10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the Fiscal Year Ended March 31, 2000

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

COMMISSION FILE NO. 000-22688

MACROMEDIA, INC.
(A Delaware Corporation)

I.R.S. Identification No. 94-3155026

600 Townsend Street
San Francisco, California 94103
Telephone: (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

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 [   ]

Aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 9, 2000: $5,221 million. Common stock outstanding as of June 9, 2000: 51,696,228. See definition of affiliate in Rule 405, 17 (FR 230.405).

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the documents listed below have been incorporated by reference into the indicated parts of this report, as specified in the responses to the item numbers involved.

(1)	Designated portions of the Proxy Statement relating to the 2000
	Annual Meeting of Shareholders:	Part III (Items 10, 11, 12 and 13)

MACROMEDIA, INC. AND SUBSIDIARIES

FORM 10-K
ANNUAL REPORT
For the Year Ended March 31, 2000

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
PART III
	ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
	ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
EX-10.15 Lease Agreement
EX-10.16 First Amendment to Lease Agreement
EX-10.17 Lease Agreement-Oelsner Commercial Prop.
EX-10.18 Employment Agreement-Brian Allum
EX-21.01 List of Registrant's Subsidiaries
EX-23.01 Consent of KPMG LLP
EX-27.01 Financial Data Schedule-Year End 3/31/00
EX-27.02 Restated FDS - Year Ended 3/31/1999
EX-27.03 Restated FDS - Year Ended 3/31/1998
EX-27.04 Restated FDS - 3 Months Ended 6/30/1999
EX-27.05 Restated FDS - 6 Months Ended 9/30/1999
EX-27.06 Restated FDS - 3 Months Ended 6/30/1998
EX-27.07 Restated FDS - 6 Months Ended 9/30/1998
EX-27.08 Restated FDS - 9 Months Ended 12/31/1998

MACROMEDIA, INC. AND SUBSIDIARIES

FORM 10-K
ANNUAL REPORT
For the Year Ended March 31, 2000

	Page
PART I
Item 1. Business	3
Item 2. Properties	11
Item 3. Legal Proceedings	11
Item 4. Submission of Matters To a Vote of Security Holders	12
PART II
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters	12
Item 6. Selected Financial Data	12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7a. Quantitative and Qualitative Disclosures about Market Risk	13
Item 8. Financial Statements and Supplementary Data	13
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	13
PART III
Item 10. Directors and Executive Officers of the Registrant	13
Item 11. Executive Compensation	13
Item 12. Security Ownership of Certain Beneficial Owners and Management	13
Item 13. Certain Relationships and Related Party Transactions	13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K	14
Signatures	16
Index to Consolidated Financial Statements and Other Information	F-1

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PART I

      Except for historical financial information contained herein, the matters discussed in this annual report may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Such statements include declarations regarding our intent, belief or current expectations and those of our management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks, uncertainties and other factors, some of which are beyond our control; actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to: (i) that the information is of a preliminary nature and may be subject to further adjustment, (ii) those risks and uncertainties identified under “Risk Factors that May Affect Future Results of Operations” in Item 7 and the other risks detailed from time to time in our reports and registration statements filed with the Securities and Exchange Commission.

ITEM 1. BUSINESS

Overview

      Macromedia, Inc. develops, markets and supports software products, technologies and services that enable people to define what the Web can be. Our customers, from developers to enterprises, use Macromedia solutions to help build compelling and effective Web sites and eBusiness applications. We were incorporated in Delaware on February 25, 1992, and have acquired several other businesses since our incorporation. Our principal executive office is located at 600 Townsend Street, San Francisco, California 94103 and our telephone number is 415/252-2000. Our common stock is listed on the Nasdaq National Market under the symbol MACR. Our World Wide Web site can be accessed at www.macromedia.com.

      We are a software company based in San Francisco, California with more than 1,000 employees worldwide working with industry partners to deliver compelling and effective Web experiences.

      We have two primary business segments in which we operate today, the Software business and shockwave.com. Our Software business’ products enable rich, engaging, and personalized Web experiences. From stand-alone products for Web authoring and graphics creation to integrated solutions for mission-critical eBusiness applications, we have the technology and services that enable developers and enterprises to create Web sites. Our consumer business, shockwave.com, Inc., provides a leading entertainment experience on the Web by means of content, products and technologies that give consumers a next-generation Web experience at www.shockwave.com. (For financial information regarding our business segments, please refer to Note 19 to our Notes to Consolidated Financial Statements on page F-35).

Market Opportunity

      The Internet has experienced dramatic growth since the advent of the World Wide Web, a graphically rich environment made accessible to millions of consumers by the combination of advanced networking technologies, inexpensive, multimedia-capable computers and Web browser technology. In just a few years, the Web has become a powerful business software platform allowing companies to communicate with their customers, vendors and employees using standard formats and protocols. For businesses, Web technology provides an alternative to existing mainstream computing platforms and creates new opportunities for commerce and information exchange. For consumers, the Web is quickly becoming a viable medium for communication, community and entertainment.

      We see five central market trends that will continue to drive large and growing market opportunities for our software and services:

(a) As the Web matures, eBusinesses increasingly are focused on providing higher quality customer experiences, differentiating and expressing their brand identity, and attracting and engaging new and existing customers. Multimedia technologies that enable a richer and more compelling experience through

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	audio, animation, graphics, and interactivity are critical to this effort. While these higher quality Web experiences are already possible in today’s Internet environment, the growth of high bandwidth Internet access will only help accelerate this trend.
(b)	Since the advent of the World Wide Web, there has been a dramatic increase in the number of people around the globe with Web-connected, multimedia-capable PCs. The Web is now just at the beginning of an expansion in the number and variety of Web-connected, multimedia capable devices, from set-top boxes, to handheld devices, to wireless phones. This proliferation will serve to increase the opportunities for businesses to leverage the Web for new applications and increase the importance of technologies for developing, managing, personalizing and analyzing Web applications across platforms.
(c)	As the importance of the Web to a wide range of business practices has increased, the number of people involved in creating Web sites and Web-based applications at a given enterprise, and the complexity of building effective and engaging Web experiences has also increased.
(d)	With the increase in both the importance and complexity of building eBusiness applications, the importance of integrated solutions that tie together tools, application servers and databases to create dynamic applications is increasing.
(e)	The market for digital media entertainment has grown dramatically with the increasing proliferation and sophistication of personal computers, and with the expanding varieties of content and services available on the Internet.

      With these five trends, we see large and growing market opportunities for software solutions and services that enable developers and enterprises to create effective and engaging Web experiences and eBusiness applications.

SOFTWARE BUSINESS

      Our vision is a family of software products that will work together as a solution to streamline Web workflow from concept to design, development to production. Our products enable businesses to dramatically reduce the time it takes to develop their Web sites and provide mission critical solutions including Web measurement, analysis, and personalization solutions. Our line of software products allows us to deliver integrated solutions for our Web Content Lifecycle product solutions.

      We describe the Web Content Lifecycle as the five key areas of focus for the creation and management of Web sites: Build, Manage, Engage, Personalize and Analyze. These words represent the key steps in the Web Content Lifecycle necessary for the creation of effective and engaging eBusiness applications. Our software, together with future initiatives such as Project Whirlwind and in conjunction with companies with which we do business, enables customers to:

• Build sites efficiently

• Manage the production process

• Engage their customers

• Personalize their experience

• Analyze the results

      The graphic below illustrates how our software products are used to enable our customers to efficiently deliver compelling and effective Web experiences on multiple platforms through integration.

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• Macromedia Dreamweaver® - The solution for professional Web site design and production.

• Macromedia Fireworks® - The solution for professional Web graphics design and production.

• Macromedia Dreamweaver® UltraDev™ - The solution that allows developers, programmers, and designers to visually create and edit data-driven Web applications on multiple server platforms.

• Macromedia Flash® - The solution for producing high impact, vector based Web sites.

• Macromedia FreeHand® - The most powerful design tool for print and Internet graphics.

• Macromedia Director® - The standard for creating and delivering powerful multimedia.

• Macromedia Authorware® 5.1 - The solution for producing rich-media training and learning applications.

• Macromedia CourseBuilder for Dreamweaver® - An extension application which enables professional Web developers and subject matter experts to quickly and cost-effectively author engaging training content in a visual environment, without requiring programming knowledge.

• Macromedia Generator™ and Macromedia Generator EE™ - The solution for automated and personalized Web site graphics.

• Macromedia ARIA® - The solution enabling e-marketers to analyze users’ online behavior and gain a clearer understanding of their most valuable customers. ARIA automatically captures registration form data for demographic and geographic reports.

• Macromedia LikeMinds™ - The solution for real-time personalization of Web sites. LikeMinds automatically updates as new customers visit, existing customers’ tastes evolve, new products are introduced, and existing products are discontinued, without requiring constant updates from the

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Web staff. With each interaction, LikeMinds learns more about customers and products, continually becoming more accurate with its recommendations.

      Our unique Web Content Lifecycle approach to the creation of Web sites and applications is essential now that eBusiness is a critical component of any successful enterprise. Integrating Web content authoring with real-time analysis and personalization is critical to maintaining a competitive market edge and accurately measuring return on investment.

      Product Development

      Our business strategy emphasizes developing products and services that help customers take advantage of opportunities on the Internet. We aim to solve the problems customers face as they create and deliver content on a new medium with multiple standards, multiple browsers, and different bandwidth rates.

      As the software industry is characterized by rapid technological change, a continuous high level of expenditure is required to enhance existing products and develop new products. We plan to continue internal product development efforts and, as appropriate, acquire additional software and system technologies that we consider critical to meeting the needs of Internet developers, consumers, and the enterprise.

      We believe that our future success depends on our ability to enhance existing products, and develop and introduce new products on a timely basis. It is critical that new products and enhancements keep pace with the constantly evolving network infrastructure, Internet technology, and competitive offerings. We continue to adapt our products to new hardware and software platforms and to embrace emerging industry standards.

      For fiscal year 1998, 1999, and 2000, research and development expenses were $36.8 million, $41.6 million, and $53.5 million, respectively.

      Acquisitions

      In December 1999, we acquired Andromedia, Inc. (“Andromedia”) by exchanging all of the outstanding capital stock, options, and warrants of Andromedia for approximately 5.2 million shares of common stock, options, and warrants of Macromedia. The transaction was valued at approximately $210.0 million based on our stock price over a period of time at the initiation of the agreement. The transaction was accounted for as a pooling-of-interests, and all historical financial information presented has been restated to include the accounts and results of operations of Andromedia. The ARIA and LikeMinds product lines from Andromedia are now a critical part of our eBusiness infrastructure, and integrated with our products, allow developers to create content that has built-in tracking, profiling, modeling, analysis, personalization, and reporting capabilities.

      In September 1999, we acquired ESI Software, Inc., (“ESI”) by exchanging all of the outstanding capital stock, options, and warrants of ESI for approximately 635,000 shares of common stock, options, and warrants of Macromedia. The transaction was valued at approximately $24.1 million and was accounted for as a pooling-of-interests.

      Competition

      Our Software business competes in a highly competitive market characterized by pressure to incorporate new features and accelerate the release of new product versions and enhanced services. These market factors represent both opportunities and competitive threats to us. Some of our competitors do not offer as wide a breadth of solutions as we do. A number of our competitors, including Adobe Systems Inc., Corel Corporation, Accrue Software, Inc. and Net Perceptions, Inc., currently offer products and services that compete directly or indirectly with one or more of our software products. In addition, several of our current and potential competitors have greater financial, marketing and technical resources than we do. As we compete with larger competitors such as Adobe across a broader range of product lines and different platforms, we may face increasing competition from such companies.

      We believe that the principal competitive factors in the markets in which our Software business presently competes and may compete in the future are:

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• functionality;

• ability to provide efficient solutions;

• ability to timely introduce new product versions;

• ability to evolve with changing technology and customer requirements;

• performance of products;

• ability to provide enhanced solutions and support;

• ability to provide added value features;

• price; and

• market presence.

      Operations and Manufacturing

      We are dependent on a sole source, Modus Media, to manufacture and ship our finished products. The manufacturing of our products typically consists of pressing CD-ROMs, printing manuals, and packaging and assembling finished products, all according to our specifications and forecasts. Manufacturing is currently done at three Modus facilities worldwide: in Preston, Washington for the Americas, in Apeldorn, Netherlands for Europe, and in Singapore for the Asia Pacific market. We perform quality assurance testing at Modus facilities. Modus operates multiple facilities around the world that are capable of serving our needs, and we believe alternative sources could be implemented without significant interruption to our business. To date, we have not experienced any significant difficulties or delays in the manufacturing or assembly of our products or any significant returns due to product defects.

      In addition, we license and distribute our software products directly to end-users over the Internet through our Web site. We continue to invest in technologies and infrastructure to support electronic software distribution and online documentation, which are becoming an increasingly important and cost-effective way to deliver our products.

      Marketing and Distribution

      We extend our brand worldwide through creative marketing communications, our Web sites, www.macromedia.com and www.shockwave.com, public relations activities, customer seminars, advertising both on the Web and in print, and national and regional trade shows. We also use direct mail, both e-mail and print, to introduce new products and upgrades, to cross-sell products to current customers, and to educate and inform. In addition, we distribute a variety of interactive multimedia demonstration materials directly to prospective customers and follow up through outbound telemarketing during business hours.

      A substantial portion of our revenue is derived from the sale of our products worldwide through a variety of distribution channels, including traditional software distributors, electronic commerce on the Web, direct sales, mail order, educational distributors, value-added resellers (“VAR”s), original equipment manufacturers (“OEM”s), hardware and software superstores, and retail dealers. We also sell directly to large corporate and educational institutions, with volume licensing programs under which the customer receives a volume discount and has the right to reproduce and use our software.

      Internationally, our products are sold both directly to end users and through distributors. With distributors in more than 50 countries around the world, international sales accounted for 42% of total revenues during fiscal year 2000. In certain cases, distributors have exclusive distribution rights to certain products in their respective countries. In spite of economic difficulties in some regions, we believe that international markets for our products present a strategic opportunity, and expect international sales to continue to generate a significant percentage of our total revenues. (For financial information regarding our business segments, please refer to Note 19 to our Notes to Consolidated Financial Statements on page F-35).

      Customer Support

      We provide complimentary technical support to customers by phone and fax for a period of 90 days after the first technical support contact by a customer. After the 90-day period, we offer a paid technical support plan, Priority

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Access™, 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. We also offer high-end developer support.

      Millions of customers depend on our worldwide network of value-added resellers, training centers, and developers. In addition, our User Groups located in dozens of cities throughout the world, provide customers with ways to share information, network with developers, and keep in touch with us. We provide support through marketing collateral, guest speakers, product giveaways, and more.

      Our beta program enlists customers to conduct real-world tests on pre-release software, as well as provide feedback on features and software stability. The most informative beta sites receive free software.

      Macromedia’s Authorized Training Program is a worldwide network of professional trainers and educators who provide Macromedia customers with the highest-quality training on our products.

      Proprietary Rights and Licenses

      We rely on a combination of patents, copyrights, trade secrets, and trademark laws, as well as employee and third-party nondisclosure agreements, to protect our intellectual property rights and products. We distribute software under signed license agreements and a shrink-wrapped license agreement that customers accept when they open physical or electronic copies of our products. Policing unauthorized use of products is difficult, and while we cannot determine the extent to which software piracy of our products exists, it can be expected to be a persistent problem. We have established dedicated resources to focus on piracy and belong to key industry groups to further these efforts. In addition, the laws of certain countries in which products are or may be distributed do not protect our products and intellectual rights to the same extent as the laws of the United States.

      Venture Investments

      Macromedia Ventures focuses on finding, funding, and helping to develop companies that we believe will define the next generation of Internet and are complementary to our core product strategy. Macromedia Ventures targets companies growing Web software infrastructure and the rich-media, broadband, multi-device Internet. Macromedia Ventures will invest primarily in early stage companies that require not only capital, but also the unique technical and market development capabilities that we can provide.

SHOCKWAVE.COM BUSINESS

      shockwave.com is pioneering the next wave of consumer entertainment on the Internet. We are leveraging leading content brands and innovative content development and distribution models to create some of the best entertainment experiences on the Web. We offer these experiences through a variety of forms, including brand name and original cartoons; a variety of engaging and highly entertaining new and classic games; animated greeting cards which feature well known properties; and innovative music content, including an MP3 music directory. The content included in our offerings presently consists of a mix of licensed products, including such popular franchises as Comedy Central’s South Park and United Media’s Peanuts and Dilbert; popular games such as Frogger and Centipede; and newly created games, applications and properties.

      shockwave.com consists of a cutting-edge entertainment center, www.shockwave.com, and the Shockmachine, a versatile digital “media jukebox” that consumers can use to play, save, organize and access a wide range of content. As of March 31, 2000, we had registered over 15.3 million members and are growing rapidly with as many as 70,000 new members registering each day.

      In connection with the incorporation of shockwave.com, shockwave.com issued its Series A Preferred Stock to Macromedia. On January 14, 2000, shockwave.com issued and sold to various investors in a private placement, its Series B Preferred Stock which, together with the Series A Preferred Stock issued to Macromedia, represented all of the shares of its capital stock then issued and outstanding.

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      The shockwave.com Opportunity

      We provide compelling content and personalized experiences to consumers and opportunities to advertisers, merchandisers and content creators.

      Furthermore, shockwave.com enables content providers to create and distribute online entertainment brands and experiences over the Internet. Because of our significant audience reach and technological advantages, shockwave.com is an innovative way for content owners to introduce new properties, enhance exposure to existing properties and rejuvenate classic brands. We allow content creators to launch new properties, get instant feedback and make revisions so that these properties can grow and develop. We also allow creators the opportunity to participate in e-commerce and advertising opportunities. We believe that this cost-effective and practical approach to content distribution is unique in the industry.

      Strategy for shockwave.com

      Our objective is to be a leading interactive entertainment center for consumers worldwide. We plan to attract the highest quality entertainment properties by enabling content creators and owners to reach a large, loyal audience and to have access to our tracking and e-commerce infrastructure.

      In fiscal year 2000, there were 15.3 million members registered. This volume of traffic and the size of registered user base of shockwave.com, combined with rich media capabilities, provide advertisers and merchandisers with a highly desirable platform for promotion. Unlike most Web sites that must create partnerships or spend millions of dollars to drive traffic to their sites, we have a built-in mechanism to drive millions of potential users to our site. That mechanism is the registration process required as part of the download process of obtaining the Shockwave Player. When users download, activate or upgrade the Shockwave Player, they are directed to the shockwave.com site. Further, due to the interactive nature of the site, we expect to create a one-to-one relationship with millions of users, which will provide a greater value proposition for advertisers and merchandisers. Finally, since all of our users have Shockwave and Flash, they are able to experience rich media messages, rich media banners, sponsored content and integrated branding. Therefore, we believe that we can accomplish compelling advertising beyond simple banner ads more effectively than elsewhere on the Web.

      We also plan to promote membership growth by leveraging built-in traffic mechanisms and increasing traffic with marketing, distribution partnerships and international expansion. We expect to increase membership usage by offering and adding new, high-quality and engaging content to the site. In addition, we intend to build a community of users who will return to the site on a regular basis and who will advance our brand name through grass roots promotion. We expect to accomplish this by providing community features, including an editorialized directory of thousands of Shockwave content titles located throughout the Web, a featured “shocked” site of the day that highlights high quality content on the Web and e-mail capabilities that allow users to send content URLs with one click.

      Furthermore, we intend to capitalize on our large and rapidly growing user base by offering high-value advertising and to generate additional revenue through a mix of e-commerce activities, including premium content, an upgraded version of the Shockmachine and related products and merchandise. In addition, we enhance traditional banner advertising through rich media content, product tie-ins, co-branded games and applications and other forms of unique sponsorships. We believe shockwave.com offers far more effective rich media banner, sponsored content and integrated branding opportunities for advertisers and merchandisers, due to the fact that all visitors are rich media enabled with Shockwave and Flash technology. We also expect to take advantage of the digital entertainment medium to produce additional e-commerce revenue streams. For example, fans of the properties and characters featured on shockwave.com will be able to purchase a range of related merchandise, videos, books and other branded products.

      Competition

      We compete with a number of companies engaged in entertainment businesses of various kinds:

• Major media and entertainment companies: Two major entertainment companies, Disney and AOL/Time Warner, currently operate entertainment sites, which exploit their library of characters. In

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	addition, as the Internet and other interactive systems, such as cable and satellite systems, converge with traditional television broadcasting and traditional cable networks, significant competition may come from other traditional media companies.
•	Casual gaming communities: A wide variety of casual gaming businesses target a similar demographic to our own, such as HearMe.com, Pogo and Uproar.
•	Internet search engines and portals: The major online aggregators of content and communities, including AOL, Excite@Home, Lycos and Yahoo! and Microsoft, are attempting to develop compelling overall interactive entertainment offerings which will compete for audience.
•	New entertainment dotcom startups: Companies such as z.com, pop.com, Egreetings.com and many others are creating original entertainment specifically for the Internet. These companies’ products will compete with us for audience and advertising dollars.

      We also compete for visitors, advertisers and advertising revenues with thousands of other content providers as well as traditional forms of media and entertainment such as television, radio and magazines. We compete for gaming software revenues with PC-based and non-PC based entertainment software companies, including Electronic Arts, Midway Games, Nintendo, Sega and Sony.

      Content

      We offer a complete range of entertainment and interactive experiences through our site by developing the content and applications internally, licensing third party brands and programs and developing strategic relationships to create co-branded sections of the site. Currently, our site features well known cartoons and animated comic books featuring such well-known properties as South Park, Peanuts, Dilbert and Spiderman, as well as a range of new properties, several of which have developed loyal audiences. We also have contracted with several well-known artists such as David Lynch, Tim Burton, James Brooks, Stan Lee, Matt Stone and Trey Parker to create new, original programming exclusive to shockwave.com. The site’s game offerings include a wide range of arcade, action, adventure, card, puzzle and sports games, including online versions of well-known classics such as Frogger, Centipede and Missile Command and original games based on the cartoon properties licensed by us and a host of newly developed games. We plan to maintain a steady flow of new properties to encourage repeat visits by our users. In addition, we have launched animated greeting cards as our first interactive creative application. Animated greeting cards feature the characters from many of the properties licensed for either cartoons or games.

      Strategic Alliances

      We have entered into strategic alliances with leading media and technology companies to increase membership and usage, build brand recognition, accelerate product development and acquire content. For example, we have entered into numerous content license arrangements with content providers such as Comedy Central, Fox Interactive, Hasbro Interactive and Marvel Enterprises, whereby we are typically granted an exclusive period followed by a non-exclusive period to deliver the content in return for up-front development or licensing fees and ongoing revenue sharing arrangements. We have also entered into a number of distribution agreements with content distributors such as Excite@Home, Looksmart and Intel, whereby we manage, host and serve a co-branded area in cooperation with the distributor and, in return, establish prominent links throughout the distributor’s site to the co-branded area.

      Back-End Infrastructure

      We have made a significant investment in creating a scalable, robust back-end infrastructure to enable it to serve millions of users, to track personal preferences, to store individual usage behavior and to conduct e-commerce activities. When a consumer downloads Shockwave, a registration mechanism will ensure that their name, e-mail and some preferences are captured. Every user automatically becomes a member of our site and will be greeted by name when they visit the front page. A “welcome” e-mail provides additional information about our services and the technology they have downloaded.

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      Sales and Marketing

      We intend to be a leading destination site on the Web, with substantial reach into the consumer market. With this traffic potential come opportunities to monetize that traffic through advertising, sponsorships, integrated branding and transactional partnership. Our revenues have been generated to date primarily from the sale of advertisements. Our advertising products currently consist of banner advertisements and higher profile promotional sponsorships that appear on pages within our Web site. Hypertext links are embedded in each advertisement to provide the user with instant access to the advertiser’s Web site, to obtain additional information, or to purchase products and services. We have deployed a direct sales force dedicated to partner with consumer advertisers and agencies to deliver on the potential of Web advertising and to offer advertisers a wide range of targeted placement options. We believe that we offer components important to advertisers looking to reach the mass consumer audience: critical mass, a loyal user base, rich media opportunities, creative sponsorships, integrated branding capabilities and offline awareness. In addition, we expect to leverage our growing and loyal user base to generate additional revenues through e-commerce activities directly on our Web site, including offering of premium content, an upgraded version of Shockmachine and related products and merchandise and long-term participation in multiple revenue sources from the content and characters.

Risk Factors

      See Risk Factors that May Affect Future Results of Operations in Management’s Discussion and Analysis of Financial Condition and Results of Operations on Page F-6.

Year 2000 Compliance

      See Year 2000 Compliance in Management’s Discussion and Analysis of Financial Condition and Results of Operations on Page F-10.

Employees

      As of March 31, 2000, we had 1,003 full-time employees and 229 contractors worldwide, with the majority working in California, followed by Texas, the United Kingdom, Japan, and Australia, among other international offices. None of our employees are subject to a collective bargaining agreement, and we believe that our relations with our employees are good.

ITEM 2. PROPERTIES

      A significant portion of our United States operations is located in various buildings in San Francisco, California. We lease approximately 248,500 square feet of space in San Francisco, 25,000 of which is not currently occupied by us and is sub-leased. Our leases expire between July 2004 and May 2010, and we have options to renew for successive five-year terms at 95 percent of the then current fair market value of the space. We also own a four-story 100,000 square foot facility, located on land purchased in Redwood City, California. We occupy 50,000 square feet of this space and lease the remaining 50,000 square feet, with the intention to occupy additional space over time. We also lease 25,000 square feet at a facility in Richardson, Texas. In addition, we lease space in North America for field sales offices, in Berkshire, England, for our European operations, Victoria, Australia, for our Asia Pacific operations and in Tokyo, Japan, for our Japanese operations. We believe our 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.

ITEM 3. LEGAL PROCEEDINGS

      On July 31, 1997, a complaint entitled Rosen et al. v. Macromedia, Inc. et al., (Case No. 988526) was filed in the Superior Court for San Francisco, California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of California Corporations Code Sections 25400 and 25500 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding our financial results and prospects. Four similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in San Francisco Superior Court, and consolidated for pre-trial purposes

11

with Rosen. Defendants filed demurrers to the complaint and other motions, which were argued on December 9, 1997 and January 5, 1998. Before the demurrers could be heard, one defendant, Richard Wood, died in an automobile accident. In March 1998, the Courts sustained in part and overruled in part the demurrers. Claims against Susan Bird were dismissed and the Court overruled the demurrers as to Macromedia, John Colligan, James Von Her, II, and Kevin Crowder. In May 1999, the Court granted plaintiffs’ motion for certification of a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Trial has been set for March 12, 2001. On April 20, 2000, the parties proposed that the Court continue the trial date to September 10, 2001.

      On September 25, 1997, a complaint entitled City Nominees v. Macromedia, Inc et al., (Case No. C-97-3521-SC) was filed in the United States District Court for the Northern District of California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of Sections 10 and 20(a) of the Securities and Exchange Act of 1934 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding our financial results and prospects. Plaintiffs seek to represent a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Three similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in United States District Court for the Northern District of California. All of these cases have been consolidated. Lead plaintiffs and lead counsel have been appointed under the provisions of the Private Securities Law Reform Act by the District Court. A consolidated complaint was filed in February 1998. Defendants moved to dismiss that complaint on the grounds that plaintiffs’ claims were barred by the applicable statute of limitations. In May 1998, the United States District Court for the Northern District of California granted defendants’ motion to dismiss with prejudice, and entered judgment in favor of defendants. Plaintiffs have appealed to the United States Court of Appeals for the Ninth Circuit, which reversed on April 21, 2000 and remanded the action to the District Court for further proceedings.

      All complaints seek damages in unspecified amounts, as well as other forms of relief. We believe the complaints are without merit and intend to vigorously defend the actions.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted during the fourth quarter of fiscal year 2000 to a vote of security holders through solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      The information required is set forth under “Quarterly Results and Stock Market Data” tabulations, on page F-38 of this report.

ITEM 6. SELECTED FINANCIAL DATA

      The information required is set forth under “Selected Consolidated Financial Data”, on page F-2 of this report.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The information required is set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, on page F-3 of this report.

12

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The information required is set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, on page F-3 of this report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The information required by this item are set forth under “Independent Auditors’ Report,” Consolidated Balance Sheets,” “Consolidated Statements of Operations,” “Consolidated Statements of Stockholders’ Equity,” “Consolidated Statements of Cash Flows,” and “Notes to Consolidated Financial Statements,” on pages F-12 to F-38 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

      Not applicable.

PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

      The information concerning our directors required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Proposal No. 1 — Election of Directors.”

      The information concerning our executive officers required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Executive Officers.”

      The information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to section in our Proxy Statement entitled “Section 16(a) Beneficial Ownership Reporting Compliance.”

ITEM 11. EXECUTIVE COMPENSATION

      The information concerning executive compensation required by this Item is incorporated by reference to the sections in our 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 concerning executive compensation required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information concerning certain relationships and related transactions required by the Item is incorporated by reference to Sections in our Proxy Statement entitled “Employment Agreement” and “Certain Transactions.”

13

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:

      Independent Auditors’ Report

      Consolidated Balance Sheets — March 31, 2000 and 1999

      Consolidated Statements of Operations —Years Ended March 31, 2000, 1999, and 1998

      Consolidated Statements of Cash Flows —Years Ended March 31, 2000, 1999, and 1998

      Consolidated Statements of Stockholders’ Equity —Years Ended March 31, 2000, 1999 and 1998

      Notes to Consolidated Financial Statements

2. Financial Statement Schedule. The following financial statement schedule of Macromedia, Inc. and Subsidiaries for the fiscal years ended March 31, 2000, 1999 and 1998 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Macromedia, Inc. and Subsidiaries.

      Schedule II: Valuation and Qualifying Accounts

      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.

3. Exhibits

EXHIBIT
NUMBER	EXHIBIT TITLE
2.01	Amended and Restated Agreement and Plan of Reorganization by and among Registrant, ESI Software, Inc. and Dynamo Acquisition Corp. dated July 8, 1999 as amended August 30, 1999. (a)
2.02	Amended and Restated Agreement and Plan of Reorganization by and among Registrant, Andromedia, Inc. and Peak Acquisition Corp. dated October 6, 1999 as amended November 23, 1999. (b)
3.01	Registrant’s Amended and Restated Certificate of Incorporation. (c)
3.02	Certificate of Amendment of Registrant’s Amended and Restated Certificate of Incorporation. (d)
3.03	Registrant’s Bylaws. (e)
3.04	Amendment to Registrant’s Bylaws effective October 15, 1993. (e)
10.01	1992 Equity Incentive Plan and related documents, as amended to date. (l)
10.02	1993 Directors Stock Option Plan and related documents, as amended to date. (f)
10.03	Non-Plan Form Agreements. (j)
10.04	Registrant’s Form of Non-Plan Stock Option Grant. (l)
10.05	ESI Software, Inc. 1996 Equity Incentive Plan. (l)
10.06	Registrant’s 1999 Stock Option Plan. (m)
10.07	Andromedia, Inc. 1996 Stock Option Plan. (m)
10.08	Andromedia, Inc. 1997 Stock Option Plan. (m)
10.09	Andromedia, Inc. 1999 Stock Option Plan. (m)
10.10	Form of Indemnification Agreement entered into by Registrant with its directors and executive officers. (e)
10.11	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. (g)
10.12	Employment Agreement between the Registrant and Robert K. Burgess dated August 25, 1996. (h)
10.13	Loan Agreement between Registrant and Brian and Sharon Allum, dated July 15, 1997. (i)

14

EXHIBIT
NUMBER	EXHIBIT TITLE
10.14	Loan Agreement between Registrant and Steven A. and Nancy M. Elop, dated April 24, 1998. (k)
10.15	Lease Agreement by and between Registrant and Zoro LLC, dated April 15, 1999.*
10.16	First Amendment to Lease agreement by and between Registrant and Zoro LLC, dated July 1, 1999.*
10.17	Lease Agreement by and between Registrant and Oelsner Commercial Properties, dated February 28, 2000.*
10.18	Employment Agreement between the Registrant and Brian Allum dated July 22, 1997. *
21.01	List of Registrant’s subsidiaries (see page F-40 of this Form 10-K).
23.01	Consent of KPMG LLP, Independent Auditors (see page F-41 of this Form 10-K).
24.01	Power of Attorney (see page 16 of this Form 10-K).
27.01	Financial Data Schedules (see page F-42 to F-49 of this report).

(a)	Incorporated by reference to the Registrant’s Current Report on Form 8-K/A filed on October 26, 1999.
(b)	Incorporated by reference to the Registrant’s Current Report on Form 8-K/A filed February 14, 2000.
(c)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (Registration Statement No. 33-89092).
(d)	Incorporated by reference to the Registrant’s Amendment No. 1 to Registration Statement on Form 8-A filed on October 5, 1995.
(e)	Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (Registration Statement No. 33-70624).
(f)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed on September 24, 1998 (Registration Statement No. 333-64141).
(g)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
(h)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996.
(i)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997.
(j)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed on October 31, 1997 (Registration Statement No. 333-39285).
(k)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998.
(l)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed on October 18, 1999 (Registration Statement No. 333-89247).
(m)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed on December 07, 1999 (Registration Statement No. 333-92233).
*	Filed herewith.

(B) Reports on Form 8-K:

1. An amended Current Report on Form 8-K/A, dated December 1, 1999 was filed by the Company on February 14, 2000. In this amended report, the Company filed the information pursuant to Item 7 of Form 8-K. Under Item 7, the Company filed the 1998 financial statements of Andromedia, Inc., an acquired business, and the pro forma financial information resulting from the acquisition.

15

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.

Dated: June 21, 2000

MACROMEDIA, INC.

By:   /s/ Robert K. Burgess
Robert K. Burgess
Chief Executive Officer, President and Director

POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert K. Burgess and Elizabeth A. Nelson, 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
/s/ Robert K. Burgess Robert K. Burgess	President, Chief Executive Officer, and Chairman of the Board of Directors (Principal Executive Officer)	June 21, 2000
/s/ Elizabeth A. Nelson Elizabeth A. Nelson	Executive Vice President, Chief Financial Officer, and Secretary (Principal Financial and Accounting Officer)	June 21, 2000
/s/ John (Ian) Giffen John (Ian) Giffen	Director	June 21, 2000
/s/ Mark Kvamme Mark Kvamme	Director	June 21, 2000
/s/ Donald L. Lucas Donald L. Lucas	Director	June 21, 2000
/s/ Alan Ramadan Alan Ramadan	Director	June 21, 2000
/s/ William B. Welty William B. Welty	Director	June 21, 2000

16

MACROMEDIA, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
March 31, 2000

	Page(s)
Selected Consolidated Financial Data		F-2
Management’s Discussion and Analysis of Financial Condition and Results of Operations		F-3
Independent Auditors’ Report		F-12
Consolidated Balance Sheets as of March 31, 2000 and 1999.		F-13
Consolidated Statements of Operations for the Years Ended March 31, 2000, 1999 and 1998.		F-14
Consolidated Statements of Cash Flows for the Years Ended March 31, 2000, 1999 and 1998.		F-15
Consolidated Statements of Stockholders’ Equity for the Years Ended March 31, 2000, 1999 and 1998.		F-16
Notes to Consolidated Financial Statements		F-17
Schedule II: Valuation and Qualifying Accounts		F-39

F-1

MACROMEDIA, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except earnings per share data)

				Years ended March 31,
				2000			1999			1998			1997			1996
STATEMENT OF OPERATIONS DATA:
Revenues				$	264,159		$	153,243		$	113,803		$	108,954		$	119,579
Cost of revenues					28,829			15,625			15,107			24,085			21,098
		Gross profit			235,330			137,618			98,696			84,869			98,481
Operating expenses:
	Sales and marketing				113,005			73,153			60,379			61,076			42,544
	Research and development				65,739			41,551			36,829			33,333			21,717
	General and administrative				24,610			16,740			13,231			9,313			6,190
	Acquisition related expenses				11,516			454			7,658			350			2,525
	Non-cash compensation				11,071			287			49			—			—
	Amortization of intangibles				1,013			248			—			—			—
		Total operating expenses			226,954			132,433			118,146			104,072			72,976
Operating income (loss)					8,376			5,185			(19,450	)		(19,203	)		25,505
		Total other income			6,187			5,037			4,637			5,309			4,026
		Minority interest			6,179			—			—			—			—
		Income (loss) before income taxes			20,742			10,222			(14,813	)		(13,894	)		29,531
		Provision (benefit) for income taxes			11,975			7,612			828			(3,477	)		8,779
			Net income (loss)		8,767			2,610			(15,641	)		(10,417	)		20,752
			Accretion on mandatorily redeemable convertible preferred stock		(2,538	)		(104	)		—			—			—
			Net income (loss) applicable to common stockholders	$	6,229		$	2,506		$	(15,641	)	$	(10,417	)	$	20,752
Net income (loss) applicable to common stockholders per share:
	Basic			$	0.14		$	0.06		$	(0.40	)	$	(0.27	)	$	0.53
	Diluted			$	0.12		$	0.05		$	(0.40	)	$	(0.27	)	$	0.53

      All income per share amounts reflect a two-for-one stock split which became effective October 16, 1995 and have been restated to reflect the adoption of SFAS 128 in December 1997.

	As of March 31,
	2000		1999		1998		1997		1996
BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments	$	187,036	$	111,157	$	88,940	$	102,929	$	116,679
Working capital		182,150		105,367		83,525		92,805		117,952
Total assets		339,359		202,495		158,126		157,844		155,950
Long-term liabilities		321		687		653		—		201
Mandatorily redeemable convertible preferred stock		—		13,591		3,548		—		—
Total stockholders’ equity	$	254,276	$	147,031	$	127,240	$	131,268	$	132,255

F-2

MACROMEDIA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

      We have two primary business segments in which we operate today, the Software business and shockwave.com. Our Software business develops software that creates Web site layout, graphics and rich media content for Internet users and develops solutions for analyzing Web traffic and personalizing Web sites. Our consumer business, shockwave.com, Inc. (“shockwave.com”) designs, develops and markets aggregated content to provide online entertainment on the Web. We sell our software through a network of distributors, value-added resellers (“VARs”) and our own sales force and Web site, and to original equipment manufacturers (“OEMs”) in North America, Europe, Asia Pacific and Latin America. We derive additional revenues from advertising on our Web site, and from software maintenance and technology licensing agreements. shockwave.com derives revenues from advertising and sponsorships on its Web site.

      During fiscal year 2000, revenue for both our Software business and shockwave.com grew substantially, resulting in increased profitability on a consolidated basis. During the year, we completed two strategic acquisitions, Andromedia, Inc. and ESI Software, Inc., both accounted for as poolings-of-interests. These acquisitions have enabled us to provide integrated eBusiness applications and additional solutions for developing dynamic Web sites. Additionally, during fiscal year 2000, shockwave.com received equity financing from outside resources to further expand the business. As of March 31, 2000, total cash, cash equivalents and short-term investments totaled $187.0 million and we remained debt free.

      Additional information about Macromedia, our products, sales and marketing, and investor information can be found on the Web at www.macromedia.com. Financial information included on our Web site shall not be deemed to be a part of this filing.

Results of Operations

      The following table sets forth certain financial data as a percentage of revenues for the years ended March 31, 2000, 1999 and 1998.

				2000			1999			1998
Revenues					100	%		100	%		100	%
Cost of revenues					11			10			13
		Gross margin			89			90			87
Operating expenses:
	Sales and marketing				43			48			53
	Research and development				25			27			32
	General and administrative				9			11			12
	Acquisition related expenses				4			—			7
	Non-cash compensation				4			—			—
	Amortization of intangibles				—			—			—
		Total operating expenses			85			86			104
Operating margin					4			4			(17	)
Minority interest					2			—			—
Other income, net					2			3			4
Provision for income taxes					5			5			1
			Net income (loss)		3			2			(14	)

      Revenues — Revenues were $264.2 million in fiscal year 2000, an increase of 72% over fiscal year 1999 revenues of $153.2 million.

      Revenues from the Software business grew by 67% in fiscal year 2000 to $255.9 million, compared to $153.2 million in fiscal year 1999, primarily due to increased sales of Dreamweaver, Fireworks and Flash. This was

F-3

partially offset by a decline in sales of Freehand and Authorware, due to differences in product cycle timing year over year.

      Revenues in fiscal year 1999 were $153.2 million, up 35% from revenues of $113.8 million in fiscal year 1998, also due to new releases of our software products.

      International revenues represented 42% of software revenues in fiscal years 2000 and 1999 compared to 48% of revenues in fiscal year 1998. Sales from our Asia Pacific, European and Latin American regions showed consistent revenue growth in fiscal year 2000, as compared to fiscal year 1999. See “Risk Factors That May Affect Future Results of Operations” —“Risks of International Operations” for additional information.

      The shockwave.com segment contributed $8.2 million to our revenues in fiscal year 2000. The revenues consisted primarily of advertising and sponsorship revenues in North America. (See Note 19 to the Notes to Consolidated Financial Statements).

      Cost of revenues — Cost of revenues for the Software business includes cost of materials and manufacturing, salaries and other costs incurred during consulting and training projects, royalties paid to third parties for licensing of developed technology, costs related to language translation of our software products, costs associated with order fulfillment, and costs incurred in providing technical support to customers. Cost of revenues for shockwave.com include revenue sharing paid to content developers and commission expense for the sale of Web advertising space. Cost of revenues increased from $15.6 million in fiscal year 1999 to $28.8 million in fiscal year 2000, and gross margin decreased slightly from 90% in the prior year to 89% for the year ended March 31, 2000. The increase of costs in absolute dollars is primarily due to increased consulting and training expenses associated with sales of our new eBusiness products, ARIA and LikeMinds. Consulting and training expenses will continue to increase as revenues for the ARIA and LikeMinds products grow. Gross margins may be adversely affected from time to time by our mix of distribution channels, mix of products sold, and mix of international versus domestic revenues. In the future, shockwave.com will continue to incur fees for the development of entertainment content.

      Cost of revenues increased slightly in absolute dollars from fiscal year 1998 to 1999, however gross margins improved from 87% to 90%. This improvement in gross margins was attributable to effective cost-control programs and inventory review procedures resulting in lower product cost and less inventory scrap.

      Sales and marketing — Sales and marketing expenses for the Software business consist primarily of compensation and benefits, infrastructure costs, advertising, tradeshow and seminar expenses, mail order advertising costs, and other marketing costs. Sales and marketing expenses for shockwave.com consist primarily of compensation and benefits and marketing consultation expenses. Sales and marketing expenses decreased as a percentage of revenue from 48% in fiscal year 1999 to 43% in fiscal year 2000, but increased $39.9 from fiscal year 1999 to fiscal year 2000. The increase in sales and marketing expenses in absolute dollars is primarily due to increased compensation, benefit, and infrastructure expenses as our sales and marketing employee headcount continues to grow to support our increasing revenues. Additionally, we offered a greater number of customer seminars in fiscal year 2000 as compared to 1999, contributing to the increase in expenses year over year. As a percent of revenue, sales and marketing expenses decreased from 53% in fiscal year 1998 to 48% in fiscal year 1999, but increased $12.8 million year over year due to increased advertising and promotional costs and costs associated with the increasing number of employees. We expect sales and marketing expenses to increase in absolute dollars in fiscal year 2001 as we continue to invest in various sales and marketing programs to support increased revenue growth in both the Software business and shockwave.com.

      Research and development — Research and development expenses for the Software business consist primarily of compensation and benefits, and infrastructure and overhead costs to support our continued investment in product development. shockwave.com research and development costs are comprised primarily of compensation and benefits and fees paid to developers of entertainment content for the Web site. As a percent of revenues, research and development costs decreased year over year from 27% to 25%. In absolute dollars, research and development expenses increased $24.2 million to $65.7 million from fiscal year 1999 to fiscal year 2000. Our continued investment in additional headcount and supporting infrastructure for both the Software business and shockwave.com has contributed to the increase in absolute dollars. Research and development expenses increased $4.7 million from

F-4

fiscal year 1998 to fiscal year 1999, primarily due to increased compensation and benefit expenses. We expect research and development expenses to increase in absolute dollars as we continue to invest in product and content development.

      General and administrative — General and administrative expenses for both the Software business and shockwave.com consist mainly of compensation and benefits, overhead and infrastructure costs, and fees for professional services. General and administrative expenses increased from $13.2 million in fiscal year 1998, to $16.7 million in fiscal year 1999, and to $24.6 million in fiscal year 2000. As a percentage of revenues, general and administrative costs have decreased from 12% in fiscal year 1998 to 11% in fiscal year 1999 to 9% in fiscal year 2000. The increase in absolute dollars is primarily due to increased headcount and infrastructure costs to support the growth of the business. We expect general and administrative expenses to increase in absolute dollars in fiscal 2001.

      Acquisition related expenses — We incurred acquisition related expenses of $11.5 million during the year ended March 31, 2000 for the acquisitions of ESI Software, Inc., Andromedia, Inc. and Time4.com. These acquisition expenses include investment banker fees, legal and other professional fees, severance and personnel relocation costs. Acquisition costs also include expenses related to a technology purchase from Starbase Corporation. Acquisition expenses for the year ended March 31, 1999 related to Andromedia’s acquisition of LikeMinds. (See Note 4 to the Notes to Consolidated Financial Statements). In fiscal year 1998, we incurred one-time merger costs associated with the acquisition of Solis Design, Inc.

      Non-cash compensation — Non-cash compensation increased $10.8 million from fiscal year 1999 to $11.1 million, and increased approximately $200,000 from 1998 to $287,000. The increase from fiscal year 1999 to 2000 is primarily related to compensation expenses incurred with the issuance of shockwave.com warrants and options. We issued warrants in connection with content development agreements entered into with non-employees. We also issued shockwave.com options to employees that had, for accounting purposes, an exercise price less than the fair value of the underlying common stock at the date of grant. We will continue to incur expenses associated with amortization of deferred compensation from the issuance of options. (See Note 14 to the Notes to Consolidated Financial Statements).

      Amortization of intangibles — Amortization of intangibles increased approximately $800,000 from fiscal year 1999 to 2000, and primarily consists of amortization of goodwill and other intangibles arising from purchase transactions. (See Note 2 to the Notes to Consolidated Financial Statements).

      Other income — Other income consists primarily of earnings on our cash and short-term investments and foreign exchange gains and losses, net of fees. Other income was $6.2 million in fiscal year 2000, up from $5.0 million in fiscal year 1999 and $4.6 million in fiscal year 1998, resulting from greater investment and interest income.

      Provision for income taxes — We recorded a tax provision of $12.0 million in fiscal year 2000, compared to a tax provision of $7.6 million in fiscal year 1999 and $828,000 in fiscal year 1998. The overall effective tax rate for the provision as of March 31, 2000 was 58%, which includes the effect of the pre-merger net losses of Andromedia, Inc. and ESI Software, Inc. and the minority interest portion of the net loss of shockwave.com. The effective tax rate on normalized operations, which excludes these items, was 26% for the year ended March 31, 2000. The effective tax rate on normalized operations for the provision as of March 31, 1999 and 1998 was 28% and 36%, respectively. The decrease in the effective tax rate reflects the utilization of research and experimentation tax credits and foreign operating results that were taxed at rates lower than the U.S. statutory rate. (See Note 10 to the Notes to Consolidated Financial Statements).

F-5

Liquidity and Capital Resources

      The following table summarizes our cash flow activities for the periods indicated (in thousands):

			Years Ended March 31,
			2000			1999			1998
Cash flows from:
	Operating activities		$	35,907		$	14,158		$	(8,930	)
	Investing activities			(36,433	)		(19,897	)		(9,424	)
	Financing activities			89,977			20,337			15,256
		Total	$	89,451		$	14,598		$	(3,098	)

      Operating activities for fiscal year 2000 provided $35.9 million, a 154% increase from 1999, primarily due to the increase in net income, partially offset by a minority interest gain in shockwave.com from its venture investors, and increased accounts receivable and other assets. For the year ended March 31, 2000, cash used in investing activities was $36.4 million, representing an increase of 83% compared to the same period in fiscal year 1999. Cash was primarily used to purchase and develop equipment and software for infrastructure growth and to invest in various companies that produce content for shockwave.com such as Mondo Media Productions, Inc. and Stan Lee Media, Inc. and other investments. Financing activities for fiscal year 2000 provided $90.0 million, an increase of 342% from fiscal year 1999, primarily from proceeds received from venture investors for shockwave.com’s Preferred Series B stock offering, the exercise of common stock options, offset by the acquisition of treasury stock.

      In fiscal year 2000, we made investments in property and equipment totaling $33.9 million. This amount includes $25.5 million for equipment and software for additional computer infrastructure, including $9.7 million for a new internal use Web infrastructure for sales and marketing, customer support, on-line product distribution, and technical support. The additional capitalized costs for this new Web infrastructure consist primarily of consulting fees for software development and related hardware. In fiscal 2001, we anticipate spending approximately $60.0 million on capital expenditures, primarily relating to information technology infrastructure, equipment and leasehold improvements.

      As of March 31, 2000, cash, cash equivalents, and short-term investments were $187.0 million and working capital was $182.2 million. As of March 31, 2000, cash, cash equivalents, and short-term investments increased by $75.9 million and working capital increased by $76.8 million as compared to March 31, 1999.

      The treasury stock program approved by the Board of Directors in July 1997 and October 1998 provided for purchases of up to 4.0 million shares of our common stock. During fiscal year 2000, we repurchased 198,000 common shares, for $8.2 million, compared to 1.1 million common shares for $20.3 million in 1999. In connection with the acquisition of ESI Software, Inc., the Board of Directors rescinded the repurchase program.

      In fiscal year 2000, our subsidiary, shockwave.com, issued Series B Preferred Stock in exchange for approximately $43.3 million, net of issuance costs. We received the funding from various venture investors and issued 18.2 million preferred shares.

      We continue to evaluate current and forecasted cash flow as a basis for financing operating requirements and capital expenditures. We believe that we will have sufficient liquidity from cash flow from operations, access to capital markets and working capital to finance anticipated capital expenditures and to fund working capital requirements for the next twelve months.

RISK 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 detailed below, and from time to time in our other reports filed with the Securities and Exchange Commission. The actual results that we achieve may differ materially from any forward-looking statements due to such risks and uncertainties.

F-6

      Intense Competition — The markets for our products are highly competitive and characterized by pressure to reduce prices, incorporate new features, and accelerate the release of new product versions and enhanced services. A number of companies currently offer products and services that compete directly or indirectly with one or more of our products. With respect to our Software business, competitors include Adobe Systems Inc., Corel Corporation, Accrue Software, Inc. and Net Perceptions, Inc. As we compete with larger competitors such as Adobe across a broader range of product lines and different platforms, we may face increasing competition from such companies. In addition, our shockwave.com subsidiary competes with a number of other Internet community, gaming and entertainment sites, including Disney, Gamesville, AOL/Time Warner, and Yahoo!. Many of these businesses are much larger than our consumer business, and they have more resources devoted to these business efforts. It is anticipated that our consumer business will face competition from these other Web sites both for consumers and for advertising and other future revenue sources on which the future success of the consumer business is dependent.

      Rapidly Changing Technology — The developing digital media, Internet and online services markets, and the personal computer industry are characterized by rapidly changing technology, resulting in short product life cycles and rapid price declines. We must continuously update our existing products, services and content to keep them current with changing technology and consumer tastes and must develop new products, services and content to take advantage of new technologies and consumer preferences that could render our existing products obsolete. Our future prospects are highly dependent on our ability to increase functionality of existing products and services in a timely manner and to develop new products and services that address new technologies and achieve market acceptance. 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 we will be successful in these efforts.

      Fluctuations of Operating Results; Product Introduction Delays — Our quarterly operating results may vary significantly depending on the timing of new product introductions and enhancements. A substantial portion of our revenue is derived from our products. We have in the past experienced delays in the development of new products and enhancement of existing products, and such delays may occur in the future. In addition, we have only recently entered the eBusiness software products market through our acquisition of Andromedia in December 1999 and have not released new versions or enhancements of these products to date. If we were unable, due to resource constraints or technological or other reasons, to develop and introduce products in a timely manner, this inability could have a material adverse effect on our results of operations. If we do not ship new versions of our products as planned, sales of existing versions decline, or new products do not receive market acceptance, our results of operations in a given quarter could be materially adversely affected as they were during the fourth quarter of fiscal year 1997 when we delayed shipment of a new version of Director to the following quarter. Furthermore, our success depends upon our ability to attract and retain a larger number of consumers on our shockwave.com Web site by delivering original and compelling content and services. If we are unable to do so, advertising revenue will decline and the economic value of the properties may be affected.

      Our quarterly results of operations also may vary significantly depending on the impact of any of the following: the timing of product and service introductions by competitors, changes in pricing, execution and volume of technology licensing agreements, the volume and timing of orders received during the quarter for software products, which are difficult to forecast, expenses related to the expansion of shockwave.com, and finally, any acquisitions of other companies or technologies. Our future operating results may fluctuate as a result of these and other factors, including our ability to continue to develop or acquire innovative products and services, its product, service, and customer mix, and the level of competition. Our results of operations may also be affected by seasonal trends. A significant portion of our operating expenses is relatively fixed, and planned expenditures are based primarily on sales forecasts. As a result, if revenues do not meet our forecasts, operating results may be materially adversely affected. There can be no assurance that sales of our existing products will either continue at historical rates or increase, or that new products introduced by us, whether developed internally or acquired, will achieve market acceptance. Our historical rates of growth should not be taken as indicative of growth rates that can be expected in the future.

      Unproven Business Model — Our shockwave.com business model depends upon its ability to leverage its existing and future Web traffic and consumer audience to grow revenues and in the future, generate multiple revenue streams. The potential profitability of this business model is unproven, and to be successful, we must, among other things, develop and market content that achieves broad market acceptance by our user community,

F-7

Internet advertisers and commerce vendors. There can be no assurance that the consumer business will be able to effectively implement this business model, and even if the implementation is successful, there can be no assurance that the business model will prove to be able to sustain revenue growth or generate significant profits, if any. Furthermore, for the foreseeable future, we anticipate that the shockwave.com business will require significant expenditures, particularly related to sales and marketing and brand promotion, and that such expenditures may or may not result in revenue growth. Given our limited operating experience related to the shockwave.com business, the prediction of future revenue growth or operating performance for the consumer business is difficult at best. In addition to the foregoing, the shockwave.com business will depend in part on success in building strategic alliances with other Internet companies and media companies in order to be able to grow the user base and to provide compelling content to attract and maintain the user base. There can be no assurances that such alliances can be created or maintained over an extended period of time.

      Dependence on Distributors — A substantial majority of our revenue is derived from the sale of our software products through a variety of distribution channels, including traditional software distributors, mail order, educational distributors, VARs, OEMs, hardware and software superstores, retail dealers, and direct sales. Domestically, our products are sold primarily through distributors, VARs, and OEMs. In particular, one distributor, Ingram Micro, Inc., accounted for 28% of revenues in fiscal years 2000 and 1999. In addition, the next three distributors combined, two of which are international distributors, accounted for 18% of revenues in fiscal year 2000. In fiscal year 1999, in addition to Ingram Micro, Inc., three distributors, including two international distributors, accounted for approximately 21% of total revenues. Internationally, our products are sold through distributors. Our resellers generally offer products of several different companies, including in some cases, products that are competitive with our products. There can be no assurance that our software resellers will continue to purchase our products or provide them with adequate levels of support. In addition, we believe that certain distributors are reducing their inventory in the channel and returning unsold products to better manage their inventories. Distributors are increasingly seeking to return unsold product, particularly when a new version or upgrade of a product has superseded such products. If our distributors were to seek to return increasing amounts of products, such returns could have a material adverse effect on our 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 our results of operations.

      The success of our Software and shockwave.com businesses is dependent upon the existence and future growth of the Internet as a business, entertainment and communications platform. A change in the Internet or the technology used for operation of the Internet or a decline in the growth of the Internet could have a material adverse effect on our results of operations.

      Risks of International Operations — For fiscal year 2000, we derived approximately 41% of our revenues from international sales. We expect that international sales will continue to generate a significant percentage of our revenues. We rely primarily on distributors for sales of our software products in foreign countries and, accordingly, are dependent on their ability to promote and support our software 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 our control.

      We enter into foreign exchange forward contracts to reduce economic exposure associated with sales and asset balances denominated in various European currencies and Japanese Yen. As of March 31, 2000, the notional principal of forward contracts outstanding amounted to $21.6 million. There can be no assurance that such contracts will adequately hedge our exposure to currency fluctuations.

      Euro Currency — On January 1, 1999, eleven of the fifteen member countries of the European Union adopted the Euro as the common legal currency and established fixed rates of conversion between their existing sovereign currencies and the Euro. The Euro trades on currency exchanges and is available for non-cash transactions. A three-year transition period is underway during which transactions can be made in the old currencies. The conversion to the Euro has alleviated currency exchange risk between the member counties.

F-8

      We do not anticipate any future material impact from the Euro conversion as our financial information system can accommodate multiple currencies. In addition, we have confirmed with our international financial institutions that they have the ability to process transactions in either Euros or sovereign currency. However, there can be no assurance that all issues related to the Euro conversion have been identified, and we may be at risk if any of our principal suppliers are unable to deal with the impact of the Euro conversion. To date, none of our international suppliers have expressed an intention to invoice in Euros.

      Risk Associated with Acquisitions — We have grown in part because of business combinations with other companies. We recently closed our acquisitions of Andromedia, Inc. and ESI Software, Inc. and we may make further material acquisitions in the future. Acquisitions involve significant risks including difficulties in the assimilation of the operations, services, technologies and corporate culture of the acquired companies, diversion of management’s attention from other business concerns and overvaluation of the acquired companies. Furthermore, because our recent acquisitions have been related to the eBusiness market, we are also subject to the risks associated with the acceptance of the acquired companies’ products and services by our customers. In addition, further acquisitions would likely result in the incurrence of dilution, if stock is issued, or debt and contingent liabilities and an increase in amortization expenses related to goodwill and other intangible assets, which could have a material adverse effect on our financial condition, results of operations and liquidity. For all these reasons, any future acquisitions or failure to effectively integrate acquired companies could result in a material adverse effect on our results of operations.

      Management of Growth. — Both our shockwave.com business and our Software business have experienced and may continue to experience rapid growth, which has placed, and could continue to place, a significant strain on our managerial, financial and operational resources. Our workforce grew from 553 full-time employees as of March 31, 1999 to 1,003 full-time employees as of March 31, 2000. shockwave.com alone grew its workforce from 30 employees as of March 31, 1999 to 128 employees as of March 31, 2000, representing a growth rate of more than 326%. We expect that the number of our employees will continue to increase for the foreseeable future. We anticipate that we will need to implement a variety of new and upgraded operational and financial systems, procedures and controls, including the ongoing improvement of our accounting and other internal management systems. We also will need to continue to expand, train, manage and motivate our workforce. All of these endeavors will require substantial management effort. In the future, we may need to expand our facilities or relocate some or all of our employees or operations from time to time to support our growth. These relocations could result in temporary disruptions of our operations or a diversion of management’s attention and resources. If we are unable to effectively manage expanding operations, our business, financial condition and results of operations could be materially and adversely affected.

      Furthermore, shockwave.com continues to depend on Macromedia for its administrative, financial, marketing and human resources functions, and may not be able to perform these functions independently in a timely fashion. shockwave.com must continue to improve its operational and financial systems and managerial controls and procedures, and will need to continue to expand, train and manage its workforce. shockwave.com’s systems, procedures or controls may not be adequate to support its operations or Macromedia may not be able to manage growth of shockwave.com effectively. For example, Macromedia expects that the variety of shockwave.com’s revenue generating lines of business will expand, increasing demands on the shockwave.com’s billing and collection systems and requiring additional resources to properly determine pricing and discounting structures. If shockwave.com does not manage growth effectively, the shockwave.com business would be harmed.

      Volatility of Stock — Our future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of our common stock in any given period. Additionally, we may not learn of such shortfalls until late in the fiscal quarter, which could result in an even more immediate and adverse effect on the trading price of our common stock. Finally, we participate in a highly dynamic industry. In addition to factors specific to us, changes in analysts’ earnings estimates for us or our industry and factors affecting the corporate environment or the securities markets in general will often result in significant volatility of our common stock price.

F-9

      Generally Accepted Accounting Principles — We prepare our financial statements in conformity with generally accepted accounting principles (“GAAP”). GAAP are subject to interpretation by the American Institute of Certified Public Accountants, the Securities and Exchange Commission, and various bodies formed to interpret and create appropriate accounting policies. A change in these policies can have a significant effect on our reported results, and may even affect the reporting of transactions completed prior to the announcement of a change.

Year 2000 Compliance

      The “Year 2000 problem” refers to the fact that some computer hardware, software and embedded systems were designed to read and store dates using only the last two digits of the year. As of June 21, 2000, we are not aware of any Year 2000 problem in any of our critical corporate applications, non-information technology/embedded systems, end-user computing systems or business partners’ and vendors’ systems. In addition, we have not received any notification from any of our critical business partners or vendors of any Year 2000-related disruption in their business. However, the success to date of our Year 2000 efforts and the efforts of our critical third party vendors or business partners cannot guarantee that there will not be a material adverse effect on our business should a Year 2000 problem manifest or become apparent in the future.

      Although we have not experienced and do not foresee having a Year 2000 problem, if our systems encounter unforeseen Year 2000 problems, or if one or more of our significant third party business partners or vendors is unable to provide services due to a Year 2000 problem, we could experience a disruption of operations resulting in increased operating costs, loss of revenues and other adverse effects, but we do not expect any of these circumstances will have a material adverse effect on our financial position or results of operations.

Interest Rate Risk

      Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. As stated in our policy, we are adverse to principal loss and ensure the safety and preservation of our invested funds by limiting default and market risks. We place our investments with high credit-quality issuers, and the portfolio includes only high quality marketable securities with active secondary or resale markets to ensure portfolio liquidity. We do not use derivative financial instruments in our investment portfolio. All investments have a fixed or floating interest rate and are carried at market value, which approximates cost.

      The table below represents carrying amounts, fair value and related weighted average effective interest rates by year of maturity for our investment portfolio as of March 31, 2000 (in thousands).

								2003 and
		2001			2002			thereafter		Total			Fair Value
Cash equivalents		$	87,352			—			—	$	87,352		$	87,352
	Average interest rate		6.08	%		—			—		6.08	%
Short-term investments			46,377			24,937			—		71,314			70,970
	Average interest rate		6.21	%		6.32	%		—		6.15	%
	Total investments	$	133,729		$	24,937			—	$	158,666		$	158,322

      We also have loans outstanding to related parties totaling $9.9 million as of March 31, 2000. The stated loan amounts approximate fair value.

Foreign Currency Risk

      We enter into forward contracts to reduce our exposure to foreign currency fluctuations involving probable anticipated, but not firmly committed, transactions and transactions with firm foreign currency commitments occurring within a 90-day period. We do not enter into derivative financial instruments for trading purposes.

      As a result of this activity, we had outstanding forward contracts in various European currencies and Japanese Yen outstanding as of March 31, 2000. The forward contracts are accounted for on a mark-to-market basis, with realized gains or losses recognized in the consolidated statement of operations. As of March 31, 2000 and 1999, the contract amount of the forward contracts amounted to $21.6 million and $10.2 million, respectively. The future

F-10

value of these contracts is subject to market risk resulting from foreign exchange rate volatility. Current market rates at the consolidated balance sheet date were used to estimate the fair value of foreign currency forward contracts.

      The table below provides information about our outstanding forward contracts as of March 31, 2000. The information is provided in US dollar equivalents, in thousands. The table presents the notional amount of the respective contracts and their fair value (at rates in effect as of March 31, 2000):

		Notional
		Amount		Fair Value
British Pounds		$	1,479	$	1,434
Euro			1,961		1,931
Japanese Yen			18,127		18,541
	Total	$	21,567	$	21,906

      We are exposed to credit loss in the event of nonperformance by counterparties but we do not anticipate nonperformance by these counterparties.

Disclosure of limitations of the tabular presentation

      As the tables above incorporate only those exposures that exist as of March 31, 2000, it does not consider those exposures or positions that could arise after that date. Also, because the foreign currency denominated financial assets, and anticipated transactions are not presented in the table above, the information presented has limited predictive value. As a result, our ultimate realized gain or loss with respect to foreign currency fluctuations will depend on the exposures that arise during the period, our hedging strategies at the time, and foreign currency rates.

Market Price Risk

      We are exposed to market risk from changes in the price of our equity securities available-for-sale, which were recorded at a fair value of approximately $982,000 at March 31, 2000. The equity investments held by us have exposure to price risk, which is estimated as the potential loss in fair value due to a hypothetical change of 10% in quoted market prices. This hypothetical change would reduce our investments as well as unrealized gains on investment securities available for sale, which are included as a component of stockholders’ equity. This hypothetical change would have an immaterial effect on the recorded value of our investment securities available for sale.

F-11

Independent Auditors’ Report

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, 2000 and 1999, 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, 2000. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index in Item 14 (a) 2 herein. 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 and financial statement schedule based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 provide a reasonable basis for our opinion.

      In our opinion, 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, 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 LLP

San Francisco, California
April 24, 2000

F-12

MACROMEDIA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
(in thousands, except per share data)

				March 31,
				2000			1999
Assets
	Current assets
		Cash, cash equivalents, and short-term investments		$	187,036		$	111,157
		Accounts receivable, less allowance for returns and doubtful accounts of $10,880 and $9,599, respectively			41,883			13,971
		Inventory, net			1,349			615
		Prepaid expenses and other current assets			12,944			13,911
		Deferred tax assets, short-term			7,812			6,899
			Total current assets		251,024			146,553
		Land and building, net			18,982			19,945
		Other fixed assets, net			41,871			22,868
		Related party loans			9,944			10,099
		Other long-term assets			17,538			3,030
			Total assets	$	339,359		$	202,495
Liabilities and Stockholders’ Equity
	Current liabilities
		Accounts payable		$	4,988		$	5,995
		Accrued liabilities			53,842			27,701
		Unearned revenue			10,044			7,490
			Total current liabilities		68,874			41,186
	Other long-term liabilities				321			381
	Deferred tax liabilities, long-term				—			306
			Total liabilities		69,195			41,873
	Minority interest				15,888			—
	Mandatorily redeemable convertible preferred stock, par value $0.001 per share: 0 and 2,310 shares authorized; 0 and 1,216 issued and outstanding (aggregate liquidation preference of $0 and $27,014 at March 31, 2000 and 1999, respectively)				—			13,591
	Stockholders’ equity:
		Common stock, par value $0.001 per share: 80,000 shares authorized, 50,674 and 43,590 shares issued and outstanding as of March 31, 2000 and 1999, respectively			51			43
		Treasury stock, at cost; 1,818 and 1,620 shares as of March 31, 2000 and 1999, respectively			(33,649	)		(25,445	)
		Additional paid-in capital			335,497			203,431
		Deferred compensation			(23,465	)		(1,544	)
		Accumulated other comprehensive income			393			38
		Accumulated deficit			(24,551	)		(29,492	)
			Total stockholders’ equity		254,276			147,031
			Total liabilities and stockholders’ equity	$	339,359		$	202,495

See accompanying notes to consolidated financial statements.

F-13

MACROMEDIA, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
(in thousands, except per share data)

					Years Ended March 31,
					2000			1999			1998
Revenues					$	264,159		$	153,243		$	113,803
Cost of revenues						28,829			15,625			15,107
			Gross profit			235,330			137,618			98,696
Operating expenses:
		Sales and marketing				113,005			73,153			60,379
		Research and development				65,739			41,551			36,829
		General and administrative				24,610			16,740			13,231
		Acquisition related expenses				11,516			454			7,658
		Non-cash compensation				11,071			287			49
		Amortization of intangibles				1,013			248			—
				Total operating expenses		226,954			132,433			118,146
				Operating income (loss)		8,376			5,185			(19,450	)
Other income (expense):
		Interest and investment income, net				6,626			1,215			4,687
		Foreign exchange (loss) gain				(321	)		(110	)		243
		Other				(118	)		3,932			(293	)
				Total other income		6,187			5,037			4,637
Minority interest						6,179			—			—
				Income (loss) before taxes		20,742			10,222			(14,813	)
Provision for income taxes						11,975			7,612			828
				Net income (loss)		8,767			2,610			(15,641	)
Accretion on mandatorily redeemable convertible preferred stock						(2,538	)		(104	)		—
Net income (loss) applicable to common stockholders					$	6,229		$	2,506		$	(15,641	)
Net income (loss) applicable to common stockholders per share
	Basic				$	0.14		$	0.06		$	(0.40	)
	Diluted				$	0.12		$	0.05		$	(0.40	)
Weighted average common share outstanding
	Basic					44,601			40,045			38,988
	Diluted					52,270			47,242			38,988

See accompanying notes to consolidated financial statements.

F-14

MACROMEDIA, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(in thousands)

			Years Ended March 31,
			2000			1999			1998
Cash flows from operating activities:
Net income (loss)			$	8,767		$	2,610		$	(15,641	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation and amortization		16,477			8,797			7,085
		Write off of fixed assets related to merger		191			—			—
		Deferred income taxes		(1,583	)		1,955			(41	)
		Tax benefit from employee stock plans		8,714			4,439			240
		Minority interest		(6,179	)		—			—
		Non-cash compensation		9,719			607			—
		Deferred compensation amortization		1,957			288			49
		Changes in operating assets and liabilities, net of effect of mergers:
		Accounts receivable, net		(27,912	)		(6,014	)		(5,565	)
		Inventory, net		(734	)		128			1,139
		Prepaid expenses and other current assets		967			(9,889	)		617
		Other long-term assets		(2,387	)		(2,471	)		2,559
		Accounts payable		(1,007	)		1,211			(2,359	)
		Accrued liabilities		26,363			7,557			2,919
		Unearned revenue		2,554			5,418			(455	)
		Other long-term liabilities		—			(478	)		523
		Net cash provided by (used in) operating activities		35,907			14,158			(8,930	)
Cash flows from investing activities:
Proceeds from sale of fixed assets				625			961			—
Purchases of short-term investments				(117,457	)		(133,549	)		(444,824	)
Maturities of short-term investments				127,558			128,005			455,465
Acquisition of property and equipment				(33,934	)		(12,655	)		(12,622	)
Purchases of third party investments				(13,300	)		—			(2,500	)
Acquisition of intangible assets				(80	)		—			—
Loan receivable				155			(2,659	)		(4,943	)
		Net cash used in investing activities		(36,433	)		(19,897	)		(9,424	)
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable convertible preferred stock				—			9,937			3,548
Proceeds from issuance of preferred stock				59,029			3,407			8,702
Proceeds from issuance of common stock				39,434			26,777			8,011
Borrowings on capital lease				999			1,355			201
Payments on capital lease				(1,281	)		(833	)		(67	)
Acquisition of treasury stock				(8,204	)		(20,306	)		(5,139	)
		Net cash provided by financing activities		89,977			20,337			15,256
Net increase (decrease) in cash and cash equivalents				89,451			14,598			(3,098	)
Adjustment to conform acquired companies’ year end				(3,826	)		2,084			—
Total				85,625			16,682			(3,098	)
Cash and cash equivalents, beginning of year				29,459			12,777			15,875
Cash and cash equivalents, end of year			$	115,084		$	29,459		$	12,777

See accompanying notes to consolidated financial statements.

F-15

MACROMEDIA, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity
(in thousands)

		Common Stock				Treasury Stock						Additional
												Paid-In			Deferred
		Shares		Amount		Shares			Amount			Capital			Compensation
Balances as of March 31, 1997			38,751	$	39		—		$	—		$	149,626		$	(149	)
Comprehensive loss:
	Net loss
	Unrealized loss on available-for-sale securities, net of tax
Total comprehensive loss
Common stock issued by acquired company													46
Preferred Shares issued by acquired companies													8,656
Exercise of stock options			573		1								2,384
Issuance of warrants to purchase common stock by acquired company													182
Common stock issued under ESPP			195		—								1,469
Tax benefit from stock plans													240
Common stock issued under purchase of Solis			300		—								3,975
Purchase of treasury stock							(510	)		(5,139	)
Non-cash compensation													(13	)		62
Balances as of March 31, 1998			39,819		40		(510	)		(5,139	)		166,565			(87	)
Comprehensive income:
	Net income
	Unrealized loss on available-for-sale securities, net of tax
Total comprehensive income
Preferred Shares issued by acquired companies													6,416
Issuance of common stock upon acquisition of LikeMinds, Inc. by Andromedia, Inc.			458		—								2,608
Exercise of stock options			3,168		3								22,546
Common stock issued under ESPP			145		—								1,618
Purchase of treasury stock							(1,110	)		(20,306	)
Preferred stock accretion													(104	)
Tax benefit from stock plans													4,439
Non-cash compensation													2,352			(1,457	)
Adjustment to conform acquired company’s year end (Note 4)													(3,009	)
Balances as of March 31, 1999			43,590		43		(1,620	)		(25,445	)		203,431			(1,544	)
Comprehensive income:
	Net income
	Unrealized gain on available-for-sale securities, net of tax
Total comprehensive income
Preferred Shares issued by acquired companies													520
Exercise of stock options			3,725		4								36,842
Common stock issued under ESPP			84		—								2,445
Common stock exchanged for preferred stock of pooled entities			3,231		4								31,403
Purchase of treasury stock							(198	)		(8,204	)
Preferred stock accretion													(2,538	)
Tax benefit from stock plans													8,714
Non-cash compensation													33,251			(21,747	)
Gain on sale of subsidiary stock													21,109
Adjustment to conform acquired company’s year end (Note 4)			44		—								320			(174	)
Balances as of March 31, 2000			50,674	$	51		(1,818	)	$	(33,649	)	$	335,497		$	(23,465	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

		Accumulated						(Accumulated
		Other						Deficit)			Total
		Comprehensive			Comprehensive			Retained			Stockholders'
		Income (Loss)			Income (Loss)			Earnings			Equity
Balances as of March 31, 1997		$	297					$	(18,545	)	$	131,268
Comprehensive loss:
	Net loss				$	(15,641	)		(15,641	)		(15,641	)
	Unrealized loss on available-for-sale securities, net of tax		(250	)		(250	)					(250	)
Total comprehensive loss					$	(15,891	)
Common stock issued by acquired company												46
Preferred Shares issued by acquired companies												8,656
Exercise of stock options												2,385
Issuance of warrants to purchase common stock by acquired company												182
Common stock issued under ESPP												1,469
Tax benefit from stock plans												240
Common stock issued under purchase of Solis												3,975
Purchase of treasury stock												(5,139	)
Non-cash compensation												49
Balances as of March 31, 1998			47						(34,186	)		127,240
Comprehensive income:
	Net income				$	2,610			2,610			2,610
	Unrealized loss on available-for-sale securities, net of tax		(9	)		(9	)					(9	)
Total comprehensive income					$	2,601
Preferred Shares issued by acquired companies												6,416
Issuance of common stock upon acquisition of LikeMinds, Inc. by Andromedia, Inc.												2,608
Exercise of stock options												22,549
Common stock issued under ESPP												1,618
Purchase of treasury stock												(20,306	)
Preferred stock accretion												(104	)
Tax benefit from stock plans												4,439
Non-cash compensation												895
Adjustment to conform acquired company’s year end (Note 4)									2,084			(925	)
Balances as of March 31, 1999			38						(29,492	)		147,031
Comprehensive income:
	Net income				$	8,767			8,767			8,767
	Unrealized gain on available-for-sale securities, net of tax		365			365						365
Total comprehensive income					$	9,132
Preferred Shares issued by acquired companies												520
Exercise of stock options												36,846
Common stock issued under ESPP												2,445
Common stock exchanged for preferred stock of pooled entities												31,407
Purchase of treasury stock												(8,204	)
Preferred stock accretion												(2,538	)
Tax benefit from stock plans												8,714
Non-cash compensation												11,504
Gain on sale of subsidiary stock												21,109
Adjustment to conform acquired company’s year end (Note 4)			(10	)					(3,826	)		(3,690	)
Balances as of March 31, 2000		$	393					$	(24,551	)	$	254,276

See accompanying notes to consolidated financial statements.

F-16

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000

1. Nature of Operations

      Macromedia’s Software business develops software that creates Web site layout, graphics and rich media content for Internet users and develops solutions for analyzing Web traffic and personalizing Web sites. Additionally, the Company’s consumer business, shockwave.com, Inc. (“shockwave.com”), designs, develops and markets aggregated content to provide and expand online entertainment on the Web. Macromedia sells its products through a network of distributors, value-added resellers (“VAR”s) and its own sales force and Web site, and to original equipment manufacturers (“OEM”s) in North America, Europe, Asia Pacific and Latin America. In addition, Macromedia derives revenues from advertising on its Web sites, and from software maintenance and technology licensing agreements. shockwave.com derives revenues from advertising and sponsorship on its Web sites. Macromedia, Inc. and its subsidiaries are hereinafter collectively referred to as the “Company” or Macromedia.

2. Summary of Significant Accounting Policies

      Principles of Consolidation —The consolidated financial statements include all domestic and foreign subsidiaries that are more than 50% owned and controlled. All significant intercompany transactions and balances have been eliminated.

      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.

      Revenue Recognition —The Company recognizes revenue from the license of software products (shrinkwrap products and volume applications) to end users and OEMs, service transactions, advertising and sponsorships. The Company recognizes revenue from shrinkwrap software at shipment based on the fair value of the element provided that collection of the resulting receivable is deemed probable, in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition, issued by the American Institute of Certified Public Accountants. The Company also maintains an allowance for potential credit losses and an allowance for anticipated returns on products sold to distributors and direct customers. The allowance for sales returns is estimated based on a calculation of forecast sales to the end user by distributors in relation to estimated current channel inventory levels. Revenues from multiple element software arrangements are allocated to each element of the arrangement based on the relative fair values of the elements, such as software products, upgrades, enhancements, post contract customer support (“PCS”), installation, or training. The determination of fair value is based on objective evidence that is specific to the Company. If such evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value does exist or until all elements of the arrangement are delivered. Revenue from PCS 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 as the services are performed.

      In December 1998, SOP 98-9 Software Revenue Recognition, with Respect to Certain Arrangements was issued. SOP 98-9 requires recognition of revenue using the “residual method” in a multiple element arrangement when fair value does not exist for one or more of the delivered elements in the arrangement. Under the “residual method”, total fair value of the undelivered elements is deferred and subsequently recognized in accordance with SOP 97-2. The adoption of SOP 98-9 did not have a material effect on the Company’s results of operations when adopted on April 1, 1999.

      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 that are recognized at delivery of the product master or the first copy. If 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, it is unbundled from the license fee using the Company’s objective evidence of the fair value of the maintenance and/or services

F-17

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

represented by the Company’s customary pricing for such maintenance and/or services. If objective evidence of the fair value of the maintenance is not available, the revenues from the entire arrangement are recognized ratably over the maintenance term.

      The Company has entered into end user software license agreements for the Company’s products that provide for an initial fee to use the products in perpetuity up to a maximum number of users. These volume license arrangements are multiple element arrangements consisting of license fees, consulting fees and PCS. Some arrangements involve services that are essential to the functionality of the software. Fees from licenses are recognized as revenue upon shipment, provided all significant obligations have been met, persuasive evidence of an arrangement exists, fees are fixed and determinable, collection is probable and the arrangement does not involve services that are essential to the functionality of the software. Fees from licenses sold together with consulting services are generally recognized upon shipment provided that the above criteria have been met and payment of the licenses is not dependent upon the performance of the consulting services. Revenues from PCS are recognized on a straight-line basis over the term of the contract. In instances where the arrangement involves services that are essential to the functionality of the software, both the license and consulting fees are recognized under the percentage of completion method of contact accounting in accordance with SOP 81-1.

      Progress towards completion is generally measured based on the estimated number of hours to complete the specific projects. In the event the costs to complete a contract are expected to exceed anticipated revenues, a loss is accrued. In certain circumstances where the Company is unable to estimate the amount of effort required to customize or implement the software license, revenue is recognized using the completed contract method. As of March 31, 2000, no amounts have been recognized under the completed contract method.

      Advertising revenues are derived from the sale of banner advertisements and sponsorships on the Company’s Web sites under short and long-term contracts, net of commissions. Through March 31, 2000, the Company’s advertising contracts have been principally less than one year. Advertising revenues on banner contracts and sponsorships are recognized based on delivery in the period in which the advertisement is displayed, provided that no significant obligations remain and collection of the resulting receivable is probable. Company obligations typically include the guarantee of a minimum number of “impressions” or times that an advertisement appears in pages viewed by the users of the Company’s Web sites. To the extent minimum guaranteed impressions are not met, the Company defers recognition of the corresponding revenue until the remaining guaranteed impression levels are achieved.

      Cash Equivalents and Short-term Investments —Cash equivalents consist of highly liquid investments with a stated effective maturity of three months or less at the time of purchase. Short-term investments consist of readily marketable securities with a maturity of more than three months from time of purchase. Where the maturity is more than one year, the securities are classified as short-term as the Company’s intention is to convert them into cash for operations as needed.

      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 securities is 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 securities are recorded at fair value. Unrealized gains and losses are reported as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses, and declines in value judged to be other than temporary on available-for-sale securities, are included in other income (expense). 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 income, net.

      Investments —The Company holds strategic investments in several companies. When the investments do not represent a greater than 20% voting interest in the investee and the Company does not have the ability to

F-18

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

significantly influence the investee’s management, the investments are accounted for on the cost basis. When the Company does own greater than 20% but less than 50% voting interest in an investee, or has the ability to exert significant influence over the investee’s management, the Company accounts for the investment using the equity method of accounting. Investments to date have been accounted for using the cost basis.

      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 value, determined on a first-in, first-out basis.

      Concentrations of Credit Risk — Distributors comprise a significant portion of the Company’s revenues and trade receivables. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs in-depth credit evaluations of all new customers and requires letters of credit or bank guarantees, if deemed necessary, but generally requires no collateral. For the years ended March 31, 2000, 1999, and 1998, sales to one distributor, Ingram Micro, accounted for 28% of each respective years’ consolidated revenues. Accounts receivable relating to this customer were $16.0 million and $8.0 million as of March 31, 2000 and 1999, respectively. These sales to Ingram Micro are included in the Company’s Software business (See Note 19). Three distributors accounted for an additional 18% of revenues for the year ended March 31, 2000.

      Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments, trade receivables and forward contracts used in hedging activities. The Company places its cash equivalents, short-term investments, and forward contracts with major financial institutions of high credit standing. The Company does not believe there is significant risk of non-performance by these institutions because the Company monitors their credit ratings and limits the financial exposure to any one commercial issuer and any one type of investment. The fair value of the Company’s cash, accounts receivable, accounts payable, and employee loans approximated their carrying values due to their short maturity or rate structure.

      Property and Equipment — Property and equipment are recorded at cost. Buildings are depreciated over thirty years, and tenant improvements over ten years, using the straight-line method. 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 on a straight-line basis over the lesser of the lease term or the estimated useful life of the related assets, ranging from three to ten years.

      Intangible Assets — Intangible assets consist of a trademark license and goodwill related to acquisitions accounted for under the purchase method of accounting. Amortization of the trademark license is calculated on a straight-line basis over an estimated useful life of 7 years. Goodwill is amortized on a straight-line basis over an estimated useful life of approximately 3 years. Accumulated amortization of intangibles was $1.7 million and $300,000 at March 31, 2000 and 1999, respectively. The Company identifies and records impairment losses on intangible and other assets when events and circumstances indicate that such assets might be impaired. The Company considers factors such as significant changes in the business climate and projected cash flows from the respective asset. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

      Software Costs — SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, 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, other than the costs paid to third parties to develop localized versions of its software, which are capitalized and amortized to cost of sales on a straight-line basis over the lesser of estimated product life or 12 months. Software costs also include amounts paid for purchased software to be sold and outside development on products that have reached technological feasibility. The amounts capitalized under SFAS No. 86 were immaterial.

F-19

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      Software for Internal Use — The Company capitalizes costs of software, consulting services, hardware and payroll related costs incurred to purchase or develop internal-use software in accordance with SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. The Company expenses costs incurred during preliminary project assessment, research and development, re-engineering, training and application maintenance. Capitalized software for internal use is generally amortized over three years.

      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. Revenues and expenses are translated using average exchange rates during the year. Translation adjustments are recorded in the consolidated statements of operations.

      Foreign Exchange Forward Contracts — The Company uses foreign exchange forward contracts to hedge its net monetary asset positions in foreign currencies. The Company’s forward contracts do not qualify as accounting hedges. The Company marks-to-market the forward contracts and includes unrealized gains and losses in current period net income or loss as a component of other income (expense). The Company may from time to time adjust its foreign exchange position by entering into additional contracts or by terminating or offsetting existing foreign currency forward contracts. Gains and losses on terminated or offset contracts are recognized in income in the period of contract termination or offset.

      Minority Interest in Subsidiary — As of March 31, 2000, the Company had one subsidiary owned less than 100%, shockwave.com. Gains or losses from the sale of subsidiary capital stock are recorded in additional paid-in-capital, net of tax (See Note 11).

      Stock Based Compensation — As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected to follow Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for stock-based awards to employees (See Note 14). Accordingly, compensation cost for stock options is measured as the excess, if any, of the market price of the Company’s common stock at the date of grant over the stock option exercise price. Warrants issued to non-employees are accounted for using the fair value method of accounting as prescribed by SFAS 123, utilizing the Black-Scholes model and volatility factors for comparable public companies. Compensation costs are amortized on a straight-line basis over the vesting period of the securities.

      Comprehensive Income (Loss) — In fiscal year 1999, the Company adopted SFAS No. 130, Reporting Comprehensive Income. SFAS 130 establishes standards of reporting and displaying comprehensive income and its components of net income and “other comprehensive income” in a full set of general-purpose financial statements. “Other comprehensive income” refers to revenues, expenses, gains and losses that are not included in net income but rather are recorded directly in stockholders’ equity. The adoption of SFAS 130 had no impact on the Company’s net income or loss or stockholders’ equity. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. The sole component of other comprehensive income for the years ended March 31, 2000, 1999 and 1998 was unrealized gains or losses from the Company’s available-for-sale securities.

      Marketing Programs — The Company reimburses certain qualified customers for a portion of the 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. The Company also subsidizes other marketing activities through cooperative arrangements with its customers, and accrues the expense as the advertising occurs.

      Advertising Costs — Advertising expenditures are charged to operations as incurred. Advertising expense for the year ended March 31, 2000, 1999, and 1998 was $8.3 million, $8.2 million, and $4.7 million, respectively.

      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. Under this method, deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s

F-20

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

      Future Adoption of New Accounting Standards — In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133, as amended by SFAS 137, Deferral of Effective Date of Statement 133, is effective for all quarters of fiscal years beginning after June 15, 2000. The Company has not completed an assessment of the impact of SFAS 133 on the consolidated results of operations and financial position. SFAS 133 requires the recognition of all derivatives on the balance sheet at fair value.

      Reclassification — Certain amounts in the accompanying fiscal year 1999 and fiscal year 1998 consolidated financial statements have been reclassified in order to conform with the presentation of the 2000 consolidated financial statements.

3. Supplemental Statements of Cash Flows Information

      Supplemental cash flow information and non-cash investing activities for the years ended March 31, 2000, 1999 and 1998 are as follows (in thousands):

		2000		1999			1998
Supplemental disclosure of cash flow information:
	Interest paid	$	76	$	43		$	16
	Income taxes paid		126		—			—
Non-cash investing and financing activities:
	Common stock issued in exchange for LikeMinds	$	—	$	2,600		$	—
	Common stock issued in exchange for Solis		—		—			3,975
	Unrealized gain (loss) on available-for-sale securities		355		(9	)		(250	)

4. Business Combinations

      Poolings-of-Interest

      Andromedia, Inc. On October 6, 1999, Macromedia, Inc., Andromedia, Inc. (“Andromedia”), and Peak Acquisition Corp., a wholly-owned subsidiary of Macromedia (“Peak Acquisition”), entered into an Agreement and Plan of Reorganization under which Macromedia acquired Andromedia by exchanging all of the outstanding capital stock, options, and warrants of Andromedia for approximately 5.2 million shares of common stock, options, and warrants of Macromedia. The merger closed on December 1, 1999. As a result of the acquisition of Andromedia, Peak Acquisition was merged with and into Andromedia and Andromedia remains as the surviving corporation and wholly-owned subsidiary of Macromedia. The transaction was 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 accounts and results of operations for Andromedia. Andromedia develops e-marketing software that enables companies to implement an integrated solution to analyze the success of their Web marketing efforts and to personalize their e-commerce offering based on customers’ needs in real-time.

      In conjunction with the merger, the Company incurred direct merger-related expenses of approximately $1.5 million, including investment banker fees, legal and other professional fees, and severance. The Company also incurred costs of $2.3 million relating to Andromedia’s public offering process, which was terminated upon the merger with Macromedia. These costs included investment banker fees, legal and other professional fees, and printing costs. At March 31, 2000, approximately $1.5 million of these costs remained in accrued liabilities for acquisition related expenses.

      Prior to the combination, Andromedia’s fiscal year ended on December 31. In restating the financial statements for the pooling-of-interests combination, Andromedia’s financial statements for the twelve months ended March 31, 2000, December 31, 1998 and December 31, 1997 were combined with Macromedia’s financial statements for the years ended March 31, 2000, 1999 and 1998, respectively. The combined balance sheet as of March 31, 1999

F-21

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

combines the assets, liabilities and stockholders’ equity of Macromedia on that date with Andromedia’s balance sheet as of December 31, 1998. An adjustment has been made to the consolidated statements of stockholders’ equity and cash flows to include Andromedia’s results of operations for the three months ended March 31, 1999 which were not included in the period ended March 31, 2000. Andromedia’s revenue and net loss for the three months ended March 31, 1999 was $1.1 million and $3.8 million, respectively. There were no conforming accounting adjustments for Andromedia and there were no intercompany transactions between the entities prior to the combination.

      ESI Software, Inc. On July 8, 1999, Macromedia, Inc., ESI Software, Inc., a California corporation (“ESI”), and Dynamo Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Macromedia (“Dynamo”), entered into an Agreement and Plan of Reorganization, under which Macromedia acquired ESI by exchanging all of the outstanding capital stock, options and warrants of ESI for approximately 635,000 shares of common stock, options and warrants of Macromedia (as valued on July 8, 1999). The merger closed on September 30, 1999. As a result of the acquisition of ESI, Dynamo was merged with and into ESI and ESI remains as the surviving corporation and a wholly-owned subsidiary of Macromedia. The transaction has been accounted for as a pooling-of-interests and is a tax-free reorganization. ESI develops and markets software that enables users to build advanced, interactive, business-oriented Web applications.

      In conjunction with the merger, the Company incurred direct merger-related expenses of approximately $3.1 million, including expenses for bonuses contingent upon closing of the merger agreement, legal and other professional fees, personnel severance and relocation of employees, during the year ended March 31, 2000.

      Prior to the combination, ESI’s fiscal year ended on June 30. The financial statements of Macromedia have been restated to include the financial position and results of operations of ESI for all periods presented. The restated statements of operations for the years ended March 31, 2000 and 1999 include Macromedia’s and ESI’s results of operations for those periods. The restated statement of operations for the year ended March 31, 1998 combines Macromedia’s year ended March 31, 1998 with ESI’s year ended June 30, 1998. For the three months ended June 30, 1998, ESI had revenues and a net loss of $93,000 and $2.1 million, respectively. The combined balance sheets as of March 31, 2000 and 1999 combines the assets, liabilities and stockholders’ equity of Macromedia with ESI on those dates. An adjustment has been made to the consolidated statements of stockholder’s equity and cash flows to exclude ESI’s results of operations for the three months ended June 30, 1998 which were included in the period ended March 31, 1999. During the year ended March 31, 2000, the Company purchased product from ESI pursuant to a distribution agreement. This transaction was eliminated upon consolidation. There were no conforming accounting adjustments for ESI upon acquisition.

F-22

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are summarized below. Revenues and net loss for Andromedia subsequent to December 1, 1999 are included with Macromedia’s financial results. Revenue and net loss for ESI subsequent to September 30, 1999 are included with Macromedia’s financial results (in thousands).

				For the Years Ended
				March 31,
				2000			1999			1998
Revenues:
		Macromedia		$	257,289		$	149,886		$	113,086
		Andromedia			4,611			1,969			449
		ESI Software			2,259			1,388			268
			Combined	$	264,159		$	153,243		$	113,803
Net Income (Loss) Applicable to
	Common Stockholders:
		Macromedia		$	23,864		$	19,784		$	(6,187	)
		Andromedia			(15,555	)		(9,660	)		(3,350	)
		ESI Software			(2,080	)		(7,618	)		(6,104	)
			Combined	$	6,229		$	2,506		$	(15,641	)

Technology Purchase Transactions

      Starbase Corporation In July 1999, the Company acquired certain technology rights and other related software products from Starbase Corporation for $2.8 million. The Company intends to utilize these assets in the research and development of a single future research and development project. As a result of the acquisition, the Company wrote off the entire $2.8 million to acquisition related expenses in the year ended March 31, 2000 as the Company determined that the technology did not have any alternative future uses.

      Time4.com On December 22, 1999, the Company acquired certain technology rights of Time4.com, Inc. (“Time4”), a software development company located in Minnesota, for $1.9 million in cash. The acquisition was accounted for under the purchase method; accordingly, the results of operations of Time4 have been included in the Company’s consolidated financial statements from the date of acquisition. As a result of the acquisition, the Company wrote off approximately $1.8 million of rights relating to Time4’s preliminary technology as the Company determined that the technology does not have any alternative future uses. The Company has capitalized approximately $100,000 associated with the workforce in place and non-compete agreements for Time4’s principal employees and is amortizing these intangible assets on a straight-line method over a period of 3.5 years.

5. Agreement with Lotus Development Corporation

      In fiscal year 2000, the Company closed a series of agreements with Lotus Development Corporation (“Lotus”), the combined effect of which was to: (i) sell certain tangible and intangible assets relating to the Company’s Pathware product line to Lotus, (ii) result in Lotus acting as a distributor of the Company’s products, and (iii) cause the Company and Lotus to cooperate with respect to certain future development activities related to the Company’s and Lotus’ products. The Company is to receive a minimum of $30.0 million in revenue over the next three years as a result of the terms of the agreements.

F-23

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

6. Cash, Cash Equivalents and Short-Term Investments

      The following is a summary of cash, cash-equivalents and short-term investments at March 31, 2000 and 1999 (in thousands):

			2000		1999
Cash and cash equivalents:
	Cash		$	27,732	$	22,538
	Money market funds			8,729		1,629
	Commercial paper			64,674		5,032
	Certificates of deposit			1,999		260
	Government securities			11,950		—
		Total cash and cash equivalents		115,084		29,459
Short-term investments:
	Corporate equity securities		$	982	$	3,020
	Corporate notes			—		501
	Corporate bonds			27,378		—
	Commercial paper			3,976		35,349
	U.S. government debt securities			33,128		42,828
	Certificate of deposit			6,488		—
		Total short-term investments		71,952		81,698
Total cash, cash equivalents, and short-term investments			$	187,036	$	111,157

      Short-term investments consisted of the following, by contractual maturity as of March 31, 2000 and 1999 (in thousands):

	2000		1999
Due in one year or less	$	28,449	$	61,750
Due in one to three years		43,503		19,948
	$	71,952	$	81,698

      The Company’s available-for-sale securities are carried at market value. Unrealized gains were $355,000 and losses were $9,000, net of tax, at March 31, 2000 and 1999, respectively.

7. Property and Equipment

      Property and equipment as of March 31, 2000 and 1999, consisted of the following (in thousands):

	2000			1999
Land and building	$	21,280		$	21,270
Computer equipment		40,259			26,292
Computer software		20,535			9,051
Office equipment and furniture		15,463			10,522
Leasehold improvements		7,847			5,447
		105,384			72,582
Less accumulated depreciation and amortization		(44,531	)		(29,769	)
	$	60,853		$	42,813

      Depreciation and amortization expense for the years ended March 31, 2000, 1999, and 1998 was $14.8 million, $8.4 million, and $7.8 million, respectively.

      Included in computer software is approximately $15.6 million related to the continuing development of an internal use information technology infrastructure for sales and marketing, customer support, on-line product distribution, and technical support. At March 31, 2000 accumulated amortization of this software was approximately $3.4 million.

F-24

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

8. Investments

      In fiscal year 2000, the Company made strategic preferred stock investments in several companies, including Stan Lee Media, Inc., Mondo Media Productions, Inc., Spiderdance, Inc., iHarvest Corporation and Context Media, Inc. These investments are included in the other assets component of the consolidated balance sheets. The cost method is used to record these investments, as the Company holds less than 20% of the voting rights of each of these investees and does not have the ability to significantly influence the investees. The Company determines the fair value of the investment based on current market price, or if the investment is not publicly traded, considers among other factors, pricing of current financing rounds. As of March 31, 2000, the investment costs approximated their fair values.

9. Accrued Liabilities

      Accrued liabilities as of March 31, 2000 and 1999, consisted of the following (in thousands):

		2000		1999
Accrued compensation		$	5,172	$	1,756
Accrued marketing development			2,789		2,078
Accrued fringe benefits			4,822		2,670
Accrued payroll taxes			9,113		2,939
Accrued income taxes			8,782		4,139
Other accrued expenses			23,164		14,119
	Total accrued liabilities	$	53,842	$	27,701

10. Income Taxes

      The components of the provision for income taxes for the years ended March 31, 2000, 1999 and 1998, are as follows (in thousands):

				2000		1999			1998
Current:
	Federal			$	—	$	—		$	—
	State				—		—			—
	Foreign				2,651		2,331			323
		Total Current			2,651		2,331			323
Deferred:
	Federal				416		949			829
	State				194		(107	)		(564	)
		Total Deferred			610		842			265
Charge in lieu of taxes attributable to employee stock plans					8,714		4,439			240
			Total	$	11,975	$	7,612		$	828

F-25

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      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, 2000 and 1999, and 34% for the year ended March 31, 1998, as a result of the following (in thousands):

	2000			1999			1998
Computed tax (benefit) at statutory rate	$	7,213		$	9,590		$	(1,822	)
State taxes (net)		602			387			151
Nondeductible pooling and acquisition costs and goodwill		10,442			32			2,412
Foreign benefits provided for at rates other than U.S statutory rates		(4,286	)		(725	)		—
Research and other tax credits		(2,413	)		(1,543	)		—
Other, net		417			(129	)		87
Total	$	11,975		$	7,612		$	828

      The tax effect of temporary differences that give rise to deferred tax assets (liabilities) as of March 31, 2000 and 1999, is as follows (in thousands):

			2000			1999
Deferred tax assets:
	Reserves, accruals and other		$	9,333		$	6,899
	Net operating loss carryforwards (federal)			79,857			25,197
Net operating loss carryforwards (state)				21,797			2,983
	Credit for research activities			16,330			13,207
	Other credits			3,339			588
		Total deferred tax assets		130,656			48,874
	Less valuation allowance			(122,844	)		(41,975	)
	Net deferred tax assets			7,812			6,899
Deferred tax liabilities:
	Depreciation			—			(306	)
		Total deferred		—			(306	)
Net deferred tax asset			$	7,812		$	6,593

      As of March 31, 2000, the Company had available federal and state net operating loss carryforwards of approximately $255.0 million and $111.0 million, respectively. The Company also had unused research credit carryforwards of approximately $10.1 million and $6.2 million for federal and California tax purposes, respectively. If not utilized, net operating loss and federal research credit carryforwards will expire in fiscal years 2002 through 2020. The California research credits may be carried forward indefinitely.

      Approximately $102.0 million of the valuation allowance for deferred tax assets is attributable to employee stock option deductions, the benefit from which will be allocated to paid-in capital rather than current earnings when subsequently recognized. Approximately $16.3 million of the valuation allowance for deferred tax assets relates to research and experimentation credits, of which approximately $10.6 million will be allocated to paid-in capital rather than current earnings when subsequently recognized.

      Cumulative undistributed earnings of international subsidiaries amounted to $24.0 million as of March 31, 2000, which are intended to be permanently reinvested. The amount of income tax liability that would result had such earnings been repatriated is estimated to be approximately $8.8 million.

F-26

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      The utilization of research and experimentation credits is limited by current tax regulations. These research and experimentation credits will be utilized in future periods if sufficient income is generated. The Company’s ability to utilize certain loss carryforwards and certain research credit carryforwards are subject to limitations pursuant to the ownership change rules of Internal Revenue Code Section 382.

      The Company believes it is more likely than not that future operations will generate sufficient taxable income to realize the net deferred tax assets recognized by the Company.

11. Minority Interest in Subsidiary

      During fiscal year 2000, the Company’s consolidated subsidiary, shockwave.com, issued 18.2 million shares of Preferred Series B stock to parties other than Macromedia for cash consideration of $2.50 per share. This represented 34.6% of shockwave.com’s preferred stock at March 31, 2000. Prior to the transaction, the Company held 100% of the equity of shockwave.com in the form of Preferred Series A stock. Preferred Series A and B stock both have identical rights and privileges. The proportionate value offered to the third parties in the Series B offering was in excess of the Company’s average carrying amount. As a result of the transaction, the Company recorded $21.1 million in its consolidated statement of stockholders’ equity in order to adjust its investment in shockwave.com stock to reflect its share of the net assets of shockwave.com. In addition, the Company considers shockwave.com a start up, and as such, no gain was recognized by the Company.

      shockwave.com is authorized to issue 107.2 million shares of convertible preferred stock. Of this, 69.2 million shares are Series A Convertible Preferred Stock and 38.0 million shares are Series B Convertible preferred stock, both with a par value of $0.001 per share. The rights and privileges of Preferred Series A and B entitle the holder of each share to receive non-cumulative dividends when and if declared by the Company and also allow for liquidation preferences for an amount per share equal to the original issue price for each series of preferred stock, plus any declared but unpaid dividends. The shares are convertible either at the option of the holder, or upon a public offering of shockwave.com common stock. Upon conversion, each preferred share is convertible into shockwave.com common shares based on a price determined at the conversion date.

12. Mandatorily Redeemable Convertible Preferred Stock

      At the consummation of the merger between the Company and Andromedia, Andromedia had 2.3 million shares of mandatorily redeemable convertible preferred stock outstanding. These shares were redeemable at the higher of original issuance price plus declared but unpaid dividends or fair market value at or any time after February 1, 2004. Accordingly, the Company increased the carrying amount of the instruments through periodic accretions, so that the carrying amount would equal the mandatory redemption amount at February 1, 2004. Mandatorily redeemable preferred stock consisted of the following (in thousands):

	Shares
	Outstanding			Amount
Issuance of Series C Preferred Stock		401		$	3,548
Balance as of March 31, 1998.		401			3,548
Issuance of Series D Preferred Stock		815			9,927
Issuance of Series D Preferred Stock Warrants		—			12
Preferred Stock accretion		—			104
Balance as of March 31, 1999.		1,216			13,591
Issuance of Series E Preferred Stock		1,055			14,914
Issuance of Series C and E Preferred Stock Warrants		—			360
Preferred Stock accretion		—			2,538
Conversion into Macromedia Common Stock		(2,271	)		(31,403	)
Balance as of March 31, 2000.		—		$	—

      On December 1, 1999, Macromedia completed its merger with Andromedia upon which all outstanding mandatorily redeemable preferred shares of Andromedia automatically converted into Macromedia common stock.

F-27

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      The holders of Mandatorily Redeemable Convertible Preferred Stock had the following rights and preferences as follows:

      Redemption — Upon written notice of at least a majority of the holders of Series C, Series D or Series E Convertible Preferred Stock, at any time subsequent to February 1, 2004, the Company must have redeemed a specified percentage of Series C, D and E Convertible Preferred Stock at a price equal to the greater of (i) $8.92 (Series C), $12.28 (Series D) and $14.32 (Series E) per share, respectively, plus all declared but unpaid dividends on such shares or (ii) the per share fair market value as determined by mutual agreement between a majority of the holders of the applicable series of redeemable preferred and a majority of the Board of Directors.

      Dividends — Holders of Series C, D and E Convertible Preferred Stock were entitled to receive non-cumulative dividends at the per annum rate of $0.45, $0.61 and $0.73 per share, respectively, when and if declared by the Board of Directors. The holders of Series C, D and E Convertible Preferred Stock were also entitled to participate in dividends on Common Stock, when and if declared by the Board of Directors, based on the number of shares of Common Stock held on an as-if converted basis. No dividends were declared by the Board from inception through December 1, 1999.

13. Stockholders’ Equity

      As a result of the Company’s poolings-of-interests, various issuances of stock of the acquired entities were issued and outstanding during fiscal year 2000, 1999 and 1998. For presentation purposes, the Company has shown the activity and outstanding preferred share balances of the acquired entities as a component of additional paid-in-capital in the Company’s statements of stockholders’ equity. The following table summarizes the activity and shares outstanding of Andromedia and ESI as of March 31, 2000, 1999 and 1998. All Andromedia and ESI preferred shares are shown as if converted into the Company’s common stock and have a par value of $0.001 (in thousands):

	Preferred			Preferred			Preferred			Preferred			Preferred			Preferred
	Stock			Stock			Stock			Stock			Stock			Additional
	Andromedia			Andromedia			ESI			ESI			ESI			ESI			Paid in
	Series A			Series B			Series A			Series B			Series C			Series D			Capital
	Shares			Shares			Shares			Shares			Shares			Shares
Balance as of March 31, 1997.		61			90			44			9			—			—		$	7,046
Issuance of preferred stock		—			33			—			—			245			—			8,656
Balance as of March 31, 1998.		61			123			44			9			245			—			15,702
Elimination of ESI activity for the duplicated three months ended June 30, 1998.		—			—			—			—			(93	)		—			(3,009	)
Issuance of preferred stock		—			—			—			—			93			99			6,416
Balance as of March 31, 1999.		61			123			44			9			245			99			19,109
Issuance of preferred stock		—			—			—			—			—			15			520
Conversion of preferred stock to common upon acquisition		(61	)		(123	)		(44	)		(9	)		(245	)		(114	)		—
Balance as of March 31, 2000.		—			—			—			—			—			—		$	19,629

      All equity activity other than the share amounts above is included in the accompanying consolidated statements of stockholders’ equity.

      Preferred Stock. Macromedia is authorized to issue 5.0 million shares of convertible preferred stock with a par value of $0.001 per share. Holders of Series A and B Convertible Preferred Stock under Andromedia were entitled to receive non-cumulative dividends at the per annum rate of $0.97 and $0.41. Holders of Series A, B, C and D

F-28

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

Convertible Preferred Stock under ESI were entitled to receive non-cumulative dividends at a per annum rate ranging from $0.90 to $2.82.

      Treasury Stock. In July 1997, the Board of Directors authorized the repurchase of up to 2.0 million shares of the Company’s common stock. In October 1998, the Board of Directors authorized the repurchase of an additional 2.0 million shares of the Company’s common stock. During the years ended March 31, 2000 and 1999, the Company purchased 198,000 and 1.1 million shares, respectively, of its common stock on the open market at an average price of $41.43 and $18.29 per share, respectively. The shares are recorded at cost and are shown as a reduction of stockholders’ equity. In connection with the acquisition of ESI Software, Inc. (See Note 4), the Company rescinded the repurchase program.

Stock Based Compensation Plans

      Macromedia, Inc. Stock Option Plans. As of March 31, 2000, there are stock options outstanding in connection with the following stock option and purchase plans (the “Macromedia Plans”):

(i)	Authorware 1988 Stock Option Plan
(ii)	1992 Equity Incentive Plan (“EIP”)
(iii)	1993 Employee Stock Purchase Plan (“ESPP”)
(iv)	1993 Directors Stock Option Plan
(v)	ESI 1996 Equity Incentive Plan
(vi)	Andromedia 1996 Stock Option Plan
(vii)	Andromedia 1997 Stock Option Plan
(viii)	Andromedia 1999 Stock Option Plan
(ix)	Macromedia 1999 Stock Option Plan

      The options outstanding under the plans indicated at (i), (v), (vi), (vii) and (viii) (the “Prior Plans”) above were assumed by the Company as a result of merger activities. The Company assumed certain options granted to former employees of the acquired companies (the “Acquired Options”) under these plans. All of the Acquired Options have been adjusted to give effect to the respective conversion terms between the Company and companies acquired. Of the Prior Plans, the Company continues to grant options only from the Andromedia 1999 Stock Option Plan.

      The EIP and Andromedia 1999 Stock Plan provide for the grant of several types of stock based awards including, incentive and nonqualified stock options, restricted stock, and stock bonuses and purchase rights. The total number of shares reserved pursuant to these plans as of March 31, 2000, was 15.9 million. Any options granted pursuant to the Authorware 1988 Stock Option Plan that expire or become unexercisable for any reason without having been exercised in full shall no longer be available for distribution under the plan, but shall be available for distribution under the EIP. Similarly, any option or purchase right under the Andromedia 1999 Stock Option Plan that becomes unexercisable without having been exercised in full, shall become available for future grant or sale.

      Under the ESPP, 800,000 shares of common stock, are reserved for issuance. 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. During the years ended March 31, 2000, 1999, and 1998, the Company issued 84,358, 145,826, and 194,786, shares under the plan at average prices of $28.98, $11.10, and $7.54, per share, respectively.

      Under the 1993 Directors Stock Option Plan and Macromedia 1999 Stock Option Plan, 700,000 and 1.6 million shares of common stock, respectively, are reserved for grant as non-qualified stock options.

      In fiscal year 2000, the Company granted non-plan options to Company executives to purchase shares of the Company’s common stock. The options were granted with an exercise price equal to fair market value on the grant date and have terms similar to the Company’s stock option plans.

F-29

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      Stock options under the Macromedia Plans are generally 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.

      The following summarizes the stock option activity for the years ended March 31, 2000, 1999 and 1998 (in thousands, except per share amounts):

					Weighted Average
					Exercise
		Shares			Price
Options outstanding as of March 31, 1997			8,551		$	12.00
	Granted		9,633			7.99
	Exercised		(573	)		4.18
	Cancelled		(6,509	)		14.03
Options outstanding as of March 31, 1998			11,102			7.73
	Granted		3,636			16.21
	Exercised		(3,168	)		7.04
	Cancelled		(1,390	)		9.02
Options outstanding as of March 31, 1999			10,180			10.81
	Granted		7,231			49.46
	Exercised		(3,725	)		9.85
	Cancelled		(2,138	)		29.25
Options outstanding as of March 31, 2000			11,548		$	31.92

      On May 6, 1997, the Board of Directors approved a repricing of approximately 4.9 million outstanding stock options held by existing employees to the current fair market value of the Company’s stock.

      shockwave.com, Inc. Stock Option Plan. On December 1, 1999, shockwave.com adopted the shockwave 1999 Equity Incentive Plan. Under the terms of the plan, shockwave.com is eligible to grant a total of 17.4 million options of shockwave.com stock as incentive stock options, non-qualified stock options or restricted stock options.

      Stock options for shockwave.com granted during fiscal year 2000 were priced at $0.50 per share and 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.

      The following summarizes the stock option activity for the year ended March 31, 2000 (in thousands, except per share amounts):

					Weighted Average
					Exercise
		Shares			Price
Options outstanding as of March 31, 1999			—		$	—
	Granted		14,903			0.50
	Exercised		—			—
	Cancelled		(189	)		0.50
Options outstanding as of March 31, 2000			14,714		$	0.50

14. Stock Compensation

      The Company has recorded deferred compensation or compensation expense for options issued under the Andromedia, ESI and shockwave.com stock option plans that were issued with an exercise price less than fair value of the underlying stock at the date of grant. The fair value of the underlying common stock of shockwave.com has been determined by the Company based on factors including, but not limited to, preferred stock sales, comparisons to competitive public companies, and general market conditions. Fair value for Macromedia stock is based on the price of the Company’s common stock as traded on NASDAQ. The Company recorded approximately $5.1 million,

F-30

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

$300,000 and $100,000 in fiscal year 2000, 1999 and 1998, respectively, of compensation expense related to stock option grants by shockwave.com, Andromedia and ESI.

      In connection with certain content development agreements entered into in fiscal year 2000, warrants for approximately 2.8 million shares of shockwave.com common stock were issued to non-employees. Each warrant entitles the holder to purchase one share of shockwave.com common stock at $0.50 per share. The warrants are immediately exercisable and expire 10 years from the date of issuance. Under the terms of the agreements, vesting of the warrants is not contingent upon any future obligations. Furthermore, the warrant agreements do not contain any vesting clauses. The Company recorded compensation expense of approximately $6.0 million in connection with the issuance of the shockwave.com warrants. The fair value of the warrants was estimated using the Black-Scholes option pricing model with an expected volatility of 85%, risk-free interest rate of 5.7% and contractual life of 10 years.

      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 as if the Company had elected to use the fair value approach to account for all of its employee stock-based compensation plans. Had compensation cost for the Company’s plans been determined consistently with the fair value approach enumerated in SFAS No. 123, the Company’s pro forma net income (loss) and pro forma net income (loss) per share for the years ended March 31, 2000, 1999 and 1998, would have been changed as indicated below (in thousands, except per share amounts):

			2000			1999			1998
Net income (loss) applicable to common stockholders:
		As reported	$	6,229		$	2,506		$	(15,641	)
		Pro-forma	$	(702	)	$	(1,877	)	$	(27,790	)
Net income (loss) applicable to common stockholders per share:
	Basic:
		As reported	$	0.14		$	0.06		$	(0.40	)
		Pro-forma	$	(0.02	)		(0.05	)	$	(0.71	)
	Diluted:
		As reported	$	0.12		$	0.05		$	(0.40	)
		Pro-forma	$	(0.02	)	$	(0.05	)	$	(0.71	)

      The effects of applying SFAS 123 in this pro-forma disclosure are not indicative of future amounts.

      The weighted-average fair value of Macromedia options granted during the years ended March 31, 2000, 1999, and 1998 were $26.79, $10.11, and $4.70, respectively. The weighted average fair value of purchase rights granted under the ESPP during the years ended March 31, 2000, 1999, and 1998, was $17.92, $7.53, and $3.74 per right, respectively.

F-31

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      The fair value of Macromedia options and purchase rights granted was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted average assumptions used for grants in 2000, 1999, and 1998:

	Stock Option Plan									Employee Stock Purchase Plan
	2000			1999			1998			2000			1999			1998
Weighted average risk free rate		6.07	%		5.11	%		6.28	%		5.49	%		5.08	%		5.35	%
Expected life (Years)		3.50			3.50			3.28			0.50			0.50			0.50
Expected volatility		70	%		73	%		80	%		70	%		73	%		80	%

      The following table summarizes information about the Macromedia’s stock options outstanding as of March 31, 2000 (in thousands, except per share amounts):

		Options Outstanding						Options Exercisable
				Weighted Average
				Remaining
		Number of		Contractual		Weighted Average		Number of		Weighted Average
Range of Exercise Prices		Options		Life		Exercise Price		Options		Exercise Price
$0.34 — $3.00			106		5.33	$	1.33		75	$	1.13
$3.50 — $9.00			2,800		6.61		7.54		1,768		7.45
$9.09 —$24.50			2,482		8.12		13.34		924		12.95
$24.81 — $45.31			3,389		9.26		33.05		449		30.09
$51.97 — $86.38			2,771		9.70		73.00		45		67.11
	Total		11,548		8.44	$	31.93		3,261	$	12.80

      The weighted-average fair value of shockwave.com options granted during the year ended March 31, 2000 was $1.96.

      The fair value of shockwave.com options granted was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted average assumptions for grants in 2000:

	2000
Weighted average risk free rate		6.63	%
Expected life (Years)		4.0
Expected volatility		85	%

      As of March 31, 2000 all shockwave.com options outstanding had weighted average exercise prices of $0.50 with a weighted average life of 9.88 years. At March 31, 2000, 10.9 million options are outstanding under the plan, however, 10.4 million are unvested and subject to repurchase restrictions upon exercise.

15. Earnings Per Share

      The Company computes earnings per share in accordance with SFAS 128, Earnings Per Share. Under the provisions of SFAS 128, basic net income (loss) per share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders for the period by the weighted average number of common and potentially dilutive securities outstanding during the period, to the extent such potentially dilutive securities are dilutive. Potentially dilutive securities are composed of incremental common shares issuable upon the exercise of stock options and warrants and upon conversion of Series A, B, C, D and E convertible preferred stock.

F-32

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      The following table sets forth the reconciliations of the numerator and denominator used in the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

				Year Ended March 31,
				2000			1999			1998
Basic Net Income (Loss) Per Share Computation
Numerator:
	Net income (loss)			$	8,767		$	2,610		$	(15,641	)
	Accretion of Series C, D and E mandatorily redeemable convertible preferred stock				(2,538	)		(104	)		—
		Net income (loss) applicable to common stockholders		$	6,229		$	2,506		$	(15,641	)
Denominator:
	Weighted average number of common shares outstanding during the period				44,601			40,045			38,988
			Basic net income (loss) applicable to common stockholders per share	$	0.14		$	0.06		$	(0.40	)

			Year Ended March 31,
			2000			1999			1998
Diluted Net Income (Loss) Per Share Computation
Numerator:
	Net income (loss)		$	8,767		$	2,610		$	(15,641	)
	Accretion of Series C, D and E mandatorily redeemable convertible preferred stock			(2,538	)		(104	)		—
		Net income (loss) applicable to common stockholders	$	6,229		$	2,506		$	(15,641	)
Denominator:
	Weighted average number of common shares outstanding during the period			44,601			40,045			38,988
	Effect of dilutive securities:
		Convertible preferred stock and stock warrants		532			823			—
		Stock options and restricted stock		7,137			6,374			—
Total				52,270			47,242			38,988
Diluted net income (loss) applicable to common stockholders per share			$	0.12		$	0.05		$	(0.40	)

      The following table presents potentially dilutive securities that are excluded from the diluted net income (loss) per share calculation because their effects would be antidilutive (in thousands):

		Year Ended March 31,
		2000		1999		1998
Preferred stock			1,593		1,046		840
Stock options			118		94		2,461
Warrants			—		—		8
Restricted stock			—		—		135
	Total		1,711		1,140		3,444

16. Employee Benefits

      The Company maintains a 401(k) defined contribution benefit plan that covers all employees who have attained 18 years of age and provide at least 20 hours of service per week. 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

F-33

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

discretion of the Company’s Board of Directors. Employer contributions made to the plan during the years ended March 31, 2000, 1999, and 1998, were $812,000, $465,000, and $359,000, respectively.

17. Foreign Currency Forward Contracts

      The Company enters into forward contracts to reduce its exposure to foreign currency fluctuations involving probable anticipated, but not firmly committed, transactions and transactions with firm foreign currency commitments occurring within a 90-day period. The Company does not enter into derivative financial instruments for trading purposes.

      As a result of this activity, the Company had outstanding forward contracts in various European currencies and Japanese Yen outstanding as of March 31, 2000. The forward contracts are accounted for on a mark-to-market basis, with gains or losses recognized in the consolidated statements of operations. As of March 31, 2000 and 1999, the contract amount of the forward contracts amounted to $21.6 million and $10.2 million, respectively. The future value of these contracts is subject to market risk resulting from foreign exchange rate volatility. Current market rates at the consolidated balance sheet dates were used to estimate the fair value of foreign currency forward contracts.

      The table below provides information about the Company’s outstanding forward contracts as of March 31, 2000. The information is provided in US dollar equivalents, in thousands. The table presents the notional amount of the respective contracts and their fair value (at rates in effect as of March 31, 2000):

		Notional
		Amount		Fair Value
British Pounds		$	1,479	$	1,434
Euro			1,961		1,931
Japanese Yen			18,127		18,541
	Total	$	21,567	$	21,906

      The Company is exposed to credit loss in the event of nonperformance by counterparties but the Company does not anticipate nonperformance by these counterparties.

18. Related Party Transactions

      During fiscal year 2000, the Company made loans totaling $4.1 million to certain officers and other key employees in conjunction with their hiring and relocation. The notes bear interest ranging from 5.54% to 6.21% per annum and mature in 2003 and 2005.

      During fiscal year 1999 and 1998, the company made loans to officers of $8.2 million in conjunction with their hiring and relocation. These loans bear interest at rates ranging from 5.51% to 6.8% per annum and mature between fiscal year 2002 and 2005. One of the notes has a zero interest rate for the first two years of its term. The rate converted to 6.65% in fiscal year 2000.

      The total loan amount outstanding as of March 31, 2000 approximated $9.9 million, which reflects payments from certain officers and key employees. As of March 31, 2000, the stated loan amounts approximated fair value.

      All loans outstanding are included in current assets and other long-term assets. Of the total amount of loans outstanding as of March 31, 2000, $9.3 million are full recourse and secured by the personal properties of the related parties. These loans are due after termination of the officer or key employee if termination comes prior to the maturity date of the loan. The principal and accrued interest are due in full on the maturity dates of these loans. Interest receivable of $500,000 was due to the Company as of March 31, 2000.

      The remaining balance is composed of approximately $100,000 in unsecured loans to certain key employees. These agreements are entered into as part of the Company’s recruiting efforts. Should employment with the

F-34

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

Company cease before the 3-year service term specified by the loans, the outstanding balance must be repaid on a pro-rata basis. However, should the employee complete the 3-year service term, the loan balance is deemed forgiven by the Company.

19. Segment Reporting and Geographic Information

      Macromedia has two segments that offer different product lines: Software and shockwave.com. The Software segment develops software that creates Web site layout, graphics and rich media content for Internet users and develops solutions for analyzing Web traffic and personalizing Web sites. shockwave.com designs, develops and markets aggregated content to provide online entertainment on the Web. The Company evaluates operating segment performance based on net revenues and total operating expenses of the segment. The operating segments’ accounting policies are substantially the same as those described in the summary of accounting policies (See Note 2). The Company did not have any material intersegment transactions in fiscal year 2000.

      Prior to fiscal year 2000, the Company evaluated its business according to the following two segments: Web Publishing and Learning. As a result of the sale of the Company’s Pathware product (See Note 5), revenues and expenses related to products remaining in the Learning division after the transaction, were realigned and are currently evaluated as part of the Software segment. Prior periods have been restated to reflect this realignment, however, for the years ended March 31, 1999 and 1998, the Company did not internally report shockwave.com as a separate segment and restating these periods is currently impracticable. As a result, for the years ended March 31, 1999 and 1998, there is only one operating segment, Software. Segment data for the years ended March 31, 2000, 1999 and 1998 are shown in the following (in thousands):

Year Ended March 31, 2000			Software			shockwave.com			Total
Revenues			$	255,941		$	8,218		$	264,159
Cost of revenues				27,725			1,104			28,829
	Gross margin		$	228,216		$	7,114		$	235,330
Direct operating expenses				177,498			25,856			203,354
Acquisition related expenses and certain non-cash charges				13,882			9,718			23,600
		Total operating income	$	36,836		$	(28,460	)	$	8,376
Total assets			$	285,701		$	53,658		$	339,359
1999
Revenues			$	153,243			—		$	153,243
Cost of revenues				15,625			—			15,625
	Gross margin		$	137,618			—		$	137,618
Direct operating expenses				131,444						131,444
Acquisition related expenses and certain non-cash charges				989			—			989
		Total operating income	$	5,185		$	—		$	5,185
Total assets			$	202,495		$	—		$	202,495
1998
Revenues			$	113,803		$	—		$	113,803
Cost of revenues				15,107			—			15,107
	Gross margin		$	98,696		$	—		$	98,696
Direct operating expenses				110,439			—			110,439
Acquisition related expenses and certain non-cash charges				7,707			—			7,707
		Total operating loss	$	(19,450	)	$	—		$	(19,450	)
Total assets			$	158,126		$	—		$	158,126

F-35

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      Operating income (loss) for the periods shown is reconciled to the consolidated net income before taxes as follows (in thousands):

	Year ended March 31,
	2000		1999		1998
Total operating income (loss)	$	8,376	$	5,185	$	(19,450	)
Other income		6,187		5,037		4,637
Minority interest		6,179		—		—
Income (loss) before taxes	$	20,742	$	10,222	$	(14,813	)

      The Company’s operations outside the United States consist of sales offices in Japan, the United Kingdom, the Netherlands, the Republic of Ireland, and Canada that are wholly-owned subsidiaries and a branch in Australia. 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 sales within the territory. Accordingly, for financial statement purposes, it is not meaningful to segregate operating profit (loss) for the foreign sales offices. Revenues are attributed to region based on the location of the customer. In 1998, revenue in Japan accounted for a significant portion of the Company’s total revenues. Outside of the United States, no other individual country contributed more than 10% of total revenues for the years ended March 31, 2000, 1999, and 1998. Additionally, other than the United States, no individual country’s assets comprised more than 10% of total assets as of March 31, 2000, 1999, and 1998.

      The distribution of net revenues and identifiable assets by geographic areas for the years ended March 31, 2000, 1999, 1998 are as follows (in thousands):

		2000			1999			1998
Net Revenues:
	North America	$	156,494		$	89,500		$	59,510
	Europe		71,324			43,243			29,300
	Japan		19,540			11,824			17,177
	All Other		16,801			8,676			7,816
Total Revenues		$	264,159		$	153,243		$	113,803
Identifiable Assets:
	North America	$	315,484		$	188,668		$	128,155
	Europe		80,100			31,350			28,958
	All Other		3,123			1,622			1,185
	Eliminations		(59,348	)		(19,145	)		(172	)
Total		$	339,359		$	202,495		$	158,126
Long-lived assets:
	United States	$	77,302			45,065		$	39,594
	International		1,089			775			866
Total		$	78,391		$	45,840		$	40,460

20. 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 or other agreed-upon terms. Future minimum royalty payments for the years ending March 31, 2001, 2002, 2003 and thereafter are $860,000, $360,000, $156,000 and $0, respectively.

      Leases. The Company leases office space and certain equipment under operating leases, certain of which contain renewal and purchase options. In addition, the Company subleases certain office space that is not currently occupied by the Company.

F-36

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

      Future minimum payments under operating leases with an initial term of more than one year and future minimum sublease income are summarized as follows (in thousands):

		Payments		Income
Year ended March 31,
2001		$	10,099	$	(742	)
2002			9,750		(48	)
2003			9,820		—
2004			9,549		—
2005			8,544		—
Thereafter			19,656		—
	Total minimum lease payments	$	67,418	$	(790	)

      Rent expense was $7.4 million, $4.5 million, and $4.1 million for the years ended March 31, 2000, 1999, and 1998, respectively. For the years ended March 31, 2000, 1999 and 1998, sublease income was $3.0 million, $2.9 million and $1.9 million, respectively.

      Legal. On July 31, 1997, a complaint entitled Rosen et al. v. Macromedia, Inc. et al., (Case No. 988526) was filed in the Superior Court for San Francisco, California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of California Corporations Code Sections 25400 and 25500 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding the Company’s financial results and prospects. Four similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in San Francisco Superior Court, and consolidated for pre-trial purposes with Rosen. Defendants filed demurrers to the complaint and other motions, which were argued on December 9, 1997 and January 5, 1998. Before the demurrers could be heard, one defendant, Richard Wood, died in an automobile accident. In March 1998, the Courts sustained in part and overruled in part the demurrers. Claims against Susan Bird were dismissed and the Court overruled the demurrers as to Macromedia, John Colligan, James Von Her, II, and Kevin Crowder. In May 1999, the Court granted plaintiffs’ motion for certification of a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Trial has been set for March 12, 2001. On April 20, 2000, the parties proposed that the Court continue the trial date to September 10, 2001.

      On September 25, 1997, a complaint entitled City Nominees v. Macromedia, Inc et al., (Case No. C-97-3521-SC) was filed in the United States District Court for the Northern District of California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of Sections 10 and 20(a) of the Securities and Exchange Act of 1934 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding the Company’s financial results and prospects. Plaintiffs seek to represent a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Three similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in United States District Court for the Northern District of California. All of these cases have been consolidated. Lead plaintiffs and lead counsel have been appointed under the provisions of the Private Securities Law Reform Act by the District Court. A consolidated complaint was filed in February 1998. Defendants moved to dismiss that complaint on the grounds that plaintiffs’ claims were barred by the applicable statute of limitations. In May 1998, the United States District Court for the Northern District of California granted defendants’ motion to dismiss with prejudice, and entered judgment in favor of defendants. Plaintiffs have appealed to the United States Court of Appeals for the Ninth Circuit, which reversed on April 21, 2000 and remanded the action to the District Court for further proceedings.

      All complaints seek damages in unspecified amounts, as well as other forms of relief. We believe the complaints are without merit and intend to vigorously defend the actions.

F-37

MACROMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)

21. QUARTERLY RESULTS AND STOCK MARKET DATA (unaudited)

      Summarized quarterly financial information for fiscal years 2000 and 1999 is as follows (in thousands, except per share data):

				Quarter ended
				June 30			September 30			December 31			March 31
Fiscal year
2000
		Total revenues		$	51,232		$	59,313		$	64,332		$	89,282
		Gross profit			45,478			53,384			57,479			78,989
		Operating income			2,897			1,256			2,529			1,694
		Net income			1,727			225			1,272			5,543
		Net income (loss) applicable to common stockholders			1,563			(792	)		(85	)		5,543
			Net income (loss)applicable to common stockholders per share - basic		0.04			(0.02	)		0.00			0.12
			Net income (loss) applicable to common stockholders per share - diluted		0.03			(0.02	)		0.00			0.10
	Common Stock Price Range:
		High		$	50.00		$	49.25		$	88.69		$	100.00
		Low		$	32.88		$	27.38		$	39.88		$	62.00
1999
		Total revenues		$	32,747		$	35,889		$	38,827		$	45,780
		Gross profit			29,506			32,485			34,851			40,776
		Operating income (loss)			(565	)		1,033			1,350			3,367
		Net income (loss)			(617	)		463			834			1,930
		Net income (loss) applicable to common stockholders			(617	)		463			782			1,878
			Net income (loss) applicable to common stockholders per share - basic		(0.02	)		0.01			0.02			0.05
			Net income (loss) applicable to common stockholders per share - diluted		(0.02	)		0.01			0.02			0.04
	Common Stock Price Range:
		High		$	19.31		$	19.31		$	35.25		$	46.06
		Low		$	13.75		$	12.31		$	12.63		$	26.38

      The Company has not paid cash dividends and has no present plans to do so. There were 384 stockholders of record as of June 9, 2000, excluding stockholders whose stock is held in nominee or street name by brokers.

F-38

MACROMEDIA, INC. AND SUBSIDIARIES

SCHEDULE II —VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

		Balance at beginning of		Charge to costs and				Balance at end of
Description		period		expenses		Deduction		period
Allowance for Doubtful Accounts
	Year ended March 31, 2000	$	1,122	$	801	$	264	$	1,659
	Year ended March 31, 1999		1,075		125		78		1,122
	Year ended March 31, 1998		972		1,363		1,260		1,075
Allowance for Returns
	Year ended March 31, 2000	$	8,477	$	13,641	$	12,897	$	9,221
	Year ended March 31, 1999		6,531		11,958		10,012		8,477
	Year ended March 31, 1998		6,814		6,983		7,266		6,531
Allowance for Excess and Obsolete Inventory
	Year ended March 31, 2000	$	942	$	1,551	$	1,629	$	864
	Year ended March 31, 1999		1,143		573		774		942
	Year ended March 31, 1998		3,909		1,398		4,164		1,143

EX-10.15

   1

                                                                   EXHIBIT 10.15

                                MACROMEDIA, INC.

                                      LEASE

                               THE TOWNSEND CENTER
                                SAN FRANCISCO, CA
                               -------------------
                                TABLE OF CONTENTS

                                                                                
1.  SALIENT LEASE TERMS .........................................................   1
2.  DEFINITIONS .................................................................   3
3.  PREMISES ....................................................................   9
4.  TERM ........................................................................  10
5.  PRE-TERM POSSESSION .........................................................  13
6.  DELAY IN DELIVERY OF POSSESSION .............................................  14
7.  MINIMUM RENT ................................................................  14
8.  ADDITIONAL RENT .............................................................  14
9.  ACCORD AND SATISFACTION .....................................................  17
10. SECURITY DEPOSIT ............................................................  17
11. USE .........................................................................  17
12. COMPLIANCE WITH LAWS AND REGULATIONS ........................................  18
13. SERVICE AND EQUIPMENT .......................................................  26
14. WASTE .......................................................................  28
15. ALTERATIONS .................................................................  28
16. PROPERTY INSURANCE ..........................................................  31
17. INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION ...........................  32
18. LIABILITY INSURANCE .........................................................  34
19. INSURANCE POLICY REQUIREMENTS ...............................................  34
20. LESSEE INSURANCE DEFAULT ....................................................  35
21. FORFEITURE OF PROPERTY AND LESSOR'S LIEN ....................................  35
22. MAINTENANCE AND REPAIRS .....................................................  35
23. DESTRUCTION .................................................................  37
24. CONDEMNATION ................................................................  38
25. ASSIGNMENT AND SUBLETTING ...................................................  40
26. ABANDONMENT .................................................................  43
27. ENTRY BY LESSOR .............................................................  44
28. SIGNS .......................................................................  44
29. DEFAULT .....................................................................  44
30. REMEDIES UPON DEFAULT .......................................................  45
31. BANKRUPTCY ..................................................................  48
32. SURRENDER OF LEASE ..........................................................  51
33. LESSOR'S EXCULPATION ........................................................  51





                                      -i-
   2

                                                                                
34. ATTORNEYS' FEES .............................................................  52
35. NOTICES .....................................................................  52
36. SUBORDINATION ...............................................................  53
37. ESTOPPEL CERTIFICATES .......................................................  54
38. WAIVER ......................................................................  54
39. HOLDING OVER ................................................................  54
40. SUCCESSORS AND ASSIGNS ......................................................  54
41. TIME ........................................................................  55
42. EFFECT OF LESSOR'S CONVEYANCE ...............................................  55
43. COMMON AREAS ................................................................  55
44. TRANSFER OF SECURITY ........................................................  55
45. LATE CHARGES ................................................................  55
46. CORPORATE AUTHORITY .........................................................  56
47. MORTGAGEE PROTECTION ........................................................  56
48. MISCELLANEOUS PROVISIONS ....................................................  56
49. WAIVER OF CALIFORNIA CODE SECTIONS ..........................................  60
50. SHUTTLE SERVICE .............................................................  60





                                      -ii-
   3

THIS LEASE is dated for reference purposes only this 15th day of April 1999.

                             1. SALIENT LEASE TERMS

1.1  RENT PAYMENT:          ZORO, LLC
                            650 Townsend Street
                            San Francisco, CA 94103
                            Attn.: Building Management Office
                            Fax No.: (415)487-4056

1.2  PARTIES AND NOTICE     Lessor: ZORO, LLC,
     ADDRESS:                       a California limited liability company
                                    650 Townsend Street
                                    San Francisco, CA 94103
                                    Attn.: Building Management Office
                                    Fax No.: (415)487-4056

                            Lessee: MACROMEDIA, INC.
                            600 Townsend Street, Suite 310
                            San Francisco, CA 94103
                            Attention: David Yokell

1.3  PREMISES:              (A) Name and Location of Complex:
                                Townsend Center
                                650 Townsend Street
                                San Francisco, CA 94103

                            (B) Leased Premises:
                                USABLE AREA: 20,975 square feet
                                             Fourth Floor Quadrant "C"
                                             specified in Exhibit C attached
                                             hereto.

                                ADJUSTED RENTABLE AREA: 25,170 square feet

                                RENTABLE AREA: 24,744 square feet

                                MAXIMUM LOAD FACTOR: 1.2
                                   *(Based on Usable Area
                                   multiplied by a load factor of 1.2)



                                      -1-
   4

1.4  TERM:                  (A) Estimated Delivery Date: Thirty (30) days from
                                execution date of Lease
                            (B) Initial Term: Five (5) years
                            (C) Renewal Term: One five (5) year term.
                                                                   (Section 4.1)
1.5  RENT:                  (A) Minimum Rent:

                                   Annual Rental         Monthly Rental
                                   (Per Adjusted         (Per Adjusted
                                   Rentable Square       Rentable Square
                                   Foot)                 Foot)

                                   $792,855              $66,071.25
                                   ($31.50/ARSF)         ($2.63/ARSF)

                            (B) Advance Rent: $66,071.25
                                                                   (Section 7.2)

1.6  INITIAL SECURITY
     DEPOSIT:               None
                                                                  (Section 10.1)

1.7  USE:                   Multimedia, software research and development,
                            marketing, production, sales, service and related
                            office and administrative functions (no more than
                            20% of Lessee's Adjusted Rentable Area may be used
                            for office use).
                                                                  (Section 11.1)

1.8  INITIAL PRO RATA       3.69% (24,744/670,604rsf)
     PERCENT:                                                      (Section 2.1)
                                                                  (Section 16.3)
1.9  BASE OPERATING COST
     FOR THE COMPLEX:       1999 Base Expense Year and 1998-1999 Base Tax Year
                                                                   (Section 8.2)
                                                                  (Section 16.3)
1.10 REAL ESTATE            Cushman & Wakefield of California, Inc. and
     BROKERS:               Polatnick Properties (Lessor's Broker)
                                                                 (Section 48.14)



                                      -2-
   5



1.11 RENTABLE AREA OF       670,604 square feet
     BUILDING AT
     COMMENCEMENT:

1.12 CONTENTS:              This Lease consists of:
                            Pages 1 through 61
                            Sections 1 through 50
                            Addenda (if any)
                            Exhibits:
                                   A - Legal Description of Complex
                                   B - Plan of the Complex
                                   C - Floor Plan of the Leased Premises
                                   D - Work Letter Agreement
                                   E - Acknowledgment of Commencement
                                   F - Intentionally Deleted
                                   G - Rules and Regulations
                                   H - Building Standards
                                   I - Intentionally Deleted
                                   J - Janitorial Specifications
                                   K - Exclusions from Operating Expenses
                                   L - Subordination and Non-Disturbance
                                       Agreement

                            2. DEFINITIONS

        2.1 The terms defined in this Article 2 shall, for all purposes of this
Lease and all agreements supplemental hereto, have the meanings herein specified
unless expressly stated otherwise.

                "ADJUSTED RENTABLE AREA" means the Usable Area multiplied by 1.2
except on the 2nd and 3rd floors for which the multiplicand shall be 1.3.

                "ATRIUM" means the Central Atrium on floors 2 through 6 of the
Building so identified on Exhibits B and C.

                "BASE BUILDING WORK" shall mean the exhaust line, waste line,
and domestic water hook ups which Lessor shall stub to the Leased Premises.

                "BASE OPERATING COST" means the sum set forth in Section 1.9
hereof.

                "BOMA" means the standards of measurement adopted by the
Building Owners and Managers Association, American National Standard, ANSI/BOMA
2.65.1 - 1996 ("BOMA") as modified by Lessor for uniform use in the Complex.



                                      -3-
   6

                "BUILDING" shall mean the structure which contains the Leased
Premises.

                "BUILDING STANDARDS" shall mean Lessor's standard specifications
for construction in the Building as set forth in Exhibit H and as may be
established by Lessor from time to time.

                "Commencement Date" shall mean the earlier of the following
dates:

                        (i) The day upon which Lessee commences business
operations in the Premises;

                        (ii) The date upon which the City and County of San
Francisco issues its certificate of occupancy for the Leased Premises; or

                        (iii) Ninety (90) days following the Delivery Date (as
herein defined).

                "COMMON AREAS" shall mean all areas and facilities outside the
Leased Premises within the exterior boundaries of the Complex of which the
Leased Premises form a part, that are provided and designated by Lessor from
time to time for the general use and convenience of Lessee and of other tenants
of Lessor having the common use of such areas, and their respective authorized
representatives and invitees. Common Areas include, without limitation,
corridors, stairways, elevator shafts, janitor rooms, driveways, parking areas,
and landscaped areas all as generally described on Exhibit B attached hereto.
Exhibit B is tentative and Lessor reserves the right to make alterations thereto
from time to time. Other areas may be designated by Lessor from time to time as
for the exclusive use of certain lessees and shall cease being Common Areas;
provided, however, during the initial term of this Lease, the Atrium on the
ground floor of the Building shall remain as a Common Area available for
Lessee's non-exclusive use.

                "COMPLEX" is the real property of which the Leased Premises
forms a part, including, but not limited to, the Building, parking facility and
landscaping, which property is described with particularity in Exhibit A
attached hereto and made a part hereof by reference.

                "DELIVERY DATE" shall mean the earlier of the following dates:
(i) the date upon which Lessee takes possession of the Leased Premises (provided
possession shall not mean Lessee's possession of and entry to the Leased
Premises for the purpose set forth in Section 5.1) for undertaking Lessee's Work
or (ii) the date upon which Lessor's Work with respect to the Leased Premises
has been substantially completed in accordance with Exhibit D; provided,
however, in the event completion of Lessor's Work is delayed by Lessee's Work or
other acts of Lessee or its agents ("Lessee Delay") any such Lessee Delay shall
thereupon effect a postponement of the date at which Lessor is obliged to
deliver the Leased Premises to Lessee by the number of days of Lessee Delay.
However, the Delivery Date and the Commencement Date as would otherwise be
established had Lessee Delay not occurred shall not be postponed by the number
of days of Lessee Delay.



                                      -4-
   7

                "FORCE MAJEURE" shall mean event(s) beyond the reasonable
control of the obligated party such as, for example only, strikes, riots,
governmental act or failure to act, shortage of materials, weather and other
such matters over which the party does not have reasonable control (except
matters resulting from financial insufficiency).

                "LEASE YEAR" means any calendar year, or portion thereof,
following the commencement hereof, the whole or any part of which period is
included within the Term.

                "LESSEE'S WORK" shall mean the work of improvement to the Leased
Premises to be performed by Lessee in accordance with the Work Letter Agreement
attached hereto as Exhibit D.

                "LESSOR'S WORK" shall mean the following work to be performed by
Lessor in accordance with the Work Letter Agreement attached hereto as Exhibit
D: installation of exhaust line, waste line and domestic water hook-ups stubbed
to the Leased Premises.

                "LEASED PREMISES" shall mean the portion of space leased to
Lessee hereunder.

                "LINES" shall mean domestic water, chilled water and waste
pipes and lines, exhaust pipes and vents, communications, computer, audio and
video, security and electrical (other than electrical wiring within the Leased
Premises terminating at or connected to Building check meters), cables, wires,
lines, duct work, sensors, switching equipment, control boxes, risers and
related improvements at the Complex, Building or the Leased Premises.

                "MAJOR VERTICAL PENETRATIONS" shall mean stairs, elevator
shafts, flues, pipe shafts, vertical ducts, and the like, and their enclosing
walls, which serve more than one floor of the Building, but shall not include
stairs, dumbwaiters, lifts, and the like, exclusively serving a lessee occupying
space on more than one floor.

                "OCCUPIED FLOOR AREA" means that portion of the Rentable Area of
the Complex which is leased and occupied.

                "OPERATING COSTS" means the total amounts paid or payable,
whether by Lessor or others on behalf of Lessor (provided the amounts paid on
behalf of Lessor are ultimately chargeable to or payable by Lessor), in
connection with the ownership, maintenance, repair, replacement and operations
of the Complex (including, without limitation, all areas and facilities within
the exterior boundaries of the Complex) as determined in a manner consistent
with generally accepted accounting principles ("GAAP "). Operating Costs shall
include, but not be limited to, the aggregate of the amount paid for all
electricity and fuel used in heating and air conditioning of the Building; the
amount paid or payable for all electricity furnished by Lessor to the Complex;
the cost of periodic relamping and reballasting of Building Standard lighting
fixtures; the amount paid or payable for all hot and cold water (other than that
chargeable to lessees by reason of their extraordinary consumption of water);
the amount paid or payable for all labor and/or wages and other payments
including cost to Lessor of workers' compensation and disability insurance,
payroll taxes, welfare and fringe benefits made to janitors, caretakers, and
other employees,



                                      -5-
   8

contractors and subcontractors of Lessor (including wages of the Building
manager) pro-rated as appropriate to reflect their involvement in the Complex;
painting for exterior walls of the buildings in the Complex; managerial and
administrative expenses; the total charges of any independent contractors
employed in the repair, care, operation, maintenance, and cleaning of the
Complex; the amount paid or payable for all supplies occasioned by everyday wear
and tear; the costs of VAC (as defined in Section 13.1) of the Complex, (except
to the extent paid by Lessee, or other lessees, for VAC provided to the Leased
Premises, or other leased premises, in respect of VAC provided outside the
Climate Control Hours defined in Section 13.1), window and exterior wall
cleaning, telephone and utility costs; the cost of accounting services necessary
to compute the rents and charges payable by Lessees and keep the books of the
Complex; fees for management, legal, accounting, inspection and consulting
services; the cost of operating, repairing and maintaining and replacing the
Building escalators and elevators and the utility systems, including Lines, of
the Complex including the cost of inspection and service contracts; the cost of
porters, guards and other protection services; the cost of establishing and
maintaining the Building's directory board; payments for general maintenance and
repairs to the plant and equipment supplying climate control; the cost of
supplying all services pursuant to Article 13 hereof to the extent such services
are not paid by individual lessees; amortization of the costs, including repair
and replacement, of all maintenance and cleaning equipment and master utility
meters and of the costs incurred for repairing or replacing all other fixtures,
equipment and facilities serving or comprising the Complex which by their nature
require periodic or substantial repair or replacement, and which, in accordance
with GAAP, should not be charged fully in the year in which they are incurred,
at rates on the various items determined from time to time by Lessor; the cost
of the Shuttle Service described in Article 50 hereof; the cost of operating the
parking facility in the Complex and the cost of parking fees and rents paid to
the owner of another parcel for use of certain parking spaces therein
(collectively "Parking Costs") net of parking fees and rents collected by Lessor
in connection herewith provided, however, Lessor shall not be obligated to
credit any sums received in excess of the actual Parking Costs; the cost and
expenses for insurance for which Lessor is responsible hereunder or which Lessor
reasonably deems necessary in connection with the operation of the Complex
(including, self-insurance and the payment of deductible amounts under insurance
policies up to a maximum amount of One Hundred Thousand Dollars ($100,000));
community association dues or assessments and property owners' association dues
and assessments which may be imposed upon Lessor by virtue of any recorded
instrument affecting title to the Complex; and costs of complying with all
governmental regulations, rules, laws, ordinances and codes, including
Environmental Laws as such term is defined in Article 12. In addition,
Operating Costs shall include any Real Estate Taxes as defined in Paragraph 2.1
hereof. Operating Costs shall also include, without limitation, the repair and
replacement, resurfacing and repaving of any paved areas, curbs, gutters or
other surfaces or areas within the Complex, the repair and replacement of any
equipment or facilities located within or serving the Complex, and the cost of
any capital repairs, replacements or improvements made by Lessor to the Complex
("CAPITAL COSTS"). However, certain Capital Costs (the "RESTRICTED CAPITAL
COSTS") shall be includable in Operating Costs each year only to the extent of
that fraction allocable to the year in question calculated by amortizing such
Restricted Capital Costs over the reasonably useful life of the improvement
resulting therefrom, as determined by Lessor, with interest on the unamortized



                                      -6-
   9

balance at the higher of (i) ten percent (10%) per annum; or (ii) the interest
rate as may have been paid by Lessor for the funds borrowed for the purpose of
performing the work for which the Restricted Capital Costs have been expended,
but in no event to exceed the highest rate permissible by law. The Restricted
Capital Costs subject to such amortization procedure are the following: (x)
those costs for capital improvements to the Complex of a type which do not
normally recur more frequently than every five (5) years in the normal course of
operation and maintenance of facilities such as the Complex (specifically
excluding painting of all or a portion of the Complex); (y) costs incurred for
the purpose of reducing other operating expenses or utility costs, from which
Lessee can expect a reduction in the amounts it would otherwise expend, or
reimburse Lessor, and (z) expenditures by Lessor that are required by
governmental law, ordinance, regulation or mandate, including, without
limitation, any Environmental Laws (as such term is defined in Article 12),
which were not applicable to the Complex at the time of the original
construction. Operating Costs shall not include legal or accounting expenses
incurred expressly for negotiating a lease with a particular lessee, or as a
result of a default of a specific lessee, which negotiation or default does not
affect the operation of the Complex. Operating Expenses shall not include
Excluded Operating Expense items identified in Exhibit K to this Lease.

                "PROPORTIONATE SHARE" or "PRO RATA PERCENT" shall be that
fraction (converted to a percentage) the numerator of which is the Rentable Area
of the Leased Premises and the denominator of which is the number of square feet
of Rentable Area of all floors (or leased premises if the Complex is on a single
floor) rentable to lessees in the Complex. Lessee's Proportionate Share as of
the commencement of the Term hereof is specified in Section 1.8. Said
Proportionate Share shall be recalculated as may be required effective as at the
commencement of any period to which the calculation is applicable in this Lease.
Notwithstanding the preceding provisions of this Section, Lessee's Proportionate
Share as to certain expenses may be calculated differently to yield a higher
percentage share for Lessee as to certain expenses in the event Lessor permits
other lessees in the Complex to directly incur such expenses rather than have
Lessor incur the expense in common for the Complex (such as, by way of
illustration, wherein a lessee performs its own janitorial services). In such
case Lessee's Proportionate Share of the applicable expense shall be calculated
as having as its denominator the Rentable Area of all floors (or leased premises
if the Complex is on a single floor) rentable to lessees in the Complex less the
Rentable Area of lessees who have incurred such expense directly. Furthermore,
in the event Lessee consumes extraordinary amounts of any provided utility or
other service as determined in Lessor's good faith judgment, Lessee's
Proportionate Share for such utility or service may, at Lessor's election, be
based on usage as opposed to Rentable Area, that is, Lessee's Proportionate
Share of such a utility or service would be calculated as having as its
denominator the total usage of such utility or service in the Complex (or
Building as the case may be), and having as its numerator Lessee's usage of such
utility or service, as determined by Lessor in its sole good faith judgment. In
any case in which Lessee, with Lessor's consent, incurs such expenses directly,
Lessee's Proportionate Share will be calculated specially so that expenses of
the same character which are incurred by Lessor for the benefit of other lessees
in the Complex shall not be prorated to Lessee. If repairs are required for
systems exclusively serving the Leased Premises (whether within or outside of
said Leased Premises), Lessee shall pay one hundred percent (100%) of such
repair



                                      -7-
   10

costs. Nothing herein shall imply that Lessor will permit Lessee or any other
lessee of the Complex to incur any Common Area Costs or Operating Costs. Any
such permission shall be in the sole discretion of the Lessor, which Lessor may
grant or withhold in its arbitrary judgment.

                "QUADRANT." Each floor of the Building is centered around the
common Atrium with Rentable Area being approximately divided into four unequal
parts known as "Quadrant(s)" and commonly carrying identifying letters as
follows:

                          Quadrant A: Southeast of Atrium
                          Quadrant B: Northeast of Atrium
                          Quadrant C: Northwest of Atrium
                          Quadrant D: Southwest of Atrium

                "R/U RATIO" (an abbreviation for Rentable/Usable Ratio) shall
mean that fraction the numerator of which is Rentable Area and the denominator
of which is Usable Area.

                "REAL ESTATE TAXES" or "TAXES" shall mean and include all
general and special taxes, assessments, fees of every kind and nature, duties
and levies, charged and levied upon or assessed by any governmental authority
against the Complex including the land, the Building, any other improvements
situated on the land other than the Building, the various estates in the land
and the Building, any Tenant Improvements, fixtures, installations, additions
and equipment, whether owned by Lessor or Lessee; except that it shall exclude
any taxes of the kind covered by Section 8.1 hereof to the extent Lessor is
reimbursed therefor by any lessee in the Building. Real Estate Taxes shall also
include the reasonable cost to Lessor of contesting the amount, validity, or the
applicability of any Taxes mentioned in this Section. Further included in the
definition of Taxes herein shall be general and special assessments, license
fees, commercial rental tax, levy, penalty or tax (other than inheritance,
estate taxes or taxes on net income (measured by the income of Lessor from all
sources other than from solely rent)) imposed by any authority having the direct
or indirect power to tax, as against any legal or equitable interest of Lessor
in the Leased Premises or in the Complex or on the act of entering into this
Lease or, as against Lessor's right to rent or other income therefrom, or as
against Lessor's business of leasing the Leased Premises or the Complex, any
tax, fee, or charge with respect to the possession, leasing, transfer of
interest, operation, management, maintenance, alteration, repair, use, or
occupancy by Lessee, of the Leased Premises or any portion thereof or the
Complex, or any tax imposed in substitution, partially or totally, for any tax
previously included within the definition of Taxes herein, or any additional
tax, the nature of which may or may not have been previously included within the
definition of Taxes. Further, if at any time during the Term of this Lease the
method of taxation or assessment of real estate or the income therefrom
prevailing at the time of execution hereof shall be, or has been altered so as
to cause the whole or any part of the Taxes now or hereafter levied, assessed or
imposed on real estate to be levied, assessed or imposed upon Lessor, wholly or
partially, as a capital levy, business tax, fee, permit or other charge, or on
or measured by the Rents received therefrom, then such new or altered taxes,
regardless of their nature, which are



                                      -8-
   11

attributable to the land, the Building or to other improvements on the land
shall be deemed to be included within the term Real Estate Taxes for purposes of
this Section, whether in substitution for, or in addition to any other Real
Estate Taxes, save and except that such shall not be deemed to include any
enhancement of said tax attributable to other income of Lessor. With respect to
any general or special assessments which may be levied upon or against the
Leased Premises, the Complex, or the underlying realty, or which may be
evidenced by improvement or other bonds, and may be paid in annual or
semi-annual installments, only the amount of such installment, prorated for any
partial year, and statutory interest shall be included within the computation of
Taxes for which Lessee is responsible hereunder.

                "RENT," "RENT" or "RENTAL" means Minimum Rent and all other sums
required to be paid by Lessee pursuant to the terms of this Lease.

                "RENTABLE AREA." The Rentable Area means the Rentable Area
determined by BOMA. The Rentable Area of a floor shall mean all areas available
or held for the exclusive use and occupancy of occupants or future occupants of
the Complex, calculated in accordance with BOMA. No deductions shall be made for
columns and projections necessary to the Building. The Rentable Area of that
portion of a lessee's premises located on a floor shall be computed by
multiplying the Usable Area of such premises by the R/U Ratio. The Rentable
Area of the Building is the aggregate of the Rentable Area on all floors.

                "STRUCTURAL" as herein used shall mean any portion of the Leased
Premises or Complex which provides bearing support to any other integral member
of the Complex such as, by limitation, the roof structure (trusses, joists,
beams), posts, load bearing walls, foundations, girders, floor joists, footings,
and other load bearing members constructed by Lessor.

                "TENANT IMPROVEMENTS" shall mean the Lessee's Work in accordance
with the Work Letter Agreement attached hereto as Exhibit D and all subsequent
alterations to the Leased Premises made by Lessee.

                "TERM" shall mean the term of the lease as specified in Article
4 hereof, including any partial month at the commencement of the Term.

                "USABLE AREA." The Usable Area of any individual leased premises
shall be the number of square feet calculated in accordance with BOMA; provided,
however, that the term Usable Area shall include toilet rooms in each Quadrant
if such toilet rooms are for the exclusive use of a lessee occupying such
Quadrant. The Usable Area of a floor shall be equal to the sum of all Usable
Areas on that floor.

                                   3. PREMISES

        3.1 DEMISING CLAUSE. Lessor hereby leases to Lessee, and Lessee hires
from Lessor a portion of the Complex as hereinafter defined.



                                      -9-
   12

        3.2 DESCRIPTION. The Complex, as defined in Section 2.1, is described
generally in Section 1.3(A) hereof. The premises leased herein are described in
Section 1.3(B) and delineated on Exhibit C, which is attached hereto and made a
part hereof by reference, consisting of the approximate amount of square footage
as specified in Section 1.3(C) hereof. The term "BUILDING" shall refer to the
Budding in which the Leased Premises are located. The portion leased herein to
Lessee is hereinafter referred to as the "LEASED PREMISES." Lessee acknowledges
that Lessor may change the shape, size, location, number and extent of the
improvements to any portion of the Complex without consent of Lessee and without
affecting Lessee's obligations hereunder. Lessor reserves the area beneath and
above the Leased Premises as well as the exterior thereof together with the
right to install, maintain, use, repair and replace Lines, pipes, ducts,
conduits, wires, and structural elements leading through the Leased Premises
serving other parts of the Complex, including, but not limited to, vertical
risers, so long as such items are concealed by walls, flooring or ceilings. Such
reservation in no way affects the maintenance obligations imposed herein, nor
shall such reservation alter the parties' responsibilities and obligations set
forth in this Lease regarding Hazardous Materials (as defined in Section 12.3(a)
below).

        3.3 COVENANTS, CONDITIONS AND RESTRICTIONS. The parties agree that this
Lease is subject to the effect of (a) any covenants, conditions, restrictions,
easements, mortgages or deeds of trust, ground leases, rights of way of record,
and any other matters or documents of record; (b) any zoning laws of the city,
county and state where the Complex is situated; and (c) general and special
taxes not delinquent. Lessee agrees that as to its leasehold estate, Lessee and
all persons in possession or holding under Lessee will conform to and will not
violate the terms of any covenants, conditions or restrictions of record which
may now or hereafter encumber the property (hereinafter the "RESTRICTIONS").
This Lease is subordinate to the restrictions and any amendments or
modifications thereto.

                                     4. TERM

        4.1 COMMENCEMENT DATE. The Term of this Lease shall commence on the
Commencement Date defined in Section 2.1 and shall be for the term specified in
Section 1.4(B) hereof, plus any partial month at the commencement of the Term.

        4.2 ACKNOWLEDGMENT OF COMMENCEMENT. After delivery of the Leased
Premises to Lessee, Lessee shall execute a written acknowledgment of the date of
commencement in the form attached hereto as Exhibit E, and by this reference it
shall be incorporated herein.

        4.3 RENEWAL TERM.

                (a) Manner of Exercise. Lessee shall have the right and option
to extend the Term of this Lease for one (1) additional period of five years
(such period being referred to as a "Renewal Term"), provided that Tenant is not
in default hereunder either at the time Tenant exercises its option or at the
time the Renewal Term is intended to commence. Lessee may exercise the option,
if at all, by written notice to Lessor delivered no later than nine (9) months
prior to the date (the "Expiration Date") which represents the expiration of the
then



                                      -10-
   13

current term ("Expiration Date"), (the "Outside Exercise Date"). Unless all of
the above conditions precedent have been satisfied, Lessee's exercise of any
option shall be of no force or effect and the Renewal Term shall lapse. If all
of the above conditions precedent are satisfied, then the term of this Lease
shall be extended for the Renewal Term, and all of the terms, conditions and
provisions of this Lease shall continue in full force and effect throughout the
Renewal Term, except that the Minimum Rent to be paid by Lessee for the Renewal
Term shall be ninety-five percent (95%) of the fair market rental value of the
Leased Premises as of the Expiration Date, but in no event shall the Minimum
Rent for the Renewal Term be less than the Minimum Rent, payable in the last
month of the Term of this Lease prior to the Expiration Date. The option granted
herein is personal to Lessee.

                (b) Fair Market Rental. If Lessee exercises the right to extend
the Term then the Minimum Rent shall be adjusted to equal ninety-five percent
(95%) of the fair market rental for the Premises as of the date of the
commencement of the Renewal Term, pursuant to the procedures hereinafter set
forth. The term "fair market rental" means the Minimum Rent chargeable for the
Leased Premises based upon the following factors applicable to the Leased
Premises or any comparable premises:

                        (i) Rental rates being charged for comparable premises
in the same geographical location.

                        (ii) The relative locations of the comparable premises.

                        (iii) Improvements, or allowances provided for
improvements, or to be provided.

                        (iv) Rental adjustments, if any, or rental concessions.

                        (v) Services and utilities provided or to be provided.

                        (vi) Use limitations or restrictions.

                        (vii) Any other relevant Lease terms or conditions.

The fair market rental evaluation may include provision for further rent
adjustments during the Renewal Term in question if such adjustments are commonly
required in the market place for similar types of leases.

                (c) Determination of Fair Market Rental. Upon exercise of the
right to extend the Term, and included within the Notice of Exercise, Lessee
shall notify Lessor of its opinion of fair market rental as above defined for
the Renewal Term. If Lessor disagrees with Lessee's opinion of the fair market
rental, it shall so notify Lessee ("Lessor's Value Notice") within thirty (30)
days after receipt of Lessee's Notice of Exercise. If the parties are unable to
resolve their differences within thirty (30) days thereafter, either party may
apply for Arbitration as provided below. If neither party applies for
Arbitration within ten (10) days after receipt by Lessee of Lessor's Value
Notice, Lessee shall be bound to the fair market rental



                                      -11-
   14

stated in Lessor's Value Notice. Should either party elect to arbitrate, and if
the arbitration is not concluded before the commencement of the Renewal Term,
Lessee shall pay Minimum Rent to Lessor in an amount equal to ninety-five
percent (95%) of the fair market rental set forth in Lessor's Value
Notice, until the fair market rental is determined in accordance with the
arbitration provisions hereof ("Arbitration"). If the fair market rental as
determined by Arbitration differs from that stated in Lessor's Value Notice,
then any adjustment required to correct the amount previously paid by Lessee
shall be made by payment by the appropriate party within thirty (30) days after
the determination of fair market rental by Arbitration has been concluded, as
provided herein. Lessee shall be obligated to make payment during the entire
Renewal Term of the Minimum Rent determined in accordance with the Arbitration
procedures hereunder.

                (d) Venue. In the event either party seeks Arbitration of fair
market rental under the provisions hereof for the Renewal Term, the other party
shall be bound to submit the matter for determination by Arbitration. The
Arbitration shall be conducted and determined in the City and County of San
Francisco.

                (e) Demand for Arbitration. A party demanding Arbitration
hereunder shall make its demand in writing ("Demand Notice") within ten (10)
days after service of Lessor's Value Notice.

                (f) Arbitration. Within ten (10) days after service of a Demand
Notice, Lessor and Lessee each shall appoint a real estate appraiser
("Arbitrator") who shall be a member of the American Institute of Real Estate
Appraisers ("AIREA"), or real estate professionals qualified by appropriate
training and experience, who shall have at least ten (10) years experience in
appraising the rent for commercial office properties in the San Francisco South
of Market and financial districts, and such Arbitrators shall each determine the
fair market monthly rental. Such Arbitrators shall, within sixty (60) days after
their appointment, complete their appraisals and submit their appraisal reports
to Lessor and Lessee. The Arbitrators shall have the right to consult experts
and competent authorities with factual information or evidence pertaining to the
determination of fair market monthly rental, but any such consultation shall be
made in the presence of both parties with a full right to cross-examine. If the
fair market monthly rental established in the two (2) appraisals varies by five
percent (5%) or less of the higher rental, the average of the two shall be
controlling and the two (2) Arbitrators shall have an additional ten (10) days
in an attempt to mutually agree on the method of rental adjustments for the
Renewal Term. If said fair market monthly rental varies by more than five
percent (5%) of the higher rental or the method of rental adjustments could not
be mutually agreed to during such additional ten (10) day period, said
Arbitrators, within ten (10) days after submission of the last appraisal, shall
appoint a third Arbitrator who shall have the same qualifications as the initial
two Arbitrators. Such third Arbitrator shall, within twenty (20) business days
after appointment, determine by appraisal the fair market monthly rental, taking
into account the same factors referred to above, and submit an appraisal report
to Lessor and Lessee. If a third Arbitrator is appointed to determine the fair
market rental, the fair market rental determined by the third party Arbitrator
shall be controlling, unless it is less than that set forth in the lower
appraisal previously obtained, in



                                      -12-
   15

which case the value set forth in said lower appraisal shall be controlling, or
unless it is greater than that set forth in the higher appraisal previously
obtained, in which case the rental set forth in said higher appraisal shall be
controlling. If either Lessor or Lessee fails to appoint an Arbitrator, or if an
Arbitrator appointed by either of them fails, after appointment, to submit an
appraisal within the required period in accordance with the foregoing, the
appraisal submitted by the Arbitrator properly appointed and timely submitting
the appraisal shall be controlling. If the two Arbitrators appointed by Lessor
and Lessee are unable to agree upon a third Arbitrator within the required
period in accordance with the foregoing, application shall be made within twenty
(20) days thereafter by either Lessor or Lessee to the AIREA, which shall
appoint a member of said institute willing to serve as Arbitrator.

                (g) Decision. The appraisal thus determined shall constitute a
final arbitration decision which is binding upon the parties, absent fraud or
gross error. The Arbitrators shall render a decision and award in writing, with
counterpart copies to each party and judgment thereon may be entered in any
court of competent jurisdiction.

                (h) Successor; Fees and Expenses. In the event of failure,
refusal, or inability of an Arbitrator to act in a timely manner, a successor
shall be appointed in the same manner as such Arbitrator was first chosen
hereunder. The fees and expenses of an Arbitrator and any administrative hearing
fee, if any, shall be divided equally between the parties. Each party shall bear
its own attorneys' fees and other expenses including fees for witnesses in
presenting evidence.

                             5. PRE-TERM POSSESSION

        5.1 CONDITIONS OF ENTRY. In the event the Leased Premises are to be
constructed or remodeled by Lessor, Lessor may notify Lessee when the Leased
Premises are ready for Lessee's fixturing or Lessee's Work, which may be prior
to substantial completion of the Leased Premises by Lessor. Lessee may thereupon
enter the Leased Premises for such purposes at its own risk, to make such
improvements as Lessee shall have the right to make, to install fixtures,
supplies, inventory and other property. Lessee agrees that it shall not in any
way interfere with the progress of Lessor's Work by such entry. Should such
entry prove an impediment to the progress of Lessor's Work, in Lessor's
judgment, Lessor may demand that Lessee forthwith vacate the Leased Premises
until such time as Lessor's work is complete, and Lessee shall immediately
comply with this demand.

        During the course of any pre-term possession, whether such pre-term
period arises because of an obligation of construction on the part of Lessor, or
otherwise, all terms and conditions of this Lease, except for rent and
commencement, shall apply, particularly with reference to indemnity by Lessee of
Lessor under Article 17 herein for all occurrences within or about the Leased
Premises.



                                      -13-
   16

                       6. DELAY IN DELIVERY OF POSSESSION

        6.1 DELAY. If Lessor, for any reason whatsoever, cannot deliver
possession of the Leased Premises to Lessee at the Estimated Delivery Date, this
Lease shall not be void or voidable, nor shall Lessor be liable for any loss or
damage resulting therefrom, but in that event, there shall be no accrual of Rent
for the period between the Estimated Delivery Date and the Commencement Date. In
the event Lessor cannot deliver the Leased Premises to Lessee within six (6)
months beyond the Estimated Delivery Date, then Lessor may elect to terminate
this Lease. In the event the Leased Premises are not delivered within three (3)
months from the date of execution, this Lease shall be terminable at the option
of the Lessee at any time thereafter, but prior to Delivery, upon five (5) days
prior written notice to Lessor.

                                7. MINIMUM RENT

        7.1 PAYMENT. Lessee shall pay to Lessor at the address specified in
Section 1.1, or at such other place as Lessor may otherwise designate, as
"MINIMUM RENT" for the Leased Premises the amount specified in Section 1.5(A)
hereof, payable in advance on the first day of each month during the Term. If
the Term commences on other than the first day of a calendar month, the rent for
the first partial month shall be prorated accordingly.

        All payments of Minimum Rent (including sums defined as rent in Section
2.1) shall be in lawful money of the United States, and payable without
deduction, setoff, offset, counterclaim, recoupment, notice or demand.

        7.2 ADVANCE RENT. The amount specified in Section 1.5(B) hereof is paid
herewith to Lessor upon execution of this Lease as advance rent, receipt of
which is hereby acknowledged, provided, however, that such amount shall be held
by Lessor as a "SECURITY DEPOSIT" pursuant to Section 10.1 hereof until it is
applied by Lessor to the first Minimum Rent due hereunder.

        7.3 LATE PAYMENT. If during any twelve (12) month period Lessee defaults
hereunder (beyond the applicable cure period) on more than one occasion to make
any payment of Minimum Rent to Lessor, then Lessor may, by giving written notice
to Lessee, require that Lessee pay the Minimum Rent to Lessor quarterly in
advance.

                               8. ADDITIONAL RENT

        8.1 PERSONAL PROPERTY, GROSS RECEIPTS, LEASING TAXES. This Section 8.1
is intended to deal with impositions or taxes directly attributed to Lessee or
this transaction, as distinct from taxes attributable to the Complex which are
to be allocated among various lessees and others and which are included in
Operating Costs. In addition to the Minimum Rent and additional charges to be
paid by Lessee hereunder, Lessee shall reimburse Lessor upon demand for any and
all taxes required to be paid by Lessor (excluding state, local or federal
personal and corporate income taxes measured by the income of Lessor from all



                                      -14-
   17

sources, and estate and inheritance taxes) whether or not now customary or
within the contemplation of the parties hereto:

                (a) Upon, measured by, or reasonably attributable to the cost or
value of Lessee's equipment, furniture, fixtures and other personal property
located in the Leased Premises or by the cost or value of any Tenant
Improvements made in or to the Leased Premises by or for Lessee, regardless of
whether title to such improvements shall be in Lessee or Lessor;

                (b) Upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Lessee of the
Leased Premises or any portion thereof to the extent such taxes are not included
as Real Estate Taxes as defined in Section 2.1;

                (c) Upon this transaction or any document to which Lessee is a
party creating or transferring an interest or an estate in the Leased Premises;
and

                (d) In connection with any testing, investigation, abatement,
remediation, removal, transportation and/or disposal of any Hazardous Materials
by Lessee (or by Lessor, pursuant to any provision of this Lease granting to
Lessor the right to do any of the foregoing and to bill Lessee therefor).

        For purposes of this Section 8.1, the term "taxes" shall include, but
not be limited to, any fees, charges, fines, penalties and costs (including,
without limitation, permit, approval or licensing fees, charges or costs).

        In the event that it shall not be lawful for Lessee so to reimburse
Lessor, the Minimum Rent payable to Lessor under this Lease shall be increased
to net Lessor (i.e., after payment of the Taxes for which Lessor may not receive
reimbursement from Lessee) the amount of Minimum Rent plus reimbursement for
Taxes which would have been receivable by Lessor if such tax had not been
imposed. All Taxes payable by Lessee under this Section shall be deemed to be,
and shall be paid as, additional Rent.

        8.2 OPERATING COSTS.

                (a) Lessee shall pay to Lessor, as additional Rent, in
accordance with Section 8.3 hereof, one hundred percent (100%) of the
electricity and other separately metered utility charges for the Leased
Premises. During each calendar year or part thereof subsequent to the Base
Expense Year, Lessee shall also pay to Lessor as additional Rent, in accordance
with Section 8.3 hereof, Lessee's Proportionate Share of the total dollar
increase, if any, in all Operating Costs for such calendar year over the
Operating Costs for the Base Expense Year. During each tax year (July 1 through
June 30) or part thereof subsequent to the Base Tax Year ending June 30, Lessee
shall pay to Lessor as additional Rent, in accordance with Section 8.3 hereof,
Lessee's Proportionate Share of the total dollar increases, if any, in all Real
Estate Taxes for such tax year over the Real Estate Taxes for the Base Tax Year.
Lessee's Proportionate Share shall be calculated on the basis of the greater of
(i) actual Operating



                                      -15-
   18

Costs; or (ii) as if the Complex were at least ninety-five percent (95%)
occupied and operational for the whole of such Lease Year.

                (b) If any Lease Year of less than twelve (12) months is
included within the Term, the amount payable by Lessee for such period shall be
prorated on a per diem basis (utilizing a three hundred sixty (360) day year).

                (c) Lessor shall exercise good faith efforts to equitably
allocate those Operating Costs that are incurred for the direct benefit of
specific types of lessees or users in the Complex to and among those specific
lessees and/or users ("Cost Pools"). Such Cost Pools may include, but shall not
be limited to, the office and showroom space, the second floor Atrium, the lower
level exhibition hall, and any retail space lessees of the Complex. Lessor's
determination of such allocations shall be made in a manner consistent with the
terms and conditions of this Section 8.2(c) and shall be subject to
reconciliation per Section 8.3(c). Lessee acknowledges that the allocation of
Operating Costs among Cost Pools does not affect all Operating Costs and is
limited to specific items which Lessor determines, in good faith, should be
shared among the lessees and/or users of a certain Cost Pool.

        8.3 METHOD OF PAYMENT. Any additional Rent payable by Lessee under
Sections 8.1 and 8.2 hereof shall be paid as follows, unless otherwise provided:

                (a) During the Term, Lessee shall pay to Lessor monthly in
advance with its payment of Minimum Rent, one-twelfth (1/12) of the amount of
such additional Rent as estimated by Lessor in advance, in good faith, to be due
from Lessee.

                (b) Annually, as soon as is reasonably possible after the
expiration of each Lease Year, Lessor shall prepare in good faith and deliver to
Lessee a comparative statement, which statement shall be conclusive between the
parties hereto, setting forth (1) the Operating Costs for such Lease Year, and
(2) the amount of additional Rent as determined in accordance with the
provisions of this Article 8.

                (c) If the aggregate amount of such estimated additional Rent
payments made by Lessee in any Lease Year should be less than the additional
Rent due for such year, then Lessee shall pay to Lessor as additional Rent
within thirty (30) days following written demand the amount of such deficiency.
If the aggregate amount of such additional Rent payments made by Lessee in any
Lease Year of the Term should be greater than the additional Rent due for such
year, then should Lessee not be otherwise in default hereunder, the amount of
such excess will be applied by Lessor to the next succeeding installments of
such additional Rent due hereunder; and if there is any such excess for the last
year of the Term, the amount thereof will be refunded by Lessor to Lessee,
provided Lessee is not otherwise in default under the terms of this Lease.



                                      -16-
   19

                           9. ACCORD AND SATISFACTION

        9.1 ACCEPTANCE OF PAYMENT. No payment by Lessee or receipt by Lessor of
a lesser amount of Minimum Rent or any other sum due hereunder, shall be deemed
to be other than on account of the earliest due rent or payment, nor shall any
endorsement or statement on any check or any letter accompanying any such check
or payment be deemed an accord and satisfaction, and Lessor may accept such
check or payment without prejudice to Lessor's right to recover the balance of
such rent or payment or pursue any other remedy available in this Lease, at law
or in equity. Lessor may accept any partial payment from Lessee without
invalidation of any contractual notice required to be given herein (to the
extent such contractual notice is required) and without invalidation of any
notice required to be given pursuant to California Code of Civil Procedure
Section 1161, et seq., or of any successor statute thereto.

                              10. SECURITY DEPOSIT

                                (NOT APPLICABLE)

                                     11. USE

        11.1 PERMITTED USE.

                (a) The Leased Premises may be used and occupied only for the
purposes specified in Section 1.7 hereof, and for no other purpose or purposes.
Lessee shall promptly comply with all laws, ordinances, orders and regulations
affecting Lessee's use and occupancy of the Leased Premises.

                (b)

                        (i) Lessee acknowledges that under the current zoning of
the Building office uses are restricted. Lessee further acknowledge that the
Lessor has entered into this Lease in reliance upon the following covenant of
Lessee: Lessee covenants that, if for any reason it is determined by the City
and County of San Francisco Planning Department ("Planning Department") that the
percentage of the Leased Premises designated as "Office" as defined in Section
313.1(24) or 314.1(p) of the San Francisco City Planning Code, or equivalent
successor ordinance, (the "Office Use"), exceeds twenty percent (20%) of
Lessee's Adjusted Rentable Area (the "Permitted Office Use") (and the amount of
Office Use in the Building is in excess of 269,680 square feet), Lessee shall
pay to Lessor the sum of $8.05 (the "In-Lieu Fee") for each rentable square foot
determined by the Planning Department to be Office Use in excess of the
Permitted Office Use. The payment shall be made to the Lessor within ten (10)
days after receipt of billing therefor and as often as Lessor is legally
required to pay the same to the appropriate governmental agency. Lessor, at
Lessor's option, may require Lessee to reduce the number of square feet it is
utilizing for office purposes to twenty percent (20%) or less of Lessee's
Adjusted Rentable Area. Lessee shall reconfigure its space to reduce office use
accordingly within ten (10) days of written notice from Lessor.



                                      -17-
   20

                (ii) Nothing herein shall permit the Lessee to build space for
Office Use in the Leased Premises in excess of that which is legally permissible
under the laws of the City and County of San Francisco and approved by Lessor.
If, as a result of Lessee's addition of Office Use, as specified in this
subparagraph (b), a Planning Commission or other City hearing is required, the
Office Uses shall not be implemented until the successful completion of any such
procedure and Lessee has agreed to pay Lessor for costs which Lessor incurs as a
result thereof.

                (iii) In event that the Leased Premises are not approved by the
Planning Department as having less than the Permitted Office Use within thirty
(30) days from date of execution hereof and Lessor has not waived the provisions
of this Subsection 11.1 (b), then, in that event, Lessee may terminate this
Lease upon thirty (30) days prior written notice to the Lessor further provided
that at the end of such thirty (30) day notice period, the Planning Department
approval has not been achieved.

        11.2 SAFES, HEAVY EQUIPMENT. Lessee shall not place a load upon any
floor of the Leased Premises which exceeds fifty (50) pounds per square foot
live load. Lessor reserves the right to prescribe the weight and position of all
safes and heavy installations which Lessee wishes to place in the Leased
Premises so as properly to distribute the weight thereof, or to require plans
prepared by a qualified structural engineer at Lessee's sole cost and expense
for such heavy objects. Notwithstanding the foregoing, Lessor shall have no
liability for any damage caused by the installation of such heavy equipment or
safes.

        11.3 MACHINERY. Business machines and mechanical equipment belonging to
Lessee which cause noise and/or vibration that may be transmitted to the
structure of the Building or to any other leased space to such a degree as to be
objectionable to Lessor or to any Lessees in the Complex shall be placed and
maintained by the party possessing the machines or equipment, at such party's
expense, in settings of cork, rubber or spring type noise and/or vibration
eliminators, and Lessee shall take such other measures as needed to eliminate
vibration and/or noise. If the noise or vibrations cannot be eliminated, Lessee
must remove such equipment within ten (10) days following written notice from
Lessor.

        11.4 HAZARDOUS ACTIVITIES. Lessee shall not engage in any activities or
permit to be kept, used, or sold in or about the Leased Premises, any article
which may be prohibited by the standard form of fire insurance policies. Lessee
shall, at its sole cost and expense, comply with any and all requirements,
pertaining to the Leased Premises, of any insurance organization or company,
necessary for the maintenance of reasonable fire and public liability insurance
covering the Building and appurtenances.

                    12. COMPLIANCE WITH LAWS AND REGULATIONS

        12.1 LESSEE'S OBLIGATIONS. Lessee, shall, at its sole cost and expense,
comply with all of the requirements of all municipal, state and federal
authorities now in force, or which may hereafter be in force, pertaining to
Lessee's use of the Leased Premises, and shall faithfully observe in the use of
the Leased Premises all municipal ordinances and state and federal



                                      -18-
   21

statutes and regulations now in force or which may hereafter be in force,
including, without limitation, Environmental Laws (as hereinafter defined), and
the Americans with Disabilities Act, 42 U.S.C. Section 12101-12213 (and any
rules, regulations, restrictions, guidelines, requirements or publications
promulgated or published pursuant thereto, collectively herein referred to as
the "ADA"), whether or not any of the foregoing were foreseeable or
unforeseeable at the time of the execution of this Lease. The judgment of any
court of competent jurisdiction, or the admission of Lessee in any action or
proceeding against Lessee, whether Lessor be a party thereto or not, that any
such requirement, ordinance, statute or regulation pertaining to the Leased
Premises has been violated, shall be conclusive of that fact as between Lessor
and Lessee. Within five (5) days after receipt of notice or knowledge of any
violation or alleged violation of any Environmental Law(s), and/or the ADA
pertaining to the Complex, any governmental or regulatory proceedings,
investigations, sanctions and/or actions threatened or commenced with respect to
any such violation or alleged violation, and any claim made or commenced with
respect to such violation or alleged violation, Lessee shall notify Lessor
thereof and provide Lessor with copies of any written notices or information in
Lessee's possession. Lessee shall make, at Lessee's sole cost and expense, any
and all alterations, improvements or non-structural changes that are required by
laws, statutes, ordinances and governmental regulations or requirements as a
result of Lessee's specific use of the Premises or any alterations, additions or
improvements made by Lessee. If any alterations, improvements or structural
changes are required to be made to the Building in general or are applicable to
substantially all lessees in the Building without regard to Lessee's specific
use of the Leased Premises or any alterations, additions or improvements made by
Lessee, then Lessor shall make such alterations, additions or improvements and
the costs thereof shall be included within Operating Costs pursuant to Section
2.1.

        12.2 CONDITION OF LEASED PREMISES. Subject to Lessor's Work, if any, as
referred to in Exhibit D to this Lease, Lessee hereby accepts the Leased
Premises in the condition existing as of the date of occupancy, subject to all
applicable zoning, municipal, county and state laws, ordinances, rules,
regulations, orders, restrictions of record, and requirements in effect during
the Term or any part of the Term hereof regulating the Leased Premises, and
without representation, warranty or covenant by Lessor, express or implied, as
to the condition, habitability or safety of the Leased Premises, the suitability
or fitness thereof for their intended purposes, or any other matter. Lessor
covenants that the Leased Premises delivered to Lessee shall be in material
compliance with applicable local and state building codes and ordinances in such
manner that any violations or conditions of non-compliance will not result in
the inability of Lessee to be issued a building permit for Lessee's Work
pursuant to Exhibit D ("Code Compliance"). Notwithstanding anything to the
contrary contained herein, Lessee acknowledges that certain applicable code
requirements and construction conditions affect the Lease Premises, including
but not limited to: (i) prohibition of floor/ceiling coring or penetration, due
to a post-tension floor slab structural system; and (ii) Lessor will be
performing additional construction to the Premises during construction of
Lessee's Work, including the addition of two (2) new passenger elevators.



                                      -19-
   22

        12.3 HAZARDOUS MATERIALS.

                (a) Hazardous Materials Defined. As used herein, the term
"HAZARDOUS MATERIALS" shall mean any wastes, materials or substances (whether in
the form of liquids, solids or gases, and whether or not air-borne), which are
or are deemed to be pollutants or contaminants, or which are or are deemed to be
hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or
injurious, or which present a risk, to public health or to the environment, or
which are or may become regulated by or under the authority of any applicable
local, state or federal laws, judgments, ordinances, orders, rules, regulations,
codes or other governmental restrictions, guidelines or requirements, any
amendments or successor(s) thereto, replacements thereof or publications
promulgated pursuant thereto (collectively "ENVIRONMENTAL LAWS"), including,
without limitation, any waste, material or substance which is:

                        (i) defined as "hazardous waste," "extremely hazardous
waste," or "restricted hazardous waste" under Sections 25115, 25117 or 25122.7,
or listed pursuant to Section 25140, of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law);

                        (ii) defined as a "hazardous substance" under Section
25316 of the California Health and Safety Code, Division 20, Chapter 6.8
(Carpenter-Presley-Tanner Hazardous Substance Account Act);

                        (iii) defined as a "hazardous material," "hazardous
substance," or "hazardous waste" under Section 25501 of the California Health
and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response
Plans and Inventory);

                        (iv) defined as a "hazardous substance" under Section
25281 of the California Health and Safety Code, Division 20, Chapter 6.7
(Underground Storage of Hazardous Substances);

                        (v) defined as a "waste" or "hazardous substance" under
Section 13050 of the California Water Code, Division 7, Chapter 2
(Porter-Cologne Water Quality Control Act);

                        (vi) listed as a chemical known to the State of
California to cause cancer or reproductive toxicity pursuant to Section 25249.8
of the California Health and Safety Code, Division 20, Chapter 6.6 (Safe
Drinking Water and Toxic Enforcement Act of 1986);

                        (vii) defined as a "hazardous substance" or "pollutant
or contaminant" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Sections 9601 et seq.;



                                      -20-
   23

                        (viii) listed as an "extremely hazardous substance,"
"hazardous chemical," or "toxic chemical" pursuant to the Emergency Planning
and Community Right-to-Know Act of 1986,42 U.S.C. Sections 11001 et seq.;

                        (ix) listed as a "hazardous substance" in the United
States Department of Transportation Table, 49 C.F.R. 172.101 and amendments
thereto, or by the Environmental Protection Agency (or any successor agency) in
40 C.F.R. Part 302 and amendments thereto;

                        (x) defined, listed or designated by regulations
promulgated pursuant to any Environmental Law; or

                        (xi) any of the following: pesticide; flammable
explosive; petroleum, including crude oil or any fraction thereof; asbestos or
asbestos-containing material; polychlorinated biphenyl; radioactive material; or
urea formaldehyde.

        In addition to the foregoing, the term Environmental Laws shall be
deemed to include, without limitation, local, state and federal laws, judgments,
ordinances, orders, rules, regulations, codes and other governmental
restrictions, guidelines and requirements, any amendments and successors
thereto, replacements thereof and publications promulgated pursuant thereto,
which deal with or otherwise in any manner relate to, air or water quality, air
emissions, soil or ground conditions or other environmental matters of any kind.

                (b) Use, etc. of Hazardous Materials. Lessee agrees that during
the Term, there shall be no use, presence, disposal, storage, generation,
leakage, treatment, manufacture, import, handling, processing, release or
threatened release of Hazardous Materials on, from or under the Leased Premises
except to the extent that, and in accordance with such conditions as, Lessor may
have previously approved in writing. The use, presence, disposal, storage,
generation, leakage, treatment, manufacture, import, handling, processing,
release or threatened release of Hazardous Materials are sometimes hereinafter
individually or collectively referred to as "HAZARDOUS USE." It is further
agreed that Lessee shall be entitled to use and store only those Hazardous
Materials which are necessary for Lessee's business, provided that such usage
and storage is in full compliance with Environmental Laws, and all judicial and
administrative decisions pertaining thereto. Lessee shall not be entitled to
install any tanks under, on or about the Leased Premises for the storage of
Hazardous Materials without the express written consent of Lessor, which may be
given or withheld in Lessor's sole arbitrary judgment. For the purposes of this
Section 12.3, the term Hazardous Use shall include Hazardous Use(s) on, from or
under the Leased Premises by any and all lessees, occupants, and/or users of the
Leased Premises (except Lessor), whether known or unknown to Lessee, and whether
occurring and/or existing during or prior to the commencement of the Term.

                (c) Hazardous Materials Report; When Required. Lessee shall
submit to Lessor a written report with respect to Hazardous Materials ("REPORT")
in the form prescribed in subparagraph (d) below on the following dates:



                                      -21-
   24

                        (i) Within ten (10) days after the Commencement Date,

                        (ii) At any time within ten (10) days after written
request by Lessor, and

                        (iii) At any time when there has been or is planned any
condition which constitutes or would constitute a change in the information
submitted in the most recent Report, including any notice of violation as
referred to in subparagraph (d)(vii) below.

                (d) Hazardous Materials Report; Contents. The Report shall
contain, without limitation, the following information:

                        (i) Whether on the date of the Report and (if
applicable) during the period since the last Report there has been any Hazardous
Use on, from or under the Leased Premises.

                        (ii) If there was such Hazardous Use, the exact identity
of the Hazardous Materials, the dates upon which such materials were brought
upon the Leased Premises, the dates upon which the Hazardous Materials were
removed therefrom, and the quantity, location, use and purpose thereof.

                        (iii) If there was such Hazardous Use, any governmental
permits maintained by Lessee with respect to such Hazardous Materials, the
issuing agency, original date of issue, renewal dates (if any) and expiration
date. Copies of any such permits and applications therefor shall be attached.

                        (iv) If there was such Hazardous Use, any governmental
reporting or inspection requirements with respect to such Hazardous Materials,
the governmental agency to which reports are made and/or which conducts
inspections, and the dates of all such reports and/or inspections (if
applicable) since the last Report. Copies of any such Reports shall be attached.

                        (v) If there was such Hazardous Use, identification of
any operation or business plan prepared for any government agency with respect
to Hazardous Use.

                        (vi) Any liability insurance carried by Lessee with
respect to Hazardous Materials, the insurer, policy number, date of issue,
coverage amounts, and date of expiration. Copies of any such policies or
certificates of coverage shall be attached.

                        (vii) Any notices of violation of Environmental Laws,
written or oral, received by Lessee from any governmental agency since the last
Report, the date, name of agency, and description of violation. Copies of any
such written notices shall be attached.

                        (viii) Any knowledge, information or communication which
Lessee has acquired or received relating to (x) any enforcement, cleanup,
removal or other governmental or regulatory action threatened or commenced
against Lessee or with respect to



                                      -22-
   25

the Leased Premises pursuant to any Environmental Laws; (y) any claim made or
threatened by any person or entity against Lessee or the Leased Premises on
account of any alleged loss or injury claimed to result from any alleged
Hazardous Use on or about the Leased Premises; or (z) any report, notice or
complaint made to or filed with any governmental agency concerning any Hazardous
Use on or about the Leased Premises. The Report shall be accompanied by copies
of any such claim, report, complaint, notice, warning or other communication
that is in the possession of or is available to Lessee.

                        (ix) Such other pertinent information or documents as
are requested by Lessor in writing.

Notwithstanding the foregoing, the Report need not describe Lessee's normal
business use or the presence upon the Leased Premises of reasonable amounts of
cleaning supplies or materials and supplies for Lessee's office equipment.

                (e) Release of Hazardous Materials: Notification and Cleanup. If
at any time during the Term Lessee knows or believes that any release of any
Hazardous Materials has come or will come to be located upon, about or beneath
the Leased Premises, then Lessee shall immediately, either prior to the release
or following the discovery thereof by Lessee, give verbal and follow-up written
notice of that condition to Lessor. Lessee covenants to investigate, clean up
and otherwise remediate any release of Hazardous Materials caused by Lessee or
Lessee's agents, contractors or invitees at Lessee's cost and expense; such
investigation, clean-up and remediation shall be performed only after Lessee has
obtained Lessor's written consent, which shall not be unreasonably withheld;
provided, however, that Lessee shall be entitled to respond immediately to an
emergency without first obtaining Lessor's written consent. All clean-up and
remediation shall be done in compliance with Environmental Laws and to the
reasonable satisfaction of Lessor. Notwithstanding the foregoing, whether or not
such work is prompted by the foregoing notice from Lessee or is undertaken by
Lessor for any other reason whatsoever, Lessor shall have the right, but not the
obligation, in Lessor's sole and absolute discretion, exercisable by written
notice to Lessee at any time, to undertake within or outside the Leased Premises
all or any portion of any investigation, clean-up or remediation with respect to
Hazardous Materials (or, once having undertaken any of such work, to cease same,
in which case Lessee shall perform the work), all at Lessee's cost and expense
provided that the Hazardous Materials were introduced by Lessee or its agents,
contractors or invitees, which shall be paid by Lessee as additional rent within
ten (10) days after receipt of written request therefor by Lessor (and which
Lessor may require to be paid prior to commencement of any work by Lessor). No
such work by Lessor shall create any liability on the part of Lessor to Lessee
or any other party in connection with such Hazardous Materials or constitute an
admission by Lessor of any responsibility with respect to such Hazardous
Materials. Lessee shall not enter into any settlement agreement, consent decree
or other compromise with respect to any claims relating to any Hazardous
Materials in any way connected to the Leased Premises without first (i)
notifying Lessor of Lessee's intention to do so and affording Lessor the
opportunity to participate in any such proceedings, and (ii) obtaining Lessor's
written consent.



                                      -23-
   26

            (f) Inspection and Testing by Lessor. Lessor shall have the right at
all times during the term to (i) inspect the Leased Premises, as well as
Lessee's books and records, and to (ii) conduct tests and investigations to
determine whether Lessee is in compliance with the provisions of this Section.
Except in case of emergency, Lessor shall give reasonable notice to Lessee
before conducting any inspections, tests, or investigations. The cost of all
such inspections, tests and investigations shall be borne by Lessee, if there
has been a Hazardous Use by Lessee, or its agents, contractors or invitees.
Neither any action nor inaction on the part of Lessor pursuant to this Section
12.3(f) shall be deemed in any way to release Lessee from, or in any way modify
or alter, Lessee's responsibilities, obligations, and/or liabilities incurred
pursuant to Section 12.3 hereof.

        12.4 INDEMNITY. Lessee shall indemnify, hold harmless, and, at Lessor's
option (with such attorneys as Lessor may approve in advance and in writing),
defend Lessor and Lessor's officers, directors, shareholders, trustees,
partners, employees, contractors, agents and mortgagees or other lien holders,
from and against any and all claims, demands, expenses, actions, judgments,
damages (whether consequential, direct or indirect, known or unknown, foreseen
or unforeseen), penalties, fines, liabilities, losses of every kind and nature
(including, without limitation, property damage, diminution in value of Lessor's
interest in the Leased Premises or the Complex, damages for the loss or
restriction on use of any space or amenity within the Leased Premises or the
Complex, damages arising from any adverse impact on marketing space in the
Complex, sums paid in settlement of claims and any costs and expenses associated
with injury, illness or death to or of any person), suits, administrative
proceedings, costs and fees, including, but not limited to, attorneys' and
consultants' fees and expenses, and the costs of cleanup, remediation, removal
and restoration (all of the foregoing being hereinafter sometimes collectively
referred to as "LOSSES"), arising from or related to any violation by Lessee of
any of the requirements, ordinances, statutes, regulations or other laws
referred to in this Article, including, without limitation, Environmental Laws,
any breach of the provisions of this Article, or any Hazardous Use on, about or
from the Leased Premises caused by Lessee, or its agents, contractors or
invitees.



                                      -24-
   27

        12.5 RELEASE AND ASSUMPTION OF RISK.

            (a) Lessee, for itself, and its officers, directors, shareholders,
partners, agents, contractors, attorneys, brokers, servants, employees,
sublessees, lessees, invitees, concessionaires, licensees and representatives
(hereinafter referred to as "RELEASORS"), hereby waives, releases, acquits and
forever discharges Lessor and its officers, directors, trustees, shareholders,
partners, agents, contractors, attorneys, brokers, servants, employees, lessees,
invitees, licensees and representatives (hereinafter referred to as "RELEASEES")
of and from any and all Losses, which are in any way connected with, based upon,
related to or arising out of (i) any Hazardous Use or Hazardous Materials on or
about the Leased Premises or the Complex, (ii) any violation by or relating to
the Leased Premises or the Complex (or the ownership, use, condition, occupancy
or operation thereof), or by the Releasors or any other persons or entities, of
any Environmental or Wetlands Laws affecting the Leased Premises or the Complex,
or (iii) any investigation, inquiry, order, hearing, action or other proceeding
by or before any governmental agency or any court in connection with any of the
matters referred to in clauses (i) or (ii) above (collectively, the "RELEASED
MATTERS"), except to the extent caused by the gross negligence or willful
misconduct of the Releasees. Releasors hereby expressly assume any and all risk
of Losses based on or arising out of or pertaining to the Released Matters.

            (b) Lessee agrees, represents and warrants that the Released Matters
are not limited to matters which are known, disclosed or foreseeable, and Lessee
waives any and all rights and benefits which are conferred upon Lessee by virtue
of the provisions of Section 1542 of the California Civil Code, which provides:

            A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
            NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
            THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
            SETTLEMENT WITH THE DEBTOR.

            (c) Lessee agrees, represents and warrants that it is familiar with,
has read, understands, and has consulted legal counsel of its choosing with
respect to California Civil Code Section 1542 and Lessee realizes and
acknowledges that factual matters now unknown to it may have given, or may
hereinafter give, rise to Losses which are presently unknown, unanticipated and
unsuspected. Lessee further agrees, represents and warrants that the provisions
of this Section 12.5 have been negotiated and agreed upon in light of that
realization and that Lessee nevertheless hereby intends to release, discharge
and acquit the Releasees from any such unknown Losses which are in any way
related to this Lease or the Complex.

        12.6 INDOOR AIR QUALITY. To prevent the generation, growth or deposit of
any mold, mildew, bacillus, virus, pollen or other microorganism (collectively,
"BIOLOGICALS") and the deposit, release or circulation of any indoor
contaminants, including, but not limited to, emissions from paint, carpet and
drapery treatments, cleaning, maintenance and construction



                                      -25-
   28

materials and supplies, pesticides, pressed wood products, insulation, tobacco
and other materials and products (collectively with Biologicals,
"CONTAMINANTS"), that could adversely affect the health, safety or welfare of
any tenant, employee, or other occupant of the Complex or their invitees (each,
an "OCCUPANT"), Lessee shall, at Lessee's sole cost and expense, at all times
during the Term (i) maintain, operate and repair the HVAC system servicing the
Leased Premises (to the extent that Lessee is otherwise obligated to perform
such maintenance, operation and repair pursuant to this Lease) in a manner
consistent with preventing or minimizing the generation, growth, circulation,
release or deposit of any Contaminants, (ii) maintain the humidity level and the
air exchange rate within the Leased Premises (to the extent that Lessee has
control thereof) at a level recommended to prevent or minimize the growth of any
Biologicals and the circulation of any other Contaminants, (iii) maintain,
operate and repair the Leased Premises in such a manner to prevent or minimize
the accumulation of stagnant water and moisture in planters, kitchen appliances
and vessels, carpeting, insulation, water coolers and any other locations where
stagnant water and moisture could accumulate, and (iv) otherwise maintain,
operate and repair the Leased Premises to prevent the generation, growth,
deposit, release or circulation of any Contaminants. If any governmental entity
or any Occupant alleges that health, safety or welfare has been or could be
adversely affected by any such Contaminants, Lessee shall notify Lessor in
writing within twenty-four (24) hours of the time the allegation is made. Lessor
may then elect to engage the services of an industrial hygiene testing
laboratory (or alternatively or concurrently require Lessee to do the same) to
determine whether the cause of any alleged adverse health effect is or could be
attributable to any Contaminants present within the Leased Premises. If
contaminants are present as a result of Lessee's failure to comply with the
terms of this Section 12.6, Lessee shall be responsible for all such testing
costs and for any consequential damages and costs (including, without
limitation, any third-party claims, loss of rental, remediation, removal and/or
abatement costs, and increases in insurance premiums) resulting from Lessee's
failure to comply in whole or in part with the terms of this Section 12.6. The
indemnity set forth in Section 12.4 above shall apply to Lessee's failure to
comply with any of the terms of this Section.

                            13. SERVICE AND EQUIPMENT

        13.1 CLIMATE CONTROL.

            (a) Lessor shall provide as part of Operating Costs ventilating and
air conditioning ("VAC") to the Leased Premises which meets the design load
standards set forth ("Design Load Standards") on file in the Building Management
Office from 8:00 am. to 6:00 p.m., Monday through Friday and 8:00 a.m. to 1:00
p.m. Saturday (the "CLIMATE CONTROL HOURS") provided that Lessor shall have no
responsibility or liability for failure to supply VAC service when making
repairs, alterations or improvements or when prevented from so doing by strikes
or any cause beyond Lessor's reasonable control. Any VAC provided to the Leased
Premises at Lessee's request after the Climate Control Hours shall be at
Lessee's sole cost and expense in accordance with rate schedules promulgated by
Lessor from time to time. Lessee acknowledges that Lessor has installed in the
Building a system for the purpose of climate control. Initially, the use of fans
to circulate outside air or in



                                      -26-
   29

conjunction with the climate control equipment outside of the Climate Control
Hours shall be charged at $24 per each additional fan, and the use of chillers
outside of the Climate Control Hours shall be charged at $150 per hour, each
prorated among those lessees requiring such additional hours of climate control.
Any use of the Leased Premises which exceeds the Design Load Standards may
require changes or alterations in the system or ducts through which the climate
control system operates. Any changes or alterations so occasioned, if such
changes can be accommodated by Lessor's equipment, shall be made by Lessee at
its cost and expense but only with the written consent of Lessor first had and
obtained, and in accordance with drawings and specifications and by a contractor
first approved in writing by Lessor. If Lessee's use of the Premises exceeds the
Design Load Standards, such excess use may necessitate the re-balancing of the
climate control equipment in the Leased Premises. In such event, the same will
be performed by Lessor at Lessee's expense. Any charges to be paid by Lessee
hereunder shall be due within ten (10) days of receipt of an invoice from
Lessor, which invoice may precede Lessor's expenditure for the benefit of
Lessee.

        13.2 ELEVATOR SERVICE. Lessor shall provide elevator service (which may
be with or without operator at Lessor's option) during normal business hours.
Lessor shall make available at least two elevators on a 24-hour basis during the
entire calendar year.

        13.3 CLEANING PUBLIC AREAS. Lessor shall maintain and keep clean the
street level lobbies, sidewalks, truck dock, public corridors and other public
portions of the Building.

        13.4 REFUSE DISPOSAL. Lessee shall pay Lessor, within ten (10) days of
being billed therefor, for the removal from the Leased Premises and the Building
of such refuse and rubbish of Lessee as shall exceed that ordinarily accumulated
daily in the routine of business office occupancy.

        13.5 JANITORIAL SERVICE. Lessor shall provide cleaning and janitorial
service in and about the Complex and Leased Premises in accordance with Exhibit
J.

        To the extent that Lessee shall require cleaning and/or janitorial
service in excess of that set forth in Exhibit J (hereinafter referred to as
"SPECIAL CLEANING SERVICE") Lessor may, upon reasonable advance notice from
Lessee, elect to furnish such Special Cleaning Service and Lessee agrees to pay
Lessor, within ten (10) days of being billed therefor, Lessor's reasonable
charge for providing such additional service. If Lessor does not elect to
provide said Special Cleaning Service, Lessee may perform or provide for said
Special Cleaning Service, at Lessee's sole cost and expense.

        13.6 INTERRUPTIONS. Lessor does not warrant that any of the services
referred to above or any other services and/or utilities which Lessor may supply
or are supplied will be free from interruption and/or the need for maintenance
and repairs or replacement. Lessee acknowledges that any one or more such
services may be suspended or reduced by reason of repairs, alterations or
improvements necessary to be made, by strikes or accidents, by any cause beyond
the reasonable control of Lessor, or by orders or regulations of any federal,
state, county or municipal authority. In addition, Lessor shall have no
liability for damages arising from, and Lessor does not warrant that Lessee's
use of any Lines will be free from,



                                       -27-
   30

(a) any eavesdropping or wire-tapping by unauthorized parties, (b) any failure
of any Lines to satisfy Lessee's requirements, or (c) any shortages, failures,
variations, interruptions, disconnections, loss or damage caused by
installation, maintenance, replacement, use or removal of Lines by or for other
occupants of the Complex, by any failure of the environmental conditions or the
power supply for the Building to conform to any requirements for the Lines or
any associated equipment or any other problems associated with any Lines by any
other cause.

        Any such interruption or suspension of services shall not be deemed an
eviction or disturbance of Lessee's use and possession of the Leased Premises or
any part thereof, nor render Lessor liable to Lessee for damages by abatement of
Rent or otherwise, nor relieve Lessee of performance of Lessee's obligations
under this Lease; provided, however, in the event any such interruption or
suspension of services continues for a period of six (6) months and such
interruption or suspension makes it impossible for Lessee to conduct its
business in a commercially practicable manner, Lessee shall have the right to
terminate this Lease upon written notice to Lessor within thirty (30) days after
such six (6) month period provided the interruption or suspension is still
continuing when Lessor receives Lessee's notice of cancellation.

        13.7 BUILDING UPGRADE WORK. Lessor has advised Lessee that Lessor may
make certain upgrades and improvements to the Common Areas and central systems
of the Complex ("Building Upgrade Work"). Lessee acknowledges that the
performance of the Building Upgrade Work may result in noise, dust and other
temporary inconveniences or interruptions to the conduct of normal business
activity in the Building. Lessor will utilize reasonable measures to reduce
noise levels associated with the performance of the Building Upgrade Work;
provided, however, the Building Upgrade Work shall in no event constitute a
constructive eviction or serve as a basis for any abatement or reduction in
rent.

                                    14. WASTE

        14.1 WASTE OR NUISANCE. Lessee shall not commit, or suffer to be
committed, any waste upon the Leased Premises, or any nuisance, or other act or
thing which may disturb the quiet enjoyment of any other lessee or occupant of
the Complex in which the Leased Premises are located.

                                 15. ALTERATIONS

        15.1 CONSENT OF LESSOR; OWNERSHIP. Lessee shall not make, or suffer to
be made, any alterations to the Leased Premises, the Building, or the Complex,
and/or Lines, systems and facilities therein, or any part thereof, without the
written consent of Lessor first had and obtained except that Lessee shall be
entitled to perform interior, non-structural alterations not exceeding Twenty
Thousand Dollars ($20,000) in cost without Lessor's prior written consent. Any
additions to or alterations of the Leased Premises (except trade fixtures)
shall, immediately upon being made, constitute a part of the realty and Lessor's
property, and shall, at the expiration or earlier termination of this Lease,
remain upon the Leased Premises



                                      -28-
   31

without compensation to Lessee. Except as otherwise provided in this Lease,
Lessee shall have the right to remove its trade fixtures placed upon the Leased
Premises provided that Lessee restores the Leased Premises as indicated below.
Any and all costs incurred by Lessor, whether in complying with laws,
governmental requirements or otherwise, as a result of any "alterations" (as
hereinafter defined), or as a result of request by Lessee for increased Lines or
other utility capacity above that presently existing (or, in the event the
Building is to be constructed or substantially altered by Lessor prior to the
delivery date, above that which is planned by Lessor for the Building) shall be
paid by Lessee within ten (10) days after demand therefor by Lessor.

        15.2 REQUIREMENTS. Any alterations, additions or installations performed
by Lessee (hereinafter collectively "alterations") shall be subject to strict
conformity with the following requirements:

            (a) All alterations shall be at the sole cost and expense of Lessee;

            (b) Prior to commencement of any work of alteration, Lessee shall
submit detailed plans and specifications, including working drawings
(hereinafter referred to as "PLANS"), of the proposed alterations, which shall
be subject to the consent of Lessor in accordance with the terms of Section 15.1
above;

            (c) Following approval of the Plans by Lessor, Lessee shall give
Lessor at least ten (10) days' prior written notice of commencement of work in
the Leased Premises so that Lessor may post notices of non-responsibility in or
upon the Leased Premises as provided by law;

            (d) No coring or penetrations shall be made to the floor or ceiling
of the Leased Premises.

            (e) No alterations shall be commenced without Lessee having
previously obtained all appropriate permits and approvals required by and of
governmental agencies;

            (f) All alterations shall be performed in a skillful and workmanlike
manner, consistent with the Building Standards set forth as Exhibit H, and
pursued with diligence in accordance with the Plans previously approved by
Lessor and in full accord with all applicable laws and ordinances. All material,
equipment, and articles incorporated in the alterations are to be new and of
recent manufacture and of the most suitable grade for the purpose intended.
Lessee's contractor shall maintain all of the insurance reasonably required by
Lessor, including, without limitation, commercial general liability, workers'
compensation, builder's risk and course of construction insurance. The limits of
such insurance shall be the same as those specified in Article 18;

            (g) Lessee must obtain the prior written approval from Lessor for
Lessee's contractor before the commencement of the work which approval shall not
be unreasonably withheld or delayed. Lessor may require that Lessee use
subcontractors designated by Lessor as to specified portions of the work.
Lessee's contractor shall maintain all of the insurance



                                      -29-
   32

reasonably required by Lessor, including, without limitation, commercial general
liability, workers' compensation, builder's risk and course of construction
insurance. The limits of such insurance shall be the same as those specified in
Article 18;

            (h) As a condition of approval of alterations exceeding Twenty-Five
Thousand Dollars ($25,000) in cost, Lessor may require performance and labor and
materialmen's payment bonds issued by a surety approved by Lessor, in a sum
equal to the cost of the alterations guarantying the completion of the
alterations free and clear of all liens and other charges in accordance with the
Plans. Such bonds shall name Lessor as beneficiary;

            (i) The alterations must be performed in a manner such that they
will not interfere with the quiet enjoyment of the other lessees in the Complex;

            (j) Lessor shall have the right to condition any approval of the
alterations upon (i) submission by Lessee of a Report with respect to Hazardous
Materials, and/or (ii) the performance by Lessee at Lessee's cost and expense of
such investigation, clean-up and remediation with respect to Hazardous Materials
as Lessor may request, in Lessor's sole and absolute discretion; provided,
however, that Lessor shall have the right, but not the obligation, to undertake
all or any portion of such investigation, clean-up or remediation at Lessee's
cost and expense in accordance with the provisions of Section 12.3(e) above.
Lessee acknowledges and agrees that Lessor shall have the right, in its sole and
absolute discretion, to disapprove the making of any such alterations based upon
the results of any investigation with respect to Hazardous Materials.

        15.3 LIENS. Lessee shall keep the Leased Premises and the Complex in
which the Leased Premises are situated free from any liens arising out of any
work performed, materials furnished or obligations incurred by Lessee. In the
event a mechanic's or other lien is filed against the Leased Premises or the
Complex of which the Leased Premises form a part as a result of a claim arising
through Lessee, Lessor may demand that Lessee furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to at least one hundred fifty percent
(150%) of the amount of the contested lien claim or demand, indemnifying Lessor
against liability for the same and holding the Leased Premises free from the
effect of such lien or claim. Such bond must be posted within ten (10) days
following notice from Lessor. In addition, Lessor may require Lessee to pay
Lessor's attorneys' fees and costs in participating in any action to foreclose
such lien if Lessor shall decide it is to its best interest to do so. Lessor may
pay the claim prior to the enforcement thereof, in which event Lessee shall
reimburse Lessor in full, including attorneys' fees, for any such expense, as
additional rent, with the next due rental.

        15.4 RESTORATION. Lessee shall, at Lessee's sole cost and expense,
return the Leased Premises to Lessor at the expiration or earlier termination of
this Lease in good and sanitary order, condition and repair, free of rubble and
debris, broom clean, reasonable wear and tear excepted. In addition, Lessee
shall ascertain from Lessor at the time of approval of any alterations,
installations and improvements, whether Lessor considers any such alterations,
installations and improvements to be specialized and non-reusable areas, such as
class rooms,



                                      -30-
   33

manufacturing areas and storage racks, and whether Lessor desires such
specialized and non-reusable areas of the Leased Premises, restored to its
condition prior to the making of such permitted alterations, installations and
improvements. In such event, Lessor shall, at least three (3) months prior to
Lease expiration, provide Lessee with an estimate of the costs to so restore the
Leased Premises ("Restoration Costs") and Lessee shall pay to Lessor, as
additional Rent, the entire amount of the Restoration Costs no later than ten
(10) days prior to Lease expiration; provided, however, Lessee shall be entitled
to elect to perform the restoration work itself by notifying Lessor within
thirty (30) days after receiving Lessor's estimate of the Restoration Costs. The
foregoing restoration of the Leased Premises shall be performed after the Lease
expiration unless Lessee elects to perform such work, in which case it shall be
performed prior to the Lease expiration. All damage to the Leased Premises
caused by the removal of such trade fixtures and other personal property that
Lessee is permitted to remove under the terms of this Lease and/or such
restoration shall be repaired by Lessee at its sole cost and expense prior to
termination. Lessee's obligations under this Section 15.4 shall apply to the
parking garage, roof and other areas of the Complex impacted by Lessee's use
and/or occupancy of the Complex or any part thereof.

                             16. PROPERTY INSURANCE

        16.1 LESSOR'S INSURANCE. Lessor shall, to the extent available, procure
and maintain at all times during the Term, an "all risk" or "special form"
policy or policies of insurance covering loss or damage to the Building and the
Complex in an amount sufficient to exceed minimum coinsurance requirements of
such policy (exclusive of Lessee's trade fixtures, inventory, personal property,
Tenant Improvements and equipment), providing protection against all perils
included within the classification of fire and extended coverage, vandalism
coverage and malicious mischief, sprinkler leakage, water damage, and special
extended coverage on Building. Additionally, Lessor may (but shall not be
required to) carry: (i) bodily injury and property damage liability insurance
and/or excess liability coverage insurance; (ii) earthquake and/or flood damage
insurance; or (iii) rental income insurance at its election or if required by
its lender from time to time during the Term; or (iv) any other insurance as
Lessor or its lender reasonably deem appropriate, in such amounts and with such
limits as Lessor or its lender may deem appropriate. The costs of all such
insurance shall be included in Operating Costs.

        16.2 USE OF PREMISES. No use shall be made or permitted to be made on
the Leased Premises, nor acts done, which will increase the existing rate of
insurance upon the Building in which the Leased Premises are located or upon any
other Building in the Complex or cause the cancellation of any insurance policy
covering the Building, or any part thereof, nor shall Lessee sell, or permit to
be kept, used or sold, in or about the Leased Premises, any article which may be
prohibited by the standard form of "All Risk" fire insurance policies. Lessee
shall, at its sole cost and expense, comply with any and all requirements
pertaining to the Leased Premises, of any insurance organization or company,
necessary for the maintenance of reasonable property damage and commercial
general liability insurance, covering the Leased Premises, the Building, or the
Complex.



                                      -31-
   34

        16.3 INCREASE IN PREMIUMS. Lessee agrees to pay to Lessor, as additional
Rent, any increase in premiums on policies which may be carried by Lessor on the
Leased Premises, the Building or the Complex, or any blanket policies which
include the Building or Complex, covering damage thereto and loss of Rent caused
by fire and other perils above the rates for the least hazardous type of
occupancy for office use to the extent such increase is attributable to Lessee's
use of the Leased Premises. Lessee further agrees to pay Lessor, as additional
Rent, any increases in such premiums resulting from the nature of Lessee's
occupancy or any act or omission of Lessee. All payments of additional rent by
Lessee to Lessor pursuant to this Section 16.2 shall be made within ten (10)
days after receipt by Lessee of Lessor's billing therefor.

        16.4 PERSONAL PROPERTY INSURANCE. Lessee shall maintain in full force
and effect on all of its fixtures, furniture, equipment and other business
personal property in the Leased Premises a policy or policies providing
protection against any peril included within the classification "All Risk" to
the extent of at least ninety percent (90%) of their replacement cost, or that
percentage of the replacement cost required to negate the effect of a
coinsurance provision, whichever is greater. No such policy shall have a
deductible in a greater amount than ONE THOUSAND DOLLARS ($1,000.00). Lessee
shall also insure in the same manner the physical value of all its Tenant
Improvements and alterations in the Leased Premises including the Lessee's Work.
During the Term, the proceeds from any such policy or policies of insurance
shall be used for the repair or replacement of the fixtures, equipment, and
Tenant Improvements so insured. Lessor shall have no interest in said insurance,
and will sign all documents necessary or proper in connection with the
settlement of any claim or loss by Lessee. Lessee shall also maintain insurance
for all plate glass upon the Leased Premises. All insurance specified in this
Section 16.4 to be maintained by Lessee shall be maintained by Lessee at its
sole cost.

              17. INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION

        17.1 WAIVER OF SUBROGATION. Lessor and Lessee release each other, and
their respective authorized representatives, from any claims for damage to the
Leased Premises and the Building and other improvements in which the Leased
Premises are located, and to the furniture, fixtures, and other business
personal property, Lessee's improvements and alterations of either Lessor or
Lessee, in or on the Leased Premises and the Building and other improvements in
which the Leased Premises are located, including loss of income, that are caused
by or result from risks insured or required under the terms of this Lease to be
insured against under any property insurance policies carried or to be carried
by either of the parties.

        17.2 FORM OF POLICY. Each party shall cause each such insurance policy
obtained by it to provide that the insurance company waives all rights of
recovery by way of subrogation against either party in connection with any
damage covered by such policy. Neither party shall be liable to the other for
any damage caused by any peril included within the classification "All Risk"
which is insured against under any property insurance policy carried under the
terms of this Lease.



                                      -32-
   35

        17.3 INDEMNITY. Lessee, as a material part of the consideration to be
rendered to Lessor, shall indemnify, defend, protect and hold harmless Lessor
against all actions, claims, demands, damages, liabilities, losses, penalties,
or expenses of any kind which may be brought or imposed upon Lessor or which
Lessor may pay or incur by reason of injury to person or property or business,
from whatever cause, all or in any way connected with the acts and omissions of
Lessee, and the condition or use of the Leased Premises, or the improvements or
personal property therein or thereon, including without limitation any liability
or injury to the person or property or business of Lessee, its agents, officers,
employees or invitees. Lessee agrees to indemnify, defend and protect Lessor and
hold it harmless from any and all liability, loss, cost or obligation on account
of, or arising out of, any such injury or loss however occurring, including
breach of the provisions of this Lease and the negligence of the parties hereto.
Nothing contained herein shall obligate Lessee to indemnify Lessor against its
own sole or gross negligence or willful acts, for which Lessor shall indemnify
Lessee.

        17.4 DEFENSE OF CLAIMS. In the event any action, suit or proceeding is
brought against Lessor by reason of any such occurrence, Lessee, upon Lessor's
request, will at Lessee's expense resist and defend such action, suit or
proceeding, or cause the same to be resisted and defended by counsel designated
either by Lessee or by the insurer whose policy covers the occurrence and in
either case approved by Lessor. The obligations of Lessee under this Section
arising by reason of any occurrence taking place during the Term shall survive
any termination of this Lease.

        17.5 WAIVER OF CLAIMS. Lessee, as a material part of the consideration
to be rendered to Lessor, hereby waives all claims against Lessor for damages or
injury from any cause arising at any time, including breach of the provisions of
this Lease and the negligence of the parties hereto, with respect to the
following:

            (a) damages to goods, wares, merchandise and loss of business in,
upon or about the Leased Premises; and

            (b) (notwithstanding anything to the contrary contained in this
Lease, including, without limitation, the definition of Operating Costs in
Section 2.1, which includes "policing") damages to goods, wares, merchandise and
loss of business, in, upon or about the Leased Premises or the Complex, and
injury to Lessee, its agents, employees, invitees or third persons in, upon or
about the Leased Premises or the Complex, where such damage or injury results
from Lessor's failure to police or provide security for the Complex or Lessor's
negligence in connection therewith.

        Lessee expressly acknowledges and agrees that the provisions of Section
12.5(b) above apply fully with respect to the matters waived pursuant to this
Section 17.5, and, for such purpose, the term Released Matters, as used in
Section 12.5(b), shall be deemed to include the matters waived pursuant to this
Section 17.5.

        17.6 REFERENCES. Wherever in this Article the term Lessor or Lessee is
used and such party is to receive the benefit of a provision contained in this
Article, such term shall



                                      -33-
   36

refer not only to that party but also to its officers, directors, shareholders,
employees, contractors, partners, agents and mortgagees or other lien holders.

                             18. LIABILITY INSURANCE

        18.1 LESSEE'S INSURANCE. Lessee shall, at Lessee's expense, obtain and
keep in force during the Term, a commercial general liability insurance policy
insuring Lessee against the risks of, bodily injury and property damage,
personal injury, contractual liability, completed operations, products
liability, arising out of the ownership, use, occupancy or maintenance of the
Leased Premises and all areas appurtenant thereto. Such insurance shall be a
combined single limit policy in an amount not less than ONE MILLION DOLLARS
($1,000,000.00) per occurrence with a TWO MILLION DOLLAR ($2,000,000.00) annual
aggregate; and an umbrella policy of THREE MILLION DOLLARS ($3,000,000.00) any
one occurrence. Lessor and any lender or other party in interest designated by
Lessor shall be named as additional insured(s). The policy shall contain cross
liability endorsements and shall insure performance by Lessee of the indemnity
provisions of this Lease; shall be primary, not contributing with, and not in
excess of coverage which Lessor may carry; shall state that Lessor is entitled
to recovery for the negligence of Lessee even though Lessor is named as an
additional insured; shall provide for severability of interest; shall provide
that an act or omission of one of the insured or additional insureds which would
void or otherwise reduce coverage shall not void or reduce coverages as to the
other insured or additional insured; and shall afford coverage after the Term
(by separate policy or extension if necessary) for all claims based on acts,
omissions, injury or damage which occurred or arose (or the onset of which
occurred or arose) in whole or in part during the Term. The limits of said
insurance shall not limit any liability of Lessee hereunder. Not more frequently
than every three (3) years, if, in the reasonable opinion of Lessor, the amount
of liability insurance required hereunder is not adequate, Lessee shall promptly
increase said insurance coverage as required by Lessor.

        18.2 WORKERS' COMPENSATION INSURANCE. Lessee shall carry Workers'
Compensation insurance as required by law, including an employers' liability
endorsement.

        18.3 RENT LOSS/BUSINESS INTERRUPTION INSURANCE. Lessee shall carry
Rental Loss/Business Interruption insurance covering rental loss or business
interruptions resulting from those risks referred to in Section 18.1 in an
amount equal to all Rent payable under this Lease for a period of twelve (12)
months at the then current rate of charges.

                        19. INSURANCE POLICY REQUIREMENTS

        19.1 GENERAL REQUIREMENTS. All insurance policies required to be carried
by Lessee (except Lessee's business personal property insurance) hereunder shall
conform to the following requirements:

            (a) The insurer in each case shall carry a designation in "Best's
Insurance Reports" as issued from time to time throughout the Term as follows:
Policyholders' rating of A; financial rating of not less than VII;



                                      -34-
   37

            (b) The insurer shall be qualified to do business in the state in
which the Leased Premises are located;

            (c) The policy shall be in a form and include such endorsements as
are acceptable to Lessor;

            (d) Certificates of insurance shall be delivered to Lessor at
commencement of the Term and certificates of renewal at least thirty (30) days
prior to the expiration of each policy;

            (e) Each policy shall require that Lessor be notified in writing by
the insurer at least thirty (30) days prior to any cancellation or expiration of
such policy, or any reduction in the amounts of insurance carried.

                          20. LESSEE INSURANCE DEFAULT

        20.1 RIGHTS OF LESSOR. In the event that Lessee fails to obtain any
insurance required of it under the terms of this Lease, Lessor may, at its
option, but is not obligated to, obtain such insurance on behalf of Lessee and
bill Lessee, as additional rent, for the cost thereof. Payment shall be due
within ten (10) days of receipt of the billing therefor by Lessee.

                  21. FORFEITURE OF PROPERTY AND LESSOR'S LIEN

        21.1 REMOVAL OF PERSONAL PROPERTY. Lessee agrees that as at the date of
termination of this Lease or repossession of the Leased Premises by Lessor, by
way of default or otherwise, it shall remove all personal property to which it
has the right to ownership pursuant to the terms of this Lease. Any and all such
property of Lessee not removed by such date shall, at the option of Lessor,
irrevocably become the sole property of Lessor. Lessee waives all rights to
notice and all common law and statutory claims and causes of action which it may
have against Lessor subsequent to such date as regards the storage, destruction,
damage, loss of use and ownership of the personal property affected by the terms
of this Article. Lessee acknowledges Lessor's need to relet the Leased Premises
upon termination of this Lease or repossession of the Leased Premises and
understands that the forfeitures and waivers provided herein are necessary to
aid said reletting, and to prevent Lessor incurring a loss for inability to
deliver the Leased Premises to a prospective lessee.

                           22. MAINTENANCE AND REPAIRS

        22.1 LESSOR'S OBLIGATIONS. Subject to the other provisions of this Lease
imposing obligations in this respect upon Lessee, Lessor shall repair, replace
and maintain the external and Structural parts of the Complex which do not
comprise a part of the Leased Premises and are not leased to others, janitor and
equipment closets and shafts within the Leased Premises designated by Lessor for
use by it in connection with the operation and maintenance of the Complex, and
all Common Areas. Lessor shall maintain and repair equipment, Lines, facilities
or systems of the Building or Complex which are outside of the Leased Premises
or



                                      -35-
   38

which do not exclusively serve the Leased Premises. Lessor shall perform such
repairs, replacements and maintenance with reasonable dispatch, in a good and
workmanlike manner; but Lessor shall not be liable for any damages, direct,
indirect or consequential, or for damages for personal discomfort, illness or
inconvenience of Lessee by reason of failure of equipment, Lines, facilities or
systems or reasonable delays in the performance of such repairs, replacements
and maintenance, unless caused by the deliberate act or omission of Lessor, its
servants, agents, or employees. The cost for such repairs, maintenance and
replacement shall be included in Operating Costs in accordance with Section 2.1
hereof.

        22.2 NEGLIGENCE OF LESSEE. If the Building, the elevators, escalators,
boilers, engines, pipes or apparatus used for the purpose of climate control of
the Building or operating the elevators, or escalators, or if the water pipes,
drainage pipes, electric lighting or other equipment, Lines, systems and/or
facilities of the Building or the Complex, or the roof or the outside walls of
the Building, or become damaged or destroyed through the negligence,
carelessness or misuse of Lessee, its agents, employees or anyone permitted by
it to be in the Complex, or through it in any way, the cost of the necessary
repairs, replacements or alterations shall be borne by Lessee who shall pay the
same to Lessor as additional charges forthwith on demand.

        22.3 LESSEE'S OBLIGATIONS. Lessee shall repair the Leased Premises,
including without limiting the generality of the foregoing, all interior
partitions and walls, fixtures, Leasehold Improvements and alterations in the
Leased Premises and all electrical and telephone outlets and conduits, fixtures
and shelving, and special mechanical and electrical equipment which equipment is
not a normal part of the Leased Premises installed by or for Lessee, reasonable
wear and tear, damage with respect to which Lessor has an obligation to repair
as provided in Section 22.1 and Section 23.2 hereof only excepted. Prior to
commencement of any repairs, Lessee shall give Lessor at least ten (10) days'
prior written notice thereof so that Lessor may post notices of
non-responsibility in or upon the Leased Premises as provided by law. Lessee
must obtain the prior written approval from Lessor for Lessee's contractor
before the commencement of the repair. Lessor may require that Lessee use a
specific contractor for certain types of repairs. Lessor may enter and view the
state of repair and Lessee will repair in a good and workmanlike manner
according to notice in writing. Notwithstanding the foregoing, Lessee shall not
make any repairs to the equipment, Lines, facilities or systems of the Building
or Complex which are outside of the Leased Premises or which do not exclusively
serve the Leased Premises.

        22.4 CLEANING. Lessee agrees at the end of each business day to leave
the Leased Premises in a reasonably clean condition for the purpose of the
performance of Lessor's cleaning services referred to herein. Lessee shall
maintain the appearance of the Leased Premises in a manner consistent with the
character, use and appearance of the Complex.

        22.5 WAIVER. Lessee waives all rights it may have under law to make
repairs at Lessor's expense.



                                      -36-
   39

        22.6 ACCEPTANCE. Except as to the construction obligations of Lessor for
the Lessor's Work, if any, stated in Exhibit D to this Lease, Lessee shall
accept the Leased Premises in "as is" condition as of the date of execution of
this Lease by Lessee, and Lessee acknowledges that the Leased Premises in such
condition are in good and sanitary order, condition and repair. Lessee
acknowledges that there shall be no floor/ceiling coring or penetrations due to
the post tension floor slab structural system of the Building.

                                23. DESTRUCTION

        23.1 RIGHTS OF TERMINATION. In the event the Leased Premises suffers (a)
an "uninsured property loss" (as hereinafter defined) or (b) a property loss
which cannot be repaired within one hundred twenty (120) days from the date of
destruction under the laws and regulations of state, federal, county or
municipal authorities, or other authorities with jurisdiction, Lessor may
terminate this Lease as at the date of the damage upon written notice to Lessee
following the property loss. For purposes of this Lease, the term "uninsured
property loss" shall mean any loss arising from a peril not covered by the
standard form of "All Risk" property insurance policy. In event of a property
loss under the provisions of this Article 23, within thirty (30) days
thereafter, Lessee shall prepare its best good faith estimate of the time
required to effect the repairs necessary to render the Premises useable for the
purposes for which they have been leased (the "Reconstruction Estimate").

        23.2 REPAIRS. In the event of a property loss which according to the
Reconstruction Estimate cannot be repaired within one hundred twenty (120) days
from the date of the damage, or, in the alternative, in the event Lessor does
not elect to terminate this Lease under the terms of Section 23.1 above, then
this Lease shall continue in full force and effect and Lessor shall forthwith
undertake to make such repairs to reconstitute the Leased Premises to as near
the condition as existed prior to the property loss as practicable but not
including any construction originally performed by Lessee (including Lessee's
Work) or subsequently undertaken by Lessee, but shall include solely property
constructed by Lessor (including Lessor's Work) prior to the commencement of the
Term. Such partial destruction shall in no way annul or void this Lease except
that Lessee shall be entitled to a proportionate reduction of Minimum Rent
following the property loss and until the time the Leased Premises are restored.
Such reduction shall be pro rata based upon the number of Usable square feet of
the Leased Premises damaged and not occupied. Lessor's obligations to restore
shall in no way include any construction originally performed by Lessee or
subsequently undertaken by Lessee, but shall include solely that property
constructed by Lessor prior to commencement of the Term. Notwithstanding
anything to the contrary herein, in the event Lessor elects to restore the
Leased Premises but according to the Reconstruction Estimate such restoration
cannot be completed within one hundred eighty (180) days from the date of
destruction, Lessee may terminate this Lease by written notice to Lessor within
ten (10) days following delivery of the Reconstruction Estimate.

        23.3 REPAIR COSTS. The cost of any repairs to be made by Lessor,
pursuant to Section 23.2 of this Lease, shall be paid by Lessor utilizing
available insurance proceeds.



                                      -37-
   40

        23.4 WAIVER. Lessee hereby waives all statutory or common law rights of
termination in respect to any partial destruction or property loss which Lessor
is obligated to repair or may elect to repair under the terms of this Article.

        23.5 END OF TERM. In event of a property loss exceeding One Hundred
Thousand Dollars ($100,000) in restoration costs occurring during the last year
of the original Term hereof or of any extension, the following shall apply: (i)
Lessor need not undertake any repairs and may cancel this Lease unless Lessee
has the right under the terms of this Lease to extend the Term for an additional
period of at least five (5) years and does so within thirty (30) days of the
date of the property loss; and (ii) in the event Lessee does not elect to extend
the term of the Lease for at least five (5) years pursuant to Subsection
23.5(i), and the Leased Premises, in accordance with the Reconstruction
Estimate, cannot be restored within ninety (90) days of damage, Lessee may
terminate this Lease by written notice to Lessor within ten (10) days following
delivery of the Reconstruction Estimate.

        23.6 LESSOR'S ELECTION. In the event that the Complex or Building in
which the Leased Premises are situated be destroyed to the extent of not less
than thirty-three and one-third percent (33-1/3%) of the replacement cost
thereof, Lessor may elect to terminate this Lease, whether the Leased Premises
be injured or not, in the same manner as in Section 23.1 above. At all events, a
total destruction of the Complex of which the Leased Premises form a part, or
the Leased Premises itself, shall terminate this Lease.

                                24. CONDEMNATION

        24.1 DEFINITIONS.

            (a) "CONDEMNATION" means (i) the exercise of any governmental power,
whether by legal proceedings or otherwise, by a condemnor and/or (ii) a
voluntary sale or transfer by Lessor to any condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.

            (b) "DATE OF TAKING" means the date the condemnor has the right to
possession of the property being condemned.

            (c) "AWARD" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation.

            (d) "CONDEMNOR" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.

        24.2 TOTAL TAKING. If the Leased Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking.



                                      -38-
   41

        24.3 PARTIAL TAKING; COMMON AREAS.

            (a) If any portion of the Leased Premises is taken by condemnation,
this Lease shall remain in effect, except that Lessee can elect to terminate
this Lease if thirty-three and one-third percent (33-1/3%) or more of the total
number of square feet in the Leased Premises is taken.

            (b) If any part of the Common Areas of the Complex is taken by
condemnation and as a consequence thereof, the Complex is not in compliance with
applicable governmental codes and requirements, then Lessor shall have the
election to terminate this Lease pursuant to this Section.

            (c) If fifty percent (50%) or more of the Building in which the
Leased Premises are located is taken, Lessor shall have the election to
terminate this Lease in the manner prescribed herein.

        24.4 TERMINATION OR ABATEMENT. If either party elects to terminate this
Lease under the provisions of Section 24.3 (such party is hereinafter referred
to as the "TERMINATING PARTY"), it must terminate by giving notice to the other
party (the "NONTERMINATING PARTY") within thirty (30) days after the nature and
extent of the taking have been finally determined (the "DECISION PERIOD"). The
Terminating Party shall notify the Nonterminating Party of the date of
termination, which date shall not be earlier than sixty (60) days after the
Terminating Party has notified the Nonterminating Party of its election to
terminate nor later than the date of taking. If Notice of Termination is not
given within the Decision Period, the Lease shall continue in full force and
effect except that Minimum Rent shall be reduced by subtracting therefrom an
amount calculated by multiplying the Minimum Rent in effect prior to the taking
by a fraction the numerator of which is the number of square feet taken from the
Leased Premises and the denominator of which is the number of square feet in the
Leased Premises prior to the taking.

        24.5 RESTORATION. If there is a partial taking of the Leased Premises
and this Lease remains in full force and effect pursuant to this Article,
Lessor, at its cost, shall accomplish all necessary restoration so that the
Leased Premises is returned as near as practical to its condition immediately
prior to the date of the taking, but in no event shall Lessor be obligated to
expend more for such restoration than the extent of funds actually paid to
Lessor by the condemnor.

        24.6 AWARD. Any award arising from the condemnation or the settlement
thereof shall belong to and be paid to Lessor except that Lessee shall receive
from the award compensation for the following if specified in the award by the
condemning authority, so long as it does not reduce Lessor's award in respect of
the real property: Lessee's trade fixtures, tangible personal property, loss of
business and relocation expenses. At all events, Lessor shall be solely entitled
to all award in respect of the real property, including the bonus value of the
leasehold. Lessee shall not be entitled to any award until Lessor has received
the above sum in full.



                                      -39-
   42

                         25. ASSIGNMENT AND SUBLETTING

        25.1 LEASE IS PERSONAL. The purpose of this Lease is to transfer
possession of the Leased Premises to Lessee for Lessee's personal use in return
for certain benefits, including rent, to be transferred to the Lessor. Lessee's
right to assign or sublet as stated in this Article is subsidiary and incidental
to the underlying purpose of this Lease. Lessee acknowledges and agrees that it
has entered into this Lease in order to acquire the Leased Premises for its own
personal use and not for the purpose of obtaining the right to convey the
leasehold to others.

        25.2 "TRANSFER OF THE LEASED PREMISES" DEFINED. The terms "TRANSFER OF
THE LEASED PREMISES" OR "TRANSFER" as used herein shall include any assignment
of all or any part of this Lease (including assignment by operation of law),
subletting of all or any part of the Leased Premises or transfer of possession,
or granting of the right of possession or contingent right of possession of all
or any portion of the Leased Premises including, without limitation, license,
concession, mortgage, devise, hypothecation, agency, franchise or management
agreement, or suffering any other person (the agents and servants of Lessee
excepted) to occupy or use the Leased Premises or any portion thereof. If Lessee
is a corporation which is not deemed a public corporation, or is an
unincorporated association or partnership, or Lessee consists of more than one
party, the transfer, assignment or hypothecation of any stock or interest in
such corporation, association, partnership or ownership interest, in the
aggregate in excess of twenty-five percent (25%), shall be deemed a
Transfer of the Leased Premises.

        25.3 NO TRANSFER WITHOUT CONSENT. Lessee shall not suffer a Transfer of
the Leased Premises or any interest therein, or any part thereof, or any right
or privilege appurtenant thereto without the prior written consent of Lessor,
and a consent to one Transfer of the Leased Premises shall not be deemed to be a
consent to any subsequent Transfer of the Leased Premises. Any Transfer of the
Leased Premises without such consent shall (i) be voidable, and (ii) terminate
this Lease, in either case, at the option of Lessor.

        25.4 WHEN CONSENT GRANTED.

            (a) The consent of Lessor to a Transfer may not be unreasonably
withheld, provided that it is agreed to be reasonable for Lessor to consider any
of the following reasons, which list is not exclusive, in electing to consent or
to deny consent:

                (i) Financial strength of the proposed transferee is not at
least equal to that of Lessee at the time of execution of this Lease;

                (ii) A proposed transferee whose occupation of the Leased
Premises would cause a diminution in the reputation of the Complex or the other
businesses located therein;

                (iii) A proposed transferee whose impact on the common
facilities or the other occupants of the Complex would be disadvantageous to the
operation and management of the Complex including increasing the cost of
operation and management;



                                      -40-
   43

                (iv) A proposed transferee whose use presents a risk of
violation of Article 12;

                (v) A proposed transferee whose occupancy will require a
variation in the terms of this Lease (for example, a variation in the use
clause) or which otherwise adversely affects any interest of Lessor;

                (vi) That there be no uncured notices of default under the terms
of this Lease; or

                (vii) A proposed transferee who is or is likely to be, or whose
business is or is likely to be, subject to compliance with additional laws or
other governmental requirements beyond those to which Lessee or Lessee's
business is subject.

            (b) Notwithstanding the foregoing, Lessee shall have the right,
without the consent of Lessor, but upon prior written notice to Lessor, to
assign this Lease to a company incorporated or to be incorporated by Lessee,
provided that Lessee owns or beneficially controls all the issued and
outstanding shares of capital stock of the company; further provided, however,
that in the event that at any time following such assignment, Lessee wishes to
sell, mortgage, devise, hypothecate or in any other manner whatsoever transfer
any portion of the ownership or beneficial control of the issued and outstanding
shares in the capital stock of such company, such transaction shall be deemed to
constitute a Transfer and shall be subject to all of the provisions of this
Article 25 with respect to a Transfer of the Premises including, by specific
reference, the provisions of Section 25.8. Further, Lessee shall have the right
to assign this Lease without Lessor's consent to a company which controls a
majority of the outstanding stock of Lessee or which is an affiliate of Lessee
(i.e. owned in common by another company), provided Lessee remains liable under
this Lease.

        25.5 PROCEDURE FOR OBTAINING CONSENT.

            (a) Lessor need not commence its review of any proposed Transfer, or
respond to any request by Lessee with respect to such, unless and until it has
received from Lessee adequate descriptive information concerning the transferee,
the business to be conducted by the transferee, the transferee's financial
capacity, and such other information as may reasonably be required in order to
form a prudent judgment as to the acceptability of the proposed Transfer,
including, without limitation, the following:

                (i) Reasonable financial information concerning the proposed
transferee including the past two years' audited annual Balance Sheets and
Profit and Loss statements, certified correct by a Certified Public Accountant;

                (ii) Banking references of the proposed transferee;

                (iii) A resume of the business background and experience of the
proposed transferee;



                                      -41-
   44

                (iv) At least five (5) business references for the proposed
transferee;

                (v) An executed copy of the instrument by which Lessee proposes
to effectuate the Transfer;

                (vi) A certified statement, including the calculation, of the
amount of unamortized cost of Lessee's Tenant Improvements to the Leased
Premises.

            (b) Lessee shall reimburse Lessor as additional rent for Lessor's
reasonable costs and attorneys' fees (not to exceed $2,500) incurred in
conjunction with the processing and documentation of any proposed Transfer of
the Leased Premises, whether or not consent is granted.

        25.6 RECAPTURE.

            (a) During the Renewal Term (but not during the Initial Term), by
written notice to Lessee (the "TERMINATION NOTICE") within twenty (20) business
days following submission to Lessor by Lessee of the information specified in
Section 25.5, Lessor (i) may terminate this Lease in the event of an assignment
of this Lease or sublet of the entire Leased Premises, or (ii), if such proposed
subletting will result in more than 50% of the entire Leased Premises being
sublet (in the aggregate with any previous subleases), terminate this Lease as
to all or any portion of the Leased. Any termination pursuant to clause (ii)
above shall be subject to the rights of any sublessees under any existing
subleases provided Lessor has previously consented to the sublease in accordance
with the terms of this Lease. In the event Lessor elects to terminate this
Lease as to that portion of the Leased Premises to be sublet, an amendment to
this Lease shall be executed whereby the description of the Leased Premises is
restated and Lessee's obligations for rent and other charges are reduced in
proportion to the reduction in Rentable Area of the Leased Premises caused
thereby.

            (b) In the event that Lessor terminates this Lease or terminates
this Lease as to a portion thereof, Lessor may, if it elects, enter into a new
lease covering the Premises or a portion thereof with the intended assignee or
sublessee on such terms as Lessor and such person may agree or enter into a new
lease covering the Premises with any other person; in such event, Lessee shall
not be entitled to any portion of the profit if any which Lessor may realize on
account of such termination and reletting. From and after the date of such
termination of this Lease, the parties shall have no further obligations to each
other under this Lease except for matters occurring or obligations arising prior
to the date of such termination.

        25.7 REASONABLE RESTRICTION. The restrictions on Transfer described in
this Article 25 are acknowledged by Lessee to be reasonable for all purposes,
including, without limitation, the provisions of California Civil Code (the
"Code") Section 1951.4(b)(2). Lessee expressly waives any rights which it might
otherwise be deemed to possess pursuant to applicable law, including, without
limitation, Section 1997.040 of the Code, to limit any remedy of Lessor pursuant
to Section 1951.2 or 1951.4 of the Code by means of proof that enforcement of a
restriction on use of the Leased Premises would be unreasonable.



                                      -42-
   45

        25.8 EFFECT OF TRANSFER. If Lessor consents to a Transfer, (or if a
Transfer occurs without Lessor's consent in accordance with Section 25.4(b)),
the following conditions shall apply:

            (a) Each and every covenant, condition or obligation imposed upon
Lessee by this Lease and each and every right, remedy or benefit afforded Lessor
by this Lease shall not be impaired or diminished as a result of such Transfer.

            (b) Lessee shall pay to Lessor on a monthly basis, fifty percent
(50%) of the excess of any sums of money, or other economic consideration
received by Lessee from the Transferee in such month (whether or not for a
period longer than one month), including higher rent, bonuses, key money, or the
like over the aggregate, of (i) the amortized portion of the reasonable expenses
actually paid by Lessee to unrelated third parties for brokerage commissions,
tenant improvements to the Leased Premises, or design fees incurred as a direct
consequence of the Transfer, and, (ii) the total sums which Lessee pays Lessor
under this Lease in such month, or the prorated portion thereof if the Leased
Premises transferred is less than the entire Leased Premises. The amount so
derived shall be paid with Lessee's payment of Minimum Rent. The term "amortized
portion" is that portion of the applicable expenses derived by dividing such
expenses by the number of months in the original term of the Transfer
transaction.

            (c) No Transfer, whether or not consent of Lessor is required
hereunder, shall relieve Lessee of its primary obligation to pay the rent and to
perform all other obligations to be performed by Lessee hereunder. The
acceptance of rent by Lessor from any person shall not be deemed to be a waiver
by Lessor of any provision of this Lease or to be a consent to any Transfer of
the Leased Premises.

            (d) If Lessor consents to a sublease, such sublease shall not extend
beyond the expiration of the Term.

            (e) No Transfer shall be valid and no transferee shall take
possession of the Leased Premises or any part thereof unless, within ten (10)
days after the execution of the documentary evidence thereof, Lessee shall
deliver to Lessor a duly executed duplicate original of the Transfer instrument
in form satisfactory to Lessor which provides that (i) the transferee assumes
Lessee's obligations for the payment of rent and for the full and faithful
observance and performance of the covenants, terms and conditions contained
herein, (ii) such transferee will, at Lessor's election, attorn directly to
Lessor in the event Lessee's Lease is terminated for any reason on the terms set
forth in the instrument of transfer and (iii) such instrument of transfer
contains such other assurances as Lessor reasonably deems necessary.

                                 26. ABANDONMENT

        26.1 LESSEE TO OCCUPY. Lessee shall not abandon the Leased Premises at
any time during the term, and if Lessee shall abandon, vacate or surrender the
Leased Premises, or be dispossessed by process of law, or otherwise, any
personal property belonging to Lessee and



                                      -43-
   46

remaining on the Leased Premises thereafter shall, at the option of Lessor, be
deemed abandoned.

                               27. ENTRY BY LESSOR

        27.1 RIGHTS OF LESSOR. Lessee shall permit Lessor and Lessor's agents to
enter the Leased Premises at all reasonable times following at least 24 hours
prior written notice except in the case of an emergency for the purpose of
inspecting the same or for the purpose of maintaining the Building and the
Lines, systems and facilities therein, or for the purpose of making repairs,
replacements, alterations or additions to any portion of the Building and the
Lines, systems and facilities therein, including the erection and maintenance of
such scaffolding, canopies, fences and props as may be required, or for the
purpose of posting notices of non-responsibility for alterations, additions or
repairs, or for the purpose of placing upon the Building any usual or ordinary
"for sale" signs, without any rebate of Rent and without any liability to Lessee
for any loss of occupation or quiet enjoyment of the Leased Premises thereby
occasioned, and shall permit Lessor, at any time within ninety (90) days prior
to the expiration of this Lease, to place upon the Leased Premises any usual or
ordinary "to let" or "to lease" signs. This Section in no way affects the
maintenance obligations of the parties hereto. Except in an emergency, Lessor
shall comply with all of Lessee's security procedures, including the right to
have a representative accompany Lessor. Lessor shall exercise its rights
hereunder in a manner which minimizes interference with Lessee's use of the
Leased Premises.

                                    28. SIGNS

        28.1 Lessee shall not place on the Leased Premises or on the Complex,
any exterior signs or advertisements nor any interior signs or advertisements
that are visible from the exterior of the Leased Premises including the Atrium,
without Lessor's prior written consent, which Lessor reserves the right to
withhold for any aesthetic reason in its sole judgment. Lessee's name shall be
included on the Building directory in the main lobby of the Building and in
applicable Common Areas, in accordance with Lessor's standard sign policies if
applicable. The cost of installation and regular maintenance of any such signs
approved by Lessor shall be at the sole expense of Lessee. At the termination of
this Lease, or any extension thereof, Lessee shall remove all its signs, and all
damage caused by such removal shall be repaired at Lessee's expense.

                                   29. DEFAULT

        29.1 DEFINITION. The occurrence of any of the following shall constitute
a material default and breach of this Lease by Lessee:

            (a) Any failure by Lessee to pay the rent or to make any other
payment required to be made by Lessee hereunder within three (3) days of written
notice (and such three (3) day period to run concurrent with the statutory
period);



                                      -44-
   47

            (b) The abandonment of the Leased Premises by Lessee in violation of
Section 26.1 hereof;

            (c) A failure by Lessee to observe and perform any other provision
of this Lease to be observed or performed by Lessee, where such failure
continues for thirty (30) days after written notice thereof by Lessor to Lessee;
provided, however, that if the nature of the default is such that the same
cannot reasonably be cured within the thirty (30) day period allowed, Lessee
shall not be deemed to be in default if Lessee shall, within such thirty (30)
day period, commence to cure and thereafter diligently prosecute the same to
completion;

            (d) Either (1) the appointment of a receiver (except a receiver
appointed at the instance or request of Lessor) to take possession of all or
substantially all of the assets of Lessee, or (2) a general assignment by Lessee
for the benefit of creditors, or (3) any action taken or suffered by Lessee
under any insolvency or bankruptcy act shall constitute a breach of this Lease
by Lessee. In such event, Lessor may, at its option, declare this Lease
terminated and forfeited by Lessee, and Lessor shall be entitled to immediate
possession of the Leased Premises. Upon such notice of termination, this Lease
shall terminate immediately and automatically by its own limitation;

            (e) Any two (2) defaults by Lessee, whether cured or uncured, during
any twelve (12) month period of the Term, as such may be extended, shall
constitute, at the option of Lessor, a separate and noncurable default.

                            30. REMEDIES UPON DEFAULT

        30.1 TERMINATION AND DAMAGES. In the event of any default by Lessee,
then in addition to any other remedies available to Lessor herein or at law or
in equity, Lessor shall have the immediate option to terminate this Lease and
all rights of Lessee hereunder by giving written notice of such intention to
terminate. In the event that Lessor shall elect to so terminate this Lease, then
Lessor may recover from Lessee:

            (a) The worth at the time of award of any unpaid rent which had been
earned at the time of such termination; plus

            (b) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss Lessee proves could have been reasonably
avoided; plus

            (c) The worth at the time of award of the amount by which the unpaid
rent for the balance of the Term after the time of award exceeds the amount of
such rental loss that Lessee proves could be reasonably avoided; plus

            (d) Any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of events would be likely to
result therefrom; and



                                      -45-
   48

            (e) At Lessor's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by the applicable
law in the state in which the Leased Premises are located.

        30.2 DEFINITION. As used in subsections 30.1(a) and (b) above, the
"worth at the time of award" is computed by allowing interest at the rate of ten
percent (10%) per annum. As used in subsection 30.1(c) above, the "worth at the
time of award" is computed by discounting such amount at the discount rate of
the Federal Reserve Bank for the region in which the Complex is located at the
time of award plus one percent (1%).

        30.3 PERSONAL PROPERTY.

            (a) In the event of any default by Lessee, Lessor shall also have
the right, with or without terminating this Lease, to reenter the Leased
Premises and remove all persons and property from the Leased Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Lessee.

            (b) In the event of default, all of Lessee's fixtures, furniture,
equipment, improvements, additions, alterations and other personal property
shall remain upon the Leased Premises and in that event, and continuing during
the length of such default, Lessor shall have the sole right to take exclusive
possession of such property and to use it, rent or charge free, until all
defaults are cured or, at Lessor's option, at any time during the Term, to
require Lessee to forthwith remove such property. The rights stated herein are
in addition to Lessor's rights described in Section 21.1.

        30.4 RECOVERY OF RENT; RELETTING.

            (a) In the event of the vacation or abandonment of the Leased
Premises by Lessee or in the event that Lessor shall elect to reenter as
provided in Section 30.3 above, or shall take possession of the Leased Premises
pursuant to legal proceeding or pursuant to any notice provided by law, then if
Lessor does not elect to terminate this Lease as provided in Section 30.1 above,
this Lease shall continue in effect for so long as Lessor does not terminate
Lessee's right to possession, and Lessor may enforce all its rights and remedies
under this Lease, including, without limitation, Lessor's right from, time to
time, without terminating this Lease, to either recover all rental as it becomes
due or relet the Leased Premises or any part thereof for such term or terms and
at such rental or rentals and upon such other terms and conditions as Lessor, in
its sole discretion, may deem advisable, with the right to make alterations and
repairs to the Leased Premises. Acts of maintenance or preservation or efforts
to relet the Leased Premises or the appointment of a receiver upon initiation of
Lessor or other legal proceeding granting Lessor or its agent possession to
protect Lessor's interest under this Lease shall not constitute a termination of
Lessee's right to possession.

            (b) In the event that Lessor shall elect to so relet, then rentals
received by Lessor from such reletting shall be applied: first, to the payment
of any indebtedness other than rent due hereunder from Lessee to Lessor; second,
to the payment of any cost of such reletting; third, to the payment of the cost
of any alterations and repairs to the Leased



                                      -46-
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Premises; fourth, to the payment of rent due and unpaid hereunder; and the
residue, if any, shall be held by Lessor and applied in payment of future rent
as the same may become due and payable hereunder. Should that portion of such
rentals received from such reletting during any month, which is applied by the
payment of rent hereunder, be less than the rent payable during that month by
Lessee hereunder, then Lessee shall pay such deficiency to Lessor immediately
upon demand therefor by Lessor. Such deficiency shall be calculated and paid
monthly. Lessee shall also pay to Lessor, as soon as ascertained, any costs and
expenses incurred by Lessor in such reletting or in making such alterations and
repairs not covered by the rentals received from such reletting.

            (c) No reentry or taking possession of the Leased Premises or any
other action under this Section shall be construed as an election to terminate
this Lease unless a written notice of such intention be given to Lessee or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Lessor because of any
default by Lessee, Lessor may at any time after such reletting elect to
terminate this Lease for any such default.

            (d) Lessor has the remedy described in California Civil Code Section
1951.4 (Lessor may continue Lease in effect after Lessee's breach and
abandonment and recover rent as it becomes due, if Lessee has right to sublet or
assign, subject only to reasonable limitations).

        30.5 NO WAIVER. Efforts by Lessor to mitigate the damages caused by
Lessee's default in this Lease shall not constitute a waiver of Lessor's right
to recover damages hereunder, nor shall Lessor have any obligation to mitigate
damages hereunder.

        30.6 CURING DEFAULTS. Should Lessee fail to repair, maintain, keep
clean, and/or service the Leased Premises, or any part or contents thereof at
any time or times, or perform any other obligations imposed by this Lease or
otherwise, then after having given Lessee reasonable notice of the failure or
failures and a reasonable opportunity which in no case shall exceed thirty (30)
days, to remedy the failure, Lessor may enter upon the Leased Premises and
perform or contract for the performance of the repair, maintenance, or other
Lessee obligation, and Lessee shall pay Lessor for all direct and indirect costs
incurred in connection therewith within ten (10) days of receiving a bill
therefor from Lessor.

        30.7 NO RIGHT TO CURE. Notwithstanding anything to the contrary set
forth in Section 33.1 above, Lessee shall be deemed to have committed a material
default and breach of this Lease, without any right on Lessee's part to cure
such default and breach, upon the failure by Lessee to observe and perform the
provisions of any one or more of the following Sections (or indicated portions
thereof) of this Lease: 15.1 (first sentence) and 25.3.

        30.8 CUMULATIVE REMEDIES. The various rights, options, election powers,
and remedies of Lessor contained in this Article and elsewhere in this Lease
shall be construed as cumulative and no one of them exclusive of any others or
of any legal or equitable remedy which Lessor might otherwise have in the event
of breach or default, and the exercise of one right or remedy by Lessor shall
not in any way impair its right to any other right or remedy.



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                                 31. BANKRUPTCY

        31.1 BANKRUPTCY EVENTS. If at any time during the Term there shall be
filed by or against Lessee in any court pursuant to any statute either of the
United States or of any state, commonwealth, district or territory thereof a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of all or a portion of Lessee's property or
estate, or if a receiver or trustee takes possession of any of the assets of
Lessee, or if the leasehold interest herein passes to a receiver, or if Lessee
makes an assignment for the benefit of creditors or petitions for or enters into
an arrangement (any of which are referred to herein as a "Bankruptcy Event"),
then the following provisions shall apply:

            (a) Upon the occurrence of a Bankruptcy Event, or if Lessee takes
advantage of any insolvency laws of any state, district, commonwealth or
territory of the United States, then in any such event Lessor at its option and
sole discretion may terminate this Lease at any time by written notice to Lessee
(subject, however, to applicable provisions of the applicable bankruptcy federal
or state statutes or any insolvency laws during the pendency of any action
thereunder involving Lessee as the subject debtor). If this Lease is terminated
under this Article, (i) Lessee agrees to immediately surrender and vacate the
Premises, waives all statutory or other notice to quit, and agrees that Lessor's
obligations under this Lease shall cease from such termination date, and (ii)
Lessor may recover possession by process of law or in any other lawful manner.
Furthermore, if this Lease terminates under this Section (b), Lessor shall,
subject to the Bankruptcy Code, have all rights and remedies against Lessee as
provided in this Lease and at law for a default of Lessee in the payment of
Minimum Rent, Percentage Rent, if any, and/or additional Rent. Lessee hereby
acknowledges that it shall have abandoned all of its personal property remaining
in the Premises after Lessee surrenders possession of the Premises, and Lessee
hereby authorizes Lessor to dispose of such personal property in any manner
Lessor deems appropriate without accounting to Lessee or its legal
representative for the proceeds thereof. Notwithstanding the foregoing, Lessor
retains the right to assert an administrative claim and a general unsecured
claim that result from a breach of this Lease including, without limitation, the
cost to remove Lessee's personal property from the Premises and to restore the
Premises after Lessee surrenders possession thereof.

            (b) In all events any receiver or trustee in bankruptcy or Lessee as
debtor in possession shall, by written notice, either expressly assume or reject
this Lease within sixty (60) days following the entry of an "Order for Relief."
Failure of the trustee to give notice of such assumption hereof within said
period shall conclusively and irrevocably constitute a rejection of this Lease
and waiver of any rights to assume or assign this Lease.

            (c) Lessee or the receiver or trustee shall not have the right to
assume this Lease unless (1) Lessee or the receiver or trustee cures any default
or provides adequate assurances that defaults will be promptly cured; (2) Lessee
or the receiver or trustee compensates Lessor and any other party other then
Lessor for all monetary damages and/or any actual pecuniary loss incurred as a
result of such default or provides adequate assurances that compensation will be
made for such monetary damages and/or actual pecuniary loss; (3) the Bankruptcy
Court (or other court of competent jurisdiction) enters an order authorizing



                                      -48-

   51

the assumption or assignment; (4) the assumption or assignment is not prohibited
under applicable law, including, but not limited to, Section 365 of the
Bankruptcy Code; and (5) Lessee or the receiver or trustee provides to Lessor
"adequate assurance of future performance" (as defined herein below) of the
Lease. For the purposes of this Section (c), "adequate assurance of future
performance" of all obligations under this Lease shall include, but is not
limited to:

               (i) providing financial records which reveal that Lessee's gross
receipts in the ordinary course of its business during the thirty (30) days
immediately preceding the initiation of the case under the Bankruptcy Code must
be at least ten (10) times greater than the next installment of Minimum Rent and
other charges due under this Lease;

               (ii) providing financial records which reveal that both the
average and median of Lessee's monthly gross receipts in the ordinary course of
business during the six (6) months immediately preceding initiation of the case
under the Bankruptcy Code must be at least five (5) times greater than the next
installment of Minimum Rent and other charges due under this Lease;

               (iii) covenanting in writing to Lessor (and obtaining approval
from the Bankruptcy Court therefor) that Lessee shall pay in advance to Lessor
all Minimum Rent and other sums payable by Lessee hereunder including, but not
limited to, its share (as estimated by Lessor) of the cost of all services
provided by Lessor (whether directly or through agents or contractors, and
whether or not the cost of such services is to be passed through to Lessee) in
advance of the performance or provision of such services;

               (iv) covenanting in writing to Lessor (and obtaining approval
from the Bankruptcy Court therefor) that Lessee shall pay Minimum Rent and any
other consideration due under the Lease shall first be paid before any other of
Lessee's costs of operation of its business in the Premises are paid;

               (v) covenanting in writing to Lessor (and obtaining approval from
the Bankruptcy Court therefor) that Lessee's business shall be conducted in a
first class manner, and that no liquidating sales, auctions, or other non-first
class business operations shall be conducted on the Premises, and that the use
of the Premises as stated in this Lease will remain unchanged, and that the
assumption or assignment of this Lease will not violate or adversely affect the
rights of other lessees located in the Complex, and that if any of these
breaches occur, Lessee or the receiver or trustee will indemnify Lessor against
such loss (including costs of suit and attorneys' fees), occasioned by such
breach; and

               (vi) in the event this Lease is for space within a shopping
center, Lessee reasonably satisfying any additional requirements imposed under
Section 365(b)(3) of the Bankruptcy Code.

            (d) Where a default exists under the Lease, the party assuming the
Lease may not require Lessor to provide services or supplies incidental to the
Lease before its assumption,


                                      -49-
   52

unless Lessor is compensated under the terms of the Lease for such services and
supplies before the assumption of such Lease.

            (e) In the event Lessee is unable to: (i) cure its defaults, (ii)
reimburse Lessor or any other party to this Lease for its monetary damages or
actual pecuniary loss to such patty resulting from the defaults, (iii) pay the
rents due under this Lease or any other payments required of Lessee under this
Lease when due, or (iv) meet the criteria and obligations imposed by (i) through
(vi) in the previous Section (d), then Lessee hereby agrees in advance that it
has not met its burden to provide adequate assurance of future performance and
therefore cannot assume this Lease, and this Lease may be immediately terminated
by Lessor in accordance with Section (b) above.

            (f) Lessee or the receiver or trustee may only assign this Lease in
accordance with the terms of Article 25 and if adequate assurance of future
performance by the assignee is provided, whether or not there has been a default
under the Lease. Any consideration paid by any assignee in excess of the rental
reserved in the Lease shall be the sole property of, and paid to, Lessor. Upon
assignment by Lessee or the receiver or trustee, the obligations of Lessee under
this Lease shall be deemed to have been assumed by the assignee, and the
assignee shall execute an assumption agreement on request of Lessor.

            (g) Subsequent to the commencement of a Bankruptcy Event, Lessor
shall be entitled to receive as rental for the Premises and the services
provided by Lessor no less than the rental and charges reserved in the Lease.

            (h) It is further stipulated and agreed that, notwithstanding any
provision herein to the contrary, in the event of the termination of this Lease
pursuant this Article, Lessor shall forthwith, upon such termination, to the
extent that Lessor is prevented by the Bankruptcy Code from pursuing remedies
under this Lease, and/or as provided by state law, become entitled to recover as
liquidated damages for the breach of the provisions of this Lease an amount
equal to the amount by which the then cash value of the Minimum Rent reserved
hereunder for the unexpired portion of the Lease Term exceeds the then cash
rental value of the Premises for such unexpired portion of the Lease Term,
unless the statute which governs or shall govern the proceedings in which such
damages are to be proved limits or shall limit the amount of such claim capable
of so being proved, in which case Lessor shall be entitled to prove as and for
liquidated damages an amount equal to that allowed by or under any such statute.
When calculating damages hereunder, Lessor shall be entitled to recover the
amount of any "free rent" or other concessions extended by Lessor and received
by Lessee prior to the premature expiration of this Lease, it being agreed by
Lessee that such "free rent" and concessions were contingent upon Lessee
fulfilling its obligations for the entire term of this Lease. The provisions of
this paragraph shall be without prejudice to (i) Lessor's right to prove in full
damages for Minimum Rent, Percentage Rent, if any, and additional Rent accrued
prior to the termination of this Lease, but not paid, and (ii) any rights given
to Lessor by any pertinent statute to prove any amounts allowed thereby. In
making any such computation, the then cash rental value of the Premises shall be
deemed prima facie to be the rental realized upon any reletting, if such
reletting can be accomplished by Lessor within a


                                      -50-
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reasonable time after such termination of this Lease, and the then present cash
value of the future rents hereunder reserved to Lessor for the unexpired portion
of the Lease Term hereby demised shall be deemed to be such sum, if invested at
the then current passbook account rate offered by Wells Fargo Bank, N.A. at its
main office in San Francisco, as will produce the future rent over the period of
time in question. Lessor and Lessee further agree that in making any computation
of damages for Lessee holding over after the termination of this Lease, Lessor
may claim damages based on the Minimum Rent, Percentage Rent, if any, and
additional Rent provided herein for the period of such hold over, it being
agreed that the Minimum Rent, Percentage Rent, if any, and additional Rent
constitutes the fair rental value of the Premises during the hold over period.

            (i) Notwithstanding subsection (i) of this Article, Lessor
specifically reserves any and all remedies available to Lessor in Article 30
hereof or at law or in equity in respect of a Bankruptcy Event to the extent
such remedies are permitted by law.

            (j) Notwithstanding anything to the contrary contained in this
Section 31, if a Petition in for bankruptcy or insolvency is filed against
Lessee and the same is dismissed within sixty (60) days of filing, such filing
shall not constitute a Bankruptcy Event.

                             32. SURRENDER OF LEASE

        32.1 NO MERGER. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work as a merger, and shall,
at the option of Lessor, terminate all or any existing subleases or
subtenancies, or may, at the option of Lessor, operate as an assignment to it of
any or all such subleases or subtenancies.

                            33. LESSOR'S EXCULPATION

        33.1 LIMITED LIABILITY. In the event of default, breach, or violation by
Lessor (which term includes Lessor's partners, co-venturers, co-tenants,
officers, directors, trustees, employees, agents, or representatives) of any of
Lessor's obligations under this Lease, Lessor's liability to Lessee shall be
limited to its ownership interest in the Leased Premises (or its interest in the
Complex, if applicable) or the proceeds of a public sale of such interest
pursuant to foreclosure of a judgment against Lessor. Lessor may, at its option,
and among its other alternatives, relieve itself of all liability under this
Lease by conveying the Leased Premises to Lessee. Notwithstanding any such
conveyance, Lessee's leasehold and ownership interest shall not merge.

        33.2 NO RECOURSE. Lessor (as defined in Section 33.1) shall not be
personally liable for any deficiency beyond its interest in the Leased Premises.
All personal liability of all trustees, their employees, agents or
representatives, is expressly waived by Lessee.


                                      -51-
   54

                               34. ATTORNEYS' FEES

        34.1 ACTIONS, PROCEEDINGS, ETC. Lessee hereby agrees to pay, as
additional rent, all attorneys' fees and disbursements, and all other court
costs or expenses of legal proceedings or other legal services which Lessor may
incur or pay out by reason of, or in connection with:

            (a) Any appearance by Lessor (or any officer, partner, or employee
of Lessor) as a witness or otherwise in any action or proceeding whatsoever
involving or affecting Lessee or this Lease except as otherwise covered by
Section 34.3;

            (b) Any assignment, sublease, or leasehold mortgage proposed or
granted by Lessee (whether or not permitted under this Lease), and all
negotiations with respect thereto, subject to a maximum of $2,500 for each such
proposed assignment, sublease or mortgage;

            (c) Any alteration of the Leased Premises by Lessee, and all
negotiations with respect thereto.

        34.2 SURVIVAL. Lessee's obligations under this Section shall survive the
expiration or any other termination of this Lease. This Section is intended to
supplement (and not to limit) other provisions of this Lease pertaining to
indemnities and/or attorneys' fees.

        34.3 ATTORNEYS' FEES. If there is any legal action or proceeding
(including arbitration) between Lessor and Lessee arising out of any default by
Lessee or Lessor in the observance or performance of any obligation under this
Lease or to enforce this Lease or to protect or establish any right or remedy
under this Lease, the unsuccessful party to such action or proceeding shall pay
to the prevailing party all costs and expenses, including reasonable attorneys'
fees and disbursements, incurred by such prevailing party in such action or
proceeding and in any appeal in connection therewith. If such prevailing party
recovers a judgment in any such action or proceeding (including arbitration) or
appeal thereon, such costs, expenses and attorneys' fees and disbursements shall
be included in and as a part of such judgment.

                                   35. NOTICES

        35.1 WRITING. All notices, demands and requests required or permitted to
be given or made under any provision of this Lease shall be in writing and shall
be given or made by (i) personal service, or (ii) by telephone facsimile upon
which date and time are imprinted in the course of transmission to the number
indicated in Section 1.2, or (iii) by mailing same by registered or certified
mail, return receipt requested, postage prepaid, or (iv) by reputable courier
which provides written evidence of delivery, addressed to the respective party
at the address set forth in Section 1.2 of this Lease or at such other address
as the party may from time to time designate, by a written notice sent to the
other in the manner aforesaid.

        35.2 EFFECTIVE DATE. Any such notice, demand or request ("notice") shall
be deemed given or made on the third day after the date so mailed.
Notwithstanding the foregoing, notice given by personal delivery to the party at
its address as aforesaid shall be


                                      -52-
   55

deemed given on the day on which delivery is made. Notice given by a reputable
courier service which provides written evidence of delivery shall be deemed
given on the business day immediately following deposit with the courier
service.

        35.3 AUTHORIZATION TO RECEIVE. Each person and/or entity whose signature
is affixed to this Lease as Lessee or as guarantor of Lessee's obligations
("obligor") designates such other obligor its agent for the purpose of receiving
any notice pertaining to this Lease or service of process in the event of any
litigation or dispute arising from any obligation imposed by this Lease.

                               36. SUBORDINATION

        36.1 PRIORITY OF ENCUMBRANCES. This Lease shall be subject and
subordinate at all times to any and all ground leases and the lien of any and
all mortgages and deeds of trust securing any amount or amounts whatsoever which
may now exist or hereafter be placed on or against or encumbering the Building
or on or against or encumbering Lessor's interest or estate therein ("Superior
Leases and Mortgages"), all without the necessity of having further instruments
executed by Tenant to effect such subordination; provided however, (i) with
respect to that certain deed of trust encumbering the Building of record as of
the date of this Lease in favor of Wells Fargo Bank (the "Bank"), Lessor shall,
as a condition to the effectiveness of this Lease, cause the Bank to execute and
deliver on or before the Delivery Date a non-disturbance agreement on the
current form used by Bank in favor of Lessee and attached hereto as Exhibit L
("Subordination and Non-Disturbance Agreement"), and (ii) with respect to any
Superior Leases and Mortgages encumbering the Building after the date of this
Lease, Lessee shall execute a subordination agreement, provided that the
subordination of this Lease shall be conditioned upon such Lessor's mortgagee
executing a non-disturbance agreement in favor of Lessee on a form acceptable to
such lender and reasonably acceptable to Lessee. In the event of a foreclosure
of any such mortgage or deed of trust or of any other action or proceeding for
the enforcement thereof, or of any sale thereunder or in the event of a
termination of any such ground lease, this Lease shall not be terminated or
extinguished, nor shall the rights and possession of Lessee hereunder be
disturbed, if no default then exists under this Lease, and Lessee shall attorn
to the person who acquires Lessor's interest hereunder through any such mortgage
or deed of trust.

        36.2 EXECUTION OF DOCUMENTS. Lessee agrees to execute any documents
required to effectuate such subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be, and
failing to do so within twenty (20) days after written demand, does hereby make,
constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in
Lessee's name, place and stead, to do so. It is understood by all parties that
Lessee's failure to execute the subordination documents referred to above may
cause Lessor serious financial damage by causing the failure of a financing or
sale transaction.

        36.3 ATTORNMENT. Lessee shall attorn to any purchaser at any foreclosure
sale, or to any grantee or transferee designated in any Deed given in lieu of
foreclosure.


                                      -53-
   56

                            37. ESTOPPEL CERTIFICATES

        37.1 EXECUTION BY LESSEE. Within twenty (20) days of request therefor by
Lessor, Lessee shall execute a written statement acknowledging the commencement
and termination dates of this Lease, that it is in full force and effect, has
not been modified (or if it has, stating such modifications) and providing any
other pertinent information as Lessor or its agent might reasonably request.
Failure to comply with this Article shall be a material breach of this Lease by
Lessee giving Lessor all rights and remedies under Article 30 hereof, as well as
a right to damages caused by the loss of a loan or sale which may result from
such failure by Lessee.

        37.2 FINANCING, SALE OR TRANSFER. If Lessor desires to finance,
refinance, sell, ground lease or otherwise transfer the Leased Premises, or any
part thereof, or the Building, Lessee hereby agrees, within twenty (20) days of
request therefor by Lessor, to deliver to any lender or to any prospective
buyer, ground lessor or other transferee designated by Lessor the most recent
two years' financial statements of Lessee, its Guarantor and its parent company,
if any, as may be reasonably required by such party. All such financial
statements shall be received by Lessor in confidence and shall be used only for
the purposes herein set forth.

                                   38. WAIVER

        38.1 EFFECT OF WAIVER. The waiver by Lessor of any breach of any Lease
provision shall not be deemed to be a waiver of such Lease provision or any
subsequent breach of the same or any other term, covenant or condition therein
contained. The subsequent acceptance of rent hereunder by Lessor shall not be
deemed to be a waiver of any preceding breach by Lessee of any provision of this
Lease, other than the failure of Lessee to pay the particular rental so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.

                                39. HOLDING OVER

        39.1 MONTH-TO-MONTH TENANCY ON ACCEPTANCE. If Lessee should remain in
possession of the Leased Premises after the expiration of the Term and without
executing a new Lease, then, upon acceptance of rent by Lessor, such holding
over shall be construed as a tenancy from month-to-month, subject to all the
conditions, provisions and obligations of this Lease as existed during the last
month of the Term hereof, so far as applicable to a month to month tenancy,
except that the Minimum Rent shall be equal to One Hundred Twenty-Five Percent
(125%) the Minimum Rent payable immediately prior to the expiration or sooner
termination of the Lease.

                           40. SUCCESSORS AND ASSIGNS

        40.1 BINDING EFFECT. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors,


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administrators and assigns of all of the parties hereto; and all of the parties
hereto shall be jointly and severally liable hereunder.

                                    41. TIME

        41.1 TIME OF THE ESSENCE. Time is of the essence of this Lease with
respect to each and every article, section and subsection hereof.

                        42. EFFECT OF LESSOR'S CONVEYANCE

        42.1 RELEASE OF LESSOR. If, during the Term, Lessor shall sell its
interest in the Building or Complex of which the Leased Premises form a part, or
the Leased Premises, then from and after the effective date of the sale or
conveyance, Lessor shall be released and discharged from any and all obligations
and responsibilities under this Lease, except those already accrued.

                                43. COMMON AREAS

        43.1 Lessor shall, in Lessor's sole discretion, maintain the Common
Areas (subject to reimbursement pursuant to Article 8 hereof), establish and
enforce reasonable rules and regulations concerning such areas, close any of the
Common Areas to whatever extent required in the opinion of Lessor's counsel to
prevent a dedication of any of the Common Areas or the accrual of any rights of
any person or of the public to the Common Areas, close temporarily any of the
Common Areas for maintenance purposes, and make changes to the Common Areas
including, without limitation, changes in the location of driveways, corridors,
entrances, exits, vehicular parking spaces, parking area, the designation of
areas for the exclusive use of others, the direction of the flow of traffic or
construction of additional buildings thereupon. Lessor may provide security for
the Common Areas, but is not obligated to do so.

                            44. TRANSFER OF SECURITY

        44.1 TRANSFER TO PURCHASER. If any security be given by Lessee to secure
the faithful performance of all or any of the covenants of this Lease on the
part of Lessee, Lessor may transfer and/or deliver the security, as such, to the
purchaser of the reversion, in the event that the reversion be sold, and
thereupon Lessor shall be discharged from any further liability in reference
thereto.

                                45. LATE CHARGES

        45.1 LATE PAYMENT BY Lessee. Lessee acknowledges that late payment by
Lessee to Lessor of rent or any other payment due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impractical to fix. Such costs include, without
limitation, processing and accounting charges,


                                      -55-
   58

and late charges that may be imposed on Lessor by the terms of any encumbrance
and note secured by any encumbrance covering the Leased Premises. Therefore, if
any installment of rent, or any other payment due hereunder from Lessee is not
received by Lessor within five (5) days of due date, Lessee shall pay to Lessor
an additional sum of ten percent (10%) of such rent or other charge as a late
charge. The parties agree that this late charge represents a fair and reasonable
estimate of the cost that Lessor will incur by reason of late payment by Lessee.
Acceptance of any late charge shall not constitute a waiver of Lessee default
with respect to the overdue amount, or prevent Lessor from exercising any other
rights or remedies available to Lessor.

                             46. CORPORATE AUTHORITY

        46.1 AUTHORIZATION TO EXECUTE. If Lessee is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. Further, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor a certified copy of a resolution of the Board
of Directors of said corporation authorizing or ratifying the execution of this
Lease.

                            47. MORTGAGEE PROTECTION

        47.1 NOTICE AND RIGHT TO CURE DEFAULT. Lessee agrees to give any
mortgagee(s) and/or trust deed holders, by registered mail, a copy of any notice
of default served upon Lessor, provided that prior to such notice Lessee has
been notified, in writing (by way of Notice of Assignment of Rents and Leases,
or otherwise), of the address of such mortgagees and/or trust deed holders.
Lessee further agrees that if Lessor shall have failed to cure such default
within the time provided for in this Lease, then the mortgagees and/or trust
deed holders shall have an additional thirty (30) days within which to cure such
default or, if such default cannot be cured within that time, then such
additional time as may be necessary if, within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being so
diligently pursued.

                          48. MISCELLANEOUS PROVISIONS

        48.1 CAPTIONS. The captions of this Lease are for convenience only and
are not a part of this lease and do not in any way limit or amplify the terms
and provisions of this Lease.

        48.2 NUMBER AND GENDER. Whenever the singular number is used in this
Lease and when required by the context, the same shall include the plural, the
plural shall include


                                      -56-
   59

the singular, and the masculine gender shall include the feminine and neuter
genders, and the word "person" shall include corporation, firm or association.
If there be more than one Lessee, the obligations imposed under this Lease upon
Lessee shall be joint and several.

        48.3 MODIFICATIONS. This instrument contains all of the agreements,
conditions and representations made between the parties to this Lease and may
not be modified orally or in any other manner than by an agreement in writing
signed by all of the parties to this Lease.

        48.4 PAYMENTS. Except as otherwise expressly stated, each payment
required to be made by Lessee shall be in addition to and not in substitution
for other payments to be made by Lessee.

        48.5 SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.

        48.6 NO OFFER. The preparation and submission of a draft of this Lease
by either party to the other shall not constitute an offer, nor shall either
party be bound to any terms of this Lease or the entirety of the Lease itself
until both parties have fully executed a final document and an original
signature document has been received by both parties. Until such time as
described in the previous sentence, either party is free to terminate
negotiations with no obligation to the other.

        48.7 DISPUTED SUMS. Under the terms of this Lease numerous charges are
and may be due from Lessee to Lessor including, without limitation, Operating
Costs, Real Estate Taxes and other items of a similar nature including advances
made by Lessor in respect of Lessee's default at Lessor's option. In the event
that at any time during the Term there is a bona fide dispute between the
parties as to the amount due for any of such charges claimed by Lessor to be
due, the amount demanded by Lessor shall be paid by Lessee until the resolution
of the dispute between the parties or by litigation. Failure by Lessee to pay
the disputed sums until resolution shall constitute a default under the terms of
the Lease.

        48.8 LESSEE'S REMEDIES. Notwithstanding anything to the contrary
contained in this Lease, if any provision of this Lease expressly or impliedly
obligates Lessor not to unreasonably withhold its consent or approval, an action
for declaratory judgment or specific performance will be Lessee's sole right and
remedy in any dispute as to whether Lessor has breached such obligation.

        48.9 LIGHT, AIR AND VIEW. No diminution of light, air, or view by any
structure which may hereafter be erected (whether or not by Lessor) shall
entitle Lessee to any reduction of Rent, result in any liability of Lessor to
Lessee, or in any other way affect this Lease or Lessee's obligations hereunder.

        48.10 PUBLIC TRANSPORTATION INFORMATION. Lessee shall establish and
maintain during the Term hereof a program to encourage maximum use of public
transportation by personnel of Lessee employed on the Leased Premises,
including, without limitation, the


                                      -57-
   60

distribution to such employees of written materials explaining the convenience
and availability of public transportation facilities adjacent or proximate to
the Complex, staggering working hours of employees, and encouraging use of such
facilities, all at Lessee's sole reasonable cost and expense. Lessee shall
comply with all requirements of any local transportation management ordinance.

        48.11 RULES AND REGULATIONS. Lessee agrees to comply with all reasonable
rules and regulations adopted and promulgated by Lessor and applicable to all
tenants in the Complex for the lawful, orderly, clean, safe, aesthetic, quiet,
and beneficial use, operation, maintenance, management, and enjoyment of the
Complex. Lessor shall have no liability for violation by any other lessee in the
Complex of any rules or regulations, nor shall such violation or waiver thereof
excuse Lessee from compliance. The initial rules and regulations concerning the
Complex are attached hereto as Exhibit G. Lessor reserves the right to make
additional rules affecting the Complex throughout the Term hereof provided such
rules are applied uniformly to all tenants. All delivery and dispatch of
supplies, fixtures, equipment and furniture shall be by means and during hours
established by Lessor. Lessee shall not at any time park its trucks or other
delivery vehicles in the Common Areas, except in such parts thereof as from time
to time designated by Lessor.

        48.12 JOINT AND SEVERAL LIABILITY. Should Lessee consist of more than
one person or entity, they shall be jointly and severally liable on this Lease.

        48.13 SURVIVAL OF OBLIGATIONS. All obligations of Lessee which may
accrue or arise during the Term or as a result of any act or omission of Lessee
during said Term shall, to the extent they have not been fully performed,
satisfied or discharged, survive the expiration or termination of this Lease.

        48.14 REAL ESTATE BROKERS. Lessor and Lessee each represents and
warrants to the other party that it has not authorized or employed, or acted by
implication to authorize or employ, any real estate broker or salesman to act
for it in connection with this Lease other than the real estate brokers
specified in Section 1.10. Lessor shall pay the commission due Lessor's broker
and Lessee's broker pursuant to a separate agreement between Lessor and Lessor's
broker. Lessor and Lessee shall each indemnify, defend and hold the other party
harmless from and against any and all claims by any real estate broker or
salesman whom the indemnifying party authorized or employed, or acted by
implication to authorize or employ, to act for the indemnifying party in
connection with this Lease.

        48.15 NONLIABILITY OF LESSOR FOR APPROVALS. Except as may otherwise be
expressly stated by a provision of this Lease, and only to the extent so stated,
the consent or approval, whether express or implied, or the act, failure to act
or failure to object, by Lessor in connection with any plan, specification,
drawing, proposal, request, act, omission, notice or communication
(collectively, "act") by or for, or prepared by or for, Lessee, shall not create
any responsibility or liability on the part of Lessor, and shall not constitute
a representation by Lessor, with respect to the completeness, sufficiency,
efficacy, propriety, quality or legality of such act.


                                      -58-
   61

        48.16 INTEREST ON PAST DUE AMOUNTS. If any sum due Lessor from Lessee is
not received by Lessor within five (5) calendar days after the date such sum is
due and payable, such sum shall bear interest from the due date until paid by
Lessee at the rate of two percent (2%) above the Prime Rate (as herein defined),
not to exceed the maximum rate of interest allowed by law in the state where the
Leased Premises are located, and such interest shall be deemed to be additional
rent. "Prime Rate" means the Prime Rate of interest as quoted in the Wall Street
journal on the date such sum was due and payable.

        48.17 CONVERSION TO A LIMITED LIABILITY ENTITY.

            (a) No Conversion Without Consent. Anything to the contrary in this
Lease notwithstanding, if Lessee is currently a partnership (either general or
limited), joint venture, cotenancy, joint tenancy or an individual, Lessee may
not convert (the "Conversion") the Lessee entity or person into any type of
entity which possesses the characteristic of limited liability such as, by way
of example only, a corporation, a limited liability company, limited liability
partnership or limited liability limited partnership (singularly and
collectively, "Limited Entity"), without the consent of Lessor, which consent,
subject to fulfillment of the conditions below, shall not be unreasonably
withheld.

            (b) Conditions to Lessor's Consent. The following are conditions
precedent to Lessor's obligation to act reasonably with respect to a Conversion
to a Limited Entity:

               (i) The Limited Entity assumes all of Lessee's business and
assets as of the effective date of the Conversion;

               (ii) As of the effective date of the Conversion, the Limited
Entity shall have a net worth ("Net Worth"), which is not less than the greater
of (i) Lessee's Net Worth on the date of execution of the Lease or (ii) Lessee's
Net Worth as of the date Lessee requests Lessor's consent to the Conversion;

               (iii) Lessee has not been in default under any of the terms,
covenants or conditions of this Lease during the term of the Lease;

               (iv) Lessee delivers to Lessor an agreement, in form and
substance satisfactory to Lessor and executed by each partner of Lessee, wherein
each partner of Lessee agrees to remain personally Liable for all of the terms,
covenants and conditions of the Lease that are to be observed and performed by
the Limited Entity; and

               (v) Lessee shall reimburse Lessor within ten (10) days following
Lessor's written demand therefor for any and all reasonable costs and expenses
that may be incurred by Lessor in connection with the Conversion including,
without limitation, reasonable attorney's fees.

            (c) Nothing in this Section 48.17 shall modify or reduce the
obligations of Lessee to perform under this Lease.


                                      -59-
   62

        48.18 COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall be deemed an original, and all taken together
shall constitute one and the same instrument.

                     49. WAIVER OF CALIFORNIA CODE SECTIONS

        49.1 WAIVER BY LESSEE. In this Lease, numerous provisions have been
negotiated by the parties, some of which provisions are covered by statute.
Whenever a provision of this Lease and a provision of any statute or other law
cover the same matter, the provisions of this Lease shall control. Therefore,
Lessee waives (for itself and all persons claiming under Lessee) the provisions
of Civil Code Sections 1932(2) and 1933(4) with respect to the destruction of
the Leased Premises; Civil Code Sections 1941 and 1942 with respect to Lessor's
repair duties and Lessee's right to repair; Civil Code Section 1995.310,
granting to a tenant all remedies provided by law for breach of contract
(including, without limitation, the right to contract damages and the right to
terminate the lease) in the event that the landlord unreasonably withholds
consent to a transfer in violation of the tenant's rights under the lease; Code
of Civil Procedure Section 1265.130, allowing either party to petition the
Superior Court to terminate this Lease in the event of a partial taking of the
Leased Premises by condemnation as herein defined; and any right of redemption
or reinstatement of Lessee under any present or future case law or statutory
provision (including Code of Civil Procedure Sections 473 and 1179 and Civil
Code Section 3275) in the event Lessee is dispossessed from the Leased Premises
for any reason. This waiver applies to future statutes enacted in addition to or
in substitution for the statutes specified herein.

                              50. SHUTTLE SERVICE

        50.1 Lessor shall maintain for the benefit of employees and invitees of
the Building, a van shuttle service which shall operate Monday through Friday
from 7:00 a.m. to 7:00 p.m. with not less than one van vehicle operating
throughout the day and two vehicles operating during peak commute hours of 7:00
a.m. to 9:00 a.m. Monday through Friday and 5:00 p.m. to 7:00 p.m. Monday
through Friday. The shuttle will serve the major transportation centers of San
Francisco, i.e., the Transbay Terminal, BART, the nearest Municipal Railway
stop, the Ferry Building and CalTrain Terminal. The cost of the shuttle service
shall be included in Operating Costs. Lessor may terminate the shuttle service
if the City of San Francisco is, in Lessor's reasonable judgment, then providing
adequate public transportation to the area of the Building and no longer
requires that Lessor provide such shuttle service.

        50.2 PARKING. Lessee may lease on a monthly basis up to one parking
space in the parking facility of the Complex for each One Thousand Three Hundred
(1,300) Adjusted Rentable square feet of Leased Premises. Said parking spaces
shall be on a non-assigned, non-reserved basis. Lessee shall pay a parking fee
for each parking space which Lessee leases at the same monthly rates as are
established from time to time by Lessor or the owner or operator of the parking
facility. The parking rate as of the execution date of this Lease is $90 per
parking stall per month. The use by Lessee, its employees or other users of such
parking space shall be subject to the rules and regulations established from
time to time by Lessor, or


                                      -60-
   63

the owner or operator of the parking facility. If Lessor or the owner or
operator of the parking facility changes the parking arrangements in the parking
facility, then Lessee's rights under this Section 50.2 shall be subject to
modification to reflect such change, so long as Lessee is not disproportionately
prejudiced by such changes as compared to other lessees of the Building. Such
changes of parking arrangements may include conversion of a portion or the
entire garage parking area to valet parking at commercially practicable rates.
In the event Lessee uses parking stalls during Lessee's construction for storage
of equipment, construction materials, or business fixtures, Lessee shall be
charged for such use by a deduction from Lessee's Improvement Allowance
specified in Exhibit D, Section 3.1.

        IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
day and year first written above.

LESSOR:                                   LESSEE                     _
ZORO, LLC,                                MACROMEDIA, INC.
a California Limited Liability Company

By:  /s/ MARTIN ZANKEL                    By:  /s/ BETSEY NELSON
   ----------------------------------        -----------------------------------
   Its Managing Member                       Its:  Senior VP and CEO
                                                 -------------------------------
                                                   MACROMEDIA, INC.
                                                 -------------------------------
                                                   (415) 252-4102
                                                 -------------------------------


                                          By:
                                             -----------------------------------
                                             Its:
                                                 -------------------------------







                                      -61-
   64

                                    EXHIBIT A

                                LEGAL DESCRIPTION

The land referred to herein is situated in the State of California, County of
San Francisco, City of San Francisco, and is described as follows:

PARCEL ONE:

ALL OF LOT 9, Assessor's Block 3783, as shown on that certain Map entitled,
"Parcel Map of a portion of 100 Vara Block No. 412, also being a portion of
Assessor's Block No. 3783 which Map was filed for record in the Office of the
Recorder of the City and County of San Francisco, State of California, on
November 29, 1988 in Book 38 of Parcel Maps, at Page 36.

PARCEL TWO:

Non-exclusive easements as set forth in that certain Grant of Easement with
Covenants and Restrictions affecting land dated as of December 29, 1988 by and
between Bay West Showplace Investors, a California Limited Partnership, and
Portman/Bay West Apparel Partners, a California Partnership, recorded on
December 30, 1988 in Book E775 at Page 1598, Series No. E296406 in the Official
Records.

APN: Lot 009, Block 3783

COMMON KNOWN AS:

                               650 Townsend Street
                               SAN FRANCISCO, CA



   65


                       [LOWER LEVEL EXHIBITION FLOOR PLAN]




   66


                          [LEVEL ONE LOBBY FLOOR PLAN]





   67


                          [LEVEL TWO ATRIUM FLOOR PLAN]





   68


                            [LEVEL THREE FLOOR PLAN]





   69


                            [FOURTH LEVEL FLOOR PLAN]





   70


                            [FIFTH LEVEL FLOOR PLAN]




   71


                            [SIXTH LEVEL FLOOR PLAN]




   72


                                  [ROOF PLAN]




   73


                            [FOURTH LEVEL FLOOR PLAN]




   74

                                   EXHIBIT D
                              WORK LETTER AGREEMENT
                          (LESSOR'S AND Lessee's Work)

A. LESSOR'S WORK

        Except for the work expressly set forth in Schedule 1 (the "Lessor's
Work"), the Leased Premises shall be delivered to Lessee in an "AS IS"
condition, demolished as described in Schedule 1, and without any obligation on
the part of Lessor to perform improvements to the Leased Premises.

B. LESSEE'S WORK

1. PLANS/SPECIFICATIONS

        1.1 PLAN DESIGN

        Prior to commencing work on the leasehold improvements to the Leased
Premises as hereinafter provided ("Tenant Improvements"), Lessee shall submit to
Lessor complete and detailed plans and specifications for the Tenant
Improvements ("Plan"). The Plans shall be prepared by Uesugi & Assoc.
("Architect") and by [Illegible] ("Engineer"), both licensed to practice in the
State of California. (The initial space plan for the Leased Premises may be
prepared by Lessee's architect [Illegible]).

1.2 (a) Coordination

        The Architect shall coordinate with Lessor's Project Manager J. Mock to
assure that the Plans are consistent with the existing design and construction
of the Leased Premises. Lessee acknowledges that Lessor has provided Lessee with
a set of base building drawings for the Leased Premises ("Building Drawings").
However, Lessor does not warrant, and Lessee should not rely upon, the accuracy
of the Building Drawings. Lessee, therefore, should undertake its own
investigation of the Leased Premises to confirm existing conditions, rather than
relying on the Building Drawings.

            (b) Governmental

            Lessee acknowledges that Lessor has established procedures for
relations with the Building and Planning Departments of the City and County of
San Francisco and that Lessee, Lessee's representatives, architects, or agents
shall not contact any representatives of


                                       2
   75

the City and County of San Francisco without the presence of Lessor's
representative to assure consistency of treatment of the Building and its
tenants by such governmental agencies. Any such contact by Lessee's
representatives in contravention of this provision which causes an alteration in
governmental treatment of the Building which results in additional costs to the
Building or any tenant therein, shall be borne by the Lessee.

        1.3 SCHEMATICS

        Lessee shall - deliver to Lessor the schematic drawings ("Schematic
Drawings") upon which the Plans shall be based not later than May 15, 1999. The
Schematic Drawings and the Plans shall conform with standards set forth by
Lessor for material specifications and construction specifications which are
applicable for the Building in general. Lessor shall have ten (10) working days
after receipt thereof to review and approve/disapprove the Schematic Drawings.
Once Lessor has approved the Schematic Drawings, Lessee shall cause the
Architect to prepare the Plans which must be consistent with the approved
Schematic Drawings. Provided Lessor has approved the Schematic Drawings, Lessee
shall deliver the Plans to Lessor for its approval, in one or more stages,
during the period between May 15 and June 1, 1999. Lessor shall not unreasonably
withhold its approval of the Plans so long as the Plans are consistent with the
Schematic Drawings. In scheduling the preparation of the Schematic Drawings and
the Plans, Lessee shall allow sufficient time for review and approval by Lessor
and by the appropriate government agencies. [If Plans are not prepared by
Lessor's architect and engineer then add: Lessee shall pay for the cost of
Lessor's architect and engineer to review Lessee's Schematic Drawings and
Plans.]

        1.4 SCHEMATICS APPROVAL

        Lessor shall promptly notify Lessee thereof in writing and of the
revisions which Lessor requires in order for Lessee to obtain Lessor's approval.
As promptly as reasonably possible, but in no event later than fifteen (15) days
thereafter, Lessee shall submit to Lessor a revised set of Schematic Drawings or
Plans incorporating the changes required by Lessor. Said revisions shall also be
subject to Lessor's approval. Lessor shall have five (5) working days after
receipt of the revised Schematic Drawings or Plans to notify Lessee in writing
of Lessor's approval or disapproval of same. If Lessor again disapproves of or
requests revisions to the


                                       3
   76
Schematic Drawings or the Plans, Lessee shall submit to Lessor, within ten (10)
business days after receiving Lessor's written disapproval or request for
revisions, a further revised set of Schematic Drawings or Plans incorporating
the changes required by Lessor. This process shall continue until Lessor has
approved the Schematic Drawings and the Plans.

        1.5 FINAL PLANS

        The Plans, approved by Lessor, shall be referred to as the "Final
Plans." The Final Plans shall be signed by Lessor and Lessee. After approval of
the Final Plans, Lessee shall not make any changes thereto without Lessor's
prior written approval in accordance with the provisions of this Exhibit D.

        1.6 PERMITS

        Subject to the provisions of paragraph 1.2(b), Lessee shall be solely
responsible for obtaining all necessary governmental approvals and permits
(including but not limited to the approval of the San Francisco City Planning
Department) required to commence and complete the Tenant Improvements after
obtaining the prior approval of Lessor before making any submittal to any
governmental agency for permit, which approval of Lessor shall not be
unreasonably withheld; and immediately upon receipt thereof, Lessee shall
deliver copies of all such approvals and permits to Lessor. Lessor shall
cooperate with Lessee in assisting Lessee to obtain all necessary governmental
approvals and permits in connection with Lessee's Work, including providing
information, plans and specifications of the Building.

        1.7 CODE COMPLIANCE

        Except as expressly set forth to the contrary in the Lease with respect
to Code Compliance, it shall be Lessee's sole responsibility to satisfy all
applicable building code requirements and governmental rules and regulations
concerning the design and construction of the Tenant Improvements. Lessor's
approval of the Final Plans is not intended, and should not be understood by
Lessee, as an affirmation that the Final Plans comply with applicable building
codes or other governmental rules and regulations or that the Final Plans are in
conformance with standards of good workmanship as practiced by
architects/engineers in the San Francisco Bay Area. Lessor's review of the Final
Plans is solely for Lessor's benefit, and


                                       4
   77

Lessee shall not rely upon that review for any purpose whatsoever in connection
with the work on or the design of the Tenant Improvements.

        1.8 CONTRACTOR

        Lessor hereby approves South Bay Const. as general contractor to perform
the Tenant Improvements ("Contractor"), duly licensed in the State of California
and familiar with all applicable building code requirements.

2.      SCHEDULING AND LESSEE'S PRIOR ACCESS TO THE PREMISES

        2.1 SCHEDULE

        At least five (5) days prior to the start of construction of the Tenant
Improvements, Lessee shall deliver to Lessor the proposed schedule of the
Lessee's Work to be performed ("IT Schedule"). The IT Schedule shall be prepared
by the Contractor, and it shall show the schedule for the submission of all shop
drawings/submittals and for the performance of each portion of the Tenant
Improvements. Lessee and the Architect shall either consult with the Contractor
or the Architect shall perform the necessary investigation to determine the
availability of the equipment and materials to be incorporated into the Tenant
Improvements and which portions of the Tenant Improvements will require long
lead time for ordering and/or manufacturing. The IT Schedule shall be in the
form of a Critical Path Method schedule.

        2.2 COMMENCEMENT OF CONSTRUCTION

        Upon delivery of the Leased Premises to Lessee and Lessee's receipt of
all approvals of the Final Plans and the acquisition by Lessee of all necessary
permits, Lessee shall commence the construction of the Tenant Improvements.
Lessor shall permit Lessee access to the Leased Premises, prior to approval of
Final Plans and the acquisition of permits, for the purposes of obtaining
measurements of the Leased Premises, confirming existing conditions and for
space planning preparation purposes. Lessee's entry to the Leased Premises prior
to the Delivery Date for such purposes shall be upon all of the terms and
conditions of the Lease, including, without limitation the provisions regarding
insurance and indemnification, but excepting the payment of Minimum Rent and
additional Rent. Lessee shall be solely responsible for all costs and expenses
incurred in connection with the Tenant Improvements and any pre


                                       5
   78

Delivery Date activities, and Lessee hereby agrees to indemnify, defend, and
hold harmless Lessor from and against any loss, cost, expense, liability,
damage, or injury in connection therewith.

3.      PAYMENT FOR TENANT IMPROVEMENTS AND THE CONSTRUCTION CONTRACT

        3.1 CONSTRUCTION COSTS

        As an inducement to Lessee to enter into the Lease, but subject to
paragraph 3.2 below and as otherwise provided in the Lease and this Exhibit D,
Lessor agrees to reimburse Lessee for: (1) the cost of construction of the
Tenant Improvements identified on the approved Final Plans; (2) costs of any
permits or licensing fees; (3) payment of the fees of the "Architect" and
"Engineer" for the Tenant Improvements; (4) payment of the fees of Lessee's
space planner up to a maximum of 15 cents ($.15) per Adjusted Rentable square
feet in the Leased Premises upon execution of the Lease; and (5) any other costs
approved by Lessor including planning and design costs and the costs of the
check meter which Lessor will install as part of Lessor's Work ("Tenant
Improvement Costs") up to a cost not to exceed $20.00 for each Adjusted Rentable
square foot in the Leased Premises (the "Allowance"). If the Allowance is not
used for Tenant Improvement Costs, the unused portion shall revert to Lessor and
shall not be available for any other purpose by Lessee. The payment described in
item (4) above, shall be made within five (5) business days following the last
to occur of: (i) the date upon which the condition of Section 11.1 (b) has been
satisfied or waived or (ii) Lessee has provided Lessor copies of paid invoices
in respect of the space planner.

        3.2 PAYMENT OF ALLOWANCE

        (a) Payment Procedure. Lessor shall reimburse Lessee for the Tenant
Improvement Costs up to the Allowance upon the last to occur of: (i) substantial
completion of the Tenant Improvements; (ii) receipt by Lessor of invoices for
all portions of the Tenant Improvements from the person(s) performing the work
or rendering the services, together with such supporting documentation as Lessor
may reasonably request in connection therewith, and (iii) receipt by Lessor of
unconditional lien releases with respect to the entirety of the Tenant
Improvements from all contractors, subcontractors and materialmen who performed
the work or rendered services or materials. Lessor shall have no obligation to
pay


                                       6
   79

all or any portion of the Allowance at any time following the occurrence, and
during the continuance, of any event of default by Lessee under the Lease.

        (b) Primary Obligation. Lessee shall pay all costs incurred in
connection with the construction of the Tenant Improvements.

        (c) Project Management Services. In consideration of the supervisory,
logistical and oversight and review work to be performed by Landlord in
connection with the Tenant Improvements, Tenant agrees that Landlord shall be
entitled to charge against the Allowance a construction management fee (the
"Coordination Fee") in the amount of three percent (3%) of the total cost of the
Tenant Improvements. Landlord shall deduct the Coordination Fee from the
Allowance.

        3.3 CONTRACT TERMS

        The construction contract for the Tenant Improvements shall include all
of the provisions which are included herein and identified as "Construction
Contract Terms;" provided, however, that the Construction Contract Terms may be
revised with Lessor's approval, which approval shall not be unreasonably
withheld, in a manner which does not expose Lessor to additional liability.

4.      CHANGES, ADDITIONS, AND ALTERATIONS

        4.1 MATERIALITY

        From time to time Lessee may make nonmaterial changes in the Final Plans
prior to final completion with Lessor's prior approval, which approval shall not
be unreasonably withheld. Lessee shall not make any material changes to the
Final Plans (which shall mean a change the cost of which will be in excess of
$5,000.00, or is visible from the exterior of the Leased Premises, or affects
the structure, roof, central building systems or exterior walls of the Leased
Premises) without securing the prior written approval of Lessor, which approval
shall not be unreasonably withheld by Lessor. In seeking Lessor's approval for
changes to the Final Plans, Lessee shall deliver to Lessor such documentation as
the Construction Contract shall require for changes in the Contract Price or an
extension of the Completion Date.


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        4.2 RENT COMMENCEMENT

        No such changes in the Final Plans shall delay the Rent Commencement
Dates set forth in the Lease. Lessor shall approve or disapprove any such
changes within ten (10) working days after the receipt of a request from Lessee.
Upon approval by Lessor, such change shall be included within the phrase "Final
Plans."

5.      CONSTRUCTION AND DELAYS

        5.1 The performance of the Tenant Improvements shall be subject to the
following terms and conditions:

            (a) Compliance by Lessee and the Contractor and its subcontractors,
material suppliers, and equipment renters of whatever tier ("Lessee's
Contractors") with the applicable provisions of the Lease;

            (b) All of the Tenant Improvements, which are performed by Lessee's
Contractors, shall be scheduled through Lessee;

            (c) All of the Tenant Improvements shall be performed in accordance
with the reasonable rules and regulations which Lessor may issue from time to
time;

            (d) Lessor shall have no responsibility whatsoever for the
supervision or coordination of Lessee's Contractors, the Architect, or the
Engineer, the quality of their work or any other matter with respect to Lessee's
Contractors, the Architect, or the Engineer; however, Lessee shall coordinate
all Tenant Improvements with Lessor's Project Manager as described herein and as
set forth in the IT Schedule.

            (e) Although Lessor shall have no responsibility as set forth in
subparagraph (d) above, Lessor's Project Manager may, at his option, demand a
stop in Lessee's Work if any terms of this Exhibit D are violated or threatened
to be violated by Lessee or Lessee's contractor or if the Tenant Improvement
Work is not being performed in accordance with the approved Final Plans.

            (f) In connection with the construction of the Tenant Improvements,
Lessee's Contractor and subcontractors shall not be charged for the use of
utilities, loading dock and freight elevators during normal business hours.


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6.      SUBSTANTIAL COMPLETION

        6.1 DEFINITION

        For purposes of this Exhibit D and the Lease, "Substantial Completion"
of the Tenant Improvements shall mean the date that (i) the Architect certifies
to Lessor that the Tenant Improvements have been completed in accordance with
the Final Plans; and (ii) the Rent Commencement Date under the Lease has
occurred, and (iii) Lessor has received unconditional lien releases with respect
to the Tenant Improvement work performed.

7.      DEFAULT

        7.1 Any default by Lessee under this Exhibit D which is not cured within
ten (10) days of notice from Lessor to Lessee in the event of non-payment of
money or thirty (30) days of notice in the event of a non-monetary default shall
be deemed an event of default under the Lease, entitling Lessor to exercise any
and all of its rights and remedies available to Lessor under the Lease, at law
or in equity for nonpayment of Rent. In addition to all other amounts payable
by Lessee hereunder, upon the default by Lessee under this Exhibit D (which
default is not cured as provided above), and notwithstanding anything to the
contrary contained herein, Lessee shall pay Lessor upon demand all costs and
expenses incurred by Lessor in connection with its review of the Plans, the
Final Plans, the IT Schedule and any construction documents, and in connection
with the construction of the Tenant Improvements

8.      CONSTRUCTION CONTRACT TERMS

        8.1 INDEMNIFICATION BY CONTRACTOR

        Contractor shall defend, protect, indemnify, and hold harmless Lessee
and Lessor and their respective, directors, officers, shareholders, members,
managers, agents and employees (collectively referred to as "Indemnitees") from
and against all liability, liens, injuries, claims, damages, fines, penalties,
costs, and expenses, including attorneys' fees and litigation or arbitration
costs, arising out of or resulting from the performance of the Work and/or
breach of the Contract Documents, provided that any such liability, lien,
injury, claim, damage, cost, or expense is caused, in whole or in part, by any
act of omission of Contractor, its subcontractors of any lower tier, anyone
directly or indirectly employed by any of them, or anyone for whose acts any of
them may be liable. Contractor's indemnity obligation shall be


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binding upon Contractor regardless of whether any of the Indemnitees is
negligent, actively, passively, or not at all. However, Contractor shall not be
required to indemnify any Indemnitee whose sole negligence or willful misconduct
is responsible for the liability, lien, injury, claim, damage, cost, or expense.
Contractor shall, upon demand by any of its Indemnitees, defend any action of
proceeding brought against any of its Indemnitees with respect to the matters
set forth in this Construction Contract; but any of the Indemnitees shall have
the right to conduct its own defense if it chooses to do so.

        8.2 INSURANCE REQUIRED TO BE CARRIED BY CONTRACTOR

        Contractor shall at all times carry with companies acceptable to Tenant
all necessary Worker's Compensation and other insurance required by law and a
Commercial General Liability Insurance policy in amounts not less than
$5,000,000.00 per occurrence for bodily injury and property damage. Such policy
or policies shall include coverage for premises and operations liability,
contractual liability (including, but not limited to, Contractor's indemnity
obligation to the Indemnitees), completed operations coverage, products
liability, broad form property damage liability, liability which Contractor may
incur as a result of the operations, acts, or omissions of its subcontractors,
suppliers, or materialmen, and their agents or employees, automobile liability,
including owned, non owned, and hired vehicles. Such policy or policies shall be
endorsed to include all Indemnitees as additional insureds and to stipulate that
such insurance shall be primary insurance and that any insurance carried by any
Indemnitees shall be excess and not contributory insurance.

        8.3 INSURANCE REQUIREMENTS

        All insurance coverage procured by the Contractor shall (i) list all of
the named insureds under the policy, (ii) be issued by an insurer admitted to
transact insurance in the State of California with a financial rating of at
least a B+ as rated in the most recent edition of Best's Insurance Reports,
(iii) contain an endorsement requiring at least thirty (30) days written notice
from the insurance company to all of the named additional insureds before any
cancellation or material change in coverage, scope, or amount of the insurance
policy, and (iv) contain an endorsement stating that no additional insured will
be excluded from coverage in


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the event that the additional insured is alleged or found to be negligent in
connection with any claim made under the policy or otherwise.

        8.4 DELIVERY OF CERTIFICATES OF INSURANCE AND POLICY ENDORSEMENTS TO
            LANDLORD AND TENANT

        If Contractor fails to deliver to Lessor and Lessee insurance
certificates and policy endorsements which reflect the requirements specified in
this Construction Contract within forty eight (48) hours after demand, and in
any event prior to commencement of Contractor's Work on the Project, Lessor may,
but shall not be obligated to, obtain such insurance for Contractor and pay the
premiums thereon, and Contractor shall repay Lessor, on demand, any sum or sums
paid therefor, or Lessor may deduct such premiums from any money due or to
become due to Contractor under this Agreement. In the alternative, Lessor may
declare Contractor in default under this Construction Contract.


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                             SCHEDULE 1 TO EXHIBIT D

Lessor's Work:

A.      BASE BUILDING WORK

        1. Building Standard exhaust line, waste line and domestic water hook
ups shall be stubbed to the Leased Premises.

        2. Check meter shall be installed to the Leased Premises; the cost of
the check meter and its installation costs shall be deducted from the Allowance.


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                                    EXHIBIT E

                         ACKNOWLEDGMENT OF COMMENCEMENT

                          LOCATION: 650 TOWNSEND STREET
                                SAN FRANCISCO, CA

        This Acknowledgment is made as of___________________________________,
with reference to that certain Lease (hereinafter referred to as the "Lease")
dated_________________________________, by and between Zoro, LLC as "Lessor"
therein, and Macromedia, Inc. as "Lessee."

        The undersigned hereby confirms the following:

        1. That Lessee accepted possession of the Leased Premises (as described
in the Lease) on the following date:___________________________; that the Leased
Premises are as represented by Lessor and in good order, condition and repair;
and that the improvements, if any, required by the Lease to be constructed for
Lessee by Lessor have been so constructed and are satisfactorily completed in
all respects.

        2. That all conditions of the Lease to be performed by Lessor
prerequisite to the full effectiveness of the Lease have been satisfied and
Lessor has fulfilled all of its duties of an inducement nature,
except________________________________________________________.

        3. That in accordance with the provisions of Article 4 of the Lease the
Commencement Date for the Leased Premises is__________________________ and that
unless sooner terminated, the Expiration Date of the original term of the Lease
is___________________________.

        4. That the Lease is in full force and effect and that the same
represents the entire agreement between Lessor and Lessee concerning the subject
matter of the Lease.

        5. That there are no existing defenses or offsets which Lessee has
against the enforcement of the Lease by Lessor, and no presently exercisable
offsets or credits against rentals, except_____________________________________.

        6. That Lessee's obligation for payment of Minimum Rent under the Lease
is presently in effect and that all rentals, charges and other obligations on
the part of Lessee under the Lease commenced to accrue on the date set forth in
Section 3 of this Acknowledgment


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        7. That the undersigned Lessee has not made any prior assignment,
hypothecation or pledge of the Lease or of the rents thereunder.

LESSOR                                            LESSEE

Zoro, LLC,                                        Macromedia, Inc.
a California Limited Liability Company
BY:___________________________________            By:___________________________
        Its Managing Member

Dated:_________________, 19___                    Dated:_________________, 19___


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                                   EXHIBIT G

                              RULES AND REGULATIONS

In the event the Lease expressly permits Lessee to perform any act that is
prohibited by these Rules and Regulations, the specific provision(s) of the
Lease shall control.

        1. Common Areas. The sidewalks, halls, passages, exits, entrances,
elevators and stairways of the Complex shall not be obstructed by Lessee or used
for any purpose other than for ingress to and egress from the Leased Premises.
The halls, passages, exits, entrances, elevators and stairways are not for the
general public and Lessor shall in all cases have the right to control and
prevent access thereto of all persons (including, without limitation, messengers
or delivery personnel not having proper identification) whose presence in the
judgment of Lessor would be prejudicial to the safety, character, reputation or
interests of the Complex and its Lessees. Neither Lessee nor any agent,
employee, contractor, invitee or licensee of Lessee shall go upon the roof of
the Complex other than for parking purposes or as expressly set forth to the
contrary in the Lease. Subject to the limitations set forth in Section 3.2 of
the Lease, Lessor shall have the right at any time, without the same
constituting an actual or constructive eviction and without incurring any
liability to Lessee therefor, to change the arrangement  or location of
entrances or passageways, doors or doorways, corridors, elevators, stairs,
toilets and common areas of the Complex, but Lessor shall at all times provide
reasonable access to the sixth floor of the Building from the parking facility
of the Complex.

        2. Prohibited Uses. The Leased Premises shall not be used for lodging.
No cooking shall be done or permitted on the Leased Premises except that private
use by Lessee of microwave ovens and/or Underwriters' Laboratory-approved
equipment for brewing coffee, tea, hot chocolate and similar beverages will be
permitted, provided that such use is in accordance with all applicable federal,
state and municipal laws, codes, ordinances, rules and regulations.

        3. Janitorial Service. Lessee shall not employ any person other than the
janitor of Lessor for the purpose of cleaning the Leased Premises unless
otherwise agreed to by Lessor in writing. Except with the written consent of
Lessor, no persons other than those approved by Lessor shall be permitted to
enter the Complex for the purpose of cleaning the Leased Premises. Lessee shall
not cause any unnecessary labor by reason of Lessee's carelessness or
indifference in the preservation of good order and cleanliness. Except as
otherwise expressly set forth in the Lease, Lessor shall not be responsible to
Lessee for any loss of property in the Leased Premises, however occurring, or
for any damage done to the effects of Lessee by the janitor or any other
employee or any other person.

        4. Keys. Lessor will furnish Lessee without charge with five (5) keys to
each exterior door to the Leased Premises. Lessor may make a reasonable charge
for any additional keys. Lessee shall not have any such keys copied or any keys
made. Lessee shall not alter any lock or install a new or additional lock or any
bolt on any door of the Leased Premises.


                                      G-1.
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Lessee, upon the termination of this Lease, shall deliver to Lessor all keys to
doors in the Complex.

        5. Moving Procedures. Lessor shall designate appropriate entrances for
deliveries or other movement to or from the Leased Premises of equipment,
materials, supplies, furniture or other property, and Lessee shall not use any
other entrances for such purposes. All moves shall be scheduled and carried out
during nonbusiness hours of the Complex. All persons employed and means or
methods used to move equipment, materials, supplies, furniture or other property
in or out of the Complex must be approved by Lessor prior to any such movement.
Lessor shall have the right to prescribe the maximum weight, size and position
of all equipment, materials, furniture or other property brought into the
Complex. Heavy objects shall, if considered necessary by Lessor, stand on a
platform of such thickness as is necessary properly to distribute the weight.
All damage done to the Complex by moving or maintaining such property shall be
repaired at the expense of Lessee.

        6. No Nuisances. Lessee shall not use or keep in the Leased Premises or
the Complex any kerosene, gasoline or inflammable or combustible fluid or
material other than limited quantities thereof reasonably necessary for the
operation or maintenance of office and multimedia equipment. Lessee shall not
use any method of heating or air conditioning other than that supplied by
Lessor. Lessee shall not use or keep or permit to be used or kept any foul or
noxious gas or substance in the Leased Premises, or permit or suffer the Leased
Premises to be occupied or used in a manner offensive or objectionable to Lessor
or other occupants of the Complex by reason of noise, odors or vibrations, or
interfere in any way with other Lessees or those having business in the Complex,
nor shall any animals be brought or kept in the Leased Premises or the Complex.

        7. Change of Address. Lessor shall have the right, upon adequate written
notice to Lessee, to change the name or street address of the Complex or the
room or suite number of the Leased Premises.

        8. Access to Complex. Lessor reserves the right to exclude from the
Complex during the evening, night and early morning hours beginning at 6 P.M.
and ending at 8 A.M. Monday through Friday, beginning at 1 P.M. and ending at 8
A.M. on Saturdays, and at all hours on Sundays, union holidays and legal
holidays, all persons who do not present identification acceptable to Lessor.
Lessee shall provide Lessor with a list of all persons authorized by Lessee to
enter the Leased Premises and shall be liable to Lessor for all acts of such
persons. Lessor shall in no case be liable for damages for any error with regard
to the admission to or exclusion from the Complex of any person. In the case of
invasion, mob, riot, public excitement or other circumstances rendering such
action advisable in Lessor's opinion, Lessor reserves the right to prevent
access to the Complex during the continuance of the same by such action as
Lessor may deem appropriate, including closing doors.

        9. Complex Directory. The directory of the Complex will be provided for
the display of the name and location of Lessee and a reasonable number of the
principal officers


                                      G-2.
   89

and employees of lessee at the expense of Lessee. Lessor reserves the right to
restrict the amount of directory space utilized by Lessee.

        10. Window Coverings. No curtains, draperies, blinds, shutters, shades,
screens or other coverings, hangings or decorations shall be attached to, hung
or placed in, or used in connection with any window of the Complex without the
prior written consent of Lessor. In any event, with the prior written consent of
Lessor, such items shall be installed on the interior side of Lessor's standard
window covering and shall in no way be visible from the exterior of the Complex.
Lessee shall keep window coverings closed when the effect of sunlight (or the
lack thereof) would impose unnecessary loads on the Complex's air conditioning
systems.

        11. Food and Beverages. Lessee shall not obtain for use in the Leased
Premises ice, drinking water, food, beverage, towel or other similar services,
except at such reasonable hours and under such reasonable regulations as may be
established by Lessor.

        12. Procedures When Leaving. Lessee shall ensure that the doors of the
Leased Premises are closed and locked and that all water faucets, water
apparatus and utilities are shut off before Lessee and its employees leave the
Leased Premises so as to prevent waste or damage. For any default or
carelessness in this regard, Lessee shall be liable and pay for all damage and
injuries sustained by Lessor or other Lessees or occupants of the Complex. On
multiple-tenancy floors, Lessee shall keep the doors to the Complex corridors
closed at all times except for ingress and egress.

        13. Bathrooms. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be paid by Lessee if caused by Lessee or its
agents, employees, contractors, invitees or licensees.

        14. Prohibited Activities. Except with the prior written consent of
Lessor or as otherwise expressly set forth in the Lease, Lessee shall (a) not
sell newspapers, magazines, periodicals, theater or travel tickets or any other
goods or merchandise to the general public in or on the Leased Premises, (b) not
carry on or permit or allow any employee or other person to carry on the
business of stenography, typewriting, printing or photocopying or any similar
business in or from the Leased Premises for the service or accommodation of
occupants of any other portion of the Complex, and (c) not allow the Leased
Premises to be used for manufacturing of any kind, or any business or activity
other than that specifically provided for in this Lease.

        15. Vehicles. There shall not be used in any space or in the public
halls of the Complex, either by Lessee or others, any hand trucks except those
equipped with rubber tires and side guards and such other material handling
equipment as Lessor approves. No vehicles of any kind shall be brought by Lessee
into the Complex (except as set forth in Section 49.1 of the Lease) or kept in
or about the Leased Premises.


                                      G-3.
   90

        16. Trash Removal. Lessee shall store all its trash and garbage within
the Leased Premises. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed of in
the ordinary and customary manner of removing and disposing of Complex trash and
garbage in the city or county in which the Complex is located without being in
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal shall be made only through entryways and elevators provided for
such purposes and at such times as Lessor shall designate. Lessee shall crush
and flatten all boxes, cartons and containers. Lessee shall pay extra charges
for any unusual trash disposal.

        17. No Soliciting. Canvassing, soliciting, distribution of handbills or
any other written material and peddling in the Complex are prohibited, and
Lessee shall cooperate to prevent the same.

        18. Services. The requirements of Lessee will be attended to only upon
application in writing at the office of the Complex. Personnel of Lessor shall
not perform any work or do anything outside of their regular duties unless under
special instructions from Lessor.

        19. Waiver. Lessor may waive any one or more of these Rules and
Regulations for the benefit of any particular Lessee or Lessees, but no such
waiver by Lessor shall be construed as a waiver of such Rules and Regulations in
favor of any other Lessee or Lessees, nor prevent Lessor from thereafter
enforcing any such Rules and Regulations against any or all of the Lessees of
the Complex.

        20. Supplemental to Lease. These Rules and Regulations are in addition
to, and shall not be construed to in any way modify or amend, in whole or in
part, the covenants of this Lease.

        21. Amendments and Additions. Lessor reserves the right to make such
other rules and regulations, and to amend or repeal these Rules and Regulations,
as in Lessor's judgment may from time to time be desirable for the safety, care
and cleanliness of the Complex and for the preservation of good order therein.


                                       G-4.
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                                    EXHIBIT H

That certain Redevelopment Masterplan for the Townsend Center dated January
20, 1998 and revised on February 5, 1998.


   92

                                    EXHIBIT J

                            JANITORIAL SPECIFICATIONS

A.      Janitorial Service Specifications for Day Porter

        Day Porter shall be on duty from 8:30 a.m. to 5:00 p.m., Monday through
Friday; Saturdays, Sundays and holidays excepted. The duties of the Day Porter,
who is under the exclusive direction of the Chief Engineer/Operations Manager
and Property Manager, shall be, but is not limited to, the following:

        1. Entrance Lobby

        The entrance lobby is to be kept neat and clean at all times and the
following minimum cleaning operations shall be maintained to attain this effect:

             a. Wipe down metal surfaces daily.
             b. Clean cigarette urns as necessary.
             c. Wash glass doors and mirrored surfaces daily and as needed.
             d. Empty garbage receptacles as necessary.

        2. Elevators/Escalators

             a. Vacuum carpets daily and as needed. Include spot cleaning as
                required in base contract.
             b. Spot clean lobby elevator saddles, doors and frames daily.
             c. Spot clean sides of elevator cars daily.
             d. Spot clean sides of escalators daily.

        3. Toilets - Daily

             a. Fill soap dispensers and paper towel dispensers (towels and soap
                to be furnished by Lessor).
             b. Report all mechanical deficiencies (i.e., dripping faucets,
                etc.) to the Property Manager.
             c. Wash all mirrors, powder shelves and lavatory tops.
             d. Empty paper towel receptacles and debris as needed but not less
                than once daily.
             e. Stock and maintain all sanitary product machines.

        4. Public Areas

             a. Remove all foreign matter and debris from all public corridors
                as necessary.


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             b. Handles special requests as directed by Manager (i.e., unplug
                toilets, remove trash, etc.)

        5. Building Service Areas

             a. Remove foreign matter and debris from planters and sidewalks
                along 8th and Townsend Streets daily.
             b. Lay down and remove lobby runners, as necessary.
             c. Ensure that the loading dock areas including the Mail Room,
                is free of debris.

B       Janitorial Service Specifications for Common Areas and Tenant Suites

        1. Nightly Services Sunday through Thursday.

             a. Secure all lights as soon as possible each night.
             b. Vacuum all Common Area carpets and tenanted areas.
             c. Dust mop all resilient and composition floors with treated dust
                mops. Damp mop to remove spills and water stains as require.
             d. Feather dust all desks and office furniture, excluding chairs.
             e. Papers and folders on desks are not to be moved.
             f. Empty all ash trays and ash urns. Clean and sanitize
                as required.
             g. Empty all waste paper baskets and other trash containers.
             h. Remove all trash from floors to designated trash areas.
             i. Remove fingerprints, dirt smudges, graffiti, etc., from all
                doors, frames, glass partitions, windows, light switches, walls,
                elevator door jambs and elevator interiors.
             j. Return chairs and waste baskets to proper positions.
             k. Clean sanitize and polish drinking fountains.

        2. Weekly Services

             a. Dust all low reach and high reach areas, including but not
                limited to, structural ledges, mirror tops, partition tops and
                edges, air conditioning diffusers and return air grilles.

        3. Monthly Services

             a. wipe all walls and metal partitions. Partitions shall be left
                clean and not streaked after this work.
             b. Clean all ventilation grilles.
             c. Dust all doors and door jambs.

        4. Quarterly Services


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             a. Thoroughly clean and reseal all ceramic tile floors, using
                approved sealers.

C.     Main Floor Elevator/Escalator Lobbies and Public Corridors Specifications

        1. Nightly Services

             a. Thoroughly wash all swinging glass doors exclusive of tenant
                door.
             b. Spot clean all glass including low partitions and the corridor
                side of all windows and glass doors to tenant premises.
             c. Spot clean all chrome brightwork including swinging door
                hardware, kick plates, base, partition tops, handrails, waste
                paper receptacles, planters, elevator call button plates, hose
                cabinets and visible hardware on the corridor side of tenant
                entry doors.
             d. Spot clean all interior architectural finishes including the
                corridor side of all tenant area window and door frames and
                bases.
             e. Thoroughly clean all door saddles of dirt and debris.
             f. Spot clean and dust directory boards and ledges.
             g. Empty, clean and sanitize as required all wastepaper baskets and
                refuse receptacles.
             h. Vacuum all carpets and minor spot clean, as necessary.
             i. Spot clean all elevator doors and frames.
             j. Police all areas for debris at least once during day time
                operating hours.

        2. Monthly Services

             a. Thoroughly clean all chrome and architectural interior finishes.

E.      Basement Corridors. Service Office (Engineering. Security. Cleaning)
        Store Rooms, Service Corridors, Roof and Service Sink Closets:

        Note: Nightly and periodic services for offices, corridors, locker rooms
and restrooms included in the above areas shall be per specifications previously
outlined for tenant areas and common areas on tenant floors. Additional work not
previously specified shall be as follows:

        1. Nightly Services

             a. Remove trash from all the above areas.
             b. Maintain an orderly arrangement of all janitorial supplies and
                paper products in the storage rooms and service sink closets.


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             c. Maintain an orderly arrangement of all equipment stored in these
                areas such as mops, buckets, brooms, vacuum cleaners, scrubbers,
                etc.
             d. Clean and disinfect service sinks.
             e. Sweep and damp mop service sink closet floors; deodorize and
                disinfect as required.
             f. Sweep store room floors.
             g. Receive and store all janitorial supplies in an orderly manner.

        2. Weekly Services

             a. Damp mop all composition floors in store rooms; deodorize and
                disinfect as required.
             b. High dusting of these areas, including all pipes, ducts,
                conduits, ventilating diffusers and grills, mechanical,
                electrical equipment exposed beneath the hung ceilings outside
                of the mechanical equipment rooms.

F.      Passenger Elevator/Escalator Cleaning Specifications.

        1. Nightly Services

             a. Spot clean walls and interior door.
             b. Spot clean outside surfaces of all doors and frames.
             c. Clean all floors thoroughly. Edge thoroughly.
             d  Vacuum all thresholds.
             e. Spot clean elevator carpets.

        2. Weekly Services

             a. Thoroughly clean entire interior surfaces and finish of all
                doors and frames and outside surfaces of all doors and frames.
             b. Steel wool clean all thresholds.
             c. Wipe thoroughly all handrails.

        3. Monthly Services

             a. Shampoo all elevator cab floor carpets.
             b. Wipe clean elevator cab lamps.
             c. Wipe clean entire cab ceiling

G.      Trash Area and Service Entrance Specifications

        1. Nightly Services


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             a. Place all miscellaneous trash and debris except construction
                material, in the Property's trash receptacles or compactor.
             b. Neatly stack all trash in the designated area.
             c. Sweep entire area.

H.        Exterior Structure and Grounds Services Specifications.

        1. Nightly Services


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                                    EXHIBIT K

                       EXCLUSIONS FROM OPERATING EXPENSES

        Notwithstanding anything in the definition of Operating Expenses in the
Lease to the contrary, Operating Expenses shall not include the following:

        (1) Except for amortization and depreciation costs expressly referenced
in Section 2.1 ("Operating Costs"), depreciation on the Building.

        (2) Interest payable by Lessor with respect to any debt secured by a
deed of trust or mortgage on the Building and/or the Property.

        (3) Leasing fees, leasing commissions or other brokerage commissions of
any kind.

        (4) Expenses for repair or replacement paid by proceeds of insurance,
condemnation awards, or proceeds received pursuant to warranties or guarantees.

        (5) Expenses incurred in leasing or procuring new tenants, including
advertising and marketing expenses, and expenses for preparation of leases or
renovating space for new tenants.

        (6) Costs incurred which are reimbursed by third parties.


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                                    EXHIBIT K

                       EXCLUSIONS FROM OPERATING EXPENSES

        Notwithstanding anything in the definition of Operating Expenses in the
Lease to the contrary, Operating Expenses shall not include the following:

        (1) Except for amortization and depreciation costs expressly referenced
in Section 2.1 ("Operating Costs"), depreciation on the Building.

        (2) Interest payable by Lessor with respect to any debt secured by a
deed of trust or mortgage on the Building and/or the Property.

        (3) Leasing fees, leasing commissions or other brokerage commissions of
any kind.

        (4) Expenses for repair or replacement paid by proceeds of insurance,
condemnation awards, or proceeds received pursuant to warranties or guarantees.

        (5) Expenses incurred in leasing or procuring new tenants, including
advertising and marketing expenses, and expenses for preparation of leases or
renovating space for new tenants.

        (6) Costs incurred which are reimbursed by third parties.
   99

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL T0:

WELLS FARGO BANK, NATIONAL
ASSOCIATION
REAL ESTATE GROUP (AU #2962)
400 CAPITOL MALL, SUITE 700
SACRAMENTO, CA 95814

Attn: Denise Latta
Loan No. 50330V

================================================================================

     SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL,
                    ATTORNMENT AND NON-DISTURBANCE AGREEMENT
                            (Lease To Deed of Trust)

NOTICE:  THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE
         PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF
         SOME OTHER OR LATER SECURITY INSTRUMENT.

THIS SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL,
ATTORNMENT AND NON-DISTURBANCE AGREEMENT ("Agreement" is made August 21, 1998
by and between ZORO, LLC, a California limited liability company, ("Owner"),
                         ("Lessee") and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Lender").

                                    RECITALS

A.      Pursuant to the terms and provisions of a lease dated
             (collectively the "Lease"), Owner, as "Lessor", granted to Lessee a
        leasehold estate in and to a portion of the property described on
        Exhibit A attached hereto and incorporated herein by this reference
        (which property, together with all improvements now or hereafter located
        on the property, is defined as the "Property").

B.      Owner has executed, or proposes to execute, a deed of trust with
        absolute assignment of leases and rents, security agreement and fixture
        filing ("Deed of Trust") securing, among other things, a promissory note
        ("Note") in the principal sum of FIFTY-FIVE MILLION FIVE HUNDRED
        THOUSAND AND NO/100THS DOLLARS ($55,500,000.00), dated August 21, 1998,
        in favor of Lender, which Note is payable with interest and upon the
        terms and conditions described therein ("Loan"). The Deed of Trust is to
        be recorded concurrently herewith.

C.      As a condition to making the Loan secured by the Deed of Trust, Lender
        requires that the Deed of Trust be unconditionally and at all times
        remain a lien on the Property, prior and superior to all the rights of
        Lessee under the Lease and that the Lessee specifically and
        unconditionally subordinate the Lease to the lien of the Deed of Trust.

D.      Owner, Lender and Lessee have agreed to the subordination, attornment
        and other agreements herein in favor of Lender, on the terms and
        conditions set forth herein.

NOW THEREFORE, for valuable consideration, Owner, Lender and Lessee hereby agree
as follows:


                                                                       EXHIBIT L
                                  Page 1 of 10
   100
                                                                 Loan No. 50330V
1.      SUBORDINATION. Owner, Lender and Lessee hereby agree that:

        1.1     Prior Lien. The Deed of Trust securing the Note in favor of
                Lender, and any modifications, renewals or extensions thereof,
                shall unconditionally be and at all times remain a lien on the
                Property prior and superior to the Lease;

        1.2     Subordination. Lender would not make the Loan without this
                agreement to subordinate; and

        1.3     Whole Agreement. This Agreement shall be the whole agreement
                and only agreement between the parties with regard to the
                subordination of the Lease to the lien of the Deed of Trust and
                shall supersede and cancel, but only insofar as would affect the
                priority between the Deed of Trust and the Lease, any prior
                agreements as to such subordination, including, without
                limitation, those provisions, if any, contained in the Lease
                which provide for the subordination of the Lease to a deed or
                deeds of trust or to a mortgage or mortgages.

        AND FURTHER, Lessee individually declares, agrees and acknowledges for
        the benefit of Lender, that:

        1.4     Use of Proceeds. Lender, in making disbursements pursuant to the
                Note, the Deed of Trust or any loan agreements with respect to
                the Property, is under no obligation or duty to, nor has Lender
                represented that it will, see to the application of such
                proceeds by the person or persons to whom Lender disburses such
                proceeds, and any application or use of such proceeds for
                purposes other than those provided for in such agreement or
                agreements shall not defeat this agreement to subordinate in
                whole or in part;

        1.5     Waiver, Relinquishment and Subordination. Subject to Section 6
                below, Lessee intentionally and unconditionally waives,
                relinquishes and subordinates all of Lessee's right, title and
                interest in and to the Property to the lien of the Deed of Trust
                and understands that in reliance upon, and in consideration of,
                this waiver, relinquishment and subordination, specific loans
                and advances are being and will be made by Lender and, as part
                and parcel thereof, specific monetary and other obligations are
                being and will be entered into which would not be made or
                entered into but for said reliance upon this waiver,
                relinquishment and subordination.

2.      ASSIGNMENT. Lessee acknowledges and consents to the assignment of the
        Lease by Lessor in favor of Lender.

3.      ESTOPPEL. Lessee acknowledges and represents that:

        3.1     Lease Effective. The Lease has been duly executed and delivered
                by Lessee and, subject to the terms and conditions thereof, the
                Lease is in full force and effect, the obligations of Lessee
                thereunder are valid and binding and there have been no
                modifications or additions to the Lease, written or oral;

        3.2     No Default. To the best of Lessee's knowledge, as of the date
                hereof: (i) there exists no breach, default, or event or
                condition which, with the giving of notice or the passage of
                time or both, would constitute a breach or default under the
                Lease; and (ii) there are no existing claims, defenses or
                offsets against rental due or to become due under the Lease;

        3.3     Entire Agreement. The Lease constitutes the entire agreement
                between Lessor and Lessee with respect to the Property and
                Lessee claims no rights with respect to the Property other than
                as set forth in the Lease; and

        3.4     No Prepaid Rent. No deposits or prepayments of rent have been
                made in connection with the Lease, except as follows: (If none,
                state "None") NONE.
                              ----

                                  Page 2 of 10
   101
                                                                 Loan No. 50330V
4.      ADDITIONAL AGREEMENTS. Lessee covenants and agrees that, during all such
        times as Lender is the Beneficiary under the Deed of Trust:

        4.1     Modification. Lessee will not consent to any amendment,
                modification or other agreement relating to the Lease which
                changes a material term of the Lease, including without
                limitation, such terms as rent, term, default, Indemnification,
                mortgage protection, security deposit provisions, or the use
                provisions of the Lease, without Lender's prior written consent
                and will not make any payment to Lessor in consideration of any
                modification of the Lease (in whole or in part) without Lender's
                prior written consent;

        4.2     Termination and Cancellation. Lessee will not cancel, terminate
                or surrender the Lease (in whole or in part) without Lender's
                prior written consent, except at the normal expiration of the
                Lease term, or as expressly provided in the Lease, or as
                provided in Section 4.3 (Notice of Default) below;

        4.3     Notice of Default. Lessee will notify Lender in writing
                concurrently with any notice given to Lessor of any default by
                Lessor under the Lease, and Lessee agrees that Lender has the
                right (but not the obligation) to cure any breach or default
                specified in such notice within the time periods set forth
                below. In the event of any act or omission by Owner which would
                give Lessee the right to terminate the Lease or to claim a
                partial or total eviction, Lessee shall not exercise any such
                right or make any such claim until Lessee has give Lender
                written notice of any such act or omission and has given Lender
                fifteen (15) days from and after the expiration of the time
                period provided in the Lease for the cure thereof by Lessor;
                provided, however, that if such default cannot with diligence be
                cured by Lender within such fifteen (15) day period, the
                commencement of action by Lender within such fifteen (15) day
                period to remedy the same shall be deemed sufficient so long as
                Lender pursues such cure with diligence;

        4.4     No Advance Rents. Lessee will make no payments or prepayments of
                rent more than one (1) month in advance of the time when the
                same become due under the Lease; and

        4.5     Assignment of Rents. Upon receipt by Lessee of written notice
                from Lender that Lender has elected to terminate the license
                granted to Lessor to collect rents, as provided in the Deed of
                Trust, and directing the payment of rents by Lessee to Lender,
                Lessee shall comply with such direction to pay and shall not be
                required to determine whether Lessor is in default under the
                Loan and/or the Deed of Trust. Lessee shall make payments to
                lender directly following receipt of such notice, and shall be
                properly credited with such payments against the rental payments
                then due under the Lease.

                Owner acknowledges and agrees that Lender shall be entitled to
                collect and receive rents pursuant to the Lease as provided
                herein and Lessee is authorized and hereby directed to make all
                such payments of rent to Lender upon receipt of written notice
                from Lender, and Lessee shall be under no duty or obligation to
                make further inquiry. Lessee shall continue to make all such
                payments of rent to Lender unless and until Lessee is otherwise
                authorized and directed in writing by Lender.

5.      ATTORNMENT. In the event of a foreclosure, deed-in-lieu of foreclosure
        or other acquisition of the Property, the Lease shall be recognized as a
        direct lease from Lender, the purchaser at the foreclosure sale, or any
        such subsequent owner, to Lessee. Subject to Section 6 below, Lessee
        agrees for the benefit of Lender (including for this purpose any
        transferee of Lender or any transferee of Lessor's title in and to the
        Property by Lender's exercise of the remedy of sale by foreclosure under
        the Deed of Trust, by deed in lieu of foreclosure or by any other means
        of acquisition of the Property) as follows:

        5.1     Payment of Rent. Lessee shall pay to Lender all rental
                payments required to be made by Lessee pursuant to the terms of
                the Lease for the duration of the term of the Lease;
                                  Page 3 of 10
   102

                                                                 Loan No. 50330V

        5.2     Continuation of Performance. Lessee shall be bound to Lender in
                accordance with all of the provisions of the Lease for the
                balance of the term thereof, as if Lender had been the original
                Landlord under the Lease, and Lessee hereby attorns to Lender as
                its landlord, such attornment to be effective and self-operative
                without the execution of any further instrument immediately upon
                Lender succeeding to Lessor's interest In the Lease and giving
                written notice thereof to Lessee;

        5.3     No Offset., Lender shall not be liable for, nor subject to, any
                offsets or defenses, not specifically provided for In the Lease,
                which Lessee may have by reason of any act or omission of Lessor
                under the Lease, nor for the return of any sums which Lessee may
                have paid to Lessor under the Lease as and for security
                deposits, advance rentals or otherwise, except to the extent
                that such sums are actually delivered by Lessor to Lender; and

        5.4     Subsequent Transfer. If Lender, by succeeding to the interest of
                Lessor under the Lease, should become obligated to perform the
                covenants of Lessor thereunder, then, upon any further transfer
                of Lessor's Interest by Lender, Lender shall have no liability
                under the Lease after. said transfer, except for those
                liabilities accruing during Lender's ownership.

6.      NON-DISTURBANCE. In the event of a foreclosure under the Deed of Trust,
        Lender agrees for itself and its successors and assigns that the
        leasehold interest of Lessee under the Lease shall not be extinguished
        or terminated by reason of such foreclosure, but rather the Lease shall
        continue in full force and effect as a direct Lease from Lender to
        Lessee (subject, however, to the provisions of Section 5.3 of this
        Agreement with respect to the security deposit), and Lender shall
        recognize and accept Lessee as tenant under the Lease subject to the
        terms and provisions of the Lease. So long as no default has continued
        to exist for such period of time (after notice, if any, required by the
        Lease) as would entitle Owner under the Lease to terminate the Lease,
        and except as otherwise provided in the Lease, the Lease shall not be
        terminated nor shall Lessee's use, possession, of enjoyment of the
        Property be interfered with, nor shall the leasehold estate granted by
        the Lease be affected by any transfer of the Property. The foregoing
        notwithstanding, Lessee and Lender agree that the following provisions
        of the Lease (if any) shall not be binding on Lender: any option to
        purchase with respect to the Property; or any right of first refusal
        with respect to the Property.

7.      MISCELLANEOUS.

        7.1     Heirs, Successors, Assigns and Transferees. The covenants herein
                shall be binding upon, and inure to the benefit of, the heirs,
                successors and assigns of the parties hereto; and

        7.2     Notices. All notices or other communications required or
                permitted to be given pursuant to the provisions hereof shall be
                deemed served upon delivery or, if mailed, upon the first to
                occur of receipt or the expiration of three (3) days after
                deposit in United States Postal Service, certified mail, postage
                prepaid and addressed to the address of Lessee or Lender
                appearing below:



                                  Page 4 of 10
   103

                                                                 Loan No. 50330V

          "OWNER"                                      "LENDER"

ZORO, LLC,                                WELLS FARGO BANK, NATIONAL ASSOCIATION
a California limited liability company    Real Estate Group (AU #2962)
900 Front Street, Suite 300               400 Capitol Mall, Suite 700
San Francisco, CA 94111                   Sacramento, CA 95814

Attn: Martin I. Zankel                    Attn: Denise Latta
                                          Loan No. 50330V

                                    "LESSEE"

Attn:

                provided, however, any party shall have the right to change its
                address for notice hereunder by the giving of written notice
                thereof to the other party in the manner set forth in this
                Agreement; and

        7.3     Counterparts. This Agreement may be executed in two or more
                counterparts, each of which shall be deemed an original and all
                of which together shall constitute and be construed as one and
                the same instrument; and

        7.4     Remedies Cumulative. All rights of Lender herein to collect
                rents on behalf of Lessor under the Lease are cumulative and
                shall be in addition to any and all other rights and remedies
                provided by law and by other agreements between Lender and
                Lessor or others; and

        7.5     Paragraph Headings. Paragraph headings in this Agreement are for
                convenience only and are not to be construed as part of this
                Agreement or in any way limiting or applying the provisions
                hereof.

INCORPORATION. Exhibit A and Lease Guarantor's Consent are attached hereto and
incorporated herein by this reference.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.

NOTICE:         THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS
                THE PERSON OBLIGATED ON YOUR REAL PROPERTY SECURITY TO OBTAIN A
                LOAN A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN
                IMPROVEMENT OF THE LAND.



                                  Page 5 of 10
   104

                                                                 Loan No. 50330V

IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF THIS AGREEMENT, THE PARTIES
CONSULT WITH THEIR ATTORNEYS WITH RESPECT HERETO.

                                                       "OWNER"

                                            ZORO, LLC,
                                            a California limited liability
                                            company

                                            BY:
                                               ---------------------------------
                                               Martin I. Zankel, Manager


                                                     "LENDER"

                                            WELLS FARGO BANK,
                                            NATIONAL ASSOCIATION

                                            By:
                                                 -------------------------------
                                                 Blake E. Griffin
                                            Its: Vice President

                                                       "LESSEE"

                                            BY:
                                               ---------------------------------

                                            ITS:
                                                --------------------------------

                                            BY:
                                               ---------------------------------

                                            ITS:
                                                --------------------------------

                      (ALL SIGNATURES MUST BE ACKNOWLEDGED)



                                  Page 6 of 10
   105

                                                                 Loan No. 50330V

                            LEASE GUARANTOR'S CONSENT

The undersigned ("Lease Guarantor") consents to the foregoing Subordination
Agreement; Acknowledgment of Lease Assignment, Estoppel, Attornment and
Non-Disturbance Agreement and the transactions contemplated thereby and reaffirm
its obligations under the lease guaranty ("Lease Guaranty") dated June 12, 1998.
Lease Guarantor further reaffirms that its obligations under the Lease Guaranty
are separate and distinct from Lessee's obligations.

AGREED:

Dated as of:                                           "LEASE GUARANTOR"

                                            BY:
                                               ---------------------------------

                                            ITS:
                                                --------------------------------



                                  Page 7 of 10
   106
                                                                       EXHIBIT A
                                                                  Loan No.50330V

                             DESCRIPTION OF PROPERTY

EXHIBIT A to Subordination Agreement; Acknowledgment of Lease Assignment,
Estoppel, Attornment and Non-Disturbance Agreement dated as of August 21, 1998,
executed by ZORO, LLC, a California limited liability company, as "Owner",
______________________, as "Lessee", and WELLS FARGO BANK, NATIONAL ASSOCIATION,
as "Lender".

All that certain real property located in the County of San Francisco, State of
California, described as follows:

APN Lot 9, Block 3783

PARCEL ONE

All of Lot 9, Assessor's Block 3783, as shown on that certain Map entitled,
"PARCEL MAP OF A PORTION OF 100 VARA BLOCK NO. 412, also being a portion of
Assessor's Block No. 3783 which Map was filed for record in the Office of the
Recorder of the City and County of San Francisco, State of California, on
November 29, 1988 in Book 38 of Parcel Maps, at page 36.

PARCEL TWO

Non-exclusive easements as set forth in that certain Grant of Easement with
Covenants and Restrictions affecting land dated as of December 29, 1988 by and
between Bay West Showplace Investors, a California Limited Partnership, and
Portman/Bay West Apparel partners, a California Partnership, recorded on
December 30, 1988 in Book E775 at Page 1598, Series No. E296406 in the Official
Records and as amended by that certain First Amendment to Grant of Easement with
Covenants and Restrictions affecting land dated as of June 19, 1998 by and
between Bay West Showplace Investors, a California Limited Partnership and Zoro,
LLC, a California limited liability company, recorded June 25, 1998 in Reel H162
at image 0291, Series No. G376431 in the Official Records.



                                  Page 8 of 10
   107

STATE OF CALIFORNIA
COUNTY OF __________________ ss.

On this ______ day of ____________ , 19__, before me, __________________________
a Notary Public in and for the State of California, personally appeared
_______________________________________ personally known to me (or proved on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal

Signature _______________________________

My commission expires ___________________.

STATE OF CALIFORNIA
COUNTY OF ________________________ ss.

On this ______ day of ____________ , 19__, before me, __________________________
a Notary Public in and for the State of California, personally appeared
______________________________________ personally known to me (or proved on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal

Signature _______________________________

My commission expires ___________________.



                                  Page 10 of 10

EX-10.16

   1

                                                                   EXHIBIT 10.16

                                MACROMEDIA, INC.

                            FIRST AMENDMENT TO LEASE

                               THE TOWNSEND CENTER
                                SAN FRANCISCO, CA

        This First Amendment to Lease ("First Amendment") is entered into this
1st day of July, 1999, by and between ZORO, LLC, a California Limited Liability
Company ("Lessor") and Macromedia, Inc. ("Lessee").

                                    RECITALS

        A. Lessee and Lessor entered into that certain Lease dated April 15,
1999 (the "Lease") with respect to certain premises (the "Original Premises")
located on the Fourth Floor, Quadrant "C" in the Townsend Center in San
Francisco, California (the "Building", pursuant to which Lessee presently
occupies 25,170 square feet of Adjusted Rentable floor area in the Building as
shown on the site plan attached to the Lease as Exhibit "C."

        B. Lessee now desires to lease from Lessor and Lessor desires to lease
to Lessee additional space in the Building which the parties agree consists of
48,970 square feet of Adjusted Rentable floor area on the Concourse Level of the
Building in Quadrants "A" and "D" (the "Concourse Space") as shown on the site
plan attached to this First Amendment as Exhibit "C-l." The Original Premises
and the Concourse Space are collectively referred to as the "Entire Premises."

        C. Lessee and Lessor desire to amend the Lease to provide for inclusion
of the Concourse Space, construction of tenant improvements and certain other
matters as provided herein.

        NOW, THEREFORE, in consideration of the agreements contained herein, and
for other good and valuable consideration, receipt and sufficiency of which is
hereby acknowledged, lessor and lessee hereto agree as follows:

                                    AGREEMENT

        1. DEMISE. Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor the Concourse Space, pursuant to the terms and conditions of the Lease as
amended by this First Amendment.

        2. COMMENCEMENT DATE AND TERM.

                2.1. ORIGINAL PREMISES. The Commencement Date for the Original
Premises remains as the date specified in Section 2.1 of the Lease and the Term
for the Original Premises expires five (5) years thereafter.

                2.2. CONCOURSE SPACE. The Term of the Lease for the Concourse
Space commences on the Commencement Date specified in Section 5 of this First
Amendment and expires five (5) years thereafter. The Renewal Term specified in
Section 4.3 applies to the Entire Premises, including the Concourse Space.



                                       1.
   2
                2.3. LESSEE'S RIGHT TO TERMINATE. In the event that the
Concourse Space is not approved by the San Francisco Planning Department as
having less than the "Permitted Office Use", as defined in the Lease, within
twenty (20) days from the execution of this First Amendment, and Lessor has not
waived the provisions of Section 11.1(b) of the Lease, then Lessee may terminate
this Lease upon thirty (30) days prior written notice to Lessor; however, if the
Planning Department approval is obtained prior to the expiration of Lessee's
thirty (30) day notice period, Lessee's termination notice shall be rendered
null and void.

        3. AMENDMENT OF SALIENT LEASE TERMS. Section 1 of the Lease, SALIENT
LEASE TERMS, is hereby amended as follows:

                3.1. LEASED PREMISES. Section 13(b) of the Lease is hereby
amended to read:

                    "(B) Leased Premises
                         Useable Area: 20,975 square feet
                                       Fourth Floor Quadrant "C"
                                       specified in Exhibit "C" attached to the
                                       Lease
                                       (Original Premises)

                                       40,808 square feet
                                       Concourse Level Quadrants "A" and "D"
                                       Specified in Exhibit "C-1" attached to
                                       this First Amendment (Concourse Space)
                                       Total Usable: 61,783 square feet

               Adjusted Rentable Area: 25,170 square feet - Original Premises
                                       48,970 square feet - Concourse Space
                                       74,140 square feet - Total

                        Rentable Area: 26,914 square feet - Original Premises
                                       55,248 square feet - Concourse Space
                                       82,162 square feet - Total"

                3.2. RENT. Section 1.5(A) of the lease is hereby amended to
read:

                     "(A) Minimum Rent:

                          (1) Original Premises     Original Premises
                              Annual Rental (Per    Monthly Rental
                              Adjusted Rentable     (Per Adjusted Rentable
                              Square Foot)          Square Foot)
                              $792,855              $66,071.25
                              ($31.50 ARSF)         ($2.63/ARSF)

                          (2) Concourse Space       Concourse Space
                              Annual Rental (Per    Monthly Rent
                              Adjusted Rentable     (Per Adjusted Rentable
                              Square Foot)          Square Foot)
                              $1,469,100            $122,425
                              ($30.00/ARSF)         ($2.50/ARSF)



                                       2.
   3

                          (3) Total Annual Rental   Total Monthly Rent
                              $2,261,955            $188,496.25"

                3.3. BASE OPERATING COST FOR THE COMPLEX. Section 1.9 of the
lease is hereby amended to read:

                        "2000 Base Expense Year and 1999-2000 Base Tax Year"

                3.4. PRO RATA PERCENTAGE. Section 1.8 of the Lease is hereby
amended to read:

                        "Pro Rata Percent for Original Premises: 4.00%
                        (26,914/672,788 rsf)
                        Pro Rata Percent for Concourse Space: 8.21%
                        (55,248/672,788 rsf)
                        Pro Rata Percent for Entire Premises: 12.21%
                        (82,162/672,788 rsf)"

        4. DELIVERY DATE FOR CONCOURSE SPACE.

                DELIVERY DATE. Subject to Lessor receiving all approvals for
Lessor's Work as set forth in Exhibit D-1 attached hereto (the "Concourse Space
Work Letter"), Lessor's estimated Delivery Date for Lessee's possession and
entry into the Concourse Space for the purpose of performing Lessee's Work as
set forth in the Concourse Space Work Letter is September 30, 1999. Subject to
construction and legal requirements, Lessor will cooperate with Lessee in
coordinating Lessor and Lessee's work so that Lessee's work can begin while
Lessor pursues construction of the corridor and Base Building systems.

        5. COMMENCEMENT DATE FOR CONCOURSE SPACE. The Term of the Concourse
Space and Lessee's obligation to pay rent for the Concourse Space to Lessor
pursuant to Sections 7 and 8 of the Lease shall commence on the earlier of:

                        (a) the date upon which the City and County of San
Francisco issues its certificate of occupancy for the Concourse Space;

                        (b) the date which is ninety (90) days after the
Delivery Date of the Concourse Space; or

                        (c) the date Lessee commences operations in the
Concourse Space.

        6. CONDITION OF CONCOURSE SPACE/ELEVATOR. Subject to completion of
Lessor's Work as set forth in the Concourse Space Work Letter, Lessee hereby
accepts the Concourse Space in the condition existing as of the date of
occupancy and Lessee hereby affirms and acknowledges the conditions of Section
12.2 of the Lease. Lessee expressly agrees that Lessor is not required to
install an ADA compliant lift or elevator or any lift or elevator for the
Premises. If any such lift/elevator is required, Lessee shall install it at its
own cost and expense and with Lessor's prior approval.

        7. CONSTRUCTION. Lessor and Lessee agree that the Concourse Space Work
Letter (and not Exhibit D of the Lease) shall control the rights and obligations
of the parties with respect to initial construction of the Concourse Space.
Lessee agrees to construct Tenant's Improvements for the Concourse Space in
accordance with and to be bound by all the terms and conditions of the Concourse
Space Work Letter



                                       3.
   4

        8. EXTERIOR SIGNAGE. Section 28 of the Lease is hereby amended to add
thereto: "Section 28.2 Exterior Signs. At such times during the Lease term (and
permitted extensions thereto) that Lessee continues to occupy a minimum of
48,970 Adjusted Rentable square feet on the Concourse Level of the Building,
Lessee shall have the right to exterior signage on the Building only as follows:

                (a) HORIZONTAL FLAGPOLES. Lessee shall have the right to use two
(2) existing horizontal flagpoles above or adjacent to Lessee's employee
entrance to the Building on Townsend Street for identifying flags. The size,
design and type of signs shall be subject to Lessor's approval and approval of
any governmental agencies. All costs of installation and maintenance of the
flags shall be at Lessee's sole cost and expense.

                (b) NON-ELECTRONIC SIGN. At Lessee's cost and expense and
subject to prior regulatory approval, Lessee shall have the right to install,
maintain and operate one (1) non-electronic sign not to exceed two hundred (200)
square feet in area, to be located on the Building exterior below the parapet on
the corner of Eighth and Townsend Streets on the Townsend Street side of the
Building ("Lessee's Exterior Sign"). Lessor shall provide Lessee with an exhibit
indicating size and location of such sign and shall have final design approval
thereof. Lessee hereby agrees to utilize AD-ART or other sign production company
acceptable to Lessor in Lessor's sole discretion, for design, installation and
regulatory approval of Lessee's Exterior Sign."

                9. ELECTRICAL SYSTEM. At all times during the Lease term and
permitted extensions during which Lessee is not in default beyond any permitted
cure period, Lessee shall have the right, at its sole cost and expense, to
install and maintain an electrical grounding system within the Concourse Space
at a location and in a manner approved by Lessor and in accordance with all
applicable laws and regulations. Lessee shall have the additional right to
install, at its sole cost and expense, and maintain, at its sole cost and
expense, conduit containing fiberoptic telecommunications ("Fiber Conduit")
lines across the ceiling of the Concourse Level and the loading dock area of the
Building to link the Concourse Space with Lessee's existing telecommunications
services at 600 Townsend Street and also to extend such Fiber Conduit to the
Quadrant "C" riser shaft to link with the telecommunications services in place
in the Original Premises. The number, size and path(s) of the Fiber Conduit
shall be mutually agreed upon by Lessor and Lessee. Lessee shall, prior to the
Commencement Date, install, at its sole cost and expense, a separate utility
meter or check meter for the Concourse Space.

        10. RISER ACCESS. Lessee acknowledges that the ceiling of the Concourse
Space is the primary horizontal riser access for other tenants of the Complex.
Accordingly, Lessor shall have access at any time, upon reasonable prior notice
to Lessee, except in the case of emergencies when no notice shall be required,
to install future systems and maintain existing systems in the ceiling of the
Concourse Space.

        11. PRIORITY OF FIRST AMENDMENT. To the extent the provisions of the
Lease are inconsistent with the provisions of this First Amendment, the
provisions of this First Amendment shall supersede and control.

        12. DEFINED TERMS. As used herein, capitalized terms shall have the
meaning ascribed to them in the Lease, unless expressly defined herein.



                                       4.
   5

        13. LEASE IN FULL FORCE AND EFFECT. Except as hereby modified, the Lease
remains unchanged and in full force and effect, and except as expressly
otherwise provided herein, the terms and conditions of the Lease shall apply to
the Concourse Space as well as the Original Premises.

        14. SUCCESSORS AND ASSIGNS. This First Amendment shall bind, and inure
to the benefit of, the parties hereto and their respective permitted successors
and assigns.

        15. BROKERS. Lessee represents and warrants to Lessor that Lessee has
had no dealings with any broker, finder or similar person who is or might be
entitled to a commission or other fee in connection with this First Amendment
other than Cushman & Wakefield and Polatnick Properties, Inc. Lessee shall
protect, defend and indemnify Lessor against and hold Lessor harmless from, any
and all claims, demands, liability and costs (including reasonable attorneys'
fees), of any person, other than Lessor's Broker, who claims to have dealt with
Lessee in connection with the transaction contemplated by this First Amendment.
Lessor shall protect, defend and indemnify Lessee against, and hold Lessee
harmless from, any and all claims, demands, liability and costs (including
reasonable attorneys' fees), of any person who claims to have dealt with Lessor
in connection with the transaction contemplated by this First Amendment.

        IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.

                                            LESSOR
                                            ZORO, LLC.
                                            a California limited liability
                                            company

                                            By: /s/ MARTIN ZANKEL
                                               ---------------------------------
                                               Its: Managing Member

                                            LESSEE:

                                            MACROMEDIA, INC.

                                            By: /s/ BETSEY NELSON
                                               ---------------------------------
                                               Betsey Nelson

                                            Its: SENIOR VP AND CFO
                                                 MACROMEDIA, INC.
                                                (415) 252-4102

                                            By: /s/ ROBERT BURGESS
                                               ---------------------------------
                                                Robert Burgess

                                            Its: CEO
                                                --------------------------------



                                       5.
   6

                                   EXHIBIT D-1

                               The Concourse Space

                              Work Letter Agreement
                          (Lessor's and Lessee's Work)

A. LESSOR'S WORK

        Whenever this Exhibit D-1 refers to the "Leased Premises," such
reference shall mean the Concourse Space as described in the First Amendment to
Lease to which this Exhibit D-1 is an exhibit. The Leased Premises shall be
delivered to Lessee in "AS-IS" condition, and without any obligation on the
part of Lessor to perform improvements to the Leased Premises, except for the
work expressly set forth in Schedule 1 (the "Lessor's Work").

B. LESSEE'S WORK

1. Plans/Specifications

        1.1 PLAN DESIGN

        Prior to commencing work on the leasehold improvements to the Leased
Premises as hereinafter provided ("Tenant Improvements"), Lessee shall submit to
Lessor complete and detailed plans and specifications for the Tenant
Improvements ("Plans"). The Plans shall be prepared by Don Beck & Associates
("Architects") and by Therma (Mechanical Engineer) and Cupertino Electric
(Electrical Engineer) (collectively, "Engineers"), all licensed to practice in
the State of California.

        1.2 (a) Coordination

        The Architect shall coordinate with Lessor's Project Manager Joseph Mock
to assure that the Plans are consistent with the existing design and
construction of the Leased Premises. Lessee acknowledges that Lessor has
provided Lessee with a set of base building drawings for the Leased Premises
("Building Drawings"). However, Lessor does not warrant, and Lessee should not
rely upon, the accuracy of the Building Drawings. Lessee, therefore, should
undertake its own investigation of the Leased Premises to confirm existing
conditions, rather than relying on the Building Drawings.



                                       1
   7

                (b) Governmental

                Lessee acknowledges that Lessor has established procedures for
relations with the Building and Planning Departments of the City and County of
San Francisco and that Lessee, Lessee's representatives, architects, or agents
shall not contact any representatives of the City and County of San Francisco
without the presence of Lessor's representative to assure consistency of
treatment of the Building and its tenants by such governmental agencies. Any
such contact by Lessee's representatives in contravention of this provision
which causes an alteration in governmental treatment of the Building which
results in additional costs to the Building or any tenant therein, shall be
borne by the Lessee.

        1.3 SCHEMATICS

        Lessee shall deliver to Lessor the schematic drawings ("Schematic
Drawings") upon which the Plans shall be based not later than September 15,
1999. The Schematic Drawings and the Plans shall conform with standards set
forth by Lessor for material specifications and construction specifications
which are applicable for the Building in general. Lessor shall have ten (10)
working days after receipt thereof to review and approve/disapprove the
Schematic Drawings. Once Lessor has approved the Schematic Drawings, Lessee
shall cause the Architect to prepare the Plans which must be consistent with the
approved Schematic Drawings. Provided Lessor has approved the Schematic
Drawings, Lessee shall deliver the Plans to Lessor for its approval, in one or
more stages, during the period between October 1 and October 15, 1999. Lessor
shall not unreasonably withhold its approval of the plans so long as the Plans
are consistent with the Schematic Drawings. In scheduling the preparation of the
Schematic Drawings and the Plans, Lessee shall allow sufficient time for review
and approval by Lessor and by the appropriate government agencies.

        1.4 SCHEMATICS APPROVAL

        If Lessor disapproves of the Schematic Drawings or the Plans or any
portion of either, Lessor shall promptly notify Lessee thereof in writing and of
the revisions which Lessor requires in order for Lessee to obtain Lessor's
approval. As promptly as reasonably possible, but in no event later than ten
(10) days thereafter, Lessee shall submit to Lessor a revised set of Schematic
Drawings or Plans incorporating the changes required by Lessor. Said revisions
shall also be subject to Lessor's approval. Lessor shall have five (5) working
days after receipt of the revised Schematic Drawings or Plans to notify Lessee
in writing of Lessor's approval or disapproval of same. If Lessor again
disapproves of or requests revisions to the Schematic Drawings or the Plans,
Lessee shall submit to Lessor, within ten (10) business days after receiving
Lessor's written disapproval or request for revisions, a further revised set of



                                       2
   8

Schematic Drawings or Plans incorporating the changes required by Lessor. This
process shall continue until Lessor has approved the Schematic Drawings and the
Plans.

        1.5 FINAL PLANS

        The Plans, approved by Lessor, shall be referred to as the "Final
Plans." The Final Plans shall be signed by Lessor and Lessee. After approval of
the Final Plans, Lessee shall not make any changes thereto without Lessor's
prior written approval in accordance with the provisions of this Exhibit D-1.

        1.6 PERMITS

        Subject to the provisions of paragraph 1.2(b), Lessee shall be solely
responsible for obtaining all necessary governmental approvals and permits
(including but not limited to the approval of the San Francisco City Planning
Department) required to commence and complete the Tenant Improvements after
obtaining the prior approval of Lessor before making any submittal to any
governmental agency for permit, which approval of Lessor shall not be
unreasonably withheld; and immediately upon receipt thereof, Lessee shall
deliver copies of all such approvals and permits to Lessor. Lessor shall
cooperate with Lessee in assisting Lessee to obtain all necessary governmental
approvals and permits in connection with the construction of the Tenant
Improvements.

        1.7 CODE COMPLIANCE

        Except as expressly set forth to the contrary in the Lease with respect
to Code Compliance, it shall be Lessee's sole responsibility to satisfy all
applicable building code requirements and governmental rules and regulations
concerning the design and construction of the Tenant Improvements. Lessor's
approval of the Final Plans is not intended, and should not be understood by
Lessee, as an affirmation that the Final Plans comply with applicable building
codes or other governmental rules and regulations or that the Final Plans are in
conformance with standards of good workmanship as practiced by
architects/engineers in the San Francisco Bay Area. Lessor's review of the Final
Plans is solely for Lessor's benefit, and Lessee shall not rely upon that review
for any purpose whatsoever in connection with the work on or the design of the
Tenant Improvements.

        1.8 CONTRACTOR

        Lessor hereby approves South Bay Construction as its general contractor
to perform the Tenant Improvements ("Contractor"), duly licensed in the State of
California and familiar with all applicable building code requirements, who
shall be satisfactory to Lessor, in Lessor's reasonable discretion



                                       3
   9

2. SCHEDULING AND LESSEE'S PRIOR ACCESS TO THE PREMISES

        2.1 SCHEDULE

        At least five (5) days prior to the start of construction of the Tenant
Improvements, Lessee shall deliver to Lessor the proposed schedule of the
Lessee's Work to be performed ("TI Schedule"). The TI Schedule shall be prepared
by the Contractor, and it shall show the schedule for the submission of all shop
drawings/submittals and for the performance of each portion of the Tenant
Improvements. Lessee and the Architect shall either consult with the Contractor
or the Architect shall perform the necessary investigation to determine the
availability of the equipment and materials to be incorporated into the Tenant
Improvements and which portions of the Tenant Improvements will require long
lead time for ordering and/or manufacturing. The TI Schedule shall be in the
form of a Critical Path Method schedule.

        2.2 COMMENCEMENT OF CONSTRUCTION

        Upon delivery of the Leased Premises to Lessee and Lessee's receipt of
all approvals of the Final Plans and the acquisition by Lessee of all necessary
permits, Lessee shall commence the construction of the Tenant Improvements.
Lessor and Lessee agree that Lessor must perform certain Lessor's Work, and that
both parties will use all commercially reasonable efforts to coordinate their
respective work inside the space; however, in event of any conflict between
Lessor's Work and Lessee's Work, on one day's prior written notice Lessee shall
either accommodate Lessor's requirements or vacate the Leased Premises until
completion of Lessor's Work. In addition to the foregoing, Lessor shall permit
Lessee access to the Leased Premises, prior to approval of Final Plans and the
acquisition of permits, for the purposes of obtaining measurements of the Leased
Premises, confirming existing conditions and for space planning preparation
purposes. Lessee's entry to the Leased Premises prior to the Delivery Date for
such purposes shall be upon all of the terms and conditions of the Lease,
including, without limitation the provisions regarding insurance and
indemnification, but excepting the payment of Minimum Rent and additional Rent.
Lessee shall be solely responsible for all costs and expenses incurred in
connection with the Tenant Improvements and any pre-Delivery Date activities,
and Lessee hereby agrees to indemnify, defend, and hold harmless Lessor from and
against any loss, cost, expense, liability, damage, or injury in connection
therewith.



                                       4
   10

        2.3 USE OF BUILDING FACILITIES

        During the course of Lessee's construction of the Tenant Improvements,
Lessor hereby agrees not to charge Lessee's contractors for use of the Building
utilities, loading dock and freight elevators during normal business hours.

3. PAYMENT FOR TENANT IMPROVEMENTS AND THE CONSTRUCTION CONTRACT

        3.1 CONSTRUCTION COSTS

        As an inducement to Lessee to enter into the Lease, but subject to
paragraph 3.2 below and as otherwise provided in the Lease and this Exhibit D-1,
Lessor agrees to reimburse Lessee for: (1) the cost of construction of the
Tenant Improvements identified on the approved Final Plans (which may, at
Lessee's election, include construction of an employee entrance on Townsend
Street and an ADA-compliant lift as required pursuant thereto); (2) costs of any
permits or licensing fees; (3) payment of the fees of the " Architect" and
"Engineers" for the Tenant Improvements; (4) payment of the fees of Lessee's
space planner up to a maximum of 15 cents ($0.15) per Adjusted Rentable square
foot which payment, at Lessee's Option, may be upon execution of the First
Amendment; and (5) any other costs approved by Lessor including planning and
design costs and the costs of the check meter which Lessee will install as part
of Lessee's Work ("Tenant Improvement Costs") up to a cost not to exceed $20.00
for each Adjusted Rentable square foot in the Leased Premises (the "Allowance").
If the Allowance is not used for Tenant Improvement Costs, the unused portion
shall revert to Lessor and shall not be available for any other purpose by
Lessee.

        3.2 PAYMENT OF ALLOWANCE

                (a) Payment Procedure

        Lessor shall reimburse Lessee for the Tenant Improvement Costs up to the
Allowance upon the last to occur of: (i) substantial completion of the Tenant
Improvements; (ii) receipt by Lessor of invoices for all portions of the Tenant
Improvements from the person(s) performing the work or rendering the services,
together with such supporting documentation as Lessor may reasonably request in
connection therewith, and (iii) receipt by Lessor of unconditional lien releases
with respect to the entirety of the Tenant Improvements from all contractors,
subcontractors and materialmen who performed the work or rendered services or
materials. Lessor shall have no obligation to pay all or any portion of the
Allowance at any time following the occurrence, and during the continuance, of
any event of default by Lessee under the Lease.



                                       5
   11

                (b) Primary Obligation

        Lessee shall pay all costs incurred in connection with the construction
of the Tenant Improvements.

                (c) Project Management Services. In consideration of the
supervisory, logistical and oversight and review work to be performed by
Landlord in connection with the Tenant Improvements, Tenant agrees that Landlord
shall be entitled to charge against the Allowance a construction management fee
(the "Coordination Fee") in the amount of three percent (3%) of the total cost
of the Tenant Improvements. Landlord shall deduct the Coordination Fee from the
Allowance.

        3.3 CONTRACT TERMS

        The construction contract for the Tenant Improvements shall include all
of the provisions which are included herein and identified as "Construction
Contract Terms;" provided, however, that the Construction Contract Terms may be
revised with Lessor's approval, which approval shall not be unreasonably
withheld, in a manner which does not expose Lessor to additional liability.

4. CHANGES, ADDITIONS, AND ALTERATIONS

        4.1 MATERIALITY

        From time to time Lessee may make nonmaterial changes in the Final
Plans prior to final completion with Lessor's prior approval, which approval
shall not be unreasonably withheld. Lessee shall not make any material changes
to the Final Plans (which shall mean a change the cost of which will be in
excess of $5,000.00, or is visible from the exterior of the Leased Premises, or
affects the structure, roof, central building systems or exterior walls of the
Leased Premises) without securing the prior written approval of Lessor, which
approval shall not unreasonably be withheld by Lessor. In seeking Lessor's
approval for changes to the Final Plans, Lessee shall deliver to Lessor such
documentation as the Construction Contract shall require for changes in the
Contract Price or an extension of the Completion Date.

        4.2 RENT COMMENCEMENT

        No such changes in the Final Plans shall delay the Rent Commencement
Dates set forth in the Lease. Lessor shall approve or disapprove any such
changes within ten (10) working days after the receipt of a request from Lessee.
Upon approval by Lessor, such change shall be included within the phrase "Final
Plans."



                                       6
   12

5. Construction and Delays

        5.1 The performance of the Tenant Improvements shall be subject to the
following terms and conditions:

                (a) Compliance by Lessee and the Contractor and its
subcontractors, material suppliers, and equipment renters of whatever tier
("Lessee's Contractors") with the applicable provisions of the Lease;

                (b) All of the Tenant Improvements, which are performed by
Lessee's Contractors, shall be scheduled through Lessee;

                (c) All of the Tenant Improvements shall be performed in
accordance with the reasonable rules and regulations which Lessor may issue from
time to time;

                (d) Lessor shall have no responsibility whatsoever for the
supervision or coordination of Lessee's Contractors ,the Architect, or the
Engineer, the quality of their work or any other matter with respect to Lessee's
Contractors, the Architect, or the Engineer; however, Lessee shall coordinate
all Tenant Improvements with Lessor's Project Manager as described herein and as
set forth in the TI Schedule.

                (e) Although Lessor shall have no responsibility as set forth in
subparagraph (d) above, Lessor's Project Manager may, at his option, demand a
stop in Lessee's Work if any terms of this Exhibit D-1 are violated or
threatened to be violated by Lessee or Lessee's contractor or if the Tenant
Improvement Work is not being performed in accordance with the approved Final
Plans.

                (f) In connection with the construction of the Tenant
Improvements, Lessee's Contractor and subcontractors shall not be charged for
the use of utilities, loading dock and freight elevators during normal business
hours.

6. SUBSTANTIAL COMPLETION

        6.1 DEFINITION

        For purposes of this Exhibit D-1 and the Lease, "Substantial Completion"
of the Tenant Improvements shall mean the date that (i) the Architect certifies
to Lessor that the Tenant Improvements have been completed in accordance with
the Final Plans; and (ii) the Rent Commencement Date under the Lease has
occurred, and (iii) Lessor has received unconditional lien releases with respect
to the Tenant Improvement work performed.



                                       7
   13

7. DEFAULT

        7.1 Any default by Lessee under this Exhibit D-1 which is not cured
within ten (10) days of notice from Lessor to Lessee in the event of a
non-payment of money or within thirty (30) days of notice in the event of a
non-monetary default, shall be deemed an immediate event of default under the
Lease, entitling Lessor to exercise any and all of its rights and remedies
available to Lessor under the Lease, at law or in equity for nonpayment of Rent.
In addition to all other amounts payable by Lessee hereunder, upon the default
by Lessee under this Exhibit D-1 (which default is not cured as provided above),
and notwithstanding anything to the contrary contained herein, Lessee shall pay
Lessor upon demand all costs and expenses incurred by Lessor in connection with
its review of the Plans, the Final Plans, the TI Schedule and any construction
documents, and in connection with the construction of the Tenant Improvements.

8. CONSTRUCTION CONTRACT TERMS

        8.1 INDEMNIFICATION BY CONTRACTOR

        Contractor shall defend, protect, indemnify, and hold harmless Lessee
and Lessor and their respective, directors, officers, shareholders, members,
managers, agents and employees (collectively referred to as "Indemnitees") from
and against all liability, liens, injuries, claims, damages, fines, penalties,
costs, and expenses, including attorneys' fees and litigation or arbitration
costs, arising out of or resulting from the performance of the Work and/or
breach of the Contract Documents, provided that any such liability, Lien,
injury, claim, damage, cost, or expense is caused, in whole or in part, by any
act of omission of Contractor, its subcontractors of any lower tier, anyone
directly or indirectly employed by any of them, or anyone for whose acts any of
them may be liable. Contractor's indemnity obligation shall be binding upon
Contractor regardless of whether any of the Indemnitees is negligent, actively,
passively, or not at all. However, Contractor shall not be required to indemnify
any Indemnitee whose sole negligence or willful misconduct is responsible for
the liability, lien, injury, claim, damage, cost, or expense. Contractor shall,
upon demand by any of its Indemnitees, defend any action of proceeding brought
against any of its Indemnitees with respect to the matters set forth in this
Construction Contract; but any of the Indemnitees shall have the right to
conduct its own defense if it chooses to do so.

        8.2 INSURANCE REQUIRED TO BE CARRIED BY CONTRACTOR

        Contractor shall at all times carry with companies acceptable to Tenant
all necessary Worker's Compensation and other insurance required by law and a
Commercial General



                                       8
   14

Liability Insurance policy in amounts not less than $5,000,000.00 per occurrence
for bodily injury and property damage. Such policy or policies shall include
coverage for premises and operations liability, contractual liability
(including, but not limited to, Contractor's indemnity obligation to the
Indemnitees), completed operations coverage, products liability, broad form
property damage liability, liability which Contractor may incur as a result of
the operations, acts, or omissions of its subcontractors, suppliers, or
materialmen, and their agents or employees, automobile liability, including
owned, non-owned, and hired vehicles. Such policy or policies shall be endorsed
to include all Indemnitees as additional insureds and to stipulate that such
insurance shall be primary insurance and that any insurance carried by any
Indemnitees shall be excess and not contributory insurance.

        8.3 INSURANCE REQUIREMENTS

        All insurance coverage procured by the Contractor shall (i) list all of
the named insureds under the policy, (ii) be issued by an insurer admitted to
transact insurance in the State of California with a financial rating of at
least an A:VII as rated in the most recent edition of Best's Insurance Reports,
(iii) contain an endorsement requiring at least thirty (30) days written notice
from the insurance company to all of the named additional insureds before any
cancellation or material change in coverage, scope, or amount of the insurance
policy, and (iv) contain an endorsement stating that no additional insured will
be excluded from coverage in the event that the additional insured is alleged or
found to be negligent in connection with any claim made under the policy or
otherwise.

        8.4 DELIVERY OF CERTIFICATES OF INSURANCE AND POLICY ENDORSEMENTS TO
            LANDLORD AND TENANT

        If Contractor fails to deliver to Lessor and Lessee insurance
certificates and policy endorsements which reflect the requirements specified in
this Construction Contract within forty-eight (48) hours after demand, and in
any event prior to commencement of Contractor's Work on the Project, Lessor may,
but shall not be obligated to, obtain such insurance for Contractor and pay the
premiums thereon, and Contractor shall repay Lessor, on demand, any sum or sums
paid therefor, or Lessor may deduct such premiums from any money due or to
become due to Contractor under this Agreement. In the alternative, Lessor may
declare Contractor in default under this Construction Contract.



                                       9
   15

                                 SCHEDULE 1 TO
                                  EXHIBIT D-1

Lessor's Work:

                Lessor agrees to install the following in or for the Leased
Premises at its sole cost and expense:

        1. Install a Building Standard dropped ceiling approximately 11-12 feet
above the concrete slab in approximately fifty percent (50%) of the Concourse
Space as specified in the area marked in Schedule 2 attached hereto.

Lessee's Work:

        1.      In addition to the work described in the Final Plans, Lessee
                agrees to:
                (a)     purchase and install a check meter; and
                (b)     secure its employee entrance with Lessee's own security
                        system.
                (c)     pay all costs for an employee entrance on Townsend
                        Street, including an ADA-compliant lift.



                                       1
   16

                         [CONCOURSE LEVEL CEILING PLAN]

EX-10.17

   1

                                                                   EXHIBIT 10.17

                              COMMERCIAL LEASE-NET
                            (Single Tenant Building)

                            Basic Lease Information

Date: 2-28, 2000

Landlord: Oelsner Commercial Properties

Tenant: Macromedia, Inc.

Premises (section 1.1): Address: 1750 Alameda Street, San Francisco, California

Term (section 2.1): Ten (10) Years

Commencement Date (section 2.1): ____________, 2000

Options (Section 2.4): One (1) five (5) year option to extend

Expiration Date (section 2.1): _______________, 2010

Initial Base Rent (section 3.1(a)): Year 1 = $43.50 per annum per square foot
                                    Year 2 = Year 1 Base Rent plus greater of
                                             3% or CPI
                                    Year 3 = Year 2 plus greater of 3% or CPl
                                    Year 4 = Year 3 plus greater of 3% or CPI
                                    Year 5 = Year 4 plus greater of 3% or CPI
                                    Year 6 = Year 5 plus greater of 3% or CPI
                                    Year 7 = Year 6 plus greater of 3% or CPI
                                    Year 8 = Year 7 plus greater of 3% or CPI
                                    Year 9 = Year 8 plus greater of 3% or CPI
                                    Year 10 = Year 9 plus greater of 3% or CPI

Security Deposit (section 3.5): Two month's rent or one month's rent and a
Letter of Credit for the second month's rent.

Use (section 6.1): General office use associated with software development,
marketing and related uses.

Liability Insurance (section 10.3): $2 million/$5 million [Coverage amounts and
structure to be one hundred percent replacement and reviewed annually]

Landlord's Address (section 23.1): 960 S. Virginia Street, Reno, Nevada 89502

Tenant's Address (section 23.1): 600 Townsend Street, San Francisco, California
94103

Exhibits and Addenda (section 26.3): Exhibit A - Description of Premises
                                     Exhibit B - Estoppel Certificate



   2

                                             Exhibit C - Base Building Condition



                                       2
   3

        The foregoing Basic Lease Information is incorporated in and made a part
of the Lease to which it is attached. If there is any conflict between the Basic
Lease Information and the Lease, the Lease shall control.

Landlord:                                   Tenant:

Oelsner Commercial Properties               Macromedia, Inc.

By /s/ Paul F. Oelsner                      By /s/ [SIGNATURE ILLEGIBLE]
  ---------------------------------           ---------------------------------
       (Paul F. Oelsner)

Its General Partner                         Its Vice President, General Counsel



                                       3
   4
                                      LEASE

     THIS LEASE, made as of the date specified in the Basic Lease Information,
by and between the landlord specified in the Basic Lease Information
("Landlord"), and the tenant specified in the Basic Lease Information
("Tenant"),

                                   WITNESSETH:

                                    ARTICLE 1

                                    Premises

     1.1  Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the covenants hereinafter set forth, to
all of which Landlord and Tenant hereby agree, the building specified in the
Basic Lease Information containing approximately sixty thousand (60,000) square
feet of space and the land on which the building is located, as shown on Exhibit
A attached hereto (the "Premises"). The Premises contain approximately sixty
thousand (60,000) square feet. The square footage shall be the dimensions of the
building on each level measured from the exterior walls without deduction for
interior penetrations. Tenant's architect shall determine the actual square
footage within thirty (30) days of the Commencement Date subject to Landlord's
reasonable review and approval. If the parties cannot agree, then Landlord shall
employ an independent licensed architect to determine the actual square footage
which determination shall be final, conclusive and binding. In the event that
any alteration, repair or addition increases the square footage of the Premises,
the added square footage shall be added to the foregoing amount and the Base
Rent increased accordingly. In the event that any alteration, repair or addition
decreases the square footage, no adjustment shall be made.

                                    ARTICLE 2

                                      Term

     2.1  The term of this Lease shall be the term specified in the Basic Lease
Information, which shall commence within three (3) weeks of notice to Landlord
of Tenant's desire to begin work on the Premises ("Commencement Date");
provided, however, that Landlord shall vacate the Premises no later than sixty
(60) days after the execution of this Lease and the Commencement Date shall
begin no later than the day Landlord vacates the Premises and, unless sooner
terminated as hereinafter provided, shall end one hundred twenty (120) months
following the Rent Commencement Date (the "Expiration Date").

     2.2  If the Commencement Date is not the first day of a calendar month,
Tenant shall pay to Landlord, as additional rent, the Base Rent payable under
section 3.1, calculated on a per diem basis, for the period from the Rent
Commencement Date until the first day of the next full calendar month. Tenant
shall pay the Base Rent in respect of such period to Landlord on the Rent
Commencement Date.


                                       1
   5



     2.3  Tenant shall accept the Premises "as is" on the Commencement Date.
Landlord shall have no obligation to construct or install any improvements in
the Premises. Tenant's possession of the Premises shall constitute Tenant's
acknowledgment that the Premises are in all respects in the condition in which
Landlord is required to deliver the Premises to Tenant under this Lease and that
Tenant has examined the Premises and is fully informed to Tenant's satisfaction
of the physical and environmental condition and the utility of the Premises.
Tenant acknowledges that Landlord, its agents and employees and other persons
acting on behalf of Landlord have made no representation or warranty of any kind
in connection with any matter relating to the physical or environmental
condition, value, fitness, use or zoning of the Premises upon which Tenant has
relied directly or indirectly for any purpose.

     2.4  Provided that Tenant is not in default under or breach of this Lease
beyond any applicable cure period provided herein, either at the time of
exercising the applicable option to renew described below or at the time such
renewal term commences, Tenant shall have the option to renew this Lease for one
(1) additional term of five (5) years. Tenant shall exercise its option to renew
by delivering to Landlord written notice of Tenant's election to renew the term
of this Lease at least nine (9) months before the expiration of the then current
term of this Lease. Landlord's failure to receive Tenant's written notice duly
electing to renew the term of this Lease shall be conclusively deemed Tenant's
election not to exercise its option to renew, in which event the term shall
expire on the last day of the term. If Tenant duly exercises its option to
renew, then Tenant shall continue to occupy the Premises on all of the terms and
conditions of this Lease, except that: (a) the Base Rent, as adjusted under
Section 3.6, payable by Tenant during the applicable renewal term shall be
increased as set forth in section 3.1(a); and (b) Tenant shall have no further
renewal options under this Lease, except as provided in section 8.2 and section
15.3. Tenant's rights to extend the term of this Lease are personal to Tenant,
may not be exercised by or be assigned to any person or entity other than
Tenant, and shall terminate and be of no further effect in the event of any
assignment of this Lease or subletting of all of the Premises to any person or
entity except assignments as permitted under Section 12.4, and provided that
partial assignments not resulting in the termination of this Lease by Landlord
under Article 12 shall not terminate Tenant's rights to extend the term of this
Lease.

                                    ARTICLE 3

                                      Rent

     3.1  Tenant shall pay to Landlord the following amounts as rent for the
Premises:

     (a)  For the first sixty (60) days following the Commencement Date, Tenant
shall be entitled to occupy the Premises without the payment of rent in order to
begin Base Building and Tenant Improvement work. Following the expiration of
such period ("Rent Commencement Date") and until the last day of the twelfth
full calendar month thereafter, Tenant shall pay to Landlord, as base monthly
rent, the amount of monthly rent specified in the Basic Lease Information (the
"Base Rent"). Commencing on the first day of the thirteenth full calendar month
after the Rent Commencement Date, and on each anniversary of that date
thereafter (including the renewal term), the Base Rent shall be subject to
increase. The amount of such increase shall be the amount obtained pursuant to
the Consumer Price Index ("CPI") (as


                                       2
   6



hereinafter defined) or three percent (3%), whichever is greater. On each annual
anniversary of the Rent Commencement Date ("CPI Adjustment Date"), the Base Rent
shall be adjusted upward, but never decreased, by the sum of (i) the Base Rent
for the immediately preceding month, including any prior adjustments, plus (ii)
the greater of the product obtained by multiplying such Base Rent by three
percent (3%) or the percentage increase in the CPI by the difference between the
CPI as currently published and in effect on the CPI Adjustment Date and the CPI
as then published and in effect twelve (12) months earlier. Landlord and Tenant
each shall, promptly after any determination of the Base Rent pursuant to this
section 3.1, execute and deliver to the other a written amendment to this Lease
which sets forth the Base Rent, but such Base Rent shall become effective
whether or not such amendment is executed. In the event Landlord and Tenant do
not promptly calculate such CPI Adjustment, Tenant shall pay Landlord any
increase from each CPI Adjustment Date immediately upon notice from Landlord.

     As used in this Lease, "Consumer Price Index" shall mean the Consumer Price
     Index for San Francisco, Oakland, San Jose, All Urban Consumers, All Items,
     1982-1984 equals 100, published by the United States Department of Labor,
     Bureau of Labor Statistics. If the federal government revises or ceases to
     publish the Consumer Price Index, Landlord and Tenant shall convert to the
     revised index or adopt the successor index in accordance with the
     guidelines therefor issued by the federal government.

     (b)  Throughout the term of this Lease, Tenant shall pay, as additional
rent, all other amounts of money and charges required to be paid by Tenant under
this Lease, whether or not such amounts of money or charges are designated
"additional rent." As used in this Lease, "rent" shall mean and include all Base
Rent and additional rent payable by Tenant in accordance with this Lease.

     (c)  The following is an example of the foregoing provision: The rent shall
be adjusted every twelve (12) months this Lease remains in full force and
effect. The first adjustments shall be made commencing with the first month of
the second year of the term, and the cost of living index to be used shall be
the one published for the preceding month of April. For example, if the cost of
living index for the month of April, 2002, at the time of computation, was
209.9, and the April, 2001 CPI was 202.9, the increase in the cost of living
index is 7.0. The percentage of change is therefore 7.0 over 202.9 times 100,
which equals 3.449 percent. The rent shall be adjusted commencing for the
ensuing year by 3.449 percent. Assuming the base rent with CPI of the second
year was $44.59 per sq. ft. for the purpose of this example only, the adjusted
Base Rent for the next twelve (12) months would be $44.59 per sq. ft. plus 3.449
percent or $1.538 for a total of $46.128 per sq. ft. per month new annual Base
Rent.

     3.2  It is the intention of Landlord and Tenant that the Base Rent payable
by Tenant to Landlord during the entire term of this Lease shall be absolutely
net of all costs and expenses incurred in connection with the management,
operation, maintenance, repair and replacement of the Premises in accordance
with this Lease. Landlord shall have no obligations or liabilities whatsoever
with respect to the management, operation, maintenance, repair or replacement of
the Premises during the term of this Lease, and Tenant shall manage, operate,
maintain, repair and replace the Premises in accordance with this Lease and
shall pay all costs and expenses incurred in connection therewith before such
costs or expenses become delinquent. Without limiting the


                                       3
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generality of the foregoing, throughout the entire term of this Lease, Tenant
shall pay, as additional rent, all premiums for all property and liability
insurance covering the Premises carried by Tenant, all Property Taxes (as
defined in section 4.1) and all Other Taxes (as defined in section 5.1) that
accrue during or are allocable to the term of this Lease.

     3.3  Tenant shall pay all Base Rent to Landlord, in advance, on or before
the first day of each and every calendar month during the term of this Lease.
Tenant shall pay all additional rent upon demand. Tenant shall pay all rent to
Landlord without notice, demand, deduction or offset, in lawful money of the
United States of America, at the address of Landlord specified in the Basic
Lease Information, or to such other person or at such other place as Landlord
may from time to time designate in writing.

     3.4  Tenant acknowledges that the late payment by Tenant of any Base Rent
or additional rent (including the items described in section 3.2) will cause
Landlord to incur costs and expenses, the exact amount of which is extremely
difficult and impractical to fix. Such costs and expenses will include
administration and collection costs and processing and accounting expenses.
Therefore, if any Base Rent or additional rent is not received by Landlord
within five (5) days after Tenant's receipt of written notice from Landlord that
such sum is past due, Tenant shall immediately pay to Landlord a late charge
equal to five percent (5%) of such delinquent amount. Landlord and Tenant agree
that such late charge represents a reasonable estimate of such costs and
expenses and is fair compensation to Landlord for the loss suffered by Tenant's
failure to make timely payment. In no event shall such late charge be deemed to
grant to Tenant a grace period or extension of time within which to pay any rent
or prevent Landlord from exercising any right or enforcing any remedy available
to Landlord upon Tenant's failure to pay all rent due under this Lease in a
timely fashion, including the right to terminate this Lease. All amounts of
money payable by Tenant to Landlord hereunder, if not paid when due, shall bear
interest from the due date until paid at the maximum annual interest rate
allowed by law for business loans (not primarily for personal, family or
household purposes) not exempt from the usury law at such due date or, if there
is no such maximum annual interest rate, at the rate of eighteen percent (18%)
per annum.

     3.5  Upon signing this Lease, Tenant shall pay to Landlord (a) an amount
equal to the Base Rent for the first month of the term of this Lease for which
the Base Rent is to be paid, which amount Landlord shall apply to the Base Rent
for such first month, and (b) the amount of the security deposit specified in
the Basic Lease Information (the "Security Deposit"). One half of the Security
Deposit may be in a reasonably acceptable letter of credit in favor of the
Landlord. The Security Deposit shall be held by Landlord as security for the
performance by Tenant of all of the covenants of this Lease to be performed by
Tenant, and Tenant shall not be entitled to interest thereon. If Tenant fails to
perform any of the covenants of this Lease to be performed by Tenant, then
Landlord shall have the right, but no obligation, to apply the Security Deposit,
or so much thereof as may be necessary, to cure any such failure by Tenant. If
Landlord applies the Security Deposit or any part thereof to cure any such
failure by Tenant, then Tenant shall immediately pay to Landlord the sum
necessary to restore the Security Deposit to the full amount required by this
section 3.5. The Security Deposit shall be applied to the last month's rent. Any
remaining portion of the Security Deposit shall be returned to Tenant upon
termination of this Lease. Upon termination of the original Landlord's or any
successor owner's interest in the Premises, the original Landlord or such
successor owner shall be released from


                                       4
   8



further liability with respect to the Security Deposit upon the original
Landlord's or such successor owner's transferring the Security Deposit to the
new owner. Landlord's obligations with respect to the Security Deposit are those
of a creditor and not of a trustee. Landlord shall not be required to maintain
the Security Deposit separate and apart from Landlord's general or other funds,
and Landlord may co-mingle the Security Deposit with any of Landlord's general
or other funds. Notwithstanding the foregoing, upon the lien free completion by
Tenant of the Base Building Work and the Tenant Improvements, one month's
Security Deposit shall be returned to Tenant.

     3.6  During the renewal terms (if Tenant has timely exercised its renewal
option for the same), the Base Rent shall be the fair market rental ("Fair
Market Rental") for the Premises as of the end of the just expired Lease Term,
but in no event less than the Base Rent, including all adjustments, being paid
at the end of such Lease Term.

     (a)  As used herein, Fair Market Rental shall mean the annual amount per
square foot that a willing comparable entity, non-renewal, non-expiration new
tenant would pay and a willing, comparable Landlord of a similar class building
which is situated in downtown San Francisco, California, would accept at arm's
length without deduction for brokerage commissions and/or tenant improvement
allowances, if any.

     (b)  Procedure for Determining Fair Market Rental.

     Landlord and Tenant shall attempt to agree upon the Fair Market Rental for
the extended term(s) within twenty (20) days following delivery of Tenant's
notice of exercise to Landlord. If Landlord and Tenant are not able to agree
upon said Fair Market Rental for the extended term(s) within said twenty (20)
day period, the Base Rent and the method of rental adjustment for the extended
term shall be determined by appraisal in the manner hereinafter set forth.

     In the event it becomes necessary under this paragraph to determine the
Fair Market Rental for Base Rent and the method of rental adjustment for the
Premises by appraisal, Landlord and Tenant each shall appoint a real estate
appraiser who shall be a member of the American Institute of Real Estate
Appraisers ("AIREA") or it's successor organization and experienced in
appraising commercial real estate in the vicinity of the Premises and such
appraisers shall each determine the Fair Market Rental for the Base Rent and the
method of rental adjustment taking into account the value of the Premises and
the amenities provided, prevailing comparable rentals and rental adjustment
practices in the area. Such appraisers shall, within twenty (20) business days
after their appointment, complete their appraisals and submit their appraisal
reports to Landlord and Tenant. If the Fair Market Rental for the Base Rent
established in the two (2) appraisals varies by five percent (5%) or less of the
higher rental, the average of the two shall be controlling. If said Fair Market
Rental varies by more than five percent (5%) of the higher rental, said
appraisers, within ten (10) days after submission of the last appraisal, shall
appoint a third appraiser who shall be a member of the AIREA and who shall also
be experienced in the appraisal of rental values and adjustment practices for
commercial properties in the vicinity of the Premises. Such third appraiser
shall, within twenty (20) business days after its appointment, determine by
appraisal the Fair Market Rental for the Base Rent of the Premises, taking into
account the same factors referred to above, and submit its appraisal report to
Landlord and Tenant. The Fair Market Rental determined by the third appraiser
for the


                                       5
   9



Premises shall be controlling, unless it is less than that set forth in the
lower appraisal previously obtained, in which case the value set forth in said
lower appraisal shall be controlling, or unless it is greater than that set
forth in the higher appraisal previously obtained, in which case the rental set
forth in said higher appraisal shall be controlling. The method of adjusting
rental periodically, including the manner and timing of such adjustments, shall
be as determined by the initial two appraisers, if they agree on a single
method; otherwise, it shall be as determined by the third appraiser. If either
Landlord or Tenant fails to appoint an appraiser, or if an appraiser appointed
by either of them fails, after his appointment, to submit his appraisal within
the required period in accordance with the foregoing, the appraisal submitted by
the appraiser properly appointed and timely submitting his appraisal shall be
controlling. If the two appraisers appointed by Landlord and Tenant are unable
to agree upon a third appraiser within the required period in accordance with
the foregoing, application shall be made within twenty (20) days thereafter by
either Landlord or Tenant to the AIREA, which shall appoint a member of said
institute willing to serve as appraiser. If the AIREA is unwilling to appoint a
third appraiser or fails to do so then said appraiser shall be selected by the
Presiding Judge of the Superior Court, County of San Francisco. The cost of all
appraisals under this paragraph shall be borne equally by Landlord and Tenant.

                                    ARTICLE 4

                                 Property Taxes

     4.1  "Property Taxes" shall mean all taxes, assessments, excises, levies,
fees and charges (and any tax, assessment, excise, levy, fee or charge levied
wholly or partly in lieu thereof or as a substitute therefor or as an addition
thereto) of every kind and description, general or special, ordinary or
extraordinary, foreseen or unforeseen, secured or unsecured, whether or not now
customary or within the contemplation of Landlord and Tenant, that are levied,
assessed, charged, confirmed or imposed by any public or government authority on
or against, or otherwise with respect to, the Premises or any part thereof or
any personal property used in connection with the Premises. Property Taxes shall
not include net income (measured by the income of Landlord from all sources or
from sources other than solely rent), franchise, inheritance or capital stock
taxes of Landlord, unless levied or assessed against Landlord in whole or in
part in lieu of, as a substitute for, or as an addition to any Property Taxes.

     4.2  Landlord and Tenant shall provide notice to the City and County of San
Francisco to send all Property Tax bills to each party. Tenant shall pay all
such Property Taxes on or prior to their due date. If Tenant fails to timely pay
any or all Property Taxes when due, Landlord may advance such amount and Tenant
shall pay, as additional rent, such Property Taxes, penalties and interest
thereon and interest on the amount paid by Landlord at the rate specified in
Section 3.4.

     4.3  Notwithstanding the foregoing, if Property Taxes are increased as a
result of a reassessment following any sale or other change of ownership of the
Premises, then (i) Landlord shall be responsible for the full amount of any such
increase during the initial term of this Lease


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   10



and (ii) Landlord and Tenant shall each pay one-half (1/2) of any such
increased amounts during the renewal terms of this Lease.

                                    ARTICLE 5

                                   Other Taxes

     5.1  "Other Taxes" shall mean any and all taxes, assessments, excises,
levies, owner's association dues or similar charges, fees and charges, including
all payments related to the cost of providing facilities or services, whether or
not now customary or within the contemplation of Landlord and Tenant, that are
levied, assessed, charged, confirmed or imposed by any public or government
authority upon, or measured by, or reasonably attributable to (a) the Premises,
(b) the cost or value of Tenant's equipment, furniture, fixtures and other
personal property located in the Premises or the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, regardless of whether
title to such improvements is vested in Tenant or Landlord, (c) any rent payable
under this Lease, including any gross income tax or excise tax levied by any
public or government authority with respect to the receipt of any such rent, (d)
the possession, leasing, operation, management, maintenance, alteration, repair,
replacement, use or occupancy by Tenant of the Premises, or (e) this transaction
or any document to which Tenant is a party creating or transferring an interest
or an estate in the Premises. Other Taxes shall not include net income (measured
by the income of Landlord from all sources or from sources other than solely
rent), franchise, inheritance or capital stock taxes of Landlord, unless levied
or assessed against Landlord in whole or in part in lieu of, as a substitute
for, or as an addition to any Other Taxes.

     5.2  In addition to any other assessments payable by Tenant under the Lease
including, but not limited to, any assessments payable by Tenant pursuant to
Section 5.1, Tenant shall pay any special assessment levied upon the Project by
any governmental entity including, but not limited to, any special assessment
levied upon the Project by the Bay Area Rapid Transit District (or any other
governmental entity having the authority to impose such assessment)(the "Special
Assessment"). Tenant shall pay any such Special Assessment in equal monthly
installments as the same are billed by such special district. Landlord may
require that the final installment be due and payable on the first day of the
month in which any such Special Assessment is due. Tenant's obligation under
this section 5.2 requires Tenant to pay the entire Special Assessment for each
calendar year of the Term and is not limited to Tenant's Share of any annual
increases made, from time to time, to the Special Assessment. If the bill for
any such Special Assessment specifies that it applies to a given period of time,
Tenant's obligations under this section 5.2 shall be amortized to the extent the
Term of this Lease does not include all of such period.

     5.3  The provisions of Section 4.2 shall also apply to any Other Taxes and
assessments.


                                       7
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                                    ARTICLE 6

                                       Use

     6.1  Tenant shall use the Premises only for the purpose specified in the
Basic Lease Information and no other purpose without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed; provided,
however, Landlord's withholding of consent shall be conclusively presumed
reasonable if the proposed use would materially increase the wear and tear on or
the risk of damage to the Premises above levels or risks resulting from Tenant's
use as of the date of this Lease or the proposed use is for an illegal, immoral
or disreputable purpose. Tenant shall not do or permit to be done in, on or
about the Premises, nor bring or keep or permit to be brought or kept therein,
anything which is prohibited by or will in any way conflict with any law,
ordinance, rule, regulation or order now in force or which may hereafter be
enacted, or which is prohibited by any insurance policy for the Premises, or
will in any way increase the existing rate of, or cause a cancellation of, or
affect any insurance for the Premises. Tenant shall not do or permit anything to
be done in, on or about the Premises which will in any way obstruct or interfere
with the rights of Landlord as provided herein. Tenant shall not maintain or
permit any nuisance in, on or about the Premises or commit or suffer to be
committed any waste in, on or about the Premises.

                                    ARTICLE 7

                                    Services

     7.1  Tenant shall, at Tenant's sole cost and expense, supply the Premises
with electricity, heating, ventilating and air conditioning, water, natural gas,
lighting replacement for all lights, restroom supplies, telephone service,
window washing, security service, janitor, scavenger and disposal services, and
such other services as Tenant determines to furnish to the Premises. Landlord
shall not be in default hereunder or be liable for any damage or loss directly
or indirectly resulting from, nor shall the rent be abated or a constructive or
other eviction be deemed to have occurred by reason of, the installation, use or
interruption of use of any equipment in connection with the furnishing of any of
the foregoing services, any failure to furnish or delay in furnishing any such
services, whether such failure or delay is caused by accident or any condition
beyond the control of Landlord or Tenant or by the making of repairs or
improvements to the Premises, or any limitation, curtailment, rationing or
restriction on use of water, electricity, gas or any form of energy serving the
Premises, whether such results from mandatory governmental restriction or
voluntary compliance with governmental guidelines. Tenant shall pay the full
cost of all of the foregoing services as additional rent. On or prior to the
Commencement Date, Tenant shall arrange for all utilities and other services to
be provided on Tenant's account to the Premises and Landlord shall be entitled
to disconnect any such services. Tenant may provide fiber optic wiring to the
Premises at its sole cost and expense. Upon request by Tenant, Landlord shall
cooperate with Tenant as needed to establish utility services to the Premises or
to reestablish such services following any service interruptions, provided that
Landlord shall not be required to incur any out-of-pocket costs in so
cooperating.


                                       8
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                                    ARTICLE 8

                  Maintenance and Repairs; Capital Improvements

     8.1  Tenant shall, at all times during the term of this Lease and at
Tenant's sole cost and expense, maintain, repair and replace the Premises and
every part thereof and all grounds, landscaping, parking areas, lighting, roof,
walls, floors, foundations, signs, heating, ventilating and air conditioning,
mechanical, electrical, plumbing, sprinkler and life safety systems, equipment,
fixtures, alterations, additions and improvements therein or thereon and keep
all of the foregoing clean and in good order and operating condition (including
painting the exterior of the Premises as often as reasonably needed to keep such
exterior in a good, well painted condition, cleaning interior and exterior
doors, windows and glass, and repairing and replacing any exterior windows and
glass that is broken, cracked or damaged). Tenant shall engage a duly licensed
independent contractor to perform all maintenance and repair services on all
heating, ventilating and air conditioning, mechanical, electrical, plumbing,
sprinkler and life safety systems and equipment in the Premises that is to be
performed by Tenant in accordance with this section 8.1. Landlord and its
consultants or contractors shall have the right to inspect the Premises as
provided in Article 13 to determine Tenant's compliance with this section 8.1,
and Tenant shall promptly complete any work recommended by Landlord or its
consultants or contractors as a result of any such inspection. At Landlord's
option, if Tenant fails to make such repairs, Landlord may following at least
ten (10) days prior written notice to Tenant, but need not, make the repairs and
replacements. On receipt of an invoice from Landlord, Tenant shall pay Landlord
Landlord's out-of-pocket costs incurred in connection with such repairs and
replacements plus three percent (3%) of such costs to reimburse Landlord for all
overhead, general conditions, fees and other costs and expenses arising from
Landlord's involvement with such repairs and replacements. Tenant hereby waives
all rights to make repairs at the expense of Landlord, including its right to
make repairs at Landlord's expense, under California Civil Code section
1941-1942 or any similar law, statute or ordinance now or hereafter in effect,
or in lieu thereof to vacate the Premises. Subject to section 9.2, Tenant shall,
at the end of the term of this Lease, surrender to Landlord the Premises and all
alterations, additions, fixtures and improvements therein or thereto in the same
condition as when received, ordinary wear and tear and damage thereto by fire or
other casualty excepted.

     8.2  Notwithstanding the foregoing, if Tenant is obligated to make any
repairs or replacements to the Premises during the last twelve (12) months of
the term of this Lease, the estimated cost of such repairs or replacements
exceeds two hundred thousand dollars ($200,000.00) and the cost of such repairs
or replacements should be capitalized under generally accepted accounting
principles for a useful life which exceeds the remainder of the term of the
Lease, then Tenant shall notify Landlord as to whether or not it will make such
repairs or replacements. If Tenant elects not to make such repairs or
replacements, then Landlord may make such repairs or replacements at its expense
and continue the Lease to the end of its term or not make such repairs or
replacements and cancel the lease with thirty (30) days written notice. If
Tenant elects to make the repairs or replacements during the last twelve (12)
months of the second extension term, then Landlord agrees to allow Tenant to
extend the term of the Lease for an additional four (4) years at the end of such
term on the same terms and conditions as the first extension. Tenant shall
advise Landlord of its decision as to whether or not to make the repairs or
replacements within thirty (30) days of either Landlord's or Tenant's receipt of
a written


                                       9
   13



estimate of costs from a reputable licensed general contractor or specialty
contractor as applicable.

                                    ARTICLE 9

               Alterations, Base Building and Tenant Improvements

     9.1  Tenant shall not make any alterations, additions or improvements in or
to the Premises or any part thereof, or attach any fixtures or equipment
thereto, without Landlord's prior written consent which shall not be
unreasonably withheld. Notwithstanding the preceding sentence, Tenant may make
such alterations, additions or improvements without Landlord's consent only if
the total cost of such alterations, additions or improvements is one hundred
thousand dollars ($100,000.00) or less and such alterations, additions or
improvements will not affect in any way the structural, exterior or roof
elements of the Premises or mechanical, electrical, plumbing, utility or life
safety systems of the Premises and Tenant provides a completion bond, letter of
credit or other reasonable security for lien-free completion to Landlord; but
Tenant shall give prior written notice of any such alterations, additions or
improvements to Landlord. In no event shall Tenant be permitted to install
underground storage tanks or fuel systems on the Premises. Landlord's refusal to
consent to the installation of an underground tank or fuel system shall be
conclusively presumed to be reasonable. All alterations, additions and
improvements in or to the Premises to which Landlord consents shall be made by
Tenant at Tenant's sole cost and expense as follows:

     (a)  Tenant shall submit to Landlord, for Landlord's written approval,
complete plans and specifications for all work to be done by Tenant. Such plans
and specifications shall be prepared by the licensed architect(s) and
engineer(s), shall comply with all applicable codes, laws, ordinances, rules and
regulations, shall not adversely affect the structural elements of the Premises,
shall be in a form sufficient to secure the approval of all government
authorities with jurisdiction over the Premises, and shall be otherwise
satisfactory to Landlord in Landlord's reasonable discretion.

     (b)  Landlord shall notify Tenant promptly in writing whether Landlord
approves or disapproves such plans and specifications and, if Landlord
disapproves such plans and specifications, Landlord shall describe the reasons
for disapproval. Tenant may submit to Landlord revised plans and specifications
for Landlord's prior written approval. Tenant shall pay all costs, including the
fees and expenses of the licensed architect(s) and engineer(s), in preparing
such plans and specifications.

     (c)  All material changes in the plans and specifications approved by
Landlord shall be subject to Landlord's prior written approval. If Tenant wishes
to make any such material change in such approved plans and specifications,
Tenant shall have such architect(s) and engineer(s) prepare plans and
specifications for such change and submit them to Landlord for Landlord's
written approval. Landlord shall notify Tenant in writing promptly whether
Landlord approves or disapproves such change and, if Landlord disapproves such
change, Landlord shall describe the reasons for disapproval. Tenant may submit
to Landlord revised plans and specifications for such change for Landlord's
written approval. After Landlord's written


                                       10
   14



approval of such change, such change shall become part of the plans and
specifications approved by Landlord.

     (d)  Tenant shall obtain and comply with all building permits and other
governmental permits and approvals required in connection with the work. Tenant
shall, through Tenant's licensed contractor, perform the work substantially in
accordance with (i) the plans and specifications approved in writing by
Landlord, (ii) the permits obtained by Tenant, and (iii) all applicable codes,
laws, ordinances, rules and regulations. Tenant shall pay, as additional rent,
the entire cost of all work (including the cost of all utilities, permits, fees,
taxes, and property and liability insurance premiums in connection therewith)
required to make the alterations, additions and improvements. Under no
circumstances shall Landlord be liable to Tenant for any damage, loss, cost or
expense incurred by Tenant on account of any plans and specifications,
contractors or subcontractors, design of any work, construction of any work or
delay in completion of any work.

     (e)  Tenant shall give written notice to Landlord of the date on which
construction of any work will be commenced at least ten (10) days prior to such
date. Tenant shall keep the Premises free from mechanics', materialmen's and all
other liens arising out of any work performed, labor supplied, materials
furnished or other obligations incurred by Tenant. Tenant shall promptly and
fully pay and discharge all claims on which any such lien could be based.
Landlord shall have the right to post and keep posted on the Premises any
notices that may be provided by law or which Landlord may deem to be proper for
the protection of Landlord and the Premises from such liens, and to take any
other action Landlord deems necessary to remove or discharge liens or
encumbrances at the expense of Tenant. Tenant, at Tenant's sole cost and
expense, shall obtain and provide to Landlord a completion and/or performance
bond in a form and by a surety acceptable to Landlord and in an amount not less
than one and one-half (1 1/2) times the estimated cost of such Alterations to
insure Landlord against liability from mechanics' and materialmen's liens and to
insure completion of the work and may also require such additional items or
assurances as Landlord in its sole discretion may deem reasonable or desirable.
Tenant agrees to indemnity and hold Landlord harmless from and against any and
all claims for mechanics', materialmen's or other liens in connection with any
Alterations, repairs, or any work performed, materials furnished or obligations
incurred by or for Tenant.

     9.2  Tenant shall perform all work necessary to bring the Premises to the
Base Building Condition as set forth on Exhibit C ("Base Building Work")
pursuant to the terms and conditions of Section 9.1 or as specifically provided
herein. Tenant shall commence such Base Building Work as promptly as possible
following the Commencement Date. Tenant shall pay any and all costs of the costs
necessary to perform the Base Building Work; Landlord shall neither pay nor
provide a credit for the costs necessary to bring the Premises to Base Building
Condition. Tenant shall provide performance and completion bonds for all work in
form, amount and with an issuer reasonably acceptable to Landlord. Landlord
shall be paid three percent (3%) of the cost of the Base Building Work
(excluding all soft costs related to the Base Building Work such as design and
architectural fees and costs, insurance premiums, and permit fees and costs) to
review and monitor the construction undertaken by Tenant to protect Landlord's
interest in the Premises but without undertaking any duty to Tenant. That fee
will not be a cost of the Base Building Work and shall not be reimbursed by
Landlord. Upon execution of this Lease, Landlord shall provide Tenant with
copies of all blueprints, plans or drawings


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relating to the Premises in Landlord's possession; provided, however, that
Landlord makes no representations or warranties as to their accuracy,
completeness or otherwise. Base Building Work shall not include removal of the
safe installed in the Premises or removal of interior walls and ceilings.

     9.3  Tenant shall pay for and complete all work for Tenant Improvements
which shall be designed by a licensed design professional and otherwise
constructed in accordance with the requirements of Section 9.1, except as
otherwise specified in this Section 9.3. Tenant anticipates that it will expend
no less than forty dollars ($40.00) per square foot on such Tenant Improvements.
Notwithstanding anything to the contrary herein, with regard to the Tenant
Improvements, Landlord shall approve or disapprove of the plans and
specifications for the Tenant Improvements within ten (10) business days
following their submission to Landlord and, if Landlord fails to respond within
said time, Landlord shall be deemed to have approved of said plans and
specifications and Tenant shall be entitled to proceed with construction
thereof. At the time of its approval or disapproval of the plans and
specifications for Tenant Improvements, Landlord shall specify, in writing, any
portions of the Tenant Improvements that Landlord will require Tenant to remove
at the end of the term of the Lease, provided that Landlord shall only be
entitled to require removal of portions of the Tenant Improvements which are
unique to Tenant's use and without general use to prospective tenants.

     9.4  All alterations, additions, fixtures and improvements, whether
temporary or permanent in character, made in or to the Premises by Landlord or
Tenant, shall become part of the Premises and Landlord's property. Upon
termination of this Lease, without compensation to Tenant, Tenant shall remove
all such alterations, additions, fixtures and improvements from the Premises as
indicated by Landlord when approving the alteration, addition, fixture or
improvement, repair all damage caused by any such removal, and restore the
Premises to the condition in which the Premises existed before such alterations,
additions, fixtures and improvements were made, and in the latter case at
Tenant's sole cost and expense, or, if performed by Landlord, Tenant shall pay
to Landlord, upon billing by Landlord, the cost of such removal, repair and
restoration (including a reasonable charge for Landlord's overhead and profit).
Notwithstanding the foregoing, Tenant shall not be required to remove from the
Premises any alterations, additions or improvements which Landlord agrees in
writing at the time of their making to allow to remain upon the Premises. All
movable furniture, equipment, trade fixtures and other personal property shall
remain the property of Tenant. Upon termination of this Lease, Tenant shall, at
Tenant's expense, remove all such movable furniture, equipment, trade fixtures
other personal property from the Premises and repair all damage caused by any
such removal. Termination of this Lease shall not affect the obligations of
Tenant pursuant to this section 9.2 to be performed after such termination.

                                   ARTICLE 10

                                    Insurance

     10.1 Landlord shall not be liable to Tenant for any damage to or loss or
theft of any property or for any bodily or personal injury, illness or death of
any person in, on or about the Premises arising at any time and from any cause
whatsoever, except to the extent caused by the


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negligence or willful misconduct of Landlord. Tenant waives all claims against
Landlord arising from any liability described in this section 10.1, except to
the extent caused by the gross negligence or willful misconduct of Landlord.

     10.2 Tenant shall indemnify and defend Landlord against and hold Landlord
harmless from all claims, demands, liabilities, damages, losses, costs and
expenses, including reasonable attorneys' fees and disbursements, arising from
or related to any use or occupancy of the Premises, or any condition of the
Premises, or any default in the performance of Tenant's obligations, or any
damage to any property (including property of employees and invitees of Tenant)
or any bodily or personal injury, illness or death of any person (including
employees and invitees of Tenant) occurring in, on or about the Premises or any
part thereof or any part of the building or the land containing the Premises
arising at any time and from any cause whatsoever (except to the extent caused
by the gross negligence or willful misconduct of Landlord) or occurring outside
the Premises when such damage, bodily or personal injury, illness or death is
caused by any act or omission of Tenant or its agents, officers, employees,
contractors, invitees or licensees. This section 10.2 shall survive the
termination of this Lease with respect to any damage, bodily or personal injury,
illness or death occurring prior to such termination.

     10.3 Tenant shall, at all times during the term of this Lease and at
Tenant's sole cost and expense, obtain and keep in force commercial general
liability insurance, including contractual liability (specifically covering this
Lease), cross liability, fire legal liability, and premises operations, all on
an "occurrence" policy form, with a minimum combined single limit in the amount
specified in the Basic Lease Information per occurrence for bodily or personal
injury to, illness of, or death of persons and damage to property occurring in,
on or about the Premises, such insurance shall name the Landlord and any other
parties designated by Landlord as additional insureds. Tenant shall, at Tenant's
sole cost and expense, be responsible for insuring Tenant's furniture,
equipment, fixtures, computers, office machines and personal property. Not more
frequently than once each year, if, in the opinion of Landlord's lender or of
the insurance consultant retained by Landlord, the amount of public liability
and property damage insurance coverage at that time is not adequate, Tenant
shall increase the insurance coverage as required by either Landlord's lender or
Landlord's insurance consultant; provided, however, that in no event shall any
such insurance coverage be increased in excess of that which is from time to
time being required by comparable landlords of comparable tenants leasing
comparable amounts of space in other similar buildings in the vicinity of the
Premises.

     10.4 Tenant shall, at all times during the term of this Lease and at
Tenant's sole cost and expense, obtain and keep in force Worker's Compensation
and employer's liability insurance in all states in which the Premises and any
other operations of the Tenant are located and any other state in which the
Tenant or its contractors or subcontractors may be subject to any statutory or
other liability arising in any manner whatsoever out of the actual or alleged
employment of others. The total limits of the employer's liability coverage
required hereunder shall not be less than the amounts specified in section 10.3.

     10.5 Tenant, at all times during the term of this Lease, at Tenant's sole
cost and expense, naming Landlord as primary insured, shall obtain and keep in
force (a) insurance against loss or damage to the Premises by fire and all other
risks of physical loss covered by insurance of the type now known as "all risk,"
with difference in conditions coverage, in an


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amount not less than the full replacement cost of the Premises (without
deduction for depreciation), including the cost of debris removal and such
endorsements as Landlord may reasonably require, and containing the "Replacement
Cost Endorsement"; (b) boiler and machinery insurance covering pressure vessels,
air tanks, boilers, machinery, pressure piping, heating, ventilation and air
conditioning equipment, and elevator and escalator equipment, provided the
Premises contain equipment of such nature and insurance against loss of
occupancy or use arising from any breakdown of any such items, in such amounts
as Landlord may reasonably determine; and (c) plate glass insurance in such
amounts as Landlord may reasonably determine if the Premises contain plate
glass; and (d) insurance against loss or damage to premises by earthquake.

     10.6 All insurance required to be maintained by Tenant under this Article
10 and all renewals thereof shall be issued by good and responsible companies
qualified and admitted to do and doing business in the state where the Premises
are located and having a rating in Best's Insurance Guide of at least A/XIII.
All deductible amounts under each such insurance policy shall be subject to
Landlord's prior written approval. Each policy to be maintained by Tenant shall
expressly provide that the policy shall not be canceled or altered without
thirty (30) days' prior written notice to Landlord and shall remain in effect
notwithstanding any such cancellation or alteration until such notice shall have
been given to Landlord and such period of thirty (30) days shall have expired.
All insurance under this Article 10 (except for the coverage required by Section
10.4) to be maintained by Tenant shall name Landlord and any other parties
reasonably designated by Landlord as an additional insured, shall be primary and
noncontributing with any insurance which may be carried by Landlord, shall
afford coverage for all claims based on any act, omission, event or condition
that occurred or arose (or the onset of which occurred or arose) during the
policy period, and shall expressly provide that Landlord, although named as an
insured, shall nevertheless be entitled to recover under the policy for any
loss, injury or damage to Landlord. Upon the issuance of each such policy to be
maintained by Tenant, Tenant shall deliver each such policy or a certified copy
and a certificate thereof to Landlord for retention by Landlord. If Tenant fails
to insure or fails to furnish to Landlord upon notice to do so any policy to be
maintained by Tenant or certified copy and certificate thereof as required,
Landlord shall have the right from time to time to effect such insurance for the
benefit of Tenant or Landlord or both of them and all premiums paid by Landlord
shall be payable by Tenant as additional rent on demand with interest at the
maximum rate provided in section 3.4 from the date of Landlord's advance until
paid by Tenant. Tenant shall pay to Landlord, immediately upon demand all costs
incurred by Landlord as a result of Tenant's failure to obtain and maintain in
effect the policies of insurance required under this Article 10.

     10.7 Tenant waives on behalf of all insurers under all policies of
property, liability and other insurance (excluding Workers' Compensation) now or
hereafter carried by Tenant insuring or covering the Premises, or any portion or
any contents thereof, or any operations therein, all rights of subrogation which
any insurer might otherwise, if at all, have to any claims of Tenant against
Landlord. Landlord waives on behalf of ail insurers under all policies of
property, liability and other insurance (excluding Workers' Compensation) now or
hereafter carried by Landlord insuring or covering the Premises or any portion
or any contents thereof, or any operations therein, all rights of subrogation
which any insurer might otherwise, if at all, have to any claims of Landlord
against Tenant. Tenant shall, prior to or immediately after the date of this
Lease, procure from each of the insurers under all policies of property,
liability and other


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insurance (excluding workers' compensation) now or hereafter carried by Tenant
insuring or covering the Premises, or any portion or any contents thereof, or
any operations therein, a waiver of all rights of subrogation which the insurer
might otherwise, if at all, have to any claims of Tenant against Landlord as
required by this section 10.7.

                                   ARTICLE 11

                       Compliance with Legal Requirements

     11.1 Tenant shall, at Tenant's sole cost and expense, promptly comply with
all laws, ordinances, rules, regulations, orders and other requirements of any
government or public authority now in force or which may hereafter be in force,
with all requirements of any board of fire underwriters or other similar body
now or hereafter constituted, and with all directions and certificates of
occupancy issued pursuant to any law by any governmental agency or officer,
insofar as any thereof relate to or are required by the condition, use or
occupancy of the Premises or the operation, use or maintenance of any personal
property, fixtures, machinery, equipment or improvements in the Premises.

                                   ARTICLE 12

                             Assignment or Sublease

     12.1 Landlord and Tenant recognize and specifically agree that this Article
12 is an economic provision, like Rent, and that Landlord's right to recapture,
and to share in profits, is granted by Tenant to Landlord in consideration of
certain other economic concessions granted by Landlord to Tenant. Tenant may
voluntarily assign or encumber its interest in this Lease or in the Premises, or
sublease all or any part of the Premises, or allow any other person or entity to
occupy or use all or any part of the Premises, upon first obtaining Landlord's
prior consent, but only if such assignment or sublease does not conflict with or
result in a breach of Section 6.1 and if such proposed assignee or sublessee of
Tenant's proposed assignment or sublease is not:

     (a)  a government entity;

     (b)  the financial condition of the proposed transferee is not suitable to
perform the obligations being assumed by it hereunder; or

     (c)  the proposed use of the Premises (i) is not permitted hereunder or
under any legal and other requirements described in Article 11, or (ii) would
materially increase the wear and tear on or the risk of damage to the Premises
above levels or risks resulting from Tenant's use as of the date of this Lease,
or (iii) is for any illegal, immoral or disreputable purpose.

     Any assignment, encumbrance or sublease without Landlord's prior consent
shall be voidable, at Landlord's election, and shall, at Landlord's further
election, constitute a default. No consent to an assignment, encumbrance, or
sublease shall constitute a further waiver of the provisions of this Article 12.


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     12.2 Tenant shall advise Landlord by notice of (a) Tenant's intent to
assign, encumber, or sublease this Lease, (b) the name of the proposed assignee
or sublessee, and evidence reasonably satisfactory to Landlord describing the
proposed assignee or sublessee, including its reputation, stature and financial
condition, and (c) the terms of the proposed assignment or subletting. Landlord
shall, within ten (10) business days of receipt of such notice, and any
additional information requested by Landlord concerning the proposed assignee's
or sublessee's financial responsibility, elect one of the following:

          (i)  Consent to such proposed assignment, encumbrance or sublease;

          (ii) Refuse such consent, which refusal shall be on reasonable
     grounds; or

          (iii) Elect to terminate the Lease in the event of an assignment, or
     in the case of a sublease, terminate this Lease as to the portion of the
     Premises proposed to be sublet for the proposed term of the sublease if the
     sublease or assignment, individually or cumulatively with any prior
     assignments or subleases, comprises fifty percent (50%) or more of the
     Premises.

     If Landlord fails to respond in writing to Tenant's request to sublet or
assign its rights hereunder within ten (10) business days following receipt of
Tenant's request, Landlord shall be deemed to have approved of the requested
sublease or assignment.

     12.3 Conditions Regarding Consent to Sublease and Assignment. In the event
that Landlord shall consent to an assignment or sublease under the Provisions of
this Article 12, Tenant shall pay Landlord's reasonable processing costs,
reviewing costs and attorney's fees incurred in giving such consent, not to
exceed six Thousand ($6,000.00) per request. Notwithstanding any permitted
assignment or subletting, Tenant shall at all times remain directly, primarily
and fully responsible and liable for all payments owed by Tenant under the Lease
and for compliance with all obligations under the terms, provisions and
covenants of the Lease. If for any proposed assignment or sublease, Tenant
receives rent or other consideration, either initially or over the term of the
assignment or sublease, in excess of the rent required by this Lease, or, in the
case of the sublease of a portion of the Premises, in excess of such rent fairly
allocable to such portion, after appropriate adjustments to assure that all
other payments called for hereunder are taken into account, Tenant shall pay to
Landlord as additional rent, fifty percent (50%) of the excess of each such
payment of rent or other consideration received by Tenant with five (5) days of
its receipt; provided, however, that Tenant may deduct from such excess of each
such payment of rent or other consideration received by Tenant the actual,
reasonable and documented costs of the following to the extent paid by Tenant in
connection with the assignment or subletting: (i) brokers' commission, (ii)
attorney's fees, (iii) the costs of advertising the space for sublease or
assignment, (iv) any improvements allowance, planning allowance or moving
expenses granted to the assignee or sublessee by Tenant and (v) the total amount
of unamortized flat costs incurred by Tenant in improving the Premises,
including the portion of the Base Building Work not reimbursed by Landlord.
Landlord may, from time to time, request documentation from Tenant supporting
the above deductions from excess consideration and Tenant shall supply such
supporting documentation to Landlord within five (5) days of Landlord's request.


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     12.4 Occupancy of all or part of the Premises by a subsidiary of Tenant
shall not be deemed an assignment or subletting provided that such subsidiary
was not formed as a subterfuge to avoid the obligation of this Article 12.
Tenant shall be entitled to assign or sublet the Premises without Landlord's
prior consent and free of Landlord's right to terminate this Lease as set forth
in Section 12.2 above to a subsidiary of Tenant (including Shockwave.com), to
any entity with which or into which Tenant may merge or consolidate, to the
purchaser of all or substantially all of Tenant's assets or to any affiliate of
Tenant. For purposes of the foregoing sentence, the term "affiliate" means any
corporation which directly or indirectly controls, is controlled by, or is under
common control with Tenant; provided such successor agrees to the terms and
conditions of this Lease.

     12.5 Landlord's Rights to Assign. Landlord shall have the right to sell,
encumber, convey, transfer, and/or assign any of its rights and obligations
under the Lease.

                                   ARTICLE 13

                                Entry by Landlord

     13.1 Landlord shall have the right to enter the Premises at any time to (a)
inspect the Premises, (b) exhibit the Premises to prospective purchasers,
lenders or tenants, (c) determine whether Tenant is performing all of Tenant's
obligations, (d) perform any obligations of Tenant in accordance with section
14.5, (e) post notices of nonresponsibility, "For sale" and "For lease" signs in
and about the Premises, (f) make any repairs to the Premises and (g) investigate
and perform tests to determine Tenant's compliance with Article 21. Tenant
waives all claims for damages for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises
or any other loss occasioned by such entry. Landlord shall at all times have a
key to unlock all such doors and Landlord shall have the right to use any and
all means which Landlord may deem proper to open such doors in an emergency to
obtain entry to the Premises. Any entry to the Premises obtained by Landlord by
any of such means shall not under any circumstances be construed or deemed to be
a forcible or unlawful entry into or a detainer of the Premises or an eviction,
actual or constructive, of Tenant from the Premises or any portion thereof.

     13.2 In exercising its rights of entry under this Article 13, Landlord
shall minimize any interference with Tenant's use and enjoyment of the Premises
and, except in the event of an emergency, Landlord shall provide Tenant with
reasonable prior written notice and shall comply with Tenant's reasonable
security requirements, including the right to have a representative of Tenant
accompany Landlord within the Premises.

                                   ARTICLE 14

                         Events of Default and Remedies

     14.1 The occurrence of any one or more of the following events ("Event of
Default") shall constitute a breach of this Lease by Tenant:


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     (a)  Tenant fails to pay any Base Rent within three (3) days following
Tenant's receipt of written notice that such rent is past due; or

     (b)  Tenant fails to pay any additional rent or other amount of money or
charge payable by Tenant hereunder as and when such additional rent or amount or
charge becomes due and payable and such failure continues for more than ten (10)
days after Landlord gives written notice thereof to Tenant; provided, however,
that after the second such failure in a calendar year, only the passage of time,
but no further notice, shall be required to establish an Event of Default in the
same calendar year; or

     (c)  Tenant fails to perform or breaches any other agreement or covenant of
this Lease to be performed or observed by Tenant as and when performance or
observance is due and such failure or breach continues for more than ten (10)
days after Landlord gives written notice thereof to Tenant; provided, however,
that if, by the nature of such agreement or covenant, such failure or breach
cannot reasonably be cured within such period of ten (10) days, an Event of
Default shall not exist as long as Tenant commences with due diligence and
dispatch the curing of such failure or breach within such period of ten (10)
days and, having so commenced, thereafter prosecutes with diligence and dispatch
and completes the curing of such failure or breach within a reasonable time; or

     (d)  Tenant (i) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy, insolvency or other debtors' relief law of any jurisdiction, (ii)
makes an assignment for the benefit of its creditors, (iii) consents to the
appointment of a custodian, receiver, trustee or other officer with similar
powers of Tenant or of any substantial part of Tenant's property, or (iv) takes
action for the purpose of any of the foregoing; or

     (e)  Without consent by Tenant, a court or government authority enters an
order, and such order is not vacated within thirty (30) days, (i) appointing a
custodian, receiver, trustee or other officer with similar powers with respect
to Tenant or with respect to any substantial part of Tenant's property, or (ii)
constituting an order for relief or approving a petition for relief or
reorganization or arrangement or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy, insolvency or other debtors'
relief law of any jurisdiction, or (iii) ordering the dissolution, winding-up or
liquidation of Tenant; or

     (f)  This Lease or any estate of Tenant hereunder is levied upon under any
attachment or execution and such attachment or execution is not vacated within
thirty (30) days; or

     (g)  Tenant abandons the Premises.

     14.2 If an Event of Default occurs, Landlord shall have the right at any
time to give a written termination notice to Tenant and, on the date specified
in such notice, Tenant's right to possession shall terminate and this Lease
shall terminate. Upon such termination, Landlord shall have the right to recover
from Tenant:

     (a)  The worth at the time of award of all unpaid rent which had been
earned at the time of termination;


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     (b)  The worth at the time of award of the amount by which all unpaid rent
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided;

     (c)  The worth at the time of award of the amount by which all unpaid rent
for the balance of the term of this Lease after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; and

     (d)  All other amounts necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform all of Tenant's
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom. The "worth at the time of award" of the amounts
referred to in clauses (a) and (b) above shall be computed by allowing interest
at the maximum annual interest rate allowed by law for business loans (not
primarily for personal, family or household purposes) not exempt from the usury
law at the time of termination or, if there is no such maximum annual interest
rate, at the rate of eighteen percent (18%) per annum. The "worth at the time of
award" of the amount referred to in clause (c) above shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank located
nearest the Premises at the time of award plus one percent (1%). For the
purpose of determining unpaid rent under clauses (a), (b) and (c) above, the
rent reserved in this Lease shall be deemed to be the total rent payable by
Tenant under Articles 3 and 5 hereof.

     14.3 Even though Tenant has breached this Lease, this Lease shall continue
in effect for so long as Landlord does not terminate Tenant's right to
possession, and Landlord shall have the right to enforce all its rights and
remedies under this Lease, including the right to recover all rent as it becomes
due under this Lease. Acts of maintenance or preservation or efforts to relet
the Premises or the appointment of a receiver upon initiative of Landlord to
protect Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession unless written notice of termination is given by
Landlord to Tenant.

     14.4 The remedies provided for in this Lease are in addition to all other
remedies available to Landlord at law or in equity by statute or otherwise.

     14.5 All agreements and covenants to be performed or observed by Tenant
under this Lease shall be at Tenant's sole cost and expense and without any
abatement of rent. If Tenant fails to pay any sum of money to be paid by Tenant
or to perform any other act to be performed by Tenant under this Lease, Landlord
shall have the right, but shall not be obligated, and without waiving or
releasing Tenant from any obligations of Tenant, to make any such payment or to
perform any such other act on behalf of Tenant in accordance with this Lease.
All sums so paid by Landlord and all necessary incidental costs shall be deemed
additional rent hereunder and shall be payable by Tenant to Landlord on demand,
together with interest on all such sums from the date of expenditure by Landlord
to the date of repayment by Tenant at the maximum annual interest rate allowed
by law for business loans (not primarily for personal, family or household
purposes) not exempt from the usury law at the date of expenditure or, if there
is no such maximum annual interest rate, at the rate of eighteen percent (18%)
per annum. Landlord shall have, in addition to all other rights and remedies of
Landlord, the same rights and remedies in the event of the nonpayment of such
sums plus interest by Tenant as in the case of default by Tenant in the payment
of rent.


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     14.6 If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any movable furniture, equipment, trade fixtures or
personal property belonging to Tenant and left in the Premises shall be deemed
to be abandoned, at the option of Landlord, and Landlord shall have the right to
sell or otherwise dispose of such personal property in any commercially
reasonable manner.

                                   ARTICLE 15

                              Damage or Destruction

     15.1 Subject to the terms and conditions of this Article 15, if the
Premises, or any part thereof, is damaged by fire or other casualty before the
Commencement Date or during the term of this Lease, Tenant shall repair such
damage and restore the Premises to substantially the same or better condition as
existed before the occurrence of such fire or other casualty, Tenant shall
repair and replace all such movable furniture, equipment, trade fixtures and
personal property, and this Lease shall remain in full force and effect. Such
repair and replacement by Tenant shall be done in accordance with Article 9. In
no event shall rent abate. Provided Tenant is not in default under this Lease
(and no event has occurred which, with the passage of time, the giving of
notice, or both, would constitute a default), and provided Tenant has (i)
delivered to Landlord plans and specifications and a budget for such repair and
restoration (all of which Landlord shall have approved in its reasonable
judgment), and (ii) deposited with Landlord cash in the sum equal to the excess,
if any, of the total cost set forth in such approved budget over the amount of
insurance proceeds received on account of such casualty, then Landlord shall
make available to Tenant all insurance proceeds actually received by Landlord on
account of such casualty, for application to the costs of such approved repair
and restoration, as follows:

     (a)  No more frequently than once per calendar month, Tenant may request
that Landlord reimburse Tenant for costs incurred by Tenant for work in place to
repair and restore the Premises during the immediately preceding calendar month.
Tenant's request shall certify that all work for which reimbursement is
requested was performed in compliance with the plans and specifications approved
by Landlord pursuant to Article 9 and all applicable laws, and shall include
reasonably satisfactory evidence of the costs incurred by Tenant and
unconditional lien releases in form and substance required by applicable law
executed by all mechanic's, materialmen, laborers, suppliers and contractors who
performed any portion of the repair work or applied materials.

     (b)  Within fifteen (15) days after receiving Tenant's request, Landlord
shall approve or disapprove Tenant's request, which approval shall not be
unreasonably withheld, by written notice to Tenant. If Landlord approves all or
any portion of a request and Landlord has received (and not previously
disbursed) insurance proceeds, then Landlord's approval shall include a check in
the amount approved by Landlord. If Landlord disapproves all or any portion of a
request, then Landlord's notice shall state the reasons for that disapproval. In
addition, Landlord shall have the right to impose other conditions upon
disbursement so long as they are consistent with customary construction loan
disbursement practices.

     15.2 If the Premises, or any part thereof, is damaged by fire or other
casualty (except


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earthquake which is addressed below) and (a) such fire or other casualty occurs
during the last twelve (12) months of the term of this Lease and the repair and
restoration work to be performed by Tenant in accordance with section 15.1
cannot, as reasonably estimated by Landlord, be completed within two (2) months
after the occurrence of such fire or other casualty, or (b) the insurance
proceeds received by Landlord and Tenant in respect of such damage are not
adequate to pay the entire cost, as reasonably estimated by Landlord, of the
repair and restoration work to be performed by Tenant in accordance with section
15.1 and Tenant does not deposit such shortfall with Landlord, then, in any such
event, Landlord shall have the right, by giving written notice to Tenant within
sixty (60) days after the occurrence of such fire or other casualty, to
terminate this Lease as of the date of such notice, in which case all insurance
proceeds on account of such casualty shall be paid to Landlord. If Landlord does
not exercise the right to terminate this Lease in accordance with this section
15.2, Tenant shall repair such damage and restore the Premises in accordance
with section 15.1 and this Lease shall remain in full force and effect.
Notwithstanding the foregoing, if Landlord elects to terminate this Lease under
the circumstances described in subparagraph (a) above at a time when Tenant is
still entitled to renew the term of this Lease as provided herein, Tenant shall
be entitled to exercise said renewal option by written notice to Landlord and,
provided that Tenant fulfills its obligations hereunder, Landlord's termination
of the Lease shall be of no force or effect.

     15.3 Notwithstanding Section 15.2, if the Premises, or any part thereof,
is damaged by earthquake, Tenant shall repair such damage and restore the
Premises in accordance with section 15.1 and this Lease shall remain in full
force and effect, subject to the following:

     (a)  If (i) the cost of repairing or rebuilding the Premises, as reasonably
estimated by a mutually acceptable licensed general contractor will exceed the
insurance proceeds available for said repair or rebuilding by more than Seven
Hundred Thousand Dollars ($700,000) or (ii) such casualty occurs during the last
twelve (12) months of the term of this Lease and the repair and restoration work
to be performed by Tenant cannot, as reasonably estimated by Tenant, be
completed within two (2) months after the occurrence of such casualty, then
Tenant shall be entitled to terminate this Lease by delivering written notice of
termination to Landlord within sixty (60) days after the date of the damage and
such termination shall thereupon become effective.

     (b)  If during an option term of this Lease as provided in Section 2.4 or
during the second extension of this Lease as provided by Section 8.2, Tenant is
required to repair or rebuild the Premises following an earthquake or Tenant
elects not to terminate this Lease following an earthquake as permitted hereby,
then Tenant shall be entitled to a third five (5) year option term hereunder on
the same terms and conditions as are applicable to the first option term.

     (c)  If the parties cannot agree upon a licensed contractor under
subsection (a) above within fifteen (15) days, then either party may petition
the Presiding Judge, Superior Court, County of San Francisco, to appoint such a
contractor whose estimate shall be final and binding for this purpose.


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                                   ARTICLE 16

                                 Eminent Domain

     16.1 If a substantial portion of the Premises is taken and the remaining
portion of the Premises is not reasonably suitable for Tenant's purposes, or if
a portion of the Premises is taken resulting in loss of access to and from the
Premises without reasonable substitute access being available, Landlord and
Tenant each shall have the right, by giving written notice to the other within
thirty (30) days after the date of such taking, to terminate this Lease. If
either Landlord or Tenant exercises such right to terminate this Lease in
accordance with this section 16.1, this Lease shall terminate as of the date of
such taking. If neither Landlord nor Tenant exercises such right to terminate
this Lease in accordance with this section 16.1, this Lease shall terminate as
to the portion of the Premises so taken as of the date of such taking and shall
remain in full force and effect as to the portion of the Premises not so taken,
Tenant shall restore the portion of the Premises not so taken to an integrated
architectural unit in accordance with Article 9 and the Base Rent shall be
reduced as of the date of such taking in the proportion that the rentable area
of the Premises so taken bears to the total rentable area of the Premises. If
all of the Premises is taken by exercise of the power of eminent domain before
the Commencement Date or during the term of this Lease, this Lease shall
terminate as of the date of such taking. A taking of the Parking Facility alone
shall not be considered a taking under this Article 16 and no adjustment shall
be made to Base Rent or any award made to Tenant on account of the Parking
Facility.

     16.2 If all or any part of the Premises is taken by exercise of the power
of eminent domain, all awards, compensation, damages, income, rent and interest
payable in connection with such taking shall, except as expressly set forth in
this section 16.2, be paid to and become the property of Landlord, and Tenant
hereby assigns to Landlord all of the foregoing. Without limiting the generality
of the foregoing, Tenant shall have no claim against Landlord or the entity
exercising the power of eminent domain for the value of the leasehold estate
created by this Lease or any unexpired term of this Lease. Tenant shall have the
right to claim and receive directly from the entity exercising the power of
eminent domain only the share of any award determined to be owing to Tenant for
the taking of improvements installed in the portion of the Premises so taken by
Tenant at Tenant's sole cost and expense based on the unamortized cost actually
paid by Tenant for such improvements, for the taking of Tenant's movable
furniture, equipment, trade fixtures and personal property, for loss of
goodwill, for interference with or interruption of Tenant's business, or for
removal and relocation expenses.

     16.3 In the event of any taking other than a taking referred to in section
16.1, this Lease shall continue in full force and effect, Base Rent shall be
reduced as of the date of such taking in the proportion that the rentable area
of the Premises, exclusive of the Parking Facility, so taken bears to the total
rentable area of the Premises, Tenant shall continue to perform all of the
covenants of Tenant in accordance with this Lease and Tenant shall restore the
Premises to an integrated architectural unit in accordance with Article 9.
Provided Tenant is not in default under this Lease (and no event has occurred
which, with the passage of time, the giving of notice, or both, would constitute
a default), and provided Tenant has (i) delivered to Landlord plans and
specifications and a budget for such repair and restoration (all of which
Landlord shall have approved in its reasonable judgment), and (ii) deposited
with Landlord cash in the sum equal to the excess, if any, of the total cost set
forth in such approved budget over the amount of


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condemnation award proceeds received on account of such taking, then Landlord
shall make available to Tenant all condemnation award proceeds actually received
by Landlord on account of such taking, for application to the costs of such
approved repair and restoration, as follows:

     (a)  No more frequently than once per calendar month, Tenant may request
that Landlord reimburse Tenant for costs incurred by Tenant for work in place to
repair and restore the Premises during the immediately preceding calendar month.
Tenant's request shall certify that all work for which reimbursement is
requested was performed in compliance with the plans and specifications approved
by Landlord pursuant to Article 9 and all applicable laws, and shall include
reasonably satisfactory evidence of the costs incurred by Tenant and
unconditional lien releases in form and substance required by applicable law
executed by all mechanic's, materialmen, laborers, suppliers and contractors who
performed any portion of the repair work or supplied materials.

     (b)  Within fifteen (15) days after receiving Tenant's request, Landlord
shall approve or disapprove Tenant's request, which approval shall not be
unreasonably withheld, by written notice to Tenant. If Landlord approves all or
any portion of a request and Landlord has received (and not previously
disbursed) condemnation award proceeds, then Landlord's approval shall include a
check in the amount approved by Landlord. If Landlord disapproves all or any
portion of a request, then Landlord's notice shall state the reasons for that
disapproval. In addition, Landlord shall have the right to impose other
conditions upon disbursement so long as they are consistent with customary
construction loan disbursement practices.

     16.4 As used in this Article 16, a "taking" means the acquisition of all or
part of the Premises for a public use by exercise of the power of eminent domain
(or a sale of any or all of the Premises in lieu, or under threat, thereof) and
the taking shall be considered to occur as of the earlier of the date on which
possession of the Premises (or part so taken) by the entity exercising the power
of eminent domain is authorized as stated in an order for possession or the date
on which title to the Premises (or part so taken) vests in the entity exercising
the power of eminent domain.

                                   ARTICLE 17

                         Subordination, Merger and Sale

     17.1 This Lease shall be subject and subordinate at all times to the lien
of all mortgages and deeds of trust securing any amount or amounts whatsoever,
and any ground lease or master lease of the Premises, which may now exist or
hereafter be placed on or against the Premises or on or against Landlord's
interest or estate therein, all without the necessity of having further
instruments executed by Tenant to effect such subordination. Notwithstanding the
foregoing, in the event of a foreclosure of any such mortgage or deed of trust
or of any other action or proceeding for the enforcement thereof, or of any sale
thereunder, this Lease shall not be terminated or extinguished, nor shall the
rights and possession of Tenant hereunder be disturbed, if no Event of Default
then exists under this Lease, and Tenant shall attorn to the person who acquires
Landlord's interest hereunder through any such mortgage or deed of trust. Tenant
agrees to execute, acknowledge and deliver upon demand such further instruments


                                       23
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evidencing such subordination of this Lease to the lien of all such mortgages
and deeds of trust or to all such ground leases or master leases of the Premises
as may reasonably be required by Landlord, but Tenant's covenant to subordinate
this Lease to mortgages or deeds of trust, or ground leases or master leases,
hereafter executed is conditioned upon each such senior mortgage or deed of
trust, or ground lease or master lease, or a separate subordination agreement,
containing the commitments specified in the preceding sentence. Without limiting
the generality of the foregoing, Tenant agrees to enter into a subordination,
nondisturbance and attornment agreement in the form required by the holder of
any such mortgage or deed of trust or by any party to any such ground lease or
master lease.

     17.2 The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or operate as
an assignment to Landlord of any or all such subleases or subtenancies.

     17.3 If the original Landlord hereunder, or any successor owner of the
Premises, sells or conveys the Premises, all liabilities and obligations on the
part of the original Landlord, or such successor owner, under this Lease
accruing after such sale or conveyance shall terminate and the original
Landlord, or such successor owner, shall automatically be released therefrom,
and thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.

     17.4 Within thirty (30) days of the execution of this Lease, Landlord shall
provide Tenant and Tenant shall execute a Subordination, Non-Disturbance and
Attornment Agreement with Wells Fargo Bank, N.A. which has a first deed of trust
on the Premises.

                                   ARTICLE 18

                              Estoppel Certificate

     18.1 At any time and from time to time, Tenant shall, within ten (10) days
after written request by Landlord, execute, acknowledge and deliver to Landlord
a certificate, in the form attached as Exhibit B, certifying: (a) that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect as modified, and
stating the date and nature of each modification); (b) the Commencement Date and
the Expiration Date determined in accordance with Article 2 and the date, if
any, to which all rent and other sums payable hereunder have been paid; (c) that
no notice has been received by Tenant of any default by Tenant hereunder which
has not been cured, except as to defaults specified in such certificate; (d)
that Landlord is not in default under this Lease, except as to defaults
specified in such certificate; and (e) such other matters as may be reasonably
requested by Landlord or any actual or prospective purchaser or mortgage lender.
Any such certificate may be relied upon by Landlord and any actual or
prospective purchaser or mortgage lender of the Premises or any part thereof.


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                                   ARTICLE 19

                                  Holding Over

        19.1 If, without objection by Landlord, Tenant holds possession of the
Premises after expiration of the term of this Lease, Tenant shall become a
tenant from month to month upon the terms herein specified but at a Base Rent
equal to one hundred fifty percent (150%) of the rent being defined as Base Rent
including any increases in effect at the expiration of the term of this Lease
pursuant to Article 3, payable in advance on or before the first day of each
month. Such month to month tenancy may be terminated by either Landlord or
Tenant by giving thirty (30) days' written notice of termination to the other at
any time.

        19.2 No payment of money by Tenant to Landlord after the termination of
the Lease by Landlord, or after the giving of any notice of termination to
Tenant by Landlord which Landlord is entitled to give Tenant under the Lease,
shall reinstate, continue or extend the Term of the Lease or shall affect any
such notice given to Tenant prior to the payment of such money, it being agreed
that after the service of such notice or the commencement of any suit by
Landlord to obtain possession of the Premises, Landlord may receive and collect
when due any and all payments owed by Tenant under the Lease, and otherwise
exercise its rights and remedies. The making of any such payments by Tenant
shall not waive such notice, or in any manner affect any pending suit or
judgment obtained.

        19.3 In accordance with California Civil Code Section 1951.4 (or any
successor statute), Tenant acknowledges that in the event Tenant has breached
this Lease and abandoned the Premises, this Lease shall continue in effect for
so long as Landlord does not terminate Tenant's right to possession, and
Landlord may enforce all its rights and remedies under this Lease, including the
right to recover Base Rent and additional rent as it becomes due under this
Lease. Acts of maintenance or preservation or efforts to relet the Premises or
the appointment of a receiver upon initiative of Landlord to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession. In addition to its other rights under this Lease, Landlord has
the remedy described in California Civil Code Section 1951.4 (Landlord may
continue the Lease in effect after Tenant's breach and abandonment and recover
Rent as it becomes due, if Tenant has the right to sublet or assign, subject
only to reasonable limitations.)

                                   ARTICLE 20

                              Financial Statements

        20.1 On or before April 1 of each year, Tenant shall deliver to Landlord
Tenant's audited financial statements ("Financial Statements") for the fiscal
year of Tenant ended on the previous December 31, which Financial Statements
shall include an audited consolidated balance sheet of Tenant and its
consolidated subsidiaries as at the end of such fiscal year, a consolidated
statement of operations of Tenant and its consolidated subsidiaries for such
fiscal year, and a certificate of Tenant's auditor (which shall be a recognized
national independent accounting firm) to the effect that such Financial
Statements were prepared in accordance with generally


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accepted accounting principals consistently applied and fairly present the
financial condition and operations of Tenant and its consolidated subsidiaries
for and as at the end of such fiscal year.

                                   ARTICLE 21

                               Hazardous Materials

        21.1 As used herein, the term "Hazardous Material" means any hazardous
or toxic substance, material or waste, or any pollutant or contaminant, or words
of similar import, which is or becomes regulated by any local governmental
authority, the state in which the Premises are located, or the United States
Government. The term "Hazardous Material" includes, but is not limited to, any
material or substance which is, (i) designated as a "hazardous substance"
pursuant to section 311 of the Federal Water Pollution Control Act (33 U.S.C.
section 1317), (ii) defined as a "hazardous waste" pursuant to section 1004 of
the Federal Resource Conservation and Recovery Act, 42 U.S.C. section 6901, et
seq. (42 U.S.C. section 6903), (iii) defined as a "hazardous substance" pursuant
to section 101 of the Comprehensive Environmental Response Compensation and
Liability Act (42 U.S.C. section 9601, et seq.), (iv) the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et, seq., (v) those substances
defined as "hazardous wastes" in Section 25117 of the California Health and
Safety Code or as "hazardous substances" in Section 25316 of the California
Health and Safety Code, (vi) as defined in regulations adopted and publications
promulgated from time to time pursuant to any of the foregoing laws, (vii)
asbestos, (viii) petroleum (including crude oil or any fraction thereof, natural
gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for
fuel, or any mixture thereof), (ix) petroleum products, (x) polychlorinated
biphenyls, (xi) urea formaldehyde, (xii) radon gas, (xiii) radioactive matter,
(xiv) medical waste, and (xv) chemicals which may cause cancer or reproductive
toxicity.

        21.2 As used herein, the term "Environmental Requirements" means all
laws, ordinances, rules, regulations, orders and other requirements of any
government or public authority now in force or which may hereafter be in force
relating to protection of human health or the environment, including all
requirements pertaining to reporting, licensing, permitting, investigation and
remediation of emissions, discharges, storage, disposal or releases of Hazardous
Materials and all requirements pertaining to the protection of the health and
safety of employees or the public.

        21.3 Tenant shall not permit or conduct the handling, use, generation,
treatment, storage or disposal on, in or about the Premises of any Hazardous
Material without prior written notice to Landlord. Any such notice by Tenant to
Landlord shall be in writing and shall demonstrate to the reasonable
satisfaction of Landlord that such Hazardous Material is necessary to the
business of Tenant and will be handled, used, generated, treated, stored or
disposed of in a manner that complies with all Environmental Requirements. Any
such handling, use, generation, treatment, storage or disposal of any Hazardous
Material permitted by Landlord, in its sole discretion, hereunder shall be in
compliance with all Environmental Requirements.

        21.4 Tenant shall, within five (5) days after the receipt thereof, give
written notice to Landlord of any notice or other communication regarding any
(a) actual or alleged violation of


                                       26
   30

Environmental Requirements by Tenant or with respect to the Premises, (b) actual
or threatened migration of Hazardous Material from the Premises, or (c) the
existence of Hazardous Material in or on the Premises or regarding any actual or
threatened investigation, inquiry, lawsuit, claim, citation, directive, summons,
proceeding, complaint, notice, order, writ or injunction relating to any of the
foregoing.

        21.5 Tenant shall indemnify and defend against and hold harmless
Landlord, its individual partners and their successors and assigns harmless from
all claims, demands, liabilities, damages, fines, encumbrances, liens, losses,
costs, expenses, judgments, penalties, proceedings, deficiencies or damage
(whether absolute, accrued, conditional or otherwise and whether or not
resulting from third party claims), including out-of-pocket expenses, court
costs, consulting fees, expert witness fees and reasonable attorneys' fees and
disbursements, and costs and expenses of investigation, arising from or related
to the existence on or after the Commencement Date of Hazardous Material in or
on the Premises provided that such existence was caused by Tenant, its agents,
contractors, employees, invitees, assignees or subtenants, or the existence on
or after the Commencement Date of a violation of Environmental Requirements
caused by Tenant, its agents, contractors, employees, invitees, assignees or
subtenants with respect to the Premises. The obligations of Tenant under this
section 21.5 shall not be affected by any investigation by or on behalf of
Landlord, its individual partners and their successors and assigns or by any
information which Landlord, its individual partners and their successors and
assigns may have or obtain with respect thereto. Tenant shall, to the reasonable
satisfaction of Landlord, its individual partners and their successors and
assigns, perform all remedial actions necessary to remove any Hazardous Material
placed in or on the Premises by Tenant, its agents, contractors, employees,
invitees, assignees or subtenants on or after the Commencement Date or to remedy
actual or threatened migration from the Premises of any Hazardous Material
placed in or on the Premises by Tenant, its agents, contractors, employees,
invitees, assignees or subtenants or to remedy any actual or threatened
violation by Tenant, its agents, contractors, employees, invitees, assignees or
subtenants of Environmental Requirements, provided such remedial action is
required under Environmental Requirements. This section 21.5 shall survive
termination of this Lease.

        21.6 If, at any time when the term of this Lease (including any renewal
term) would expire but for the terms of this section 21.6, a Hazardous Material
exists in, on, about or under the Premises as a result of Tenant's use or
occupancy thereof, then the term of this Lease shall automatically be extended
and this Lease shall remain in effect until the earlier of (i) the completion of
all remedial action required under section 21.5, or (ii) the date specified in a
written notice from Landlord to Tenant terminating this Lease. During any such
extension period, Tenant shall perform all of its obligations under this Lease
including payments of all rent due hereunder.

        21.7 Prior to the Commencement Date, Landlord shall provide Tenant with
copies of any and all reports or information in Landlord's possession pertaining
to the presence or absence of Hazardous Materials on the Premises; provided,
however, that Landlord is not representing or warranting as to the accuracy,
adequacy, completeness or otherwise of such information.


                                       27
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                                   ARTICLE 22

                                     Waiver

        22.1 The waiver by Landlord or Tenant of any breach of any covenant in
this Lease shall not be deemed to be a waiver of any subsequent breach of the
same or any other covenant in this Lease, nor shall any custom or practice which
may grow up between Landlord and Tenant in the administration of this Lease be
construed to waive or to lessen the right of Landlord or Tenant to insist upon
the performance by Landlord or Tenant in strict accordance with this Lease. The
subsequent acceptance of rent hereunder by Landlord or the payment of rent by
Tenant shall not waive any preceding breach by Tenant of any covenant in this
Lease, nor cure any Event of Default, nor waive any forfeiture of this Lease or
unlawful detainer action, other than the failure of Tenant to pay the particular
rent so accepted, regardless of Landlord's or Tenant's knowledge of such
preceding breach at the time of acceptance or payment of such rent.

                                   ARTICLE 23

                                     Notices

        23.1 All requests, approvals, consents, notices and other communications
given by Landlord or Tenant under this Lease shall be properly given only if
made in writing and either deposited in the United States mail, postage prepaid,
certified with return receipt requested, or delivered by hand (which may be
through a messenger or recognized delivery or courier service) and addressed as
follows: To Landlord at the address of Landlord specified in the Basic Lease
Information, or at such other place as Landlord may from time to time designate
in a written notice to Tenant, with a mandatory copy to Michael A. Kvarme,
Pillsbury Madison & Sutro LLP, 400 Capitol Mall, Suite 1700, Sacramento, CA
95814; and to Tenant, before the Commencement Date, at the address of Tenant
specified in the Basic Lease Information, and after the Commencement Date, at
the Premises, or at such other place as Tenant may from time to time designate
in a written notice to Landlord. Such requests, approvals, consents, notices and
other communications shall be effective on the date of receipt (evidenced by the
certified mail receipt) if mailed or on the date of delivery if hand delivered.

                                   ARTICLE 24

                                Building Signage

        24.1 Tenant may place signage on the exterior of the Premises in
accordance with local rules and regulations subject to Landlord's reasonable
approval. Tenant shall obtain any and all necessary approvals or permits for any
signage at its sole cost and expense. Landlord shall reasonably assist Tenant in
obtaining any necessary approvals or permits so long as Landlord incurs no cost,
expense or liability in the process. Tenant shall procure and install such
signage at its sole cost. Upon termination of the Lease, Tenant shall remove any
signage and repair the exterior of the building to restore it to the same
condition as the rest of the building exterior at Tenant's sole cost and
expense.


                                       28
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                                   ARTICLE 25

                                     Parking

        25.1 Tenant shall maintain and operate, or cause to be maintained and
operated, an automobile parking facility ("Parking Facility") in or adjacent to
the Premises. Tenant shall have the right, so long as Tenant complies with the
terms, provisions and conditions of this Lease and is occupying the Premises, to
park in the Parking Facility up to the number of passenger size automobiles
allowed by local laws and regulations.

        25.2 Tenant shall at all times comply with all applicable ordinances,
rules, regulations, codes, laws, statutes and requirements of all federal,
state, county and municipal governmental bodies or their subdivisions respecting
the use of the Parking Facility.

                                   ARTICLE 26

                                  Miscellaneous

        26.1 The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. The words "include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation." Tenant shall
indemnify and defend Landlord against and hold Landlord harmless from all
claims, demands, liabilities, damages, losses, costs and expenses, including
reasonable attorneys' fees and disbursements, arising out of or resulting from
any failure by Tenant to, perform any of its obligations or any breach by Tenant
of any of its representations or warranties in accordance with this Lease. If
there is more than one Tenant, the obligations hereunder imposed upon Tenant
shall be joint and several. Time is of the essence of this Lease and each and
all of its provisions. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant. Subject to Article 12, this Lease shall benefit and
bind Landlord and Tenant and the personal representatives, heirs, successors and
assigns of Landlord and Tenant. If any provision of this Lease is determined to
be illegal or unenforceable, such determination shall not affect any other
provision of this Lease and all such other provisions shall remain in full force
and effect. This Lease shall be governed by and construed in accordance with the
laws of the state where the Premises are located.

        26.2 If there is any legal action or proceeding between Landlord and
Tenant to enforce this Lease or to protect or establish any right or remedy
under this Lease, the unsuccessful party to such action or proceeding shall pay
to the prevailing party all costs and expenses, including reasonable attorneys'
fees and disbursements, incurred by such prevailing party in such action or
proceeding and in any appeal in connection therewith. If such prevailing party
recovers a judgment in any such action, proceeding or appeal, such costs,
expenses and attorneys' fees and disbursements shall be included in and as a
part of such judgment.

        26.3 Landlord and Tenant waive their respective rights to trial by jury
of any contract or tort claim, counterclaim, cross-complaint or cause of action
in any action, proceeding or


                                       29
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hearing brought by either party against the other on any matter arising out of
or in any manner connected with this Lease, the relationship of Landlord and
Tenant, or Tenant's use or occupancy of the Premises, including any claim of
injury or damage or the enforcement of any remedy under any current or future
law, statute, regulation, code or ordinance.

              /s/ PAUL F. OELSNER                    /s/ LOREN E. HILLBERG
     ------------------------------------      ---------------------------------
                   Landlord                                 Tenant

        26.4 Any claim or dispute arising out of or related to this Lease or the
alleged breach of this Lease (other than disputes over Fair Market Rental as
determined under section 3.6, or an action or claim by Landlord for unlawful
detainer) shall be settled by neutral binding arbitration by a single arbitrator
under the rules of the American Arbitration Association. In the event that the
parties are unable to agree upon a single arbitrator within thirty (30) days,
either party may petition the Presiding Judge, San Francisco Superior Court, for
the appointment of an arbitrator. The arbitrator shall have full authority to
set schedules, order, limit and supervise discovery and determine rules of
evidence. Any decision by the arbitrator shall be in writing and rendered within
thirty (30) days of the conclusion of the hearing. Each party shall initially
advance one-half of the costs of arbitration but the arbitrator may order one
party to pay a greater share in the final award. The judgment of the arbitrator
shall be final, binding and conclusive and judgment may be entered in any court
having jurisdiction over the dispute.

        26.5 The exhibits and addenda, if any, specified in the Basic Lease
Information are attached to and made a part of this Lease.

        26.6 Tenant warrants and represents to Landlord that Tenant has not
authorized or employed, or acted by implication to authorize or to employ, any
real estate broker or salesperson to act for Tenant in connection with this
Lease except BT Commercial which shall be paid thirty percent (30%) of the
commission payable to Polatnick Properties as and when paid by Landlord.
Landlord shall pay Polatnick Properties a commission of seven dollars ($7.00)
per square foot as the entire commission payable which shall be paid by Landlord
from fifty percent (50%) of the Security Deposit (excluding any letter of
credit) and the net rental Landlord receives hereunder until such commission is
paid in full.

        26.7 Tenant and each person executing this Lease on behalf of Tenant
represents and warrants to Landlord that (a) Tenant is a corporation, duly
organized and validly existing under the laws of the State of Delaware, (b)
Tenant is qualified to do business in the State of California, (c) Tenant has
full right, power and authority to enter into this Lease and to perform all of
Tenant's obligations hereunder, and (d) each person signing this Lease on behalf
of Tenant is duly and validly authorized to do so.

        26.8 There are no oral agreements between Landlord and Tenant affecting
this Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, offers, agreements and understandings,
oral or written, if any, between Landlord and Tenant or displayed by Landlord to
Tenant with respect to the subject matter of this Lease or the Premises. There
are no representations between Landlord and Tenant or between any real estate
broker and Tenant other than those expressly set forth in this Lease and all
reliance with respect to any representations is solely upon representations
expressly set forth in this Lease. This Lease


                                       30
   34

may not be amended or modified in any respect whatsoever except by an instrument
in writing signed by Landlord and Tenant.

        26.9 Any diminution or shutting off of light or air by any structure
which may be erected on lands adjacent to or in the vicinity of the Project
shall not affect the Lease, abate any payment owed by Tenant under the Lease or
otherwise impose any liability on Landlord.

        26.10 Landlord shall not be charged with, liable for, or responsible to
Tenant for anything or in any amount for any failure to perform or delay caused
by: fire; earthquake; explosion; flood; hurricane; the elements; acts of God or
the public enemy; actions, restrictions, limitations or interference of
governmental authorities or agents; war; invasion; insurrection; rebellion;
riots; strikes or lockouts; inability to obtain necessary materials, goods,
equipment, services, utilities or labor; or any other cause whether similar or
dissimilar to the foregoing which is beyond the reasonable control of Landlord;
and any such failure or delay due to said causes or any of them shall not be
deemed a break of or default in the performance of the Lease by the Landlord.

        26.11 Upon Landlord's request, Tenant agrees to modify this Lease to
meet the requirements of any or all lenders or ground lessors selected by
Landlord who request such modification as a condition precedent to providing any
loan or financing or to entering into any ground lease affecting or encumbering
the Premises or any part thereof, provided that such modification does not (a)
increase the Base Rent, or (b) alter the Term, or (c) adversely affect Tenant's
rights under this Lease.

        26.12 Tenant hereby covenants and agrees, at its sole cost and expense,
to participate in and cooperate with the requirements of any and all
transportation system management programs adopted for the Building and/or the
area in which the Premises is located by any governmental entity having
jurisdiction.

        26.13 Landlord covenants and agrees that Tenant, upon making all of
Tenant's payments as and when due under the Lease, and upon performing,
observing and keeping the covenants, agreements and conditions of this Lease on
its part to be kept, shall peaceably and quietly hold, occupy and enjoy the
Premises during the term of this Lease without hindrance or molestation from
Landlord subject to the terms and provisions of this Lease.

        26.14 Landlord and Tenant agree that in no event and under no
circumstances shall the Lease be recorded by Tenant.

        26.15 No remedy or election provided, allowed or given by any provision
of the Lease shall be deemed exclusive unless so indicated, but shall, whenever
possible, be cumulative with all other remedies in law or equity.

        26.16 This Lease document and the terms of this Lease, and the
covenants, obligations, and conditions contained in this Lease shall remain
strictly confidential. Except as may be required by applicable law or financial
reporting requirements, Tenant agrees to keep such terms, covenants, obligations
and conditions strictly confidential and not to disclose such matters to any
other landlord, tenant, prospective tenant, or broker; provided, however, Tenant
may provide a


                                       31
   35

copy of this Lease to a non-party solely in conjunction with Tenant's reasonable
and food faith effort to secure an assignee or sublessee for the Premises.

        26.17 No new or additional locks or bolts of any kind shall be placed
upon any of the doors by Tenant, nor shall any changes be made in existing locks
or the mechanism thereof without the prior consent of Landlord. If Landlord
consents to such a lock change, Tenant must furnish Landlord with a key. Tenant
must, upon the termination of its tenancy, give, return and restore to Landlord
all keys of stores, offices, vaults, and toilet rooms, either furnished to, or
otherwise procured by Tenant, and in the event at any time of any loss of keys
so furnished, Tenant shall pay to Landlord the cost of replacing the same or of
changing the lock or locks opened by such lost key if Landlord shall deem it
necessary to make such changes.

        26.18 California law, exclusive of its conflicts of law provisions,
shall apply to this Lease.

        IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first hereinabove written.


Landlord:                                Tenant:

Oelsner Commercial Properties            Macromedia, Inc.


By   /s/ PAUL F. OELSNER                 By       /s/ LOREN E. HILLBERG
   ----------------------------             -----------------------------------
         Paul F. Oelsner
   Its General Partner                      Its Vice President, General Counsel


Agreed as to Commission:

Polotnick Properties                     BT Commercial Real Estate


- ---------------------------------        ---------------------------------------
       (David Polatnick)                           (Stephanie Elkins)


                                       32
   36

                                    EXHIBIT A

                                    PREMISES

Exhibit A is furnished for convenience of the parties to show the approximate
location and size of the building. No representation or warranty is made as to
the accuracy of Exhibit A.







   37


                               [FIRST FLOOR PLAN]




   38


                              [SECOND FLOOR PLAN]




   39


                               [THIRD FLOOR PLAN]




   40


                              [EXHIBIT A PREMISES]




   41


                            [LOCATION AND SITE PLAN]




   42

                                   EXHIBIT B

                           TENANT ESTOPPEL CERTIFICATE

TO:

                        Re:     Lease, dated as of ____________, between
                                Macromedia, Inc., as tenant (the original named
                                tenant under the Lease, together with such
                                tenant's successors and assigns, being
                                hereinafter referred to as the "Tenant"), and
                                Oelsner Commercial Properties, as landlord
                                ("Landlord"), covering certain premises known
                                by the street address 1750 Alameda Street, in
                                the City and County of San Francisco, State of
                                California (the "Leased Premises"), as amended
                                as noted on attached Schedule A (collectively,
                                the "Lease")

Gentlemen:

        The undersigned Tenant hereby represents, warrants and certifies to
______________ that:

        1. The Lease has not been modified, changed, altered or amended in any
respect, either orally or in writing, except as may be indicated on Schedule A
annexed hereto, and constitutes the entire agreement between Tenant and Landlord
affecting Tenant's leasing of the Leased Premises. A true and correct copy of
the Lease is attached as Schedule B. The Lease is in full force and effect and
is not subject to any contingencies or conditions not set forth in the Lease.

        2. The term of the Lease commenced on _______________________, 2000, and
will expire on ________, ____; Tenant has one (1) option to renew the Lease
term, for an additional period of five (5) years.

        3. Tenant has paid all fixed and additional rent and other sums which
are due and payable under the Lease through the date hereof, and Tenant has not
made and will not make any prepayments of fixed rent for more than one month in
advance. There are no presently unexpired rental concessions or abatements due
under the Lease except as set forth on Schedule A annexed hereto. Tenant has no
credits, offsets, abatements, defenses, counterclaims or deductions against any
rental or other payments due under the Lease or with respect to its performance
of the other terms and conditions of the Lease, and has asserted no claims
against Landlord.

        4. Tenant has paid to Landlord a security deposit in the amount of
______________. Tenant has not made any other the payments to Landlord as a
security deposit, advance or prepaid rent.


                                       1
   43

        5. Tenant has accepted the Leased Premises. Tenant is not entitled to
any further payment or credit for tenant work except a credit against Base Rent
during the initial term of $_____ per square foot.

        6. To the best knowledge of Tenant, Landlord is not in default in the
performance of any of the terms of the Lease, nor is there now any fact or
condition which, with notice or lapse of time or both, will become such a
default. Tenant has not delivered to Landlord any notice of default with respect
to Landlord's obligations under the Lease.

        7. Tenant is in actual possession of the entire Leased Premises and, to
the best knowledge of Tenant, is not in any respect in default under any of the
terms and conditions of the Lease, nor is there now any fact or condition which,
with notice or lapse of time or both, will become such a default. Tenant has not
received from Landlord any notice of default with respect to Tenant's
obligations under the Lease.

        8. Tenant has not assigned, transferred, mortgaged or otherwise
encumbered its interest under the Lease, nor subleased any of the Leased
Premises, nor permitted any person or entity to use the Leased Premises, except
as otherwise indicated on Schedule A annexed hereto.

        9. Except as expressly provided in the Lease, Tenant

               (i) does not have any right to renew or extend the term of the

        Lease,

               (ii) does not have any right to cancel or surrender the Lease
        prior to the expiration of the term of the Lease,

               (iii) does not have any option or rights of first refusal or
        first offer to purchase or lease all or any part of the Leased Premises
        or the real property of which the Leased Premises are a part, and

               (iv) does not have any right, title or interest with respect to
        the Leased Premises other than as lessee under the Lease.

        10. To the best knowledge of Tenant, all systems, elements and
components of the Leased Premises are in good working order and repair and sound
operating condition. To the best knowledge of Tenant, Tenant's use and occupancy
of the Leased Premises complies with all applicable building, zoning, land use,
environmental, anti-pollution, health, fire, safety, access accommodations for
the physically handicapped, subdivision, energy and resource conservation and
similar laws, statutes, rules, regulations and ordinances, and all covenants,
conditions and restrictions applicable to the Leased Premises. Tenant has not
received any notice, citation or other claim alleging any violation of any such
law, statute, rule, regulation, ordinance, covenant, condition or restriction.

        11. The individual executing this Tenant Estoppel Certificate on behalf
of Tenant represents and warrants that he or she has the power and the authority
to execute this Tenant Estoppel Certificate on behalf of Tenant.


                                       2
   44

        12. Landlord has advised Tenant that ________________ will rely upon the
truth of this certification in making the _____________ , and Landlord has
advised Tenant that _________________ will rely upon the truth of this
certification in acquiring the Leased Premises. This Tenant Estoppel Certificate
shall inure to the benefit of ________________ and their respective nominees,
successors, assigns, participants and designees and shall be binding upon Tenant
and its successors and assigns.

        Dated this ______ day of _____________,________.

                                        Tenant

                                        Macromedia, Inc.

                                        By:_____________________________________
                                        Its:____________________________________


                                       3
   45

                                   EXHIBIT C

                            BASE BUILDING CONDITION

1.      Building interiors "as is."

2.      Base building main sprinkler loop including sprinkler heads at a minimum
        density required by code.

3.      Existing fire alarms, smoke detectors, strobe lights, exit door lights
        and supporting power panel requirements (Life Safety Systems) to be
        utilized in current working condition.

4.      Roof mounted HVAC equipment repaired as necessary with main ducts and
        risers stubbed to the ceiling of each floor.

5.      Electrical utilities are provided with a main tenant electrical panels
        providing a total amp service. Secondary raceways and distribution
        wiring for power and lighting shall be paid for by tenant.

6.      Men's and women's restroom which shall be ADA compliant.

7.      Finished fire stairs, ramps and mezzanine all built to meet current
        governmental codes. Lighting System Title 24 compliant.

8.      An ADA compliant elevator to service the building.

9.      The addition of new exterior full-panel glass windows in prior openings
        that have been blocked in.

10.     Tenant shall be 100% responsible for the maintenance and repair of the
        foundation, structure, all load bearing walls, exterior walls, roof and
        roof structure.

11.     Tenant responsible for any and all remodeling or construction costs.


   46


By____________________________________       By_________________________________
          (Paul F. Oelsner)
  Its General Partner                          Its______________________________




Agreed as to Commission:

Polotnick Properties                         BT Commercial Real Estate

      /s/ DAVID POLATNICK                           /s/ STEPHANIE ELKINS
______________________________________       ___________________________________
         (David Polatnick)                             (Stephanie Elkins)

EX-10.18

   1

                                                                   EXHIBIT 10.18

                                MACROMEDIA, INC.

                              EMPLOYMENT AGREEMENT

        This Agreement is made effective this 22nd day of July 1997, between
Macromedia, Inc., a Delaware corporation ("Macromedia"), and Brian Allum
("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
Senior Vice President Revenue, 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
Senior Vice President Revenue 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
Senior Vice President Revenue 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. Minimum $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. An annual target bonus of $200,000 per year based on
attainment of 100% of the Macromedia Executive Bonus Plan objectives, with a
total bonus potential of up to $600,000 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. For Executive's
initial twelve-months of employment, Executive will be guaranteed total base
salary and bonus of at least $400,000. The Macromedia Executive Bonus Plan
objectives for fiscal 1998 for Executive will be established by the mutual
consent of Executive and the President of Macromedia, subject to the approval of
the Compensation Committee of the Board of Directors of Macromedia, within sixty
(60) days of the effective date of this Agreement, and Executive understands
that such plan may be amended from time to time. In addition, Macromedia will
pay Executive an amount equal to $150,000 net (which amount shall be grossed up
for taxes), to cover any legal advice, tax advice, closing costs, trips or
incidentals in connection with your relocation from Canada to California.
Macromedia will also reimburse any costs incurred by you in connection with
moving your household goods and motor vehicles from Canada to California.
Executive will be required to repay these amounts if Executive voluntarily
terminates employment with Macromedia within one year of the effective date of
this Agreement


   2

but Executive shall not be required to make any repayment if Executive is
terminated by Macromedia without Cause (as defined in Section 7.2 of this
Agreement). Such repayment obligation shall decrease proportionately based on
the number of months divided by twelve that Executive is employed as Senior Vice
President Revenue of Macromedia.

            2.3 Stock Options. Executive has been granted a non-qualified option
to purchase 400,000 shares of Macromedia common stock. The exercise price for
such option 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 (100,000 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 (8,333 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 A 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, short-term disability and
long-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. Macromedia has provided Executive with a
recourse loan of up to $2,400,000, at an annual interest rate of 6.65% per
annum, to purchase Executive's residence on Hawthorn Lane in Atherton,
California and make improvements on such residence, which such residence shall
be repurchased by Macromedia at Executive's cost (including the cost of any
painting, repairs, improvements and maintenance of a structural or capital
nature), upon request by the Executive within two years of the purchase of such
residence by Executive (which two-year period shall be referred to as the
"Initial Period"). $2,200,000 of the recourse loan has already been funded for
purchase of Executive's residence and an additional $200,000 is available for
reimbursement of expenses incurred for improvements to Executive's residence.
all pursuant to a loan agreement, which is attached as Exhibit B. The loan shall
be secured by a first deed of trust on such residence. No interest shall accrue
or be payable for two years from the date of the loan and Macromedia will
provide Executive with a tax gross-up of the resulting taxable benefits. During
the Initial Period, Macromedia will provide Executive with an amount equal to
any property taxes and property insurance costs attributable to such residence
and shall provide Executive with a tax gross-up of the resulting taxable
benefits. All interest accrued and the principal on the loan will become
immediately due and payable seven 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 seven year period, all interest
accrued and principal on the loan will become immediately due and payable upon
the earlier of (a) 180 days after such termination or (b) immediately upon such
sale.


                                       2
   3

            4.1 Reimbursement of Duplicative Canadian Expenses. During the
Initial Period, while Executive maintains residences in Canada and California,
Macromedia shall reimburse Executive for the cost of Canadian housing expenses,
repairs and maintenance ("Services") to the extent that those Services are
duplicated at Executive's California residence.

        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 C contemporaneously with the execution of this
Agreement.

        6. Termination. Executive's employment as Senior Vice President Revenue
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 Senior Vice President Revenue. Except in
connection with a termination for Cause (as defined in Subsection 7.2) or a
voluntary termination by Executive, Macromedia shall provide Executive with
termination benefits upon the termination by Macromedia of his employment with
Macromedia, irrespective of the cause of the termination, (a termination
described by this Section 7 shall be referred to throughout this Agreement as an
"Eligible Termination") as follows:

            7.1 Termination Benefits. During a period of time beginning on the
date of an Eligible Termination and ending twelve months from such date,
Executive's base salary and health benefits and life insurance coverage 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
twelve-month period after an Eligible Termination. Vesting on any stock options
held by Executive shall terminate following an Eligible Termination. Following
such termination of employment, Macromedia shall reimburse Executive for any
costs incurred in moving household goods and motor vehicles from California to
Canada.

            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 with
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.


                                       3
   4

            7.3 Accrued Bonus. In the event of termination of Executive's
employment, other than for cause, Executive shall be entitled to the
proportionate share of any bonus earned up to the last day worked following
notice of termination, calculated after the fiscal period to which the bonus
relates.

        8. Change in Control Benefits

            8.1 Should there occur a Change in Control (as defined below), then
the vesting of all of Executive's stock options to purchase Macromedia common
stock will be accelerated by eighteen months automatically upon such Change of
Control, regardless of whether Executive continues in employment with Macromedia
or its successor. For example, if Executive has a stock option to purchase 80
shares of Macromedia stock vesting over four years (at the rate of twenty shares
per year) and at the time of the Change of Control, one-fourth of such stock
options (twenty shares) are vested according to their original terms, thirty
additional shares (eighteen months worth of vesting) will become vested at the
time of the Change of Control and the remaining thirty shares will vest over the
eighteen month period following the Change of Control.

            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 under the Securities Exchange Act
of 1934), directly or indirectly, of more than fifty 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;
provided that no acceleration will occur upon a Change of Control if it is a
transaction such as a merger that is intended by Macromedia and the other party
to the transaction to be treated as a pooling of interests for accounting
purposes and if it is determined by the Securities and Exchange Commission or
the independent accountants for Macromedia that the acceleration would prevent
the transaction from being treated as a pooling of interests.

        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


                                       4
   5

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 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
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.

            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.


                                       5
   6

            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/ ROB BURGESS                       By: /s/ BRIAN ALLUM

Name: ROB BURGESS                         Name: Brian Allum

Title: President & CEO


ATTACHMENTS:
      Exhibit A: Stock Option Agreement
      Exhibit B: Loan Agreement
      Exhibit C: Macromedia's Proprietary Information and Inventions Agreement




                                       6

EX-21.01

EXHIBIT 21.01

LIST OF REGISTRANT’S SUBSIDIARIES

	Country of Organization
Percentage Owned By Macromedia, Inc.
Macromedia Ireland (PTY) Ltd 100%	Ireland
Macromedia Canada, Ltd 100%	Canada
shockwave.com, Inc. 66%	United States
Percentage Owned By Macromedia Ireland (PTY) Ltd.
Macromedia Netherlands B.V 100%	Netherlands
Macromedia Europe Limited 100%	United Kingdom
Macromedia KK 100%	Japan
Percentage Owned By shockwave.com, Inc.
shockwave.com International, Inc. 100%	United States

EX-23.01

EXHIBIT 23.01

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Macromedia, Inc. and Subsidiaries:

      We consent to incorporation by reference in the registration statements (Nos. 33-92233, 333-89247, 333-64141, 333-39285, 333-24713 and 333-08435) on Form S-8 and the registration statement (No. 333-32193) on Form S-3 of Macromedia, Inc. of our reports dated April 24, 2000, relating to the consolidated balance sheets of Macromedia and subsidiaries as of March 31, 2000, and 1999, 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, 2000, and the related financial statement schedule, which reports appear in the March 31, 2000, annual report on Form 10-K of Macromedia, Inc.

/s/ KPMG LLP

San Francisco, California
June 21, 2000 EX-27.01 8 ex27-01.txt EX-27.01 FINANCIAL DATA SCHEDULE-YEAR END 3/31/00

<ARTICLE> 5 <PERIOD-TYPE> YEAR <FISCAL-YEAR-END> MAR-31-2000 <PERIOD-START> APR-01-1999 <PERIOD-END> MAR-31-2000 <CASH> 115,084 <SECURITIES> 71,952 <RECEIVABLES> 52,763 <ALLOWANCES> 10,880 <INVENTORY> 1,349 <CURRENT-ASSETS> 251,024 <PP&E> 105,384 <DEPRECIATION> 44,531 <TOTAL-ASSETS> 339,359 <CURRENT-LIABILITIES> 68,874 <BONDS> 0 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 51 <OTHER-SE> 254,225 <TOTAL-LIABILITY-AND-EQUITY> 339,359 <SALES> 264,159 <TOTAL-REVENUES> 264,159 <CGS> 28,829 <TOTAL-COSTS> 28,829 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> 20,742 <INCOME-TAX> 11,975 <INCOME-CONTINUING> 8,767 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 8,767 <EPS-BASIC> 0.14 <EPS-DILUTED> 0.12

EX-27.02 9 ex27-02.txt EX-27.02 RESTATED FDS - YEAR ENDED 3/31/1999

<ARTICLE> 5 <PERIOD-TYPE> YEAR <FISCAL-YEAR-END> MAR-31-1999 <PERIOD-START> APR-01-1998 <PERIOD-END> MAR-31-1999 <CASH> 29,459 <SECURITIES> 81,698 <RECEIVABLES> 23,570 <ALLOWANCES> 9,599 <INVENTORY> 615 <CURRENT-ASSETS> 146,553 <PP&E> 72,582 <DEPRECIATION> 29,769 <TOTAL-ASSETS> 202,495 <CURRENT-LIABILITIES> 41,186 <BONDS> 0 <PREFERRED-MANDATORY> 13,591 <PREFERRED> 0 <COMMON> 43 <OTHER-SE> 146,988 <TOTAL-LIABILITY-AND-EQUITY> 202,495 <SALES> 153,243 <TOTAL-REVENUES> 153,243 <CGS> 15,625 <TOTAL-COSTS> 15,625 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> 10,222 <INCOME-TAX> 7,612 <INCOME-CONTINUING> 2,610 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 2,610 <EPS-BASIC> 0.06 <EPS-DILUTED> 0.05

EX-27.03 10 ex27-03.txt EX-27.03 RESTATED FDS - YEAR ENDED 3/31/1998

<ARTICLE> 5 <PERIOD-TYPE> YEAR <FISCAL-YEAR-END> MAR-31-1998 <PERIOD-START> APR-01-1997 <PERIOD-END> MAR-31-1998 <CASH> 12,777 <SECURITIES> 76,163 <RECEIVABLES> 15,604 <ALLOWANCES> 7,647 <INVENTORY> 743 <CURRENT-ASSETS> 110,210 <PP&E> 62,017 <DEPRECIATION> 22,476 <TOTAL-ASSETS> 158,126 <CURRENT-LIABILITIES> 26,685 <BONDS> 0 <PREFERRED-MANDATORY> 3,548 <PREFERRED> 0 <COMMON> 40 <OTHER-SE> 127,200 <TOTAL-LIABILITY-AND-EQUITY> 158,126 <SALES> 113,803 <TOTAL-REVENUES> 113,803 <CGS> 15,107 <TOTAL-COSTS> 15,107 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> (14,813) <INCOME-TAX> 828 <INCOME-CONTINUING> (15,641) <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> (15,641) <EPS-BASIC> (0.40) <EPS-DILUTED> (0.40)

EX-27.04 11 ex27-04.txt EX-27.04 RESTATED FDS - 3 MONTHS ENDED 6/30/1999

<ARTICLE> 5 <PERIOD-TYPE> 3-MOS <FISCAL-YEAR-END> MAR-31-2000 <PERIOD-START> APR-01-1999 <PERIOD-END> JUN-30-1999 <CASH> 41,112 <SECURITIES> 80,806 <RECEIVABLES> 22,462 <ALLOWANCES> 6,751 <INVENTORY> 767 <CURRENT-ASSETS> 158,048 <PP&E> 79,598 <DEPRECIATION> 31,659 <TOTAL-ASSETS> 217,165 <CURRENT-LIABILITIES> 43,945 <BONDS> 0 <PREFERRED-MANDATORY> 29,031 <PREFERRED> 0 <COMMON> 45 <OTHER-SE> 143,630 <TOTAL-LIABILITY-AND-EQUITY> 217,165 <SALES> 51,232 <TOTAL-REVENUES> 51,232 <CGS> 5,754 <TOTAL-COSTS> 5,754 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> 4,248 <INCOME-TAX> 2,521 <INCOME-CONTINUING> 1,727 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 1,727 <EPS-BASIC> 0.04 <EPS-DILUTED> 0.03

EX-27.05 12 ex27-05.txt EX-27.05 RESTATED FDS - 6 MONTHS ENDED 9/30/1999

<ARTICLE> 5 <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> MAR-31-2000 <PERIOD-START> APR-01-1999 <PERIOD-END> SEP-30-1999 <CASH> 40,475 <SECURITIES> 92,558 <RECEIVABLES> 26,808 <ALLOWANCES> 6,166 <INVENTORY> 1,139 <CURRENT-ASSETS> 172,603 <PP&E> 86,738 <DEPRECIATION> 36,552 <TOTAL-ASSETS> 234,792 <CURRENT-LIABILITIES> 52,364 <BONDS> 0 <PREFERRED-MANDATORY> 30,048 <PREFERRED> 0 <COMMON> 47 <OTHER-SE> 151,640 <TOTAL-LIABILITY-AND-EQUITY> 234,792 <SALES> 110,545 <TOTAL-REVENUES> 110,545 <CGS> 11,683 <TOTAL-COSTS> 11,683 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> 6,544 <INCOME-TAX> 4,592 <INCOME-CONTINUING> 1,952 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 1,952 <EPS-BASIC> 0.02 <EPS-DILUTED> 0.02

EX-27.06 13 ex27-06.txt EX-27.06 RESTATED FDS - 3 MONTHS ENDED 6/30/1998

<ARTICLE> 5 <PERIOD-TYPE> 3-MOS <FISCAL-YEAR-END> MAR-31-1999 <PERIOD-START> APR-01-1998 <PERIOD-END> JUN-30-1998 <CASH> 11,127 <SECURITIES> 85,361 <RECEIVABLES> 17,882 <ALLOWANCES> 7,810 <INVENTORY> 794 <CURRENT-ASSETS> 127,386 <PP&E> 59,676 <DEPRECIATION> 22,295 <TOTAL-ASSETS> 174,173 <CURRENT-LIABILITIES> 37,140 <BONDS> 0 <PREFERRED-MANDATORY> 3,560 <PREFERRED> 0 <COMMON> 41 <OTHER-SE> 132,832 <TOTAL-LIABILITY-AND-EQUITY> 174,173 <SALES> 32,747 <TOTAL-REVENUES> 32,747 <CGS> 3,241 <TOTAL-COSTS> 3,241 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> 712 <INCOME-TAX> 1,330 <INCOME-CONTINUING> (617) <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> (617) <EPS-BASIC> (0.02) <EPS-DILUTED> (0.02)

EX-27.07 14 ex27-07.txt EX-27.07 RESTATED FDS - 6 MONTHS ENDED 9/30/1998

<ARTICLE> 5 <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> MAR-31-2000 <PERIOD-START> APR-01-1998 <PERIOD-END> SEP-30-1998 <CASH> 22,103 <SECURITIES> 77,887 <RECEIVABLES> 14,806 <ALLOWANCES> 7,246 <INVENTORY> 504 <CURRENT-ASSETS> 126,968 <PP&E> 63,408 <DEPRECIATION> 24,182 <TOTAL-ASSETS> 177,080 <CURRENT-LIABILITIES> 39,404 <BONDS> 0 <PREFERRED-MANDATORY> 13,493 <PREFERRED> 0 <COMMON> 41 <OTHER-SE> 123,595 <TOTAL-LIABILITY-AND-EQUITY> 177,080 <SALES> 68,636 <TOTAL-REVENUES> 68,636 <CGS> 6,645 <TOTAL-COSTS> 6,645 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> 3,050 <INCOME-TAX> 3,205 <INCOME-CONTINUING> (154) <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> (154) <EPS-BASIC> 0 <EPS-DILUTED> 0

EX-27.08 15 ex27-08.txt EX-27.08 RESTATED FDS - 9 MONTHS ENDED 12/31/1998

<ARTICLE> 5 <PERIOD-TYPE> 9-MOS <FISCAL-YEAR-END> MAR-31-1999 <PERIOD-START> APR-01-1998 <PERIOD-END> DEC-31-1998 <CASH> 50,899 <SECURITIES> 55,438 <RECEIVABLES> 22,728 <ALLOWANCES> 9,586 <INVENTORY> 534 <CURRENT-ASSETS> 139,611 <PP&E> 67,020 <DEPRECIATION> 26,344 <TOTAL-ASSETS> 191,335 <CURRENT-LIABILITIES> 43,878 <BONDS> 0 <PREFERRED-MANDATORY> 13,538 <PREFERRED> 0 <COMMON> 42 <OTHER-SE> 133,314 <TOTAL-LIABILITY-AND-EQUITY> 191,335 <SALES> 107,463 <TOTAL-REVENUES> 107,463 <CGS> 10,621 <TOTAL-COSTS> 10,621 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> 5,751 <INCOME-TAX> 5,072 <INCOME-CONTINUING> 680 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 680 <EPS-BASIC> 0.02 <EPS-DILUTED> 0.01

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EX-27.01

 

<ARTICLE> 5

                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          MAR-31-2000
<PERIOD-START>                             APR-01-1999
<PERIOD-END>                               MAR-31-2000
<CASH>                                         115,084
<SECURITIES>                                    71,952
<RECEIVABLES>                                   52,763
<ALLOWANCES>                                    10,880
<INVENTORY>                                      1,349
<CURRENT-ASSETS>                               251,024
<PP&E>                                         105,384
<DEPRECIATION>                                  44,531
<TOTAL-ASSETS>                                 339,359
<CURRENT-LIABILITIES>                           68,874
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                            51
<OTHER-SE>                                     254,225
<TOTAL-LIABILITY-AND-EQUITY>                   339,359
<SALES>                                        264,159
<TOTAL-REVENUES>                               264,159
<CGS>                                           28,829
<TOTAL-COSTS>                                   28,829
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                 20,742
<INCOME-TAX>                                    11,975
<INCOME-CONTINUING>                              8,767
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     8,767
<EPS-BASIC>                                       0.14
<EPS-DILUTED>                                     0.12


 

EX-27.02

 

<ARTICLE> 5


                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          MAR-31-1999
<PERIOD-START>                             APR-01-1998
<PERIOD-END>                               MAR-31-1999
<CASH>                                          29,459
<SECURITIES>                                    81,698
<RECEIVABLES>                                   23,570
<ALLOWANCES>                                     9,599
<INVENTORY>                                        615
<CURRENT-ASSETS>                               146,553
<PP&E>                                          72,582
<DEPRECIATION>                                  29,769
<TOTAL-ASSETS>                                 202,495
<CURRENT-LIABILITIES>                           41,186
<BONDS>                                              0
<PREFERRED-MANDATORY>                           13,591
<PREFERRED>                                          0
<COMMON>                                            43
<OTHER-SE>                                     146,988
<TOTAL-LIABILITY-AND-EQUITY>                   202,495
<SALES>                                        153,243
<TOTAL-REVENUES>                               153,243
<CGS>                                           15,625
<TOTAL-COSTS>                                   15,625
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                 10,222
<INCOME-TAX>                                     7,612
<INCOME-CONTINUING>                              2,610
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     2,610
<EPS-BASIC>                                       0.06
<EPS-DILUTED>                                     0.05


 

EX-27.03

 

<ARTICLE> 5


                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          MAR-31-1998
<PERIOD-START>                             APR-01-1997
<PERIOD-END>                               MAR-31-1998
<CASH>                                          12,777
<SECURITIES>                                    76,163
<RECEIVABLES>                                   15,604
<ALLOWANCES>                                     7,647
<INVENTORY>                                        743
<CURRENT-ASSETS>                               110,210
<PP&E>                                          62,017
<DEPRECIATION>                                  22,476
<TOTAL-ASSETS>                                 158,126
<CURRENT-LIABILITIES>                           26,685
<BONDS>                                              0
<PREFERRED-MANDATORY>                            3,548
<PREFERRED>                                          0
<COMMON>                                            40
<OTHER-SE>                                     127,200
<TOTAL-LIABILITY-AND-EQUITY>                   158,126
<SALES>                                        113,803
<TOTAL-REVENUES>                               113,803
<CGS>                                           15,107
<TOTAL-COSTS>                                   15,107
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                               (14,813)
<INCOME-TAX>                                       828
<INCOME-CONTINUING>                           (15,641)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (15,641)
<EPS-BASIC>                                     (0.40)
<EPS-DILUTED>                                   (0.40)


 

EX-27.04

 

<ARTICLE> 5


                             
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          MAR-31-2000
<PERIOD-START>                             APR-01-1999
<PERIOD-END>                               JUN-30-1999
<CASH>                                          41,112
<SECURITIES>                                    80,806
<RECEIVABLES>                                   22,462
<ALLOWANCES>                                     6,751
<INVENTORY>                                        767
<CURRENT-ASSETS>                               158,048
<PP&E>                                          79,598
<DEPRECIATION>                                  31,659
<TOTAL-ASSETS>                                 217,165
<CURRENT-LIABILITIES>                           43,945
<BONDS>                                              0
<PREFERRED-MANDATORY>                           29,031
<PREFERRED>                                          0
<COMMON>                                            45
<OTHER-SE>                                     143,630
<TOTAL-LIABILITY-AND-EQUITY>                   217,165
<SALES>                                         51,232
<TOTAL-REVENUES>                                51,232
<CGS>                                            5,754
<TOTAL-COSTS>                                    5,754
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                  4,248
<INCOME-TAX>                                     2,521
<INCOME-CONTINUING>                              1,727
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     1,727
<EPS-BASIC>                                       0.04
<EPS-DILUTED>                                     0.03


 

EX-27.05

 

<ARTICLE> 5


                             
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          MAR-31-2000
<PERIOD-START>                             APR-01-1999
<PERIOD-END>                               SEP-30-1999
<CASH>                                          40,475
<SECURITIES>                                    92,558
<RECEIVABLES>                                   26,808
<ALLOWANCES>                                     6,166
<INVENTORY>                                      1,139
<CURRENT-ASSETS>                               172,603
<PP&E>                                          86,738
<DEPRECIATION>                                  36,552
<TOTAL-ASSETS>                                 234,792
<CURRENT-LIABILITIES>                           52,364
<BONDS>                                              0
<PREFERRED-MANDATORY>                           30,048
<PREFERRED>                                          0
<COMMON>                                            47
<OTHER-SE>                                     151,640
<TOTAL-LIABILITY-AND-EQUITY>                   234,792
<SALES>                                        110,545
<TOTAL-REVENUES>                               110,545
<CGS>                                           11,683
<TOTAL-COSTS>                                   11,683
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                  6,544
<INCOME-TAX>                                     4,592
<INCOME-CONTINUING>                              1,952
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     1,952
<EPS-BASIC>                                       0.02
<EPS-DILUTED>                                     0.02


 

EX-27.06

 

<ARTICLE> 5


                             
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          MAR-31-1999
<PERIOD-START>                             APR-01-1998
<PERIOD-END>                               JUN-30-1998
<CASH>                                          11,127
<SECURITIES>                                    85,361
<RECEIVABLES>                                   17,882
<ALLOWANCES>                                     7,810
<INVENTORY>                                        794
<CURRENT-ASSETS>                               127,386
<PP&E>                                          59,676
<DEPRECIATION>                                  22,295
<TOTAL-ASSETS>                                 174,173
<CURRENT-LIABILITIES>                           37,140
<BONDS>                                              0
<PREFERRED-MANDATORY>                            3,560
<PREFERRED>                                          0
<COMMON>                                            41
<OTHER-SE>                                     132,832
<TOTAL-LIABILITY-AND-EQUITY>                   174,173
<SALES>                                         32,747
<TOTAL-REVENUES>                                32,747
<CGS>                                            3,241
<TOTAL-COSTS>                                    3,241
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                    712
<INCOME-TAX>                                     1,330
<INCOME-CONTINUING>                              (617)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     (617)
<EPS-BASIC>                                     (0.02)
<EPS-DILUTED>                                   (0.02)


 

EX-27.07

 

<ARTICLE> 5


                             
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          MAR-31-2000
<PERIOD-START>                             APR-01-1998
<PERIOD-END>                               SEP-30-1998
<CASH>                                          22,103
<SECURITIES>                                    77,887
<RECEIVABLES>                                   14,806
<ALLOWANCES>                                     7,246
<INVENTORY>                                        504
<CURRENT-ASSETS>                               126,968
<PP&E>                                          63,408
<DEPRECIATION>                                  24,182
<TOTAL-ASSETS>                                 177,080
<CURRENT-LIABILITIES>                           39,404
<BONDS>                                              0
<PREFERRED-MANDATORY>                           13,493
<PREFERRED>                                          0
<COMMON>                                            41
<OTHER-SE>                                     123,595
<TOTAL-LIABILITY-AND-EQUITY>                   177,080
<SALES>                                         68,636
<TOTAL-REVENUES>                                68,636
<CGS>                                            6,645
<TOTAL-COSTS>                                    6,645
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                  3,050
<INCOME-TAX>                                     3,205
<INCOME-CONTINUING>                              (154)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     (154)
<EPS-BASIC>                                          0
<EPS-DILUTED>                                        0



 

EX-27.08

 

<ARTICLE> 5


                             
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          MAR-31-1999
<PERIOD-START>                             APR-01-1998
<PERIOD-END>                               DEC-31-1998
<CASH>                                          50,899
<SECURITIES>                                    55,438
<RECEIVABLES>                                   22,728
<ALLOWANCES>                                     9,586
<INVENTORY>                                        534
<CURRENT-ASSETS>                               139,611
<PP&E>                                          67,020
<DEPRECIATION>                                  26,344
<TOTAL-ASSETS>                                 191,335
<CURRENT-LIABILITIES>                           43,878
<BONDS>                                              0
<PREFERRED-MANDATORY>                           13,538
<PREFERRED>                                          0
<COMMON>                                            42
<OTHER-SE>                                     133,314
<TOTAL-LIABILITY-AND-EQUITY>                   191,335
<SALES>                                        107,463
<TOTAL-REVENUES>                               107,463
<CGS>                                           10,621
<TOTAL-COSTS>                                   10,621
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                  5,751
<INCOME-TAX>                                     5,072
<INCOME-CONTINUING>                                680
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                       680
<EPS-BASIC>                                       0.02
<EPS-DILUTED>                                     0.01