employee Stock Purchase Plan. (Incorporated herein by reference to exhibit 10.06 to the March 31, 1996 10-K). 10.07* Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. (Incorporated herein by reference to exhibit 10.08 to the Form S-1). 10.08* Employment Agreement between the Registrant and John C. Colligan dated December 9, 1988. (Incorporated herein by reference to exhibit 10.09 to the Form S-1). 10.09* Employment and Noncompetition Agreement with Kevin F. Crowder. (Incorporated herein by reference to exhibit 10.12 to the December 31, 1994 10-Q). 10.10* Employment and Noncompetition Agreement with James R. Von Ehr II. (Incorporated herein by reference to exhibit 10.13 to the December 31, 1994 10-Q).
42 45
EXHIBIT NUMBER EXHIBIT TITLE - ------ ------------- 10.11 Lease Agreement by and between Registrant and Toda Development, Inc. dated June 27, 1991 as amended. (Incorporated herein by reference to exhibit 10.07 to the Form S-1). 10.12 Third amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated November 7, 1994 and fourth amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated April 6, 1995. (Incorporated herein by reference to exhibit 10.14 to the March 31, 1995 10-K). 10.13 Fifth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated August 31, 1995 and sixth amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated October 31, 1995. (Incorporated herein by reference to exhibit 10.18 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). 10.14 Seventh Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated December 15, 1995 and Eighth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated January 25, 1996 and Ninth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated February 21, 1996 and Tenth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated April 30, 1996 and Eleventh Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated June 13, 1996. (Incorporated herein by reference to exhibit 10.15 to the March 31, 1996 10-K). 10.15 Twelfth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated November 26, 1996 and Thirteenth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated February 25, 1997 and Fourteenth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated February 25, 1997. 10.16 Termination and License Agreement by and between Altsys Corporation and Aldus Corporation, dated October 24, 1994 (Incorporated herein by reference to exhibit 10.11 to the Altsys S-4). 10.17 Letter Agreement between the Registrant and Michael Solomon (Incorporated herein by reference to exhibit 10.12 to the Altsys S-4). 10.18 Line of Credit Agreement by and between Registrant and Imperial Bank dated August 2, 1995. (Incorporated herein by reference to exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). 10.19** Distribution Agreement by and between the Registrant and Ingram Micro, Inc. dated March 28, 1996. (Incorporated herein by reference to exhibit 10.19 to the March 31, 1996 10-K). 10.20* Employment Agreement between the Registrant and Robert K. Burgess dated August 25, 1996. (Incorporated herein by reference to exhibit 10.20 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). 10.21* Employment Agreement between the Registrant and James White dated January 1, 1997. 10.22* Employment Agreement between the Registrant and John C. Parsons, Jr. dated February 17, 1997. 11.01 Statement regarding computation of per share earnings (loss). 21.01 List of Registrant's subsidiaries. 23.01 Consent of KPMG Peat Marwick LLP, Independent Auditors.
43 46 23.02 Consent of Arthur Andersen LLP, Independent Auditors. 24.01 Power of Attorney (see page 45 of this Form 10-K). 27.01 Financial Data Schedule.
* Represents a management contract or compensatory plan or arrangement ** Confidential treatment has been granted with respect to certain portions of this agreement. Such portions have been redacted and marked with a double asterisk. The non-redacted version of this agreement was sent to the Securities and Exchange Commission pursuant to an application for confidential treatment. (b) Reports on Form 8-K: No reports on Form 8-K were required to be filed for the quarter ended March 31, 1997. With the exception of the information incorporated by reference to the Proxy Statement in Items 10, 11, 12 and 13 of Part III, the Proxy Statement is not deemed to be filed as part of this Report. (c) See Item 14(a)(3) above. (d) See Item 14(a)(2) above. 44 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. MACROMEDIA, INC. By: /s/ Robert K. Burgess Robert K. Burgess President Dated: June 27, 1997 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert K. Burgess and John C. Parsons, Jr., jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- PRINCIPAL EXECUTIVE OFFICER: /s/ Robert K. Burgess President June 27, 1997 Robert K. Burgess PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER: /s/ John C. Parsons, Jr. Vice President of Finance and June 27, 1997 John C. Parsons, Jr. Operations, Chief Financial Officer and Secretary ADDITIONAL DIRECTORS: /s/ John C. Colligan Chairman of the Board of Directors June 27, 1997 John C. Colligan /s/ Kevin F. Crowder Director June 27, 1997 Kevin F. Crowder /s/ L. John Doerr Director June 27, 1997 L. John Doerr /s/ C. Richard Kramlich Director June 27, 1997 C. Richard Kramlich /s/ John C. Laing Director June 27, 1997 John C. Laing /s/ Donald L. Lucas Director June 27, 1997 Donald L. Lucas /s/ William B. Welty Director June 27, 1997 William B. Welty /s/ James R. Von Ehr II Director June 27, 1997 James R. Von Ehr II
45 48 MACROMEDIA, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 1997, 1996 AND 1995 (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD ----------- --------- -------- ---------- --------- Allowance for Doubtful Accounts Year Ended March 31, 1997 $ 935 $1,385 $1,348 $ 972 Year Ended March 31, 1996 $ 399 $ 740 $ 204 $ 935 Year Ended March 31, 1995 $ 321 $ 243 $ 165 $ 399 Allowance for Returns Year Ended March 31, 1997 $3,442 $16,009 $12,637 $6,814 Year Ended March 31, 1996 $1,088 $ 8,923 $ 6,569 $3,442 Year Ended March 31, 1995 $ 639 $ 3,791 $ 3,342 $1,088 Allowance for Obsolete Inventory Year Ended March 31, 1997 $ 754 $3,830 $ 675 $3,909 Year Ended March 31, 1996 $ 533 $ 805 $ 584 $ 754 Year Ended March 31, 1995 $ 160 $ 373 $ - $ 533
46 49
EXHIBIT NUMBER DESCRIPTION PAGE - ------ ----------- ---- 4.07 Amendment Number Seven to Investor Rights Agreement, effective December 31, 1996 49 10.04* 1992 Equity Incentive Plan and related documents, as amended to date 55 10.15 Twelfth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated November 26, 1996 and Thirteenth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated February 25, 1997 and Fourteenth Amendment to Lease Agreement by and between Registrant and Toda Development, Inc. dated February 25, 1997 70 10.21* Employment Agreement between Registrant and James White dated January 1, 1997 80 10.22* Employment Agreement between Registrant and John C. Parsons, Jr. dated February 17, 1997 98 11.01 Statement regarding computation of per share earnings (loss) 105 21.01 List of Registrant's subsidiaries 107 23.01 Consent of KPMG Peat Marwick LLP, Independent Auditors 109 23.02 Consent of Arthur Andersen LLP, Independent Auditors 111 27.01 Financial Data Schedule 113
* Represents a management contract or compensatory plan or arrangement 47 EX-4.07 2 AMENDMENT NO. 7 TO INVESTOR RIGHTS AGREEMENT 1 Exhibit 4.07 48 2 EXHIBIT 4.07 AMENDMENT NUMBER SEVEN TO INVESTOR RIGHTS AGREEMENT The undersigned hereby consents and agrees to this Amendment (this "Amendment") of that certain Investor Rights Agreement, dated as of March 31, 1992 and amended as of April 1, 1992, January 20, 1995, July 12, 1995, August 30, 1995, December 2, 1995 and March 14, 1996 (the "Agreement"), among Macromedia, Inc., a Delaware corporation formerly named MMAW Consolidation Corp. (the "Company"), and the Investors listed on Schedule A thereto, James R. Von Ehr, II, Kevin F. Crowder, Frederick Krueger, Richard Krueger, Josh Rosen, Mats Myrberg, John Dalton, Anthony Wood and Stephen Shannon. The undersigned is currently a "Holder" as defined in the Agreement. This Amendment is contingent upon the closing of the merger of Newco, a Delaware corporation and wholly-owned subsidiary of Macromedia, with and into FutureWave Software, Inc., a California corporation ("FWS"), in a reverse triangular merger (the "Merger"), with FWS to be the surviving corporation. The Amendment will be deemed given as of the date of the consummation of the Merger. References to Sections and capitalized terms in this Amendment that are not otherwise defined herein will have the meaning ascribed to them in the Agreement. 1. S-3 REGISTRATION OF FWS SHARES (a) After the date hereof, Charles Jackson, Jonathan Gay, Robert Tatsumi and Michelle Welsh (referred to herein as the "FWS Shareholders") may request in writing that the Company effect a registration on Form S-3 for the resale by such FWS Shareholder of all or any of the shares of Macromedia Common Stock that the Company issues to such FWS Shareholder upon consummation of the Merger (the shares of Macromedia Common Stock to be issued to the FWS Shareholders or any of them upon the Merger are referred to as the "FWS Shares"), and any related qualification or compliance with respect to all or a part of the FWS Shares owned by such FWS Shareholder. Upon receipt of such request, the Company will: (i) promptly give written notice of the proposed registration, and any related qualification or compliance, to the other FWS Shareholder(s); and (ii) file a registration statement on Form S-3 as provided above within 30 days after receipt of such request and, as soon as practicable, effect such registration (and all such qualifications and compliances as may be so requested) as would permit the sale and distribution of all or such portion of such FWS Shareholder's FWS Shares as are specified in such request, together with all or a portion of the FWS Shares of the other FWS Shareholder joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however: (A) that the FWS Shareholder(s) will sell FWS Shares pursuant to such registration only during an "FWS Permitted Window" (as defined below), only in "brokers' transactions" (as defined in Rule 144 under the Act) and only 49 3 during the two-year period commencing with the effective date of the Merger and the Company will have no obligation to keep a registration statement on Form S-3 effective and/or current after two years following the effective date of the Merger; (B) no FWS Shareholder will sell any FWS Shares, and no FWS Permitted Window will commence, until after the publication of the first quarterly financial statements of the Company that include at least 30 days of combined operating results of the Company and FWS; (C) no FWS Shareholder will sell pursuant to such registration, within 12 months after the date on which the Merger is consummated, 50% or more of the FWS Shares issued to such FWS Shareholder; (D) that, if the Company furnishes to the FWS Shareholder(s) a certificate signed by the President or the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time (or, in the case a "Notice of Resale" (as defined below) has been given, that it would be seriously detrimental to the Company and its stockholders for the FWS Permitted Window to commence or continue at such time) due to the existence of a material development or potential material development involving the Company which the Company would be obligated to disclose in the prospectus contained in the Form S-3 registration statement, which disclosure would in the good faith judgment of the Board of Directors of the Company be premature or otherwise inadvisable at such time and would have a material adverse affect upon the Company and its stockholders, the Company will have the right to defer the filing of the Form S-3 registration statement (or the commencement or continuation of the FWS Permitted Window, as the case may be)during any period in which the securities trading window is closed for the Company's directors and executive officers; and (E) that the Company will not be required to effect any such registration, qualification or compliance in any particular jurisdiction in which the Company would thereby be required to qualify to do business or to execute a general consent to service of process. For the purposes of this Section 1, a "FWS Permitted Window" is a period commencing on the third business day after the release of the Company's quarterly or annual earnings report, as the case may be, to the public and ends thirty days before the end of the next fiscal quarter. In order to cause an FWS Permitted Window to commence, an FWS Shareholder must first give written notice to the Company of such FWS shareholder's present intention to sell some or all of such FWS Shareholder's FWS Shares pursuant to such registration (a "Notice of Resale"). Upon receipt of such Notice of Resale, the Company will give written notice to the FWS Shareholder as soon as practicable, but in no event more than five business days after such receipt, that the prospectus contained in the registration statement is current (it may be necessary for the Company during this period to supplement the prospectus or make an appropriate filing under the 1934 Act so as to cause the prospectus to become current) and that the FWS Permitted Window will commence on the date of such notice by the Company or that the Company is required 50 4 under the Act and the regulations thereunder to amend the registration statement in order to cause the prospectus to be current (unless a certificate of the President or the Chief Executive Officer is delivered as provided in (ii)(D) above). In the event that the Company determines an amendment is necessary as provided above, it will file and cause the amendment to become effective as soon as practicable; whereupon it will notify the FWS shareholder that the FWS Permitted Window will then commence. (b) All expenses incurred in connection with such registration, and any related qualification or compliance, including, without limitation, all registration, filing, qualification, printers' and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the FWS Shareholders (the fees of such counsel not to exceed $20,000) shall be borne by the Company. (c) A registration effective pursuant to this Section 1 will not be counted as a demand for registration under Section 1.2 of the Agreement and will not trigger any registration or notice rights under Section 1.3 or 1.12 of the Agreement. (d) Paragraphs (b), (c), (d) and (f) of Section 1.4 of the Agreement will apply to a registration under this Section 1, provided that the term "Holder" will, for the purposes hereof be deemed to refer only to the FWS Shareholders. (e) It will be a condition precedent to the obligations of the Company to register pursuant to this Section 1 any FWS Shares of any FWS Shareholders that such FWS Shareholders furnish to the Company for inclusion in the S-3 registration statement such information regarding such FWS Shareholder and the FWS Shares held by such FWS Shareholder as will be required to effect the registration of such FWS Shareholders of FWS Shares; provided, however that no FWS Shareholders will be required to make any representations or warranties or agreements with the Company except as to such matters. 2. AMENDMENT OF DEFINITIONS OF "REGISTRABLE SECURITIES" AND "HOLDERS." For purposes of Sections 1.9, 1.10, 1.11(a), (c) and (d), 1.13, 1.14, 1.15 (provided that the market stand-off provided for in Section 1.15 will apply to the FWS Shares only if the FWS Shareholders are permitted to include their FWS Shares in the applicable registration without limitation) 1.16 and 3.1 through 3.9 (except that, notwithstanding anything to the contrary in Section 3.9, no amendment to the Agreement that materially changes this Amendment may be made without the written consent of the FWS Shareholder(s) holding at least a majority of the FWS Shares) of the Agreement (specifically excluding the other Sections of this Agreement), (a) the term "Registrable Securities" will be deemed to include the FWS Shares and (b) the term "Holders" will be deemed to include the FWS Shareholders so long as such individuals hold FWS Shares. The provisions of Section 1.2, 1.3, 1.5, 1.6, 1.7, 1.8, 1.11(b), 1.12, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7 and 2.8 will not apply to the FWS Shareholders or any of their FWS Shares. The provisions of Section 1.4 will apply to the FWS Shareholders and their shares of Macromedia Common Stock only to the extent explicitly provided for in Section 1 of this Amendment. 3. EFFECTIVENESS OF AMENDMENT. As provided in Section 3.9 of the Agreement, this Amendment shall be binding upon each holder of any Registrable Securities then 51 5 outstanding, any future holder of such Registrable Securities and the Company. This Amendment shall be effective when (a) the written consent of Macromedia and the holders of a majority of the Registrable Securities currently outstanding is obtained, and (b) the Merger has been consummated as evidenced by the filing of the Agreement of Merger, the Articles of Merger and such other certificates and agreements as may be required by the Secretaries of State of the States of Delaware and California. This Consent shall be void and have no effect if the Agreement and Plan of Reorganization dated as of December 31, 1996 is terminated in accordance with its terms before the Merger is consummated. 4. COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 52 6 MACROMEDIA, INC. HOLDER OF REGISTRABLE SECURITIES By: /s/ Robert K. Burgess ---------------------------------- ----------------------------------- Robert K. Burgess, Authorized Signature President ----------------------------------- Printed Name ----------------------------------- Authorized Signature ----------------------------------- Printed Name ACCEPTANCE BY THE FWS SHAREHOLDERS Agreed to and Accepted: Charles H. Jackson and Hallie E. Jackson, as Trustees FOB the Jackson Living Trust /s/ Charles H. Jackson - ------------------------------------------ Charles H. Jackson, Trustee /s/ Hallie E. Jackson - ------------------------------------------ Hallie E. Jackson, Trustee /s/ Jonathan Gay - ------------------------------------------ Jonathan Gay /s/ Robert Tatsumi - ------------------------------------------ Robert Tatsumi /s/ Michelle Welsh - ------------------------------------------ Michelle Welsh [SIGNATURE PAGE TO AMENDMENT NUMBER SEVEN TO INVESTOR RIGHTS AGREEMENT] 53 EX-10.04 3 1992 EQUITY INCENTIVE PLAN 1 Exhibit 10.04 54 2 MACROMEDIA, INC. 1992 EQUITY INCENTIVE PLAN As Adopted September 23, 1992 and amended through March 3, 1997 1. PURPOSE. The purpose of the Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent, Subsidiaries and Affiliates, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 24. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to the Plan shall be 10,800,000 Shares. Any Shares issuable upon exercise of options granted pursuant to the Authorware 1988 Stock Option Plan, the Macromind, Inc. 1989 Incentive Stock Option Plan and 1989 Nonstatutory Stock Option Plan, and the Paracomp, Inc. 1989 Stock Option Plan (the "Prior Plans") that expire or become unexercisable for any reason without having been exercised in full, shall no longer be available for distribution under the Prior Plans, but shall be available for distribution under this Plan. Subject to Sections 2.2 and 18, Shares shall again be available for grant and issuance in connection with future Awards under the Plan that: (a) are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option, (b) are subject to an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price, or (c) are subject to an Award that otherwise terminates without Shares being issued. 2.2 Adjustment of Shares. In the event that the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under the Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Committee; and provided, further, that the Exercise Price of any Option may not be decreased to below the par value of the Shares. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisers of the Company or any Parent, Subsidiary or Affiliate of the Company; provided such consultants, contractors and advisers render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No 55 3 "Named Executive Officer" (as that term is defined in Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act) shall be eligible to receive more than 1,800,000 Shares at any time during the term of this Plan pursuant to the grant of Awards hereunder. A person may be granted more than one Award under the Plan. 4. ADMINISTRATION. 4.1 Committee Authority. The Plan shall be administered by the Committee or the Board acting as the Committee. Subject to the general purposes, terms and conditions of the Plan, and to the direction of the Board, the Committee shall have full power to implement and carry out the Plan. The Committee shall have the authority to: (a) construe and interpret the Plan, any Award Agreement and any other agreement or document executed pursuant to the Plan; (b) prescribe, amend and rescind rules and regulations relating to the Plan; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination, in tandem, in replacement of, or as alternatives to, other Awards under the Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of the Plan. 4.2 Committee Discretion. Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under the Plan to Participants who are not Insiders of the Company. 56 4 4.3 Compliance With Code Section 162(m). If two or more members of the Board are Outside Directors, the Committee shall be comprised of at least two members of the Board, all of whom are Outside Directors. 5. OPTIONS. The Committee may grant Options to eligible persons and shall determine whether such Options shall be Incentive Stock Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under the Plan shall be evidenced by an Award Agreement which shall expressly identify the Option as an ISO or NQSO ("Stock Option Agreement"), and be in such form and contain such provisions (which need not be the same for each Participant) as the Committee shall from time to time approve, and which shall comply with and be subject to the terms and conditions of the Plan. 5.2 Date of Grant. The date of grant of an Option shall be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of the Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options shall be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement; provided, however, that no Option shall be exercisable after the expiration of one hundred twenty (120) months from the date the Option is granted, and provided further that no Option granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company ("Ten Percent Stockholder") shall be exercisable after the expiration of five (5) years from the date the Option is granted. The Committee also may provide for the exercise of Options to become exercisable at one time or from time to time, periodically or otherwise, in such number or percentage as the Committee determines. 5.4 Exercise Price. The Exercise Price shall be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO shall be not less than 100% of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Stockholder shall not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of the Plan. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "Exercise Agreement") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares, if any, and such representations and agreements regarding Participant's investment intent and access to information, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 57 5 5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option shall always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than ninety (90) days after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event, no later than the expiration date of the Options. (b) If the Participant is terminated because of death or Disability (or the participant dies within three months of such termination), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company or any Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, the Options for the first $100,000 worth of Shares to become exercisable in such calendar year shall be ISOs and the Options for the amount in excess of $100,000 that become exercisable in that calendar year shall be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of the Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit shall be automatically incorporated herein and shall apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of Participant, impair any of Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered shall be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of the Plan for Options granted on the date the action is taken to reduce the Exercise Price; provided, further, that the Exercise Price shall not be reduced below the par value of the Shares, if any. 58 6 5.10 No Disqualification. Notwithstanding any other provision in the Plan, no term of the Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee shall determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "Purchase Price"), the restrictions to which the Shares shall be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to the Plan shall be evidenced by an Award Agreement ("Restricted Stock Purchase Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. The offer of Restricted Stock shall be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer shall terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award shall be determined by the Committee and shall be at least 85% of the Fair Market Value of the Shares when the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price shall be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of the Plan. 6.3 Restrictions. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. The Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or part, based on length of service, performance or such other factors or criteria as the Committee may determine. 7. STOCK BONUSES. 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent, Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in Participant's individual Award Agreement (the "Performance Stock Bonus Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the 59 7 achievement of the Company, Parent, Subsidiary or Affiliate and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 Terms of Stock Bonuses. The Committee shall determine the number of Shares to be awarded to the Participant and whether such Shares shall be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee shall determine: (a) the nature, length and starting date of any period during which performance is to be measured (the "Performance Period") for each Stock Bonus; (b) the performance goals and criteria to be used to measure the performance, if any; (c) the number of Shares that may be awarded to the Participant; and (d) the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 Form of Payment. The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash, whole Shares, including Restricted Stock, or a combination thereof, either in a lump sum payment or in installments, all as the Committee shall determine. 7.4 Termination During Performance Period. If a Participant is Terminated during a Performance Period for any reason, then such Participant shall be entitled to payment (whether in Shares, cash or otherwise) with respect to the Stock Bonus only to the extent earned as of the date of Termination in accordance with the Performance Stock Bonus Agreement, unless the Committee shall determine otherwise. 8. PAYMENT FOR SHARE PURCHASES. 8.1 Payment. Payment for Shares purchased pursuant to the Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of Shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such Shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees of the Company shall not be 60 8 entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided, further, that the portion of the Purchase Price equal to the par value of the Shares, if any, must be paid in cash; (d) by waiver of compensation due or accrued to Participant for services rendered; (e) by tender of property; (f) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (g) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 9. WITHHOLDING TAXES. 9.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan, payments in satisfaction of Awards are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 9.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, 61 9 determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by a Participant to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made the election shall be irrevocable as to the particular Shares as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Committee. 10. PRIVILEGES OF STOCK OWNERSHIP. 10.1 Voting and Dividends. No Participant shall have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant shall be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company shall be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant shall have no right to retain such dividends or distributions with respect to Shares that are repurchased at the Participant's original Purchase Price pursuant to Section 12. 10.2 Financial Statements. The Company shall provide financial statements to each Participant prior to such Participant's purchase of Shares under the Plan, and to each Participant annually during the period such Participant has Options outstanding; provided, however, the Company shall not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 11. TRANSFERABILITY. Awards granted under the Plan, and any interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Award Agreement provisions relating thereto. During the lifetime of the Participant an Award shall be exercisable only by the Participant, and any elections with respect to an Award, may be made only by the Participant. 12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, and/or (b) a right to repurchase a portion of or all Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under the Plan, for cash or cancellation of purchase money indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in the Award Agreement), the higher of: (l) Participant's original Purchase Price, or (2) the Fair Market Value of such Shares on Participant's Termination Date, provided, such right of repurchase terminates when the Company's securities become publicly traded; or (B) with respect to Shares that are not "Vested" (as defined in the Award Agreement), at the Participant's original Purchase Price, 62 10 provided, that the right to repurchase at the original Purchase Price lapses at the rate of at least 20% per year over 5 years from the date the Shares were purchased, and if the right to repurchase is assignable, the assignee must pay the Company, upon assignment of the right to repurchase, cash equal to the excess of the Fair Market Value of the Shares over the original Purchase Price. 13. CERTIFICATES. All certificates for Shares or other securities delivered under the Plan shall be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under the Plan shall be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company shall have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant shall be required to execute and deliver a written pledge agreement in such form as the Committee shall from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a prorata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant shall agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in the Plan, the Company shall have no obligation to issue or deliver certificates for Shares under the Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so. 63 11 17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted under the Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. 18.1 Assumption or Replacement of Awards by Successor. In the event of (a) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company and the Awards granted under the Plan are assumed or replaced by the successor corporation, which assumption shall be binding on all Participants), (b) a dissolution or liquidation of the Company, (c) the sale of substantially all of the assets of the Company, or (d) any other transaction which qualifies as a "corporate transaction" under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company), any or all outstanding Awards may be assumed or replaced by the successor corporation, which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject repurchase restrictions no less favorable to the Participant. 18.2 Expiration of Options. In the event such successor corporation, if any, refuses to assume or substitute the Options, as provided above, pursuant to a transaction described in Subsection 18.1(a) above, such Options shall expire on such transaction at such time and on such conditions as the Board shall determine. In the event such successor corporation, if any, refuses to assume or substitute the Options as provided above, pursuant to a transaction described in Subsections 18.1(b), (c) or (d) above, or there is no successor corporation, and if the Company ceases to exist as a separate corporate entity, then, notwithstanding any contrary terms in the Award Agreement, the Options shall expire on a date at least twenty (20) days after the Board gives written notice to Participants specifying the terms and conditions of such termination. 18.3 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards shall be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other "corporate transaction." 18.4 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Award under the Plan in substitution of such other company's award, or (b) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an Award granted under the Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under the Plan if the 64 12 other company had applied the rules of the Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award shall remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. The Plan shall become effective on the date that it is adopted by the Board (the "Effective Date"). The Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to the Plan; provided, however, that: (a) no Option may be exercised prior to initial stockholder approval of the Plan; (b) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; and (c) in the event that stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be canceled, any Shares issued pursuant to any Award shall be canceled and any purchase of Shares hereunder shall be rescinded. 20. TERM OF PLAN. The Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of stockholder approval. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend the Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to the Plan; provided, however, that the Board shall not, without the approval of the stockholders of the Company, amend the Plan in any manner that requires such stockholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board, the submission of the Plan to the stockholders of the Company for approval, nor any provision of the Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. GOVERNING LAW. The Plan and all agreements, documents and instruments entered into pursuant to the Plan shall be governed by and construed in accordance with the internal laws of the State of California, excluding that body of law pertaining to conflict of laws. 24. DEFINITIONS. As used in the Plan, the following terms shall have the following meanings: "Affiliate" means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another corporation, where "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise. 65 13 "Award" means any award under the Plan, including any Option, Restricted Stock or Stock Bonus. "Award Agreement" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee appointed by the Board to administer the Plan, or if no committee is appointed, the Board. "Company" means Macromedia, Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation. "Disability" means a disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise Price" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "Fair Market Value" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the NASDAQ National Market System, its last reported sale price on the NASDAQ National Market System or, if no such reported sale takes place on such date, the average of the closing bid and asked prices; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, the last reported sale price or, if no such reported sale takes place on such date, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading; (c) if such Common Stock is publicly traded but is not quoted on the NASDAQ National Market System nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or (d) if none of the foregoing is applicable, by the Board of Directors of the Company in good faith. 66 14 "Insider" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "Option" means an award of an option to purchase Shares pursuant to Section 5. "Outside Director" shall mean any director who is not (i) a current employee of the Company or any Parent, Subsidiary or Affiliate of the Company, (ii) a former employee of the Company or any Parent, Subsidiary or Affiliate of the Company who is receiving compensation for prior services (other than benefits under a tax-qualified pension plan), (iii) a current or former officer of the Company or any Parent, Subsidiary or Affiliate of the Company or (iv) currently receiving compensation for personal services in any capacity, other than as a director, from the Company or any Parent, Subsidiary or Affiliate of the Company; provided, however, that at such time as the term "Outside Director", as used in Section 162(m) is defined in regulations promulgated under Section 162(m) of the Code, "Outside Director" shall have the meaning set forth in such regulations, as amended from time to time and as interpreted by the Internal Revenue Service. "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under the Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Participant" means a person who receives an Award under the Plan. "Plan" means this Macromedia, Inc. 1992 Equity Incentive Plan, as amended from time to time. "Restricted Stock Award" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Shares" means shares of the Company's Common Stock, $0.001 par value, reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 15, and any successor security. "Stock Bonus" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Termination" or "Terminated" means, for purposes of the Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, 67 15 consultant, independent contractor or adviser, to the Company or a Parent, Subsidiary or Affiliate of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "Termination Date"). 68 EX-10.15 4 12TH AMENDMENT TO LEASE AGREEMENT 1 Exhibit 10.15 69 2 TWELFTH AMENDMENT TO LEASE THIS TWELFTH AMENDMENT TO LEASE (the "Amendment") is made and entered into as of the date below written by and between TODA DEVELOPMENT, INC., a California corporation ("Landlord"), and MACROMEDIA, INC., a Delaware corporation ("Tenant"). RECITALS A. Landlord and Tenant are parties to that certain lease dated June 27, 1991 for certain premises on the third floor of the building commonly known as 600 Townsend Street, San Francisco, California, as amended by that certain First Amendment to Lease dated May 4, 1992, the Second Amendment to Lease dated August 9, 1994, the Third Amendment to Lease dated November 7, 1994, the Fourth Amendment to Lease dated April 6, 1995, the Fifth Amendment to Lease dated August 31, 1995, the Sixth Amendment to Lease dated October 31, 1995, the Seventh Amendment to Lease dated December 15, 1995, the Eighth Amendment to Lease dated January 25, 1996, the Ninth Amendment to Lease dated February 21, 1996, the Tenth Amendment to Lease dated April 30, 1996 and the Eleventh Amendment to Lease dated June 13, 1996 (collectively, the "Lease"). Tenant's predecessor-in-interest under the Lease was Macromind, Inc. B. Landlord and Tenant desire to amend the Lease as set forth below. AGREEMENT Landlord and Tenant hereby agree as follows: 1. ADDITIONAL PREMISES. Commencing as of April 1, 1997 (the "Additional Premises Rental Commencement Date") the Premises shall include that portion of the fifth floor of the Building comprising approximately 21,766 rentable square feet as shown on EXHIBIT A attached hereto (the "Additional Premises"). The total rentable square footage of the Premises, including the Additional Premises, shall be approximately 117,255 as shown on EXHIBIT B. 70 3 2. DELIVERY OF ADDITIONAL PREMISES. Landlord shall deliver possession of the Additional Premises as of April 1, 1997. If Landlord is unable to deliver possession as of April 1, 1997, Landlord shall not be liable for any damage caused for failing to deliver possession, and this Amendment shall not be void or voidable. The Additional Premises Rental Commencement Date shall be delayed until Landlord delivers possession of such space to Tenant. In the event that the Additional Premises are delivered on other than April 1, 1997, Landlord and Tenant shall execute a letter confirming the delivery date. 3. RENTAL. Commencing upon the Additional Premises Rental Commencement Date, monthly Base Rental under the Lease shall be as follows:
Period Rental ------ ------ 4/1/97 - 8/31/97 $ 179,400.15 9/1/97 - 12/31/01 $ 191,125.65 1/1/02 - 12/31/03 $ 211,059.00 1/1/04 - 12/31/05 $ 288,647.25
4. ADDITIONAL TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide Tenant with an additional Tenant Improvement Allowance in the amount of $217,660 for the Additional Premises. Said allowance shall be paid and used for the Additional Premises in accordance with paragraph 8 and Rider 5.C of the Lease. Tenant may use its own contractor and architect (both subject to Landlord's reasonable approval) for tenant improvement work in the Additional Premises. All costs of design and construction shall be included within the above Allowance. 4. TENANT'S PARTICIPATION. Commencing as of the Additional Premises Rental Commencement Date, Tenant's Participation for purposes of paragraph 6 shall be determined by using a numerator of 117,255 rentable square feet. The base year shall be 1997 for the Additional Rental payable by Tenant with respect to the Additional Premises. 5. CONDITION OF ADDITIONAL PREMISES; IMPROVEMENTS. Tenant accepts the Additional Premises in their "as is" condition. Tenant shall be responsible for all demolition of and improvements to such premises and shall comply with the terms of the Lease with respect to all work undertaken by Tenant, including, without limitation, paragraphs 8 and 9 thereof. 6. UTILITIES. Paragraph 4 of the Lease shall apply with respect to utilities for the Additional Premises. 71 4 7. SECURITY DEPOSIT. The Security Deposit shall be increased by $42,443.70 which sum shall be paid by Tenant upon execution of this Twelfth Amendment and held in accordance with paragraph 5 of the Lease. 8. PARKING. Upon delivery of the Additional Premises, Tenant shall have the right to thirteen (13) additional parking spaces in the Building Garage for a total of 75 spaces. The initial charge shall be $90 per month per space for the additional stalls for the calendar year 1997. The charge shall increase 5% over the rate then in effect on each anniversary of the Additional Premises Rental Commencement Date during the initial term of the Lease. The charge during the option period shall be the Fair Market Value. Notwithstanding the foregoing, if the garage becomes full Tenant shall be entitled only to one parking space per 1,500 square feet of rentable space leased hereunder. 9. MISCELLANEOUS. Except as amended herein, the Lease shall remain in full force and effect. Defined terms in the Lease shall have the same meaning in this Twelfth Amendment unless otherwise defined herein. This Twelfth Amendment constitutes the entire agreement between the parties with respect to the subject matter hereof. This Twelfth Amendment shall become binding upon Landlord and Tenant only when fully executed by Landlord and Tenant. IN WITNESS WHEREOF, the parties have executed this Twelfth Amendment to Lease as of the 26th day of November, 1996. LANDLORD: TENANT: TODA DEVELOPMENT, INC., MACROMEDIA, INC., a California corporation a Delaware corporation By: /s/ Shoichi Tozaki By: /s/ Richard B. Wood ---------------------------- ------------------------------- Its: President Its: V.P. Operations & CFO 72 5 THIRTEENTH AMENDMENT TO LEASE THIS THIRTEENTH AMENDMENT TO LEASE (the "Amendment") is made and entered into as of the date below written by and between TODA DEVELOPMENT, INC., a California corporation ("Landlord"), and MACROMEDIA, INC., a Delaware corporation ("Tenant"). RECITALS A. Landlord and Tenant are parties to that certain lease dated June 27, 1991 for certain premises on the third floor of the building commonly known as 600 Townsend Street, San Francisco, California, as amended by that certain First Amendment to Lease dated May 4, 1992, the Second Amendment to Lease dated August 9, 1994, the Third Amendment to Lease dated November 7, 1994, the Fourth Amendment to Lease dated April 6, 1995, the Fifth Amendment to Lease dated August 31, 1995, the Sixth Amendment to Lease dated October 31, 1995, the Seventh Amendment to Lease dated December 15, 1995, the Eighth Amendment to Lease dated January 25, 1996, the Ninth Amendment to Lease dated February 21, 1996, the Tenth Amendment to Lease dated April 30, 1996, the Eleventh Amendment to Lease dated June 13, 1996, and the Twelfth Amendment to Lease dated November 26, 1996 (collectively, the "Lease"). Tenant's predecessor-in-interest under the Lease was Macromind, Inc. B. Landlord and Tenant desire to amend the Lease as set forth below. AGREEMENT Landlord and Tenant hereby agree as follows: 1. ADDITIONAL PREMISES. Commencing as of April 1, 1997 (the "Additional Premises Rental Commencement Date") the Premises shall include that portion of the first floor of the Building comprising approximately 1,536 rentable square feet as shown on EXHIBIT A attached hereto (the "Additional Premises"). The total rentable square footage of the Premises, including the Additional Premises, shall be approximately 118,791 as shown on EXHIBIT B. 2. DELIVERY OF ADDITIONAL PREMISES. Landlord shall deliver possession of the Additional Premises as of April 1, 1997. If Landlord is unable to deliver possession as of April 1, 1997, Landlord shall not be liable for any damage caused for failing to deliver possession, and this Amendment shall not be void or voidable. The 73 6 Additional Premises Rental Commencement Date shall be delayed until Landlord delivers possession of such space to Tenant. In the event that the Additional Premises are delivered on other than April 1, 1997, Landlord and Tenant shall execute a letter confirming the delivery date. RENTAL. Commencing upon the Additional Premises Rental Commencement Date, monthly Base Rental under the Lease shall be as follows:
Period Rental ------ ------ 4/1/97 - 8/31/97 $ 181,750.23 9/1/97 - 12/31/01 $ 193,629.33 1/1/02 - 12/31/03 $ 213,823.80 1/1/04 - 12/31/05 $ 231,642.45
4. ADDITIONAL TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide Tenant with an additional Tenant Improvement Allowance in the amount of $46,080.00 for the Additional Premises. Said allowance shall be paid and used for the Additional Premises in accordance with paragraph 8 and Rider 5.C of the Lease. Tenant may use its own contractor and architect (both subject to Landlord's reasonable approval) for tenant improvement work in the Additional Premises. All costs of design and construction shall be included within the above Allowance. 4. TENANT'S PARTICIPATION. Commencing as of the Additional Premises Rental Commencement Date, Tenant's Participation for purposes of paragraph 6 shall be determined by using a numerator of 118,791 rentable square feet. The base year shall be 1997 for the Additional Rental payable by Tenant with respect to the Additional Premises. 5. CONDITION OF ADDITIONAL PREMISES; IMPROVEMENTS. Tenant accepts the Additional Premises in their "as is" condition. Tenant shall be responsible for all demolition of and improvements to such premises and shall comply with the terms of the Lease with respect to all work undertaken by Tenant, including, without limitation, paragraphs 8 and 9 thereof. 6. UTILITIES. Paragraph 4 of the Lease shall apply with respect to utilities for the Additional Premises. 7. SECURITY DEPOSIT. The Security Deposit shall be increased by $2,995.20 which sum shall be paid by Tenant upon execution of this Thirteenth Amendment and held in accordance with paragraph 5 of the Lease. 8. PARKING. Upon delivery of the Additional Premises, Tenant shall have the right to one (1) additional parking spaces in the Building Garage for a total of 76 spaces. The initial charge shall be $88 per month per space for the additional stall for the 74 7 calendar year 1997. The charge shall increase 5% over the rate then in effect on each anniversary of the Additional Premises Rental Commencement Date during the initial term of the Lease. The charge during the option period shall be the Fair Market Value. Notwithstanding the foregoing, if the garage becomes full Tenant shall be entitled only to one parking space per 1,500 square feet of rentable space leased hereunder. 9. CONDITION PRECEDENT. The parties acknowledge that another tenant has a right of first refusal with respect to the Additional Premises. Landlord shall have the right to terminate this Amendment at any time prior to April 1, 1997 in the event that such tenant does not waive its right of first refusal. If Landlord notifies Tenant that it has terminated this Amendment pursuant to this paragraph 10, this Amendment shall be null and void and the parties shall have no liability of any nature to each other with respect to this Amendment except that Landlord shall return the security deposit paid by Tenant in accordance with paragraph 8 above. 10. WAIVER OF RIGHT OF FIRST REFUSAL. Tenant hereby waives the right of first refusal with respect to the premises identified on EXHIBIT C. 11. MISCELLANEOUS. Except as amended herein, the Lease shall remain in full force and effect. Defined terms in the Lease shall have the same meaning in this Thirteenth Amendment unless otherwise defined herein. This Thirteenth Amendment constitutes the entire agreement between the parties with respect to the subject matter hereof. This Thirteenth Amendment shall become binding upon Landlord and Tenant only when fully executed by Landlord and Tenant. IN WITNESS WHEREOF, the parties have executed this Thirteenth Amendment to Lease as of the 25th day of February, 1997. LANDLORD: TENANT: TODA DEVELOPMENT, INC., MACROMEDIA, INC., a California corporation a Delaware corporation By: /s/ Shoichi Tozaki By: /s/ John C. Parsons, Jr. ------------------------------ ---------------------------------- Its: President Its: CFO 75 8 FOURTEENTH AMENDMENT TO LEASE THIS FOURTEENTH AMENDMENT TO LEASE (the "Amendment") is made and entered into as of the date below written by and between TODA DEVELOPMENT, INC., a California corporation ("Landlord"), and MACROMEDIA, INC., a Delaware corporation ("Tenant"). RECITALS A. Landlord and Tenant are parties to that certain lease dated June 27, 1991 for certain premises on the third floor of the building commonly known as 600 Townsend Street, San Francisco, California, as amended by that certain First Amendment to Lease dated May 4, 1992, the Second Amendment to Lease dated August 9, 1994, the Third Amendment to Lease dated November 7, 1994, the Fourth Amendment to Lease dated April 6, 1995, the Fifth Amendment to Lease dated August 31, 1995, the Sixth Amendment to Lease dated October 31, 1995, the Seventh Amendment to Lease dated December 15, 1995, the Eighth Amendment to Lease dated January 25, 1996, the Ninth Amendment to Lease dated February 21, 1996, the Tenth Amendment to Lease dated April 30, 1996, the Eleventh Amendment to Lease dated June 13, 1996, the Twelfth Amendment to Lease dated November 26, 1996, and the Thirteenth Amendment to Lease dated February 25, 1997 (collectively, the "Lease"). Tenant's predecessor-in-interest under the Lease was Macromind, Inc. B. Landlord and Tenant desire to amend the Lease as set forth below. AGREEMENT Landlord and Tenant hereby agree as follows: 1. ADDITIONAL PREMISES. Commencing as of February 1, 1997 (the "Additional Premises Delivery Date") the Premises shall include that portion of the fourth floor of the Building comprising approximately 7,705 rentable square feet as shown on EXHIBIT A attached hereto (the "Additional Premises"). The total rentable square footage 76 9 of the Premises, including the Additional Premises, shall be approximately 126,496 as shown on EXHIBIT B. 2. DELIVERY OF ADDITIONAL PREMISES. Landlord shall deliver possession of the Additional Premises as of February 1, 1997. If Landlord is unable to deliver possession as of February 1, 1997, Landlord shall not be liable for any damage caused for failing to deliver possession, and this Amendment shall not be void or voidable. The Additional Premises Delivery Date shall be delayed until Landlord delivers possession of such space to Tenant. In the event that the Additional Premises are delivered on other than February 1, 1997, Landlord and Tenant shall execute a letter confirming the Additional Premises Delivery Date and the Additional Premises Rental Commencement Date, which shall be delayed by the same number of days as the Additional Premises Delivery Date. 3. RENTAL. Commencing April 1, 1997 ("Additional Premises Rental Commencement Date"), monthly Base Rental under the Lease shall be as follows:
Period Rental ------ ------ 4/1/97 - 8/31/97 $ 193,538.88 9/1/97 - 12/31/01 $ 206,188.48 1/1/02 - 12/31/03 $ 227,692.80 1/1/04 - 12/31/05 $ 246,667.20
4. ADDITIONAL TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide Tenant with an additional Tenant Improvement Allowance in the amount of $77,050 for the Additional Premises. Said allowance shall be paid and used for the Additional Premises in accordance with paragraph 8 and Rider 5.C of the Lease. Tenant may use its own contractor and architect (both subject to Landlord's reasonable approval) for tenant improvement work in the Additional Premises. All costs of design and construction shall be included within the above Allowance. 4. TENANT'S PARTICIPATION. Commencing as of the Additional Premises Rental Commencement Date, Tenant's Participation for purposes of paragraph 6 shall be determined by using a numerator of 126,496 rentable square feet. The base year shall be 1997 for the Additional Rental payable by Tenant with respect to the Additional Premises. 5. CONDITION OF ADDITIONAL PREMISES; IMPROVEMENTS. Tenant accepts the Additional Premises in their "as is" condition. Tenant 77 10 shall be responsible for all demolition of and improvements to such premises and shall comply with the terms of the Lease with respect to all work undertaken by Tenant, including, without limitation, paragraphs 8 and 9 thereof. 6. UTILITIES. Paragraph 4 of the Lease shall apply with respect to utilities for the Additional Premises. 7. SECURITY DEPOSIT. The Security Deposit shall be increased by $15,024.75 which sum shall be paid by Tenant upon execution of this Fourteenth Amendment and held in accordance with paragraph 5 of the Lease. 8. PARKING. Upon delivery of the Additional Premises, Tenant shall have the right to a total of 76 parking spaces in the Building Garage. Notwithstanding any other provision of this Lease to the contrary, the charge for the parking spaces shall be $85.45 per month per space for the calendar year 1997. The charge shall increase 5% over the rate then in effect on each January 1 during the initial term of the Lease. The charge during the option period shall be the Fair Market Value. 9. MISCELLANEOUS. Except as amended herein, the Lease shall remain in full force and effect. Defined terms in the Lease shall have the same meaning in this Fourteenth Amendment unless otherwise defined herein. This Fourteenth Amendment constitutes the entire agreement between the parties with respect to the subject matter hereof. This Fourteenth Amendment shall become binding upon Landlord and Tenant only when fully executed by Landlord and Tenant. IN WITNESS WHEREOF, the parties have executed this Fourteenth Amendment to Lease as of the 25th day of February, 1997. LANDLORD: TENANT: TODA DEVELOPMENT, INC., MACROMEDIA, INC., a California corporation a Delaware corporation By: /s/ Shoichi Tozaki By: /s/ John C. Parsons, Jr. --------------------------- ------------------------------------ Its: President Its: CFO 78 EX-10.21 5 EMPLOYMENT AGREEMENT WITH JAMES WHITE 1 Exhibit 10.21 79 2 MACROMEDIA, INC. EMPLOYMENT AGREEMENT This Agreement is made effective this 1st day of January 1997, between Macromedia, Inc., a Delaware corporation ("Macromedia"), and James White ("Executive"). WHEREAS, Macromedia is engaged in the business of developing and marketing certain computer software; and WHEREAS, Macromedia desires to secure the services of Executive as Vice President of Marketing, and Executive desires to perform such services for Macromedia, on the terms and conditions as set forth herein; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements set forth below, it is mutually agreed as follows: 1. Duties. Executive shall have such duties as the President of Macromedia may from time to time prescribe consistent with his position as Vice President of Marketing of Macromedia. Executive shall devote his full time, attention, energies and best efforts to the business of Macromedia based in San Francisco, California, and shall not during his period of employment as Vice President of Marketing of Macromedia engage in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage. 2. Compensation. Macromedia shall pay and Executive shall accept as full consideration for the services to be rendered hereunder compensation consisting of the following: 2.1 Base Salary. $170,000 per year in base salary, payable in installments twice per month, with such deductions or withholdings which are required by law. 2.2 Bonus. An annual target bonus of $85,000 per year based on attainment of 100% of the Macromedia Executive Bonus Plan objectives, with a total bonus potential of up to $204,000 per year based on attainment of specified hurdles in excess of 100% of the Macromedia Executive Bonus Plan objectives, as established each year by the Board of Directors. The current Macromedia Executive Bonus Plan objectives for fiscal 1997 are attached as Exhibit A, and Executive understands that such plan may be amended from time to time. In addition, Macromedia will pay Executive, upon Executive's completion of 30 days of employment at Macromedia, an amount equal to $100,000, provided that Executive will be required to repay this amount if Executive voluntarily terminates employment with Macromedia within one year of the effective date of this Agreement. Such repayment obligation shall decrease proportionately based on the number of months divided by twelve that Executive is employed as Vice President of Marketing of Macromedia. 2.3 Stock Options. Macromedia has granted Executive a non-qualified option to purchase 150,000 shares of Macromedia common stock. The exercise price for such option 80 3 will be the fair market value of Macromedia common stock on the date of grant. The option will have a maximum term of ten (10) years, subject to earlier termination upon the date of Executive's termination of service with Macromedia or any successor entity. The option will vest as to 25% of the option shares (37,500 shares) at the end of twelve (12) full months of continuous service with Macromedia. Thereafter, the option will vest in a series of thirty-six (36) successive equal monthly installments over Executive's period of service with Macromedia, with each monthly installment equal to 2.0833% of the total number of option shares (3,125 shares) on the last day of each month over the thirty-six (36) month period. For purposes of such option, the Executive will be deemed to continue in service with Macromedia for so long as he renders services as an employee, director or independent consultant to Macromedia or any parent or subsidiary corporation. The stock option shall be evidenced by the stock option agreement attached as Exhibit B and shall contain terms no less favorable than the terms in effect for employee nonqualified stock options granted under the Macromedia 1992 Equity Incentive Plan. 3. Benefits. Executive shall be entitled to and shall receive such pension, profit sharing and fringe benefits such as hospitalization, medical, life and other insurance benefits, vacation, sick pay and short-term disability as the Board of Directors of Macromedia may, from time to time, determine to provide for the key Executives of Macromedia. 4. Relocation Expenses. Upon Executive's (and Executive's spouse's) execution of a loan agreement in the form attached as Exhibit C, Macromedia will provide Executive with a recourse loan of up to $375,000, at an annually compounded interest rate of 6.0% per annum to refinance Executive's residence in the Bay Area, such proceeds to be paid directly to Silicon Graphics Inc. The loan shall be secured by Executive's residence. All interest accrued and the principal on the loan will be due and payable five years from the date of the loan. If Executive's employment with Macromedia is terminated for any reason or Executive sells his residence prior to the end of such five year period, all interest accrued and principal on the loan will become immediately due and payable upon the earlier of (a) 60 days after such termination or (b) immediately upon such sale. 5. Executive Proprietary Information and Inventions Agreement. As part of the consideration between the parties for this Agreement, Executive hereby agrees to enter into Macromedia's Proprietary Information and Inventions Agreement attached as Exhibit D contemporaneously with the execution of this Agreement. 6. Termination. Executive's employment as Vice President of Marketing of Macromedia shall terminate immediately upon Executive's receipt of written notice by Macromedia, upon Macromedia's receipt of written notice by Executive, or upon Executive's death. 6.1 Surrender of Records and Property. At the time of termination, Executive shall deliver promptly all equipment, records, manuals, books, data tables or copies thereof regardless of the underlying media upon which such materials are recorded which are property of Macromedia and which are under Executive's possession and control. 7. Benefits Upon Termination as Vice President of Marketing. Except in connection with a termination for Cause (as defined in Subsection 7.2) or a voluntary termination by 81 4 Executive, Macromedia shall provide Executive with termination benefits upon his termination by Macromedia as Vice President of Marketing of Macromedia irrespective of the cause of the termination, as follows: 7.1 Termination Benefits. During a period of time beginning on the date of Executive's termination as Vice President of Marketing of Macromedia and ending three months from such date, Executive's base salary at the time of termination shall continue to be paid by Macromedia in installments twice per month with applicable deductions or withholdings. Under no circumstances shall Macromedia be obligated to make any payments beyond the three-month period after his termination by Macromedia as Vice President of Marketing of Macromedia. Vesting on any stock options held by Executive shall terminate following Executive's termination by Macromedia as Vice President of Marketing of Macromedia. 7.2 Circumstances Under Which Termination Benefits Would Not Be Paid. Macromedia shall not be obligated to pay Executive the termination benefits described in Subsection 7.1 above if Executive's employment as Vice President of Marketing of Macromedia is terminated for Cause. For purposes of this Agreement, "Cause" shall be limited to (1) Executive's conviction of any felony under federal or state law, or any fraud, misappropriation or embezzlement or act of dishonesty; or (2) Executive's commission of a material violation of the Executive's Proprietary Information and Inventions Agreement. In addition, Executive shall not be entitled to any termination benefits or continued option vesting under Subsection 7.1 if he voluntarily terminates his service with Macromedia. 8. Arbitration. 8.1 Except for proceedings seeking injunctive relief, including, without limitation, allegations of misappropriation of trade secrets, copyright or patent infringements, or breach of any anti-competition provisions of this Agreement, any controversy or claim arising out of or in relation to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration rules of the American Arbitration Association ("AAA"), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Arbitration of this Agreement shall include claims of fraud or fraud in the inducement relating to this Agreement. Arbitration further includes all claims, regardless of whether the dispute arises during the term of the Agreement, at the time of termination or thereafter. 8.2 Either party may initiate the arbitration proceedings, for which the provision is herein made, by notifying the opposing party, in writing, of its demand to arbitrate. In any such arbitration there shall be appointed one arbitrator who shall be selected in accordance with the AAA Commercial Arbitration Rules. The place of arbitration shall be San Francisco, California. The law applicable to the dispute shall be the laws of the State of California. Accordingly, the California Uniform Arbitration Act shall apply to the interpretation of the arbitration procedure; pursuant thereto, the arbitrator's powers shall include, without limitation, the power to issue subpoenas for the attendance of witnesses for hearing or deposition, and for other production of books, records, documents or other evidence pursuant to California law. 82 5 8.3 The parties agree that the award of the arbitrator shall be the sole and exclusive remedy between them regarding any claims, counterclaims, issues or accountings presented or plead to the arbitrator; that the arbitrator shall be the final judge of both law and fact in arbitration of disputes arising out of or relating to this Agreement, including the interpretation of the terms of this Agreement. The parties further agree it shall be the sole and exclusive duty of the arbitrator to determine the arbitrability of issues in dispute and that neither party shall have recourse to the court for such a determination. 9. General. 9.1 Waiver. Neither party shall, by mere lapse of time, without giving notice or taking other action hereunder, be deemed to have waived any breach by the other party of any of the provisions of this Agreement. Further, the waiver by either party of a particular breach of this Agreement by the other shall neither be construed as, nor constitute a, continuing waiver of such breach or of other breaches by the same or any other provision of this Agreement. 9.2 Severability. If for any reason a court of competent jurisdiction or arbitrator finds any provisio n of this Agreement to be unenforceable, the provision shall be deemed amended as necessary to conform to applicable laws or regulations, or if it cannot be so amended without materially altering the intention of the parties, the remainder of the Agreement shall continue in full force and effect as if the offending provision were not contained herein. 9.3 Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be considered effective upon personal service or upon depositing such notice in the U.S. Mail, postage prepaid, return receipt requested and addressed to the Chairman of the Board of Macromedia as its principal corporate address, and to Executive at his most recent address shown on Macromedia's corporate records, or at any other address which he may specify in any appropriate notice to Macromedia. 9.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together constitutes one and the same instrument and in making proof hereof it shall not be necessary to produce or account for more than one such counterpart. 9.5 Entire Agreement. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. The parties further agree that this Agreement and the referenced stock option agreement and Proprietary Information and Inventions Agreement constitute the complete and exclusive statement of the agreement between the parties and supersedes all proposals (oral or written), understandings, representations, conditions, covenants, and all other communications between the parties relating to the subject matter hereof. 9.6 Assignment and Successors. Macromedia shall have the right to assign its rights and obligations under this Agreement to an entity which acquires substantially all of the assets of Macromedia. The rights and obligation of Macromedia under this Agreement shall inure to the benefit and shall be binding upon the successors and assigns of Macromedia. 83 6 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. MACROMEDIA, INC. ACCEPTED BY EXECUTIVE By: /s/ Robert K. Burgess By /s/ James White --------------------------- ------------------------------ Name: Robert K. Burgess Name: James White --------------------------- ------------------------------ Title: President --------------------------- Attachments: Exhibit A: Macromedia Executive Bonus Plan objectives for Fiscal 1997 Exhibit B: Stock Option Agreement Exhibit C: Loan Agreement Exhibit D: Macromedia's Proprietary Information and Inventions Agreement 84 7 EXHIBIT A EXECUTIVE BONUS PLAN FY 1997 DEFINITIONS - - EPS Earnings per share calculated on operating income - - Backlog Revenue that could have been recorded in the period but was not recorded due to a management decision. Can be shipped the first day of the next quarter. PLAN DESCRIPTION Executives will be paid a quarterly bonus based on: - - EPS Will be calculated as 60% of target bonus. Accelerator: Can earn up to 200% of target amount. - - Backlog Will represent 40% of target bonus to be earned. Accelerator: Can earn up to 300% of target amount. Backlog will not reset if target is not met in any quarter.
CASH COMPENSATION BONUS 100% 2X 3X Base Salary $170,000 EPS $ 51,000 $102,000 $102,000 BACKLOG 34,000 68,000 102,000 TOTAL BONUS 85,000 170,000 204,000 TOTAL COMPENSATION $255,000 $340,000 $374,000
85 8 EXHIBIT A EXECUTIVE BONUS PLAN CALCULATION SALARY-$170,000 BONUS (40%)-$68,000 ANNUAL BONUS % --------- -------- EPS ($170K X .40) X .75 = $51K 60% BACKLOG ($51K/.60) X .40 = $34K 40% ---- ---- TOTAL $85K 100% ==== ====
86 9 LOAN AGREEMENT This Loan Agreement (this "AGREEMENT") is made and entered into effective as of January 28, 1997 (the "EFFECTIVE DATE") by and among, jointly and severally, Macromedia, Inc., a Delaware corporation ("LENDER"), and James N. White and Patricia A. O'Brien, husband and wife (these two individuals will be collectively referred to as "BORROWER"). The term "LOAN DOCUMENTS" as used herein means, collectively, this Agreement, the Note and Deed of Trust (each as defined below) executed and delivered pursuant hereto, and any other documents executed or delivered by Borrower pursuant to this Agreement or in connection with the Loan (as defined below). WHEREAS, Lender desires to loan a certain sum to Borrower, and Borrower wishes to borrow a certain sum from Lender so that Borrower may re-finance his primary residence, on and subject to the terms and conditions contained in this Agreement; NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, Lender and Borrower hereby agree as follows: 1. AMOUNT AND TERMS OF CREDIT. 1.1 COMMITMENT TO LEND. Subject to all the terms and conditions of this Agreement, and in reliance on the representations, warranties and covenants of Borrower set forth in this Agreement, Lender agrees to make a loan of funds on the date of the Note to Borrower on a non-revolving basis (the "LOAN"), in the principal amount of Three Hundred Seventy-Five Thousand Dollars (US $375,000.00). 1.2 NOTE. Borrower's indebtedness to Lender under the Loan will be evidenced by a Promissory Note executed by Borrower in the form attached hereto as Exhibit "A" (the "NOTE"). The Note will provide that annually compounded interest on unpaid principal will accrue at a rate equal to six percent (6%) per annum. 1.3 SECURITY. Borrower's indebtedness to Lender under the Loan will be secured by a deed of trust in the form attached hereto as Exhibit "B" (the "DEED OF TRUST"). The Deed of Trust will be executed by Borrower in favor of Lender, with Old Republic Title Company, a California corporation, acting as trustee, on certain real property located at 880 Lincoln Street, Palo Alto, California (the "PROPERTY"). 1.4 MATURITY. The unpaid principal amount of the Loan and all unpaid interest accrued thereon will be immediately due and payable to Lender in full on the date (the "MATURITY DATE") which is the earlier to occur of: (a) the fifth anniversary of the date of the Note evidencing this Loan; or (b) the date on which the entire unpaid principal amount and all accrued interest on the Note becomes immediately due and payable in full under Section 6.1. 1.5 PREPAYMENT. Borrower may at any time and from time to time prepay the Loan in whole or in part in amounts of at least Ten Thousand Dollars (U.S. $10,000.00). Each 87 10 prepayment will be applied as follows: (a) first, to the payment of interest accrued on the Loan, and (b) second, to the extent that the amount of such prepayment exceeds the amount of all such accrued interest, to the payment of principal on the Loan. 2. CLOSING DATE; DELIVERIES. 2.1 CLOSING DATE. The closing of the Loan (the "CLOSING") will be held at Lender's principal executive offices on the Effective Date (the "CLOSING DATE"), or at such other time and place as Borrower and Lender may mutually agree. 2.2 DELIVERY BY LENDER OF PAYMENT OF PRINCIPAL TO SILICON GRAPHICS INC. At the Closing, Lender will deliver to Silicon Graphics Inc. ("SGI") the funds representing the Loan, which Borrower agrees shall constitute a funding of the loan to Borrower and a subsequent repayment by Borrower of Borrower's obligation to repay SGI the principal amount of Three Hundred and Seventy Five Thousand Dollars (US $375,000.00) (the "SGI OBLIGATION"). 2.3 DELIVERY BY BORROWER OF NOTE AND DEED OF TRUST. At the Closing, Borrower will execute and deliver to Lender the Note and Deed of Trust. 2.4 DELIVERY BY SGI OF RELEASE OF DEED OF TRUST. At the Closing, SGI will deliver to Lender the deed of trust that is currently recorded in Santa Clara County representing the SGI Obligation (the "SGI DEED OF TRUST") and a request for full reconveyance of the SGI Deed of Trust, duly signed by an authorized officer of SGI and properly notarized. 3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby represents and warrants to Lender that: 3.1 PREVIOUS PURCHASE. Borrower's purchase in 1991 of the Property was an arm's length transaction with the previous owners of the Property. 3.2 TITLE TO PROPERTY. Other than the SGI Deed of Trust, the Property is free and clear of all mortgages, deeds of trust, liens, encumbrances and security interests except for statutory liens for the payment of current taxes that are not yet delinquent. 3.3 BALLOON PAYMENT. Borrower acknowledges that the unpaid principal amount of the Loan and all unpaid interest accrued thereon will be immediately due and payable to Lender in full as one balloon payment on the fifth anniversary of the date of the Note evidencing this Loan, if not due earlier under Section 6.1. 4. CONDITIONS PRECEDENT TO LOAN. The obligation of Lender to make the Loan is subject to the satisfaction (or written waiver by Lender) of all the following conditions precedent: 4.1 REPRESENTATIONS TRUE. All representations and warranties of Borrower contained in this Agreement and in all other Loan Documents will be true, correct and complete in all respects. 88 11 4.2 NOTE AND DEED OF TRUST. Lender will have received the Note and Deed of Trust representing the Loan, duly executed by Borrower. 4.3 DOCUMENTS FROM SGI. Lender will have received from SGI a request for full reconveyance of the SGI Deed of Trust, duly signed by an authorized officer of SGI and properly notarized, and the SGI Deed of Trust, marked "canceled". 5. OTHER COVENANTS OF BORROWER. Borrower hereby covenants and agrees with Lender as follows: 5.1 FURTHER ASSURANCES. In addition to the obligations and documents that this Agreement expressly requires Borrower to execute, deliver and perform, Borrower will execute, deliver and perform any and all further acts or documents which Lender may reasonably require in order to carry out the purposes of this Agreement or any of the other Loan Documents. 6. DEFAULT OF BORROWER. 6.1 DEFAULT; ACCELERATION. Borrower will be deemed to be in default under the Note and the outstanding unpaid principal sum of the Note, together with all interest accrued thereon, will immediately become due and payable in full without the need for any further action on the part of Lender: (a) sixty (60) days after the termination of the employment of James White, for any reason, with Lender; (b) upon Borrower's sale or other voluntary conveyance of the Property; (c) upon the filing by or against Borrower of any voluntary or involuntary petition in bankruptcy or any petition for relief under the federal bankruptcy code or any other state or federal law for the relief of debtors; provided however, that with respect to an involuntary petition in bankruptcy, Borrower will not be deemed to be in default of the Note unless such involuntary petition has not been dismissed within sixty (60) days after the filing of such petition; or (d) upon the execution by Borrower of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Borrower's assets or property. 6.2 REMEDIES UPON DEFAULT. Upon any default of Borrower under the Note, Lender will have, in addition to its rights under the Note and the Deed of Trust, full recourse against any real, personal, tangible or intangible assets of the undersigned, and may pursue any legal or equitable remedies that are available to Lender. The rights and remedies of Lender herein provided will be cumulative and not exclusive of any other rights or remedies provided by law or otherwise. 7. MISCELLANEOUS. 7.1 SURVIVAL. The representations and warranties of Borrower contained in or made pursuant to this Agreement and all the other Loan Documents will survive the execution and delivery of the Loan Documents. 7.2 ENTIRE AGREEMENT. This Agreement, the Note, the Deed of Trust and the exhibits and schedules attached thereto constitute the entire agreement and understanding among 89 12 the parties with respect to the subject matter thereof and supersede any prior understandings or agreements of the parties with respect to such subject matter. 7.3 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement will inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided, however, that Borrower may not assign or delegate any of its rights or obligations hereunder or under any other Loan Document or any interest herein or therein without Lender's prior written consent. 7.4 NO THIRD PARTY BENEFICIARIES; CONSTRUCTION. Nothing in this Agreement, express or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. This Agreement and its exhibits are the result of negotiations between the parties and have been reviewed by each party hereto; accordingly, this Agreement will be deemed to be the product of the parties hereto, and no ambiguity will be construed in favor of or against any party. 7.5 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the internal laws of the State of California as applied to agreements entered into solely between residents of, and to be performed entirely in, such State, without reference to that body of law relating to conflicts of law or choice of law. 7.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed in original, but all of which together will constitute one and the same instrument. 7.7 MODIFICATION; WAIVER. This Agreement may be modified or amended only by a writing signed by both parties hereto. No waiver or consent with respect to this Agreement will be binding unless it is set forth in writing and signed by the party against whom such waiver is asserted. No course of dealing between Borrower and Lender will operate as a waiver or modification of any party's rights under this Agreement or any other Loan Document. No delay or failure on the part of either party in exercising any right or remedy under this Agreement or any other Loan Document will operate as a waiver of such right or any other right. A waiver given on one occasion will not be construed as a bar to, or as a waiver of, any right or remedy on any future occasion. 7.8 SEVERABILITY. The invalidity or unenforceability of any term or provision of this Agreement will not affect the validity or enforceability of any other term or provision hereof. In the event of any conflict between the terms of this Agreement and the Note, the terms of the Note will control. 7.9 ATTORNEYS' FEES. If any party hereto commences or maintains any action at law or in equity (including counterclaims or cross-complaints) against the other party hereto by reason of the breach or claimed breach of any term or provision of this Agreement or any other Loan Document, then the prevailing party in said action will be entitled to recover its reasonable attorney's fees and court costs incurred therein. 90 13 IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the Effective Date. BORROWER: MACROMEDIA, INC. /s/ James N. White Name: /s/ Richard B. Wood - -------------------------------- -------------------------------- James N. White /s/ Patricia A. O'Brien By: Richard B. Wood - -------------------------------- -------------------------------- Patricia A. O'Brien Title: V.P. Operations & CFO -------------------------------- ATTACHMENTS: Exhibit A - Promissory Note Exhibit B - Deed of Trust [SIGNATURE PAGE TO LOAN AGREEMENT] 91 14 MACROMEDIA - -------------------------------------------------------------------------------- Proprietary Information and Inventions Agreement In consideration of my employment or continued employment by Macromedia, Inc., a Delaware corporation (the "Company"), and the compensation now and hereafter paid to me, I hereby agree as follows: 1. Recognition of Company's rights; Nondisclosure. At all times during the term of my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Company's Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Company, or unless an officer of the Company expressly authorizes such in writing. I hereby assign to the Company any rights I may have or acquire in such Proprietary Information and recognition that all Proprietary Information shall be the sole property of the Company and its assigns and the Company and its assigns shall be the sole owner of all patent rights, copyrights, mask work rights, trade secret rights, and all other rights throughout the world (collectively, "Proprietary Rights") in connection therewith. The term "Proprietary Information" shall mean trade secrets, confidential knowledge, data, or any other proprietary information of the Company. By way of illustration but not limitation, "Proprietary Information" includes (a) inventions, mask works, trade secrets, ideas, processes, formulas, sources and object codes, data, programs, other works of authorship, cell lines, know-how, improvements, discoveries, developments, designs, and techniques (hereinafter collectively referred to as "Inventions"); and (b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers, and information regarding the skills and compensation of other employees of the Company. 2. Third Party Information. I understand, in addition, that the Company has received and in the future will receive from third parties confidential or proprietary information ("Third Party Information") subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in the strictest confidence and will not disclose (to anyone other than Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with my work for the Company, Third Party Information unless expressly authorized by an officer of the Company in writing 3. Assignment of Inventions. (a) I hereby assign to the Company all my right, title, and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment with the Company. I recognize that this Agreement does not require assignment of any invention which qualifies fully for protection under Section 2870 of the California Labor Code (hereinafter "Section 2870"), which provides as follows: (i) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer. (2) Result from any work performed by the employee for the employer. 92 15 (ii) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of the this state and is unenforceable. (b) I also assign to or as directed by the Company all my right, title, and interest in and to any and all Inventions, full title to which is required to be in the United States by a contract between the Company and the United States or any of its agencies. (c) I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment with the Company and which are protectable by copyright are "works made for hire," as that term is defined in the United States Copyright Act (17 U.S.C., Section 101). Inventions assigned to or as directed by the Company by this paragraph 3 are hereinafter referred to as "Company Inventions." 4. Enforcement of Proprietary Rights. I will assist the Company in every proper way to obtain and from time to time enforce United States and foreign Proprietary Rights relating to Company Inventions in any and all countries. To that end I will execute, verify, and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining, and enforcing such Proprietary Rights and the assignment thereof. In addition, I will execute, verify , and deliver assignments of such Proprietary Rights to the Company or its designee. My obligation to assist the Company with respect to Proprietary Rights relating to such Company Inventions in any and all countries shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate for the time actually spent by me at the Company's request on such assistance. In the event the Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the action specified in the preceding paragraph, I hereby irrevocably designate and appoint the Company and its duly authorized officer and agents as my agent and attorney in fact, to act for and in my behalf to execute, verify, and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph thereon with the same legal force and effort as if executed by me. I hereby waive and quit claim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company. 5. Obligation to Keep Company Informed. During the period of my employment, I will promptly disclose to the Company fully and in writing and will hold in trust for the sole right and benefit of the Company any and all Inventions. In addition, after termination of my employment, I will disclose all patent applications filed by me within a year after termination of employment. At the time of each disclosure, I will advise the Company in writing of any Inventions that I believe fully qualify for protection under section 2870; and I will at that time provide the Company in writing all evidence necessary to substantiate that belief. I understand that the company will keep in confidence and will not disclose to third parties without my consent any proprietary information disclosed in writing to the Company pursuant to this Agreement relating to Inventions that qualify fully for protection under the provisions of section 2870. I will preserve the confidentiality of any Invention that does not fully qualify for protection under section 2870. 6. Prior Inventions. Inventions, if any, patented or unpatented, which I made prior to the commencement of my employment with the Company are excluded from the scope of this Agreement. To preclude any possible uncertainty, I have set forth on Exhibit A attached hereto a complete list of all Inventions that I have, alone or jointly with others, conceived, developed, or reduced to practice or caused to be conceived, developed, or reduced to practice prior to the commencement of my employment with the Company, that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement. If disclosure of any such Inventions on Exhibit A would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Inventions in Exhibit A but am to inform the Company that all such Inventions have been listed for that reason. 93 16 7. Additional Activities. I agree that during the period of my employment by the Company I will not, without the Company's express written consent, engage in any employment or business activity other than for the Company, and for the period of my employment by the Company and for one (1) year after the date of termination of my employment and I will not (i) induce any employee of the Company to leave the employ of the Company or (ii) solicit the business of any client or customer of the Company (other than on behalf of the Company). 8. No Improper use of Materials. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employee or any other person to whom I have an obligation of confidentiality, and will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person. 9. No Conflicting Obligation. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith. 10. Return of Company Documents. When I leave the employ of the Company, I will deliver to the Company any and all drawings, notes, memoranda, specifications, devices, formulas, molecules, cells, and documents together with all copies thereof, and any other material containing or disclosing any Company Inventions, Third Party Information, or Proprietary Information of the Company. I further agree that any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets, or other work areas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with the Company in completing and signing the Company's termination statement for technical and management personnel. 11. Legal and Equitable Remedies. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by conjunction, specific performance, or other equitable relief, without bond, without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement. 12. Notices. Any notices required or permitted thereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three days after the date of mailing. 13. General Provisions. 13.1 Governing Law. This Agreement will be governed by and construed according to the laws of the State of California. 13.2 Entire Agreement. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, salary, or compensation will not affect the validity or scope of this Agreement. As used in this Agreement, the period of my employment includes any time during which I may be retained by the Company as a consultant. 13.3 Severability. If one or more of the provisions in this Agreement are deemed unenforceable by law, then the remaining provisions will continue in full force and effect. 13.4 Predecessor, Successors, and Assigns. This Agreement will be binding upon my heirs, executors, administrators, and other legal representatives and will be for the benefit of the Company, its 94 17 predecessor, its successors, and its assigns. The term "Company" as used herein shall be deemed to also refer to the Company's predecessor, Macromedia, Inc., a Delaware corporation. 13.5 Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee. 13.6 Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company's right to terminate my employment at any time, with or without cause. 13.7 Waiver. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement. This Agreement shall be effective as of the first day of my employment with the Company, namely: January 2, 1997. I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY'S CONFIDENTIAL INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT. I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY FILLED OUT SCHEDULE A TO THIS AGREEMENT. Dated: January 2, 1997 /s/ James N. White -------------------------------------------- Signature James N. White -------------------------------------------- Print Name 888 Lincoln Avenue -------------------------------------------- Address Palo Alto, CA 94301 -------------------------------------------- ACCEPTED AND AGREED TO: Macromedia A Delaware Corporation 600 Townsend Street San Francisco, CA 94103 By: /s/ Richard B. Wood ------------------------------------- (Macromedia Representative) Chief Financial Officer ------------------------------------- (Title) January 2, 1997 ------------------------------------- (Date) 95 18 EXHIBIT A MACROMEDIA 600 Townsend Street San Francisco, CA 94103 Gentlemen: 1. The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by Macromedia, Inc. (the "Company") that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company: ( ) ( X ) No inventions or improvements. ( ) ( ) See below: ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ( ) ( ) Due to confidentiality agreements with prior employer, I cannot disclose certain inventions that would otherwise be included on the above-described list. 2. I propose to bring to my employment the following devices, materials and documents of a former employer or other person to whom I have an obligation of confidentiality that are not generally available to the public, which materials and documents may be used in my employment pursuant to the express written authorization of my former employer or such other person (a copy of which is attached hereto): ( ) ( X ) No materials. ( ) ( ) See below: ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ( ) ( ) Additional sheets attached. Date: January 2, 1997 Very truly yours, /s/ James N. White ------------------------------------------------ Employee 96 EX-10.22 6 EMPLOYMENT AGREEMENT WITH JOHN C. PARSONS, JR. 1 Exhibit 10.22 97 2 MACROMEDIA, INC. EMPLOYMENT AGREEMENT This Agreement is made effective as of the 17th day of February 1997, between Macromedia, Inc., a Delaware corporation ("Macromedia"), and John C. Parsons, Jr. ("Executive"). WHEREAS, Macromedia is engaged in the business of developing and marketing certain computer software; and WHEREAS, Macromedia desires to secure the services of Executive as Chief Financial Officer, and Executive desires to perform such services for Macromedia, on the terms and conditions as set forth herein; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements set forth below, it is mutually agreed as follows: 1. Duties. Executive shall have such duties as the President of Macromedia may from time to time prescribe consistent with Executive's position as Chief Financial Officer of Macromedia. Executive shall devote his full time, attention, energies and best efforts to the business of Macromedia based in San Francisco, California, and shall not during his period of employment as Chief Financial Officer of Macromedia engage in any other business activity, whether or not such business activity is pursued for gain, profit of other pecuniary advantage. This Section 1 shall not be construed as preventing Executive from investing his assets in such form and manner as will not require any substantial services on his part in the operation of the affairs of the business entities in which such investments are made. 2. Compensation. Macromedia shall pay and Executive shall accept, as full consideration for the services to be rendered hereunder, compensation consisting of the following: 2.1 Base Salary. $200,000 per year in base salary, payable in installments twice per month, with such deductions or withholdings which are required by law. 2.2 Bonus. A target bonus of $100,000 per year based on attainment of 100% of the Macromedia Executive Bonus Plan objectives, as established each year by the Board of Directors. The Macromedia Executive Bonus Plan objectives for fiscal 1997 have been provided to Executive. For the balance of fiscal 1997, Executive will be paid a prorata bonus based on the target bonus amount. 2.3 Stock Options. Macromedia will grant Executive non-qualified options to purchase 200,000 shares of Macromedia common stock under the Macromedia 1992 Equity Incentive Plan. The exercise price for such options will be the fair market value of Macromedia common stock on the date of grant by the Compensation Committee. Because Macromedia is in the process of obtaining stockholder approval for an increase in the number of shares available under the 1992 Equity Incentive Plan, options to purchase 100,000 of the 200,000 shares will be 98 3 subject to the approval of such increase by the stockholders, which is currently expected to occur on March 3, 1997. The options will have a maximum term of ten (10) years, subject to earlier termination 180 days after the date of Executive's termination of service with Macromedia or any successor entity. The options will vest as to 25% of the option shares (50,000 shares) at the end of twelve (12) full months of continuous service with Macromedia. Thereafter the options will vest in a series of thirty-six (36) successive equal monthly installments over Executive's period of service with Macromedia, with each monthly installment equal to 1/48th of the total number of shares in the options (4,166,67 shares) on the seventeenth day of each month thereafter over the thirty-six (36) month period. For purposes of such options, the Executive will be deemed to continue in service with Macromedia for so long as he renders services as an employee, director or independent consultant to Macromedia or any parent or subsidiary corporation. Macromedia shall register the shares issuable under the options on a Form S- 8 registration statement prior to the initial vesting date thereunder and shall keep such registration statement in effect for the entire period the options thereafter remain outstanding. The stock options shall be evidenced by a stock option agreement which shall contain the terms in effect for employee nonqualified stock options granted under the Macromedia 1992 Equity Incentive Plan. 2.4 Indemnification. In the event Executive is made, or threatened to be made, a party to any legal action or proceeding, whether civil or criminal, by reason of the fact that Executive is or was a director or officer of Macromedia or serves or served any other corporation fifty percent (50%) or more owned or controlled by Macromedia in any capacity at Macromedia's request, Executive shall be indemnified by Macromedia, and Macromedia shall pay Executive's related expenses when and as incurred, all to the fullest extent permitted by law. 3. Benefits. Executive shall be entitled to and shall receive such pension, profit sharing and fringe benefits such as hospitalization, medical, life and other insurance benefits, vacation, sick pay and short-term disability as the Board of Directors of Macromedia may, from time to time, determine to provide for the key Executives of Macromedia. 4. Executive Proprietary Information and Inventions Agreement. As part of the consideration between the parties for this Agreement, Executive hereby agrees to enter into Macromedia's Proprietary Information and Inventions Agreement contemporaneously with the execution of this Agreement. 5. Termination. Executive's employment as Chief Financial Officer of Macromedia shall terminate immediately upon Executive's receipt of written notice by Macromedia, upon Macromedia's receipt of written notice by Executive, or upon Executive's death. 6. Surrender of Records and Property. At the time of termination of Executive's employment, Executive shall deliver promptly all equipment, records, manuals, books, data tables or copies thereof regardless of the underlying media upon which such materials are recorded which are property of Macromedia and which are under Executive's possession and control. 7. Benefits Upon Termination as Chief Financial Officer. Except in connection with a termination for Cause (as defined in Subsection 7.2) or a voluntary termination by Executive for other than Good Reason (as defined in Subsection 7.3), Macromedia shall provide Executive 99 4 with termination benefits upon his termination by Macromedia as Chief Financial Officer of Macromedia irrespective of the cause of the termination, as follows: 7.1 Termination Benefits. During a period of time beginning on the date of Executive's termination as Chief Financial Officer of Macromedia and ending three months from such date, Executive's base salary at the time of termination shall continue to be paid by Macromedia in installments twice per month with applicable deductions or withholdings, and Executive shall also be entitled to a prorated portion of any quarterly bonus payment at the target plan during that three-month period. Executive shall also be entitled to participate in any plans or other employee benefit arrangements which are generally available to employees or executives of Macromedia during such period other than any Macromedia tax-qualified pension or profit-sharing plans or the employee stock purchase plan. Under no circumstances shall Macromedia be obligated to make any payments or continue benefits beyond the three-month period after his termination by Macromedia as Chief Financial Officer of Macromedia. Prior to the payment of any termination benefits under this Section 7 or Section 8, Executive and Macromedia will enter into a mutual general release; provided, however, that such release shall not extend to any subsequent claims Executive may have with respect to those termination benefits. 7.2 Circumstances Under Which Termination Benefits Would Not Be Paid. Macromedia shall not be obligated to pay Executive the termination benefits described in Subsection 7.1 above if Executive's employment as Chief Financial Officer of Macromedia is terminated for Cause. For purposes of this Agreement, "Cause" shall be limited to (1) Executive's conviction of any felony under federal or state law, or any fraud, misappropriation or embezzlement or act of dishonesty; or (2) Executive's commission of a material violation of the Executive's Proprietary Information and Inventions Agreement. In addition, Executive shall not be entitled to any termination benefits under Subsection 7.1 if he voluntarily terminates his service with Macromedia other than for Good Reason as determined under Subsection 7.3. 7.3 Constructive Termination. Notwithstanding anything in this Section 7 to the contrary, Executive's employment as Chief Financial Officer of Macromedia will be deemed to have been terminated by Macromedia (a "Constructive Termination") and Executive will be deemed to have Good Reason for voluntary termination of his employment hereunder ("Good Reason"), if there should occur: (A) a material adverse change in Executive's position causing it to be of materially less stature or responsibility without Executive's written consent, and such a materially adverse change shall in all events be deemed to occur if Executive no longer serves as Chief Financial Officer of a publicly traded company, unless Executive consents in writing to such change, (B) a reduction, without Executive's written consent, in his level of compensation (including base salary and fringe benefits) by more than ten percent (10%) or a reduction by more than ten percent (10%) in his target bonus formula under any performance-based executive incentive plans, or (C) a relocation of his principal place of employment by more than 50 miles. 100 5 8. Change in Control Benefits Should there occur a Change in Control (as defined below), then the following provisions shall become applicable: (A) During the period (if any) following a Change in Control that Executive continues as Chief Financial Officer of Macromedia without a Constructive Termination, then the terms and provisions of this Agreement shall continue in full force and effect, and Executive shall continue to vest in his outstanding stock options (B) In the event of (x) a Constructive Termination of Executive's employment as Chief Financial Officer of Macromedia at or at any time after a Change in Control or (y) the Executive voluntarily terminates his employment as Chief Financial Officer of Macromedia within one hundred eighty (180) days following a Change in Control, the following benefits shall become due and payable: (i) Executive's base salary in effect immediately prior to his termination as Chief Financial Officer of Macromedia shall continue to be paid for a twelve-month period by Macromedia or the successor entity in installments twice per month with applicable deductions or withholdings, and Executive shall also be entitled to quarterly bonus payments at the target plan (or any successor plan) during that twelve-month period, with such bonus payments to be not less than $100,000 in the aggregate for such period. Macromedia or any successor entity shall be obligated to continue Executive's service in one or more other capacities, but Executive shall have complete discretion in determining whether he is to render such service as a part time employee or independent consultant. Executive shall also be entitled to participate in any plans or other employee benefit arrangements which are generally available to employees or executives of Macromedia during such period other than any Macromedia tax-qualified pension or profit-sharing plans or the employee stock purchase plan. (ii) Executive's options shall immediately become exercisable and vest with respect to that number of option shares for which those options would have otherwise vested over the full vesting term of the options had Executive continued his employment under this Agreement. The options as so accelerated shall remain exercisable for a period of 180 days following the later of (a) the date of Executive's termination of service as Chief Financial Officer of Macromedia or (b) the date of such option acceleration. For purposes of this Section 8, a Change of Control shall be deemed to occur upon: (I) the sale, lease, conveyance or other disposition of all or substantially all of Macromedia's assets as an entirety or substantially as an entirety to any person, entity or group of persons acting in concert, (II) any transaction or series of transactions (as a result of a tender offer, merger, consolidation or otherwise) that results in, or that is in connection with, any person, entity or group acting in concert, becoming the "beneficial owner" (as defined in Rule 13d-3 101 6 under the Securities Exchange Act of 1934), directly or indirectly, of more than 50% percent of the aggregate voting power of all classes of common equity stock of Macromedia, or (III) a liquidation and winding up of the business of Macromedia. 9. Arbitration. 9.1 Except for proceedings seeking injunctive relief, including, without limitation, allegations of misappropriation of trade secrets, copyright or patent infringements, or breach of any anti-competition provisions of this Agreement, any controversy or claim arising out of or in relation to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration rules of the American Arbitration Association ("AAA"), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Arbitration of this Agreement shall include claims of fraud or fraud in the inducement relating to this Agreement. Arbitration further includes all claims, regardless of whether the dispute arises during the term of the Agreement, at the time of termination or thereafter. 9.2 Either party may initiate the arbitration proceedings, for which the provision is herein made, by notifying the opposing party, in writing, of its demand to arbitrate. In any such arbitration there shall be appointed one arbitrator who shall be selected in accordance with the AAA Commercial Arbitration Rules. The place of arbitration shall be San Francisco, California. The law applicable to the dispute shall be the laws of the State of California. Accordingly, the California Uniform Arbitration Act shall apply to the interpretation of the arbitration procedure; pursuant thereto, the arbitrator's powers shall include, without limitation, the power to issue subpoenas for the attendance of witnesses for hearing or deposition, and for other production of books, records, documents or other evidence pursuant to California law. 9.3 The parties agree that the award of the arbitrator shall be the sole and exclusive remedy between them regarding any claims, counterclaims, issues or accountings presented or plead to the arbitrator; that the arbitrator shall be the final judge of both law and fact in arbitration of disputes arising out of or relating to this Agreement, including the interpretation of the terms of this Agreement. The parties further agree it shall be the sole and exclusive duty of the arbitrator to determine the arbitrability of issues in dispute and that neither party shall have recourse to the court for such a determination. 10. General. 10.1 Waiver. Neither party shall, by mere lapse of time, without giving notice or taking other action hereunder, be deemed to have waived any breach by the other party of any of the provisions of this Agreement. Further, the waiver by either party of a particular breach of this Agreement by the other shall neither be construed as, nor constitute a, continuing waiver of such breach or of other breaches by the same or any other provision of this Agreement. 10.2 Severability. If for any reason a court of competent jurisdiction or arbitrator finds any provision of this Agreement to be unenforceable, the provision shall be deemed amended as necessary to conform to applicable laws or regulations, or if it cannot be so 102 7 amended without materially altering the intention of the parties, the remainder of the Agreement shall continue in full force and effect as if the offending provision were not contained herein. 10.3 Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be considered effective upon personal service or upon depositing such notice in the U.S. Mail, postage prepaid, return receipt requested and addressed to the President of Macromedia as its principal corporate address, and to Executive at his most recent address shown on Macromedia's corporate records, or at any other address which he may specify in any appropriate notice to Macromedia. 10.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together constitutes one and the same instrument and in making proof hereof it shall not be necessary to produce or account for more than one such counterpart. 10.5 Entire Agreement. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. The parties further agree that this Agreement and the referenced stock option agreement and Proprietary Information and Inventions Agreement constitute the complete and exclusive statement of the agreement between the parties and supersedes all proposals (oral or written), understandings, representations, conditions, covenants, and all other communications between the parties relating to the subject matter hereof. 10.6 Assignment and Successors. Macromedia shall have the right to assign its rights and obligations under this Agreement to an entity which acquires substantially all of the assets of Macromedia. The rights and obligation of Macromedia under this Agreement shall inure to the benefit and shall be binding upon the successors and assigns of Macromedia. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. MACROMEDIA, INC. ACCEPTED BY EXECUTIVE By: /s/ Robert K. Burgess /s/ John C. Parsons, Jr. --------------------- ------------------------- John C. Parsons, Jr. Name: Robert K. Burgess ----------------- Title: President --------- 103 EX-11.01 7 COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11.01 104 2 Exhibit 11.01 MACROMEDIA, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995 -------------- -------------- -------------- Net income (loss) $ (5,920) $ 23,002 $ 6,538 Weighted average number of shares outstanding: Common 37,488 34,899 30,362 Number of common stock equivalents as a result of warrants outstanding -- -- 6 Number of common stock equivalents as a result of stock options outstanding -- 4,145 4,046 ======== ======== ======== Total 37,488 39,044 34,414 ======== ======== ======== Net income (loss) per common stock and common stock equivalent share $ (0.16) $ 0.59 $ 0.19 ======== ======== ========
All income per share amounts and number of shares have been retroactively stated to reflect a two-for-one stock split which became effective October 16, 1995. 105 EX-21.01 8 LIST OF REGISTRANT'S SUBSIDIARIES 1 Exhibit 21.01 106 2 Exhibit 21.01 LIST OF REGISTRANT'S SUBSIDIARIES
Percentage Owned By Name Country of Organization Macromedia, Inc. ---- ----------------------- ------------------- Macromedia Europe Limited England 100% Macromedia KK Japan 100% Macromedia Ireland (PTY) Ltd. Ireland 100%
Percentage Owned By Macromedia Ireland Name Country of Organization (PTY) Ltd. ---- ----------------------- ------------------- Macromedia Netherlands B.V Netherlands 100%
107 EX-23.01 9 CONSENT OF KPMG PEAT MARWICK LLP 1 Exhibit 23.01 108 2 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Macromedia, Inc. and Subsidiaries We consent to the use of our report included herein in the registration statements (Nos. 33-74202, 33-84208, 33-89092, 33-96188 and 333-3406) on Form S-8 and the registration statement (No. 333-3404) on Form S-3 of Macromedia, Inc. and subsidiaries. As indicated in our report, we did not audit the financial statements of Altsys Corporation, a company acquired by Macromedia, Inc. in a business combination accounted for as a pooling of interests, for the nine months ended September 30, 1994. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Altsys Corporation for such period, is based solely on the report of the other auditors. KPMG Peat Marwick LLP Palo Alto, California June 25, 1997 109 EX-23.02 10 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23.02 110 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report on the financial statements of Altsys Corporation dated November 28, 1994, incorporated by reference in this Form 10-K, which is incorporated by reference into the previously filed registration statements on Form S-8 and S-3 (Nos. 333-3404 and 333-24713) of Macromedia, Inc. and subsidiaries. It should be noted that we have audited the financial statements of Altsys Corporation for the year ended December 31, 1993 and the nine-month period ended September 30, 1994. We have not audited any financial statements subsequent to September 30, 1994, or performed any audit procedures subsequent to the date of our report. Arthur Andersen LLP Dallas, Texas June 26, 1997 111 EX-27.01 11 FINANCIAL DATA SCHEDULE
5 YEAR MAR-31-1997 APR-01-1996 MAR-31-1997 15,397 87,054 10,101 7,786 1,882 117,592 47,489 13,339 156,897 24,981 0 0 0 38 131,878 156,897 103,234 107,365 21,167 23,246 98,125 0 0 (9,397) (3,477) (5,920) 0 0 0 (5,920) (0.16) (0.16)
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