MACROMEDIA, INC.
OFFER TO EXCHANGE OUTSTANDING OPTIONS
THIS OFFER EXPIRES AT 5:00 P.M. PACIFIC TIME ON JUNE 4, 2001 UNLESS IT IS
EXTENDED
Starting May 4, 2001, Macromedia, Inc. is offering its option holders
the opportunity to exchange outstanding stock options for new options granted
more than six months and a day from the date this offer expires, with an
exchange price set at the then-prevailing fair market value. Any options that
were granted and are outstanding under the Macromedia, Inc. 1992 Equity
Incentive Plan, the Macromedia, Inc. 1999 Stock Option Plan and the Andromedia,
Inc. 1999 Stock Plan (collectively, the "PLANS"), along with some non-plan
option grants originally granted by Macromedia, are eligible for this exchange
offer. We are making this offer subject to the terms and conditions set forth in
this offer to exchange and in the election form. The offer expires on June 4,
2001, unless we extend the offer period.
If you choose to exchange any of your stock options, you MUST also
exchange and agree to cancel any stock options granted on or after December 1,
2000. This offer is subject to other conditions, which we describe in Sections 5
and 6 of this offer. The number of shares of common stock covered by the new
options to be granted to each option holder will be equal to the number of
shares subject to the options exchanged by that option holder and accepted for
exchange. The new options will be granted on a date between December 5, 2001 and
January 21, 2002 (we call this the "REPLACEMENT GRANT DATE").
If you elect to exchange options as described in this offer and your
offer is accepted, we will, subject to the conditions set forth in Section 5,
grant you a new option, pursuant to a new stock option agreement. The exercise
price of the new option will be equal to the last reported sale price of our
common stock on the Nasdaq National Market on the date preceding the replacement
grant date. The new options will be nonqualified stock options and will have the
same vesting schedule as the options that you exchanged, except that you will
not be able to exercise the new options for one week following the replacement
grant date, to let us handle administrative matters relating to the new grant.
The other terms and conditions of the new options will be determined by the
Compensation Committee.
ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED THIS OFFER, NEITHER WE NOR
THE BOARD MAKES ANY RECOMMENDATION AS TO WHETHER OR NOT YOU SHOULD ELECT TO
EXCHANGE YOUR OPTIONS. YOU MUST MAKE YOUR OWN DECISION WHETHER TO ELECT TO
EXCHANGE YOUR OPTIONS.
Shares of our common stock are quoted on the Nasdaq National Market
under the symbol "MACR." On May 3, 2001, the closing sale price of the common
stock on the Nasdaq National Market was $20.60 per share. WE RECOMMEND THAT YOU
OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK AND CONSULT WITH YOUR OWN
ADVISORS BEFORE DECIDING WHETHER TO ELECT TO EXCHANGE YOUR OPTIONS.
YOU SHOULD DIRECT QUESTIONS ABOUT THIS OFFER OR REQUESTS FOR ASSISTANCE
OR FOR ADDITIONAL COPIES OF THE OFFER TO EXCHANGE OR THE ELECTION FORM TO
DARRELL HONG, BY EMAIL AT DHONG@MACROMEDIA.COM, OR BY TELEPHONE AT (415)
252-6860 OR TO FRANCI CLAUDON, BY EMAIL AT FCLAUDON@MACROMEDIA.COM, OR BY
TELEPHONE AT (415) 252-4086.
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IMPORTANT
If you wish to elect to exchange some or all of your options, you must
complete and sign the election form in accordance with its instructions, and
send it and any other required documents to Darrell Hong or Franci Claudon by
fax at (415) 252-2348 or by mail to Darrell Hong or Franci Claudon, Macromedia,
Inc., 600 Townsend St., San Francisco, CA 94103, no later than 5:00 p.m. Pacific
Time on June 4, 2001.
We are not making this offer to, and we will not accept any election to
exchange options from, option holders in any jurisdiction in which the offer or
the acceptance of any election to exchange would not be in compliance with the
laws of such jurisdiction. However, we may at our discretion take any actions
necessary for us to make this offer to option holders in any such jurisdiction.
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR
BEHALF AS TO WHETHER YOU SHOULD ELECT TO EXCHANGE OR REFRAIN FROM ELECTING TO
EXCHANGE YOUR OPTIONS PURSUANT TO THE OFFER. YOU SHOULD RELY ONLY ON THE
INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE
NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATION
IN CONNECTION WITH THIS OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS
CONTAINED IN THIS DOCUMENT OR IN THE ELECTION FORM. IF ANYONE MAKES ANY
RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST
NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN
AUTHORIZED BY US.
RELEVANT DATES
COMMENCEMENT DATE: May 4, 2001, the date of this
exchange offer
EXPIRATION DATE: June 4, 2001, unless extended
REPLACEMENT GRANT DATE: Date to be determined, between
December 5, 2001 and January 21, 2002
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TABLE OF CONTENTS
PAGE
SUMMARY TERM SHEET..................................................................................................1
THE OFFER .........................................................................................................10
1. NUMBER OF OPTIONS; EXPIRATION DATE......................................................................10
2. PURPOSE OF THE OFFER....................................................................................11
3. PROCEDURES FOR ELECTING TO EXCHANGE OPTIONS.............................................................12
4. WITHDRAWAL RIGHTS.......................................................................................13
5. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND CANCELLATION AND ISSUANCE OF NEW OPTIONS.........................14
6. CONDITIONS OF THE OFFER.................................................................................15
7. PRICE RANGE OF COMMON STOCK UNDERLYING THE OPTIONS......................................................17
8. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS................................................18
9. INFORMATION CONCERNING MACROMEDIA.......................................................................18
10. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OPTIONS...............19
11. STATUS OF OPTIONS ACQUIRED BY US IN THE OFFER; ACCOUNTING CONSEQUENCES OF THE OFFER.....................20
12. LEGAL MATTERS; REGULATORY APPROVALS.....................................................................21
13. MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES...........................................................21
14. EXTENSION OF OFFER; TERMINATION; AMENDMENT..............................................................23
15. FEES AND EXPENSES.......................................................................................24
16. ADDITIONAL INFORMATION..................................................................................24
17. MISCELLANEOUS...........................................................................................25
FINANCIAL INFORMATION.............................................................................................F-1
SENT UNDER SEPARATE COVER: Election form
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SUMMARY TERM SHEET
This section answers some of the questions you may have about this
offer. It is only a summary, so you should read the remainder of this offer to
exchange and the election form carefully, because the summary is not complete
and additional important information is contained in the remainder of this offer
to exchange and the election form.
GENERAL QUESTIONS ABOUT THE PROGRAM
1. WHAT ARE THE ELIGIBLE OPTIONS IN THIS OFFER TO EXCHANGE?
We are offering to exchange all options to purchase shares of
Macromedia, Inc. common stock that were granted and are outstanding under the
Macromedia, Inc. 1992 Equity Incentive Plan, the Macromedia, Inc. 1999 Stock
Option Plan and the Andromedia, Inc. 1999 Stock Plan (collectively, the
"PLANS"), along with some non-plan option grants that were originally granted by
Macromedia, for new options. Any options not listed above, including, but not
limited to, those granted by Allaire Corporation and assumed by Macromedia as
part of our merger, are not included in this offer. See Section 1 of the Offer.
2. WHY ARE WE MAKING THE OFFER TO EXCHANGE?
Many of you have stock options that are priced significantly above our
current stock price and the recent trading prices for our stock. These options
have lost much of the incentive benefit that we originally intended them to
have. By making this offer, we intend to provide you with the benefit of owning
options that, over time, may have a greater potential to increase in value. We
believe the offer creates better performance incentives for employees and
thereby maximizes shareholder value.
This option exchange program is voluntary. You choose whether to keep
your current stock options at their existing exercise price or to cancel those
options in exchange for new options to be granted on a date between December 5,
2001 and January 21, 2002 (we call this the "REPLACEMENT GRANT DATE"). The new
options would be nonqualified stock options, would cover the same number of
shares as the options you validly tendered for exchange, and would have an
exercise price equal to the last sale price of our common stock on the trading
day immediately preceding the replacement grant date. See Section 2 of the
Offer.
3. WHO IS ELIGIBLE?
Except for non-executive members of the Macromedia Board of Directors,
any current employee of Macromedia or any subsidiary of Macromedia who holds a
current stock option under one or more of the Plans (along with some non-plan
option grants), is eligible to participate in the program. See Section 1 of the
Offer.
4. DOES THE OFFER TO EXCHANGE EXTEND TO ALL OUTSTANDING MACROMEDIA OPTIONS?
No. The offer to exchange extends only to the eligible options
identified in question 1.
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5. WILL OVERSEAS EMPLOYEES BE ELIGIBLE TO PARTICIPATE?
Yes, subject to the applicable laws of the corresponding jurisdiction.
6. WHEN DOES THE EXCHANGE OFFER START?
May 4, 2001.
7. WHEN DOES THE OFFER END?
To participate, you must make a voluntary and valid election that is not
subsequently withdrawn, no later than 5:00 p.m. Pacific Time on June 4, 2001
(the "EXPIRATION DATE").
8. WHAT HAPPENS IF I ELECT TO PARTICIPATE?
If you elect to participate in the exchange offer by the expiration date
and we accept your election, we will cancel your outstanding stock options
surrendered by you for exchange in the offer by the expiration date. In
exchange, subject to the conditions set forth in Section 5, you will receive a
new option to purchase the same number of shares as your canceled option, to be
issued on the replacement grant date, with a new exercise price per share that
is equal to the last sale price of Macromedia's stock on the trading day
immediately preceding the replacement grant date.
Your new options granted in this program will have the same vesting
schedule as your canceled options. The vesting start date for the replacement
option will be the same vesting start date that applied to the canceled option.
You will receive vesting credit for the time between the date we cancel your
options, which we expect to be June 4, 2001, and the replacement grant date as
if the options you elect to cancel were outstanding throughout this period. See
question 36 below for an example.
If you wish to exchange any of your options, you must also agree to
cancel all options granted to you on or after December 1, 2000, regardless of
their exercise price.
9. WHAT DO I NEED TO DO TO PARTICIPATE IN THE OFFER TO EXCHANGE?
Complete the election form, sign it, and ensure that Darrell Hong or
Franci Claudon receives it no later than the expiration date and follow all
other applicable instructions set forth in this offer and the election form. You
can return your form either by fax to (415) 252-2348, or by mail to Darrell Hong
or Franci Claudon, Macromedia, Inc., 600 Townsend St., San Francisco, CA 94103.
See Section 3 of the Offer.
10. IS THIS A REPRICING?
This is not an option repricing in the traditional sense. Under a
traditional stock option repricing, your options would be immediately replaced
with new options at a lower option price. If you participate in this exchange,
you surrender your option or options and wait more than six months to be granted
a new option at the last sale price of Macromedia stock on the trading day
immediately preceding the replacement grant date. Because the new options will
be priced on a future date, the exercise price of the new options may be higher
than the exercise price of the surrendered options. See Section 11 of the Offer.
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11. WHY CAN'T MACROMEDIA JUST REPRICE MY OPTIONS?
In 1998, the Financial Accounting Standards Board adopted unfavorable
accounting charge consequences for companies that reprice options. If we simply
repriced options, our profitability could be in serious jeopardy, because we
would be required to take a charge against earnings on any future appreciation
of the repriced options. These charges would continue for the entire term of the
repriced options - as long as ten years. We do not believe that jeopardizing our
profitability in this way is in the best interest of our employees or our
stockholders. This offer has been structured to avoid this variable plan
accounting treatment. See Section 11 of the Offer.
12. WHY CAN'T I JUST BE GRANTED ADDITIONAL OPTIONS?
Granting large numbers of new options would have a negative impact on
our dilution, outstanding shares and earnings per share. See Sections 2 and 11
of the Offer.
13. WOULDN'T IT BE EASIER TO JUST QUIT AND GET REHIRED?
This is not an available alternative because a re-hire and re-grant
within six months of the option cancellation date would be treated the same as a
repricing. Again, such a repricing would cause us to incur a variable accounting
charge against earnings.
14. IF I ELECT TO PARTICIPATE, WHAT WILL HAPPEN TO MY CURRENT OPTIONS?
Options that you designate to be exchanged under this program will be
canceled. See Section 5 of the Offer.
15. WHAT IS THE DEADLINE TO ELECT TO EXCHANGE AND HOW DO I DO SO?
The deadline to elect to participate in this program, which we also
refer to as the "EXPIRATION DATE", is 5:00 p.m. Pacific Time on June 4, 2001,
unless we extend it. This means that Darrell Hong or Franci Claudon must receive
your completed election form by this deadline. We may, in our discretion, extend
the offer at any time, but we cannot assure you that the offer will be extended
or, if it is extended, for how long. If we extend the offer, we will make an
announcement of the extension no later than the next business day following the
previously scheduled expiration of the offer period. If we extend the offer
beyond that time, you must deliver your completed election form before the
extended expiration of the offer.
We reserve the right to reject any or all options elected for exchange
that we determine are not in appropriate form or that we determine are unlawful
to accept. Otherwise, we will accept properly and timely elected options that
are not validly withdrawn. Subject to our rights to extend, terminate, and amend
the offer, we currently expect that we will accept all such properly elected
options promptly after the expiration of the offer.
16. WHAT WILL HAPPEN IF I DO NOT TURN IN MY FORM BY THE DEADLINE?
If you do not turn in your election form by the deadline, you will not
participate in the option exchange, and all stock options you currently hold
will remain intact at their original price and under their original terms. See
Section 3 of the Offer.
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17. DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY ELECTED OPTIONS?
You may withdraw any options that you elect to exchange up until 5:00
p.m. Pacific Time on June 4, 2001 or any extension of that date. To withdraw
your election to exchange, you must deliver a completed notice of withdrawal
form to Darrell Hong or Franci Claudon before the deadline. Once you have
withdrawn options from the exchange offer, you may re-elect to exchange options
only by again following the delivery procedures described above, but you may
only do so before the deadline.
Once the offer expires, you may not make any changes to your election to
participate in the offer - any decisions you make to participate or not to
participate are irrevocable after 5:00 p.m. Pacific Time on June 4, 2001 or any
extension of that date.
18. AM I ELIGIBLE TO RECEIVE FUTURE GRANTS DURING THE SIX-MONTH PERIOD IF I
PARTICIPATE IN THIS EXCHANGE?
Because of the unfavorable accounting charge consequences, participants
in this program are not eligible for any additional stock option grants until
after the replacement grant date. Even if we would normally have granted you an
option in this time period, we will not do so if you elect to participate in the
offer to exchange options.
Because of this limitation, refresh grants will not be made this summer.
The earliest that such grants may be made is after the replacement grant date.
See Section 5 of the Offer.
19. ARE THERE ANY TAX CONSEQUENCES TO MY PARTICIPATION IN THIS EXCHANGE?
If you exchange your options for new options, you will not be required
under current law to recognize income for U.S. federal income tax purposes at
the time of the exchange. We believe that the exchange will be treated as a
non-taxable exchange for U.S. federal income tax purposes. Further, at the date
of grant of the new options, you will not be required under current law to
recognize income for U.S. federal income tax purposes. The grant of options does
not result in recognition of taxable income. In the case of nonqualified stock
options, taxable income is recognized upon exercise.
Special considerations may apply to employees located abroad. In some
countries, the application of local taxation rules may have an impact upon the
new grant. For employees in the UNITED KINGDOM, which has adopted new laws
governing the exercise of stock options awarded after April 5, 1999, the grant
of the new option will be subject to the execution of a joint election between
you and Macromedia or any subsidiary of Macromedia to provide for the shifting
of any Secondary Class 1 National Insurance Contribution liability in connection
with the EXERCISE, ASSIGNMENT, RELEASE OR CANCELLATION of the option from
Macromedia or any subsidiary to you. This tax is currently set at 11.9% of the
difference between the strike price and the fair market value of the stock at
the time of exercise. By accepting the new option, to the extent allowable by
applicable law, you will be consenting to and agreeing to satisfy any liability
that Macromedia and/or any subsidiary realizes with respect to Secondary Class 1
National Insurance Contribution payments required to be paid by Macromedia
and/or any subsidiary in connection with the EXERCISE, ASSIGNMENT, RELEASE OR
CANCELLATION of the option. In addition, if you accept the new option, you will
be authorizing Macromedia or the subsidiary to withhold any such Secondary Class
1 National Insurance Contributions from the payroll AT ANY TIME or from the sale
of a sufficient number of shares upon EXERCISE, ASSIGNMENT, RELEASE OR
CANCELLATION of the option.
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In the alternative, you agree to make payment on DEMAND FOR such contributions
to Macromedia or any subsidiary that will remit such contributions to the Inland
Revenue. If additional consents and/or any elections are required to accomplish
the foregoing shifting of liability, you agree to provide them promptly upon
request. If you do not enter into the joint election described above at the same
time that you accept the new option, or if the joint election is revoked at any
time by the Inland Revenue, Macromedia will have the right to cancel the new
option without further liability.
We recommend that you consult your own tax advisor with respect to the
foreign, federal, state and local tax consequences of participating in the
program. See Section 13 of the Offer.
20. HOW SHOULD I DECIDE WHETHER OR NOT TO PARTICIPATE?
We understand that this will be a challenging decision for many
employees. The program does carry considerable risk, and there are no guarantees
of our future stock performance. Because we will not grant new options until at
least six months and one day after the date we cancel the options accepted for
exchange, the new options may have a higher exercise price than some or all of
your current options. So, the decision to participate must be your personal
decision, and it will depend largely on your own assumptions about the future
overall economic environment, the performance of the overall market and
companies in our industry, and about our business and stock price. We recommend
that you obtain current market quotations for our common stock and consult with
your own advisors before deciding whether to elect to exchange your options.
21. WHAT DOES THE BOARD OF DIRECTORS THINK OF THE OFFER?
Although the Board has approved this offer, neither Macromedia nor the
Board makes any recommendation as to whether you should elect to exchange or
refrain from exchanging your options. See Section 2 of the Offer.
22. WHAT IF MY EMPLOYMENT AT MACROMEDIA ENDS BETWEEN THE DATE MY OPTIONS ARE
CANCELED AND THE REPLACEMENT GRANT DATE?
The election form will not be revocable after the election deadline
passes. Therefore, if you leave Macromedia (or one of its subsidiaries) for any
reason after the deadline but before your new option is granted, you will not
have a right to any stock options that were previously canceled, and you will
not have a right to the new option that would have been issued on the
replacement grant date if you had not left. THEREFORE, IF YOU ARE NOT AN
EMPLOYEE OF MACROMEDIA OR ONE OF OUR SUBSIDIARIES FROM THE DATE YOU ELECT TO
EXCHANGE OPTIONS THROUGH THE REPLACEMENT GRANT DATE, YOU WILL NOT RECEIVE ANY
NEW OPTIONS IN EXCHANGE FOR YOUR OPTIONS THAT HAVE BEEN ACCEPTED FOR EXCHANGE.
YOU ALSO WILL NOT RECEIVE ANY OTHER CONSIDERATION FOR THE OPTIONS ELECTED TO BE
EXCHANGED IF YOU ARE NOT AN EMPLOYEE FROM THE DATE YOU ELECT TO EXCHANGE OPTIONS
THROUGH THE REPLACEMENT GRANT DATE. Please speak to your manager if you have
specific questions about your position. See Section 5 of the Offer.
23. WHAT ARE THE CONDITIONS TO THE OFFER?
The offer is subject to a number of conditions, which are described in
Section 6.
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SPECIFIC QUESTIONS ABOUT THE CANCELED OPTIONS
24. WHICH OPTIONS CAN BE CANCELED?
If you elect to participate in this offer, all options that you elect to
cancel will be canceled, and all options granted to you on or after December 1,
2000 will be canceled. Please refer to the election form for a list of options
that you may elect to exchange. See Section 1 of the Offer.
25. CAN I CANCEL THE REMAINING PORTION OF AN OPTION THAT I HAVE ALREADY
PARTIALLY EXERCISED?
Yes, any outstanding, unexercised options can be canceled. The
replacement grant will be one-for-one but only in replacement of canceled
options.
26. CAN I SELECT ONE PART OF AN OPTION GRANT TO CANCEL, OR CANCEL AN OPTION
GRANT ONLY AS TO CERTAIN SHARES?
No, we cannot cancel portions of outstanding option grants.
27. IF I CHOOSE TO PARTICIPATE, WHAT WILL HAPPEN TO MY OPTIONS THAT WILL BE
CANCELED?
If you elect to participate in this program, then on the expiration
date, we will cancel all of your outstanding options that were granted on or
after December 1, 2000, plus any other options that you elected to cancel. You
will not be able to receive any option grants until the replacement grant date,
when your new grant will be issued. See Section 5 of the Offer.
SPECIFIC QUESTIONS ABOUT THE NEW OPTIONS
BECAUSE WE WILL NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX MONTHS AND ONE
DAY AFTER THE DATE WE CANCEL THE OPTIONS ACCEPTED FOR EXCHANGE, THE NEW OPTIONS
MAY HAVE A HIGHER EXERCISE PRICE THAN SOME OR ALL OF YOUR CURRENT OPTIONS. WE
RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK AND
CONSULT WITH YOUR OWN ADVISORS BEFORE DECIDING WHETHER TO ELECT TO EXCHANGE YOUR
OPTIONS.
28. WHAT WILL BE MY NEW OPTION SHARE AMOUNT?
The number of shares covered by your new option will be equal to the
number of shares canceled under your old stock option or options. Each new
option will be granted pursuant to a new option agreement between you and us.
29. WHAT WILL BE MY NEW OPTION EXERCISE PRICE?
The exercise price for the new options, which will be granted on the
replacement grant date, will be the closing sale price of our common stock on
the Nasdaq National Market on the date preceding the replacement grant date.
30. WHAT WILL MY NEW OPTION TYPE BE, AN INCENTIVE STOCK OPTION OR A
NONQUALIFIED STOCK OPTION?
The new options will be nonqualified stock options.
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31. WHEN WILL I RECEIVE MY NEW OPTIONS?
We will grant the new options on the replacement grant date. If we
cancel options elected for exchange on the expiration date, the replacement
grant date of the new options will be between December 5, 2001 and January 21,
2002. Note that we will require additional time to make the new options
available to you and to provide you with documentation of the grant, therefore
you will not be able to exercise any of your options for one week following the
replacement grant date. See Section 5 of the Offer.
32. WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE
OF THE OFFER?
If we were to grant the new options on any date earlier than six months
and one day after the date we cancel the options accepted for exchange, we would
be required to record a variable compensation expense against our earnings. By
deferring the grant of the new options for at least six months and one day, we
believe we will not have to record such a compensation expense. Please also see
question 11 above.
33. WHEN WILL I RECEIVE MY NEW OPTION NOTICE, AND WHEN WILL I BE ABLE TO
EXERCISE?
You will not be able to exercise the new options for one week following
the replacement grant date. We anticipate that the notice of your new option
will be sent to you within one week after the replacement grant date.
34. WHAT WILL BE THE VESTING SCHEDULE OF MY NEW OPTIONS?
Your new options granted in this program will have the same vesting
schedule as your canceled options. The vesting start date for the replacement
option will be the same vesting start date that applied to the canceled option.
You will receive vesting credit for the time between the cancellation date,
which we expect to be June 4, 2001, and the replacement grant date as if the
options you elect to cancel were outstanding throughout this period. See
question 36 below for an example.
35. WHAT WILL BE THE TERMS AND CONDITIONS OF MY NEW OPTIONS?
Except for the new option exercise price and the one week exercise
black-out following the replacement grant date, the terms of the new options
will be determined by the Compensation Committee.
36. CAN I HAVE AN EXAMPLE OF AN OFFER TO EXCHANGE?
The following is a representative example of an offer to exchange for a
hypothetical employee. Your situation is likely to vary in significant respects.
Assumptions:
Original Grant Date: September 10, 2000
Original Stock Option: 1,000 shares
Original Stock Option Price: $60.64 per share
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Original Vesting Schedule: 250 shares vest September 10,
2001, and 2.083% of the shares
vest monthly thereafter until
fully vested on September 10,
2004.
HYPOTHETICAL Stock Price on
Replacement Grant Date
On or about December 5, 2001: $30 per share
If you choose to participate in the exchange offer, using the above
assumptions for the sake of illustration, on the replacement grant date
you would have:
New Option: 1,000 shares
New Option Price: $30 per share
New Option Vesting: 291 shares would be vested on
the replacement grant date, and
2.083% of the shares vest
monthly thereafter until fully
vested on September 10, 2004
(assuming your employment with
us continues throughout that
time).
If you do not participate in the exchange offer, on the replacement
grant date you would have:
Original Stock Option: 1,000 shares
Original Stock Option Price: $60.64 per share
Original Vesting Schedule: 291 shares would be vested on
the replacement grant date, and
2.083% of the shares vest
monthly thereafter until fully
vested on September 10, 2004
(assuming your employment with
us continues throughout that
time).
37. WHAT HAPPENS IF MACROMEDIA IS ACQUIRED DURING THE PERIOD AFTER MY
OPTIONS ARE CANCELED BUT BEFORE I AM GRANTED NEW OPTIONS?
While we currently have no plans to enter into any such transaction, it
is possible that prior to the replacement grant we might enter into an agreement
for a merger or other similar transaction. These types of transactions could
have substantial effects on our stock price, including substantial stock price
appreciation. Depending on the structure of a transaction, option holders
participating in this offer might be deprived of any further price appreciation
in the common stock or deprived of the opportunity to participate in the option
exchange program.
We reserve the right, in the event of a merger or similar transaction,
to take any actions we deem necessary or appropriate to complete a transaction
that our board of directors believes is in the best interest of our company and
our stockholders. This could include terminating your right to receive
replacement options under this offer. If we were to terminate your right to
receive replacement options under this offer in connection with such
transaction, employees who tendered options for cancellation pursuant to this
offer would not receive options to purchase our stock, or securities of the
acquiror or any other consideration for their tendered options.
Having said the above, we understand that it is generally not in the
best interest of the Company or its shareholders to take actions that are likely
to create employee ill will.
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See Section 5 of the Offer.
38. AFTER I RECEIVE MY NEW OPTION, WHAT HAPPENS IF I AGAIN END UP
UNDERWATER?
We are conducting this offer only at this time, considering the unusual
stock market conditions that have affected many companies throughout the
country. This is therefore considered a one-time offer and we do not expect to
offer it again in the future. As your stock options are valid for ten years from
the date of initial grant, subject to continued employment, the price of our
common stock may appreciate over the long term even if your options are
underwater for some period of time after the grant date of the new options.
HOWEVER, WE CAN PROVIDE NO ASSURANCE AS TO THE PRICE OF OUR COMMON STOCK AT ANY
TIME IN THE FUTURE. See Section 2 of the Offer.
39. WHAT DO I NEED TO DO TO PARTICIPATE IN THE EXCHANGE PROGRAM?
To participate, you must complete the election form, sign it and make
sure that Darrell Hong or Franci Claudon receives it no later than the
expiration date. You can return your form either by fax to Darrell Hong or
Franci Claudon at (415) 252-2348, or by mail to Darrell Hong or Franci Claudon,
Macromedia, Inc., 600 Townsend St., San Francisco, CA 94103. See Section 3 of
the Offer.
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THE OFFER
1. NUMBER OF OPTIONS; EXPIRATION DATE.
Upon the terms and subject to the conditions of the exchange offer, we
will grant new options to purchase common stock in exchange for all eligible
options that are properly elected for exchange and not withdrawn in accordance
with Section 4 before the "expiration date," as defined below. The options that
are eligible for exchange (the "ELIGIBLE OPTIONS") are any options that were
granted and are outstanding under the Macromedia, Inc. 1992 Equity Incentive
Plan, the Macromedia, Inc. 1999 Stock Option Plan and the Andromedia, Inc. 1999
Stock Plan (collectively, the "PLANS"), along with some non-plan option grants
that were originally granted by Macromedia. If your options are properly elected
for exchange and accepted for exchange, you will be entitled to receive new
options to purchase the number of shares of our common stock that is equal to
the number of shares subject to the options that you elected to exchange,
subject to adjustments for any stock splits, stock dividends and similar events.
All new options will be nonqualified stock options subject to the terms of a new
option agreement between you and us.
IF YOU ARE NOT AN EMPLOYEE OF MACROMEDIA OR ONE OF OUR SUBSIDIARIES FROM
THE DATE YOU ELECT TO EXCHANGE OPTIONS THROUGH THE DATE WE GRANT THE NEW
OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS IN EXCHANGE FOR YOUR ELECTED
OPTIONS THAT HAVE BEEN ACCEPTED FOR EXCHANGE, OR ANY OTHER CONSIDERATION FOR
THOSE CANCELED OPTIONS. YOU WILL NOT BE ABLE TO EXERCISE ANY OPTIONS SURRENDERED
FOR EXCHANGE AFTER THEY HAVE BEEN ACCEPTED FOR EXCHANGE.
EMPLOYEES RESIDING ABROAD WHO WISH TO PARTICIPATE IN THE EXCHANGE MAY BE
SUBJECT TO FURTHER RESTRICTIONS AND REQUIREMENTS, INCLUDING THE REQUIRED TAX
ELECTION DISCUSSED IN SECTION 13 BELOW.
The term "EXPIRATION DATE" means 5 p.m. Pacific Time on June 4, 2001,
unless, in our discretion, we have extended it to a later time and date, in
which event the term "expiration date" refers to the latest time and date at
which the offer, as so extended, expires. See Section 14 for a description of
our rights to extend, delay, terminate and amend the offer.
If we decide to take any of the following actions, we will notify you
and extend the offer for a period of ten business days after the date of such
notice if the offer is scheduled to expire within that time frame:
(a) increase or decrease the amount of consideration offered for the
options; or
(b) decrease the number of options eligible for exchange in the
offer; or
(c) increase the number of options eligible for exchange in the
offer by an amount greater than 10% of the shares of common
stock issuable upon exercise of the options that are subject to
the offer immediately prior to the increase.
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2. PURPOSE OF THE OFFER.
We issued the eligible options to provide our employees an opportunity
to acquire or increase a proprietary interest in Macromedia, thereby creating a
stronger incentive to work hard for our growth and success and to encourage our
employees to continue their employment with Macromedia.
Many of our outstanding options, whether or not they are currently
exercisable, have exercise prices that are significantly higher than the current
market price of our common stock. We believe these options are unlikely to be
exercised in the foreseeable future. By making this offer to exchange
outstanding options for new options that will have an exercise price equal to
the market value of our common stock on the replacement grant date, we intend to
provide our employees with the benefit of owning options that over time may have
a greater potential to increase in value, create better performance incentives
for employees and thereby maximize stockholder value. Merely granting additional
options to option holders, with exercise prices based on our current stock
price, would have an adverse effect in the form of stockholder dilution. In
addition, we have a limited number of options available for grant and wish to
conserve our available options for new hires and ongoing grants. The offer is
designed to preserve options for future grants.
CONSIDERING THE RISKS ASSOCIATED WITH A VOLATILE AND UNPREDICTABLE STOCK
MARKET, AND WITH OUR INDUSTRY IN PARTICULAR, THERE IS NO GUARANTEE THAT THE
MARKET PRICE AT THE TIME OF THE NEW OPTION (AND THUS THE EXERCISE PRICE OF YOUR
NEW OPTION) WILL BE LESS THAN OR EQUAL TO THE STRIKE PRICE OF YOUR EXISTING
OPTION, OR THAT YOUR NEW OPTION WILL INCREASE IN VALUE OVER TIME. IF YOU
PARTICIPATE IN THE PROGRAM YOU ARE TAKING A RISK THAT YOUR REPLACEMENT GRANT
WILL HAVE AN EXERCISE PRICE HIGHER THAN YOUR CURRENT OPTION. IN ADDITION, IF YOU
ELECT TO PARTICIPATE IN THE OFFER AND THEN YOUR EMPLOYMENT TERMINATES BEFORE ANY
NEW OPTION IS GRANTED, YOUR CANCELED OPTION WOULD NOT BE AVAILABLE AND NO
REPLACEMENT WOULD BE ISSUED, SO YOU MIGHT LOSE AN OPPORTUNITY TO BUY OUR STOCK
AT A PRICE POTENTIALLY LOWER THAN THE MARKET PRICE.
Subject to the foregoing, and except as otherwise disclosed in this
offer to exchange or in our filings with the Securities and Exchange Commission,
we have no current plans or proposals that relate to or would result in:
(a) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving us or any of our
subsidiaries;
(b) Any purchase, sale or transfer of a material amount of our
assets or the assets of any of our subsidiaries;
(c) Any material change in our present dividend rate or policy, or
our indebtedness or capitalization;
(d) Any change in our Board of Directors or management, including a
change in the number or term of directors or to fill any
existing Board vacancies or to change any executive officer's
material terms of employment;
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(e) any other material change in our corporate structure or
business;
(f) our common stock not being authorized for quotation in an
automated quotation system operated by a national securities
association;
(g) our common stock becoming eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934 (the "EXCHANGE ACT") ;
(h) the suspension of our obligation to file reports pursuant to
Section 15(d) of the Exchange Act;
(i) the acquisition by any person of any of our securities or the
disposition of any of our securities; or
(j) any change in our certificate of incorporation or bylaws, or any
actions which may impede the acquisition of control of us by any
person.
Neither Macromedia nor our Board makes any recommendation as to whether
or not you should elect to exchange your options, nor have we authorized any
person to make any such recommendation. You are urged to evaluate carefully all
of the information in this offer to exchange and to consult your own investment
and tax advisors. You must make your own decision whether to elect to exchange
your options.
3. PROCEDURES FOR ELECTING TO EXCHANGE OPTIONS.
Proper exchange of options. To elect to exchange your options pursuant
to the offer, you must, in accordance with the terms of the election form,
properly complete, duly execute and deliver to us the election form, or a
facsimile thereof, along with any other required documents. We must receive all
of the required documents by fax to Darrell Hong or Franci Claudon at (415)
252-2348 or by mail to Darrell Hong or Franci Claudon, Macromedia, Inc., 600
Townsend St., San Francisco, CA 94103, before the expiration date.
If you do not turn in your election form by the deadline, then you will
not participate in the option exchange, and all stock options currently held by
you will remain intact at their original price and terms.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING THE ELECTION FORM AND
ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND RISK OF THE ELECTING OPTION
HOLDER. YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.
Determination of validity; rejection of options; waiver of defects; no
obligation to give notice of defects. We will determine, in our discretion, all
questions as to the form of documents and the validity, form, eligibility, time
of receipt, and acceptance of any exchange of options. Our determination of
these matters will be final and binding on all parties. We reserve the right to
reject any or all elections to exchange options that we determine are not in
appropriate form or that we determine are unlawful to accept. Otherwise, we will
accept properly and timely elected options that are not validly withdrawn. We
also reserve the right to waive any of the conditions of the offer or any defect
or irregularity in any election with respect to any particular options or
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any particular option holder. No election to exchange options will be valid
until all defects or irregularities have been cured by the electing option
holder or waived by us. Neither we nor any other person is obligated to give
notice of any defects or irregularities in elections, nor will anyone incur any
liability for failure to give any such notice.
Our acceptance constitutes an agreement. Your election to exchange
options pursuant to the procedures described above constitutes your acceptance
of the terms and conditions of the offer. OUR ACCEPTANCE FOR EXCHANGE OF OPTIONS
THAT YOU ELECT TO EXCHANGE PURSUANT TO THIS OFFER WILL CONSTITUTE A BINDING
AGREEMENT BETWEEN YOU AND US, ON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE
OFFER.
Subject to our rights to extend, terminate and amend the offer, we
currently expect that we will accept promptly after the expiration of the offer
all properly elected options that have not been validly withdrawn.
4. WITHDRAWAL RIGHTS.
You may only withdraw the options you have elected to cancel ("YOUR
ELECTED OPTIONS") in accordance with the provisions of this Section 4.
You may withdraw your elected options at any time before the expiration
date. If we extend the offer beyond that time, you may withdraw your elected
options at any time until the extended expiration date. In addition, unless we
accept your elected options for exchange before the expiration date, you may
withdraw options you elected to exchange at any time after that date.
To withdraw elected options, you must deliver a completed written notice
of withdrawal, or a facsimile thereof, to us prior to our acceptance of your
election to exchange. Except as described in the following sentence, the notice
of withdrawal must be executed by the option holder who elected to exchange the
options to be withdrawn exactly as such option holder's name appears on the
option agreement or agreements evidencing such options. If the signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or another person acting in a fiduciary or representative capacity,
the signer's full title and proper evidence of the authority of such person to
act in such capacity must be indicated on the notice of withdrawal.
You may not rescind any withdrawal, and any options you withdraw will
thereafter be deemed not properly elected for exchange for purposes of the
offer, unless you properly re-elect those options before the expiration date by
following the procedures described in Section 3.
Neither Macromedia nor any other person is obligated to give notice of
any defects or irregularities in any notice of withdrawal, nor will anyone incur
any liability for failure to give any such notice. We will determine, in our
discretion, all questions as to the form and validity, including time of
receipt, of notices of withdrawal. Our determination of these matters will be
final and binding.
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5. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND CANCELLATION AND ISSUANCE OF NEW
OPTIONS.
Upon the terms and subject to the conditions of this offer and as
promptly as practicable following the expiration date, we will accept for
exchange and cancel options properly elected for exchange and not validly
withdrawn before the expiration date. If your options are properly elected for
exchange and accepted for exchange on the effective date, you will be granted,
subject to the conditions set forth in this section, new options on the
replacement grant date, which will be on or after December 5, 2001. If we extend
the date by which we must accept and cancel options properly elected for
exchange, you will be granted new options upon the approval of the Compensation
Committee as of a date at least six months and one day after the extended date.
If we accept options you elect to exchange in the offer, you will be
ineligible until after the replacement grant date for any additional stock
option grants for which you may have otherwise been eligible before the
replacement grant date. This prevents us from incurring compensation expense
against our earnings because of accounting rules that could apply to these
interim option grants as a result of the offer.
Your new options will entitle you to purchase a number of shares of our
common stock that is equal to the number of shares subject to the options you
elect to exchange, subject to adjustments for any stock splits, stock dividends,
and similar events. IF YOU ARE NOT AN EMPLOYEE OF MACROMEDIA OR ONE OF OUR
SUBSIDIARIES FROM THE DATE YOU ELECT TO EXCHANGE OPTIONS THROUGH THE DATE WE
GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS IN EXCHANGE FOR YOUR
ELECTED OPTIONS THAT HAVE BEEN ACCEPTED FOR EXCHANGE. YOU ALSO WILL NOT RECEIVE
ANY OTHER CONSIDERATION FOR YOUR ELECTED OPTIONS IF YOU ARE NOT AN EMPLOYEE FROM
THE DATE YOU ELECT TO EXCHANGE OPTIONS THROUGH THE DATE WE GRANT THE NEW
OPTIONS. Therefore, if your employment with Macromedia or one of our
subsidiaries terminates for any reason before your new option is granted, you
will not have a right to any stock options that were previously canceled, and
you will not have a right to the new option that would have been issued on the
replacement grant date.
We are also reserving the right, in the event of a merger or similar
transaction after the expiration date, to take any actions we deem necessary or
appropriate to complete a transaction that our board of directors believes is in
the best interest of our company and our stockholders. This could include
terminating your right to receive replacement options under this offer to
exchange. IF WE WERE TO TERMINATE YOUR RIGHT TO RECEIVE REPLACEMENT OPTIONS
UNDER THIS OFFER IN CONNECTION WITH SUCH TRANSACTION, EMPLOYEES WHO TENDERED
OPTIONS FOR CANCELLATION PURSUANT TO THIS OFFER WOULD NOT RECEIVE OPTIONS TO
PURCHASE OUR STOCK, OR SECURITIES OF THE ACQUIROR, OR ANY OTHER CONSIDERATION
FOR THEIR TENDERED OPTIONS. We presently have no plans or proposals that relate
to or would result in an acquisition of Macromedia. Section 2 of this offer to
exchange describes our future plans.
For purposes of the offer, we will be deemed to have accepted for
exchange options that are validly elected for exchange and not properly
withdrawn as, if and when we give oral or written notice to the option holders
of our acceptance for exchange of such options. Subject to
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our rights to extend, terminate and amend the offer, we currently expect that we
will provide your notice of your new option within one week after the
replacement grant date.
6. CONDITIONS OF THE OFFER.
Notwithstanding any other provision of this exchange offer, we will not
be required to accept any options elected for exchange, and we may terminate or
amend the offer, or postpone our acceptance and cancellation of any options
elected for exchange, if at any time on or after the date of this offer and
prior to the expiration date any of the following events has occurred, or has
been determined by us to have occurred, and, in our reasonable judgment in any
such case and regardless of the circumstances giving rise thereto, including any
action or omission to act by us, the occurrence of such event or events makes it
inadvisable for us to proceed with the offer or with such acceptance and
cancellation of options elected for exchange:
(a) there has been threatened or instituted or is pending any action
or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other
person, domestic or foreign, before any court, authority, agency
or tribunal that directly or indirectly challenges the making of
the offer, the acquisition of some or all of the options elected
for exchange pursuant to the offer, the issuance of new options,
or otherwise relates in any manner to the offer or that, in our
reasonable judgment, could materially and adversely affect the
business, condition (financial or other), income, operations or
prospects of Macromedia or our subsidiaries, or otherwise
materially impair in any way the contemplated future conduct of
our business or the business of any of our subsidiaries or
materially impair the contemplated benefits of the offer to us;
(b) there has been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment,
order or injunction threatened, proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be applicable
to the offer or us or any of our subsidiaries, by any court or
any authority, agency or tribunal that, in our reasonable
judgment, would or might directly or indirectly:
(i) make the acceptance for exchange of, or issuance of new
options for, some or all of the options elected for
exchange illegal or otherwise restrict or prohibit
consummation of the offer or otherwise relates in any
manner to the offer;
(ii) delay or restrict our ability, or render us unable, to
accept for exchange, or issue new options for, some or
all of the options elected for exchange;
(iii) materially impair the contemplated benefits of the offer
to us; or
(iv) materially and adversely affect the business, condition
(financial or other), income, operations or prospects of
Macromedia or our subsidiaries, or otherwise materially
impair in any way the contemplated future conduct of our
business or the business of any of our subsidiaries or
materially impair the contemplated benefits of the offer
to us;
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(c) there has occurred:
(i) any general suspension of trading in, or limitation on
prices for, securities on any national securities
exchange or in the over-the-counter market;
(ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United
States, whether or not mandatory;
(iii) the commencement of a war, armed hostilities or other
international or national crisis directly or indirectly
involving the United States;
(iv) any limitation, whether or not mandatory, by any
governmental, regulatory or administrative agency or
authority on, or any event that in our reasonable
judgment might affect, the extension of credit by banks
or other lending institutions in the United States;
(v) any significant decrease in the market price of the
shares of our common stock or any change in the general
political, market, economic or financial conditions in
the United States or abroad that could, in our
reasonable judgment, have a material adverse effect on
the business, condition (financial or other), operations
or prospects of Macromedia or our subsidiaries or on the
trading in our common stock;
(vi) any change in the general political, market, economic or
financial conditions in the United States or abroad that
could have a material adverse effect on the business,
condition (financial or other), operations or prospects
of Macromedia or our subsidiaries or that, in our
reasonable judgment, makes it inadvisable to proceed
with the offer;
(vii) in the case of any of the foregoing existing at the time
of the commencement of the offer, a material
acceleration or worsening thereof; or
(viii) any decline in the Dow Jones Industrial Average, the
Nasdaq National Market or the Standard and Poor's Index
of 500 Companies by an amount in excess of 25% measured
during any time period after the close of business on
May 4, 2001;
(d) there has occurred any change in generally accepted accounting
standards that could or would require us for financial reporting
purposes to record compensation expense against our earnings in
connection with the offer;
(e) a tender or exchange offer with respect to some or all of our
common stock, or a merger or acquisition proposal for us, shall
have been proposed, announced or made by another person or
entity or shall have been publicly disclosed, or we shall have
learned that:
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(i) any person, entity or "group," within the meaning of Section
13(d)(3) of the Exchange Act, shall have acquired or proposed to
acquire beneficial ownership of more than 5% of the outstanding
shares of our common stock, or any new group shall have been
formed that beneficially owns more than 5% of the outstanding
shares of our common stock, other than any such person, entity
or group that has filed a Schedule 13D or Schedule 13G with the
SEC on or before the expiration date;
(ii) any such person, entity or group that has filed a Schedule 13D
or Schedule 13G with the SEC on or before the expiration date
shall have acquired or proposed to acquire beneficial ownership
of an additional 2% or more of the outstanding shares of our
common stock; or
(iii) any person, entity or group shall have filed a Notification and
Report Form under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, or made a public announcement
reflecting an intent to acquire us or any of our subsidiaries or
any of the assets or securities of us or any of our
subsidiaries; or
(f) any change or changes shall have occurred in the business,
condition (financial or other), assets, income, operations,
prospects or stock ownership of Macromedia or our subsidiaries
that, in our reasonable judgment, is or may be material to
Macromedia or our subsidiaries.
The conditions to the offer are for our benefit. We may assert them at
our discretion regardless of the circumstances giving rise to them prior to the
expiration date. We may waive them, in whole or in part, at any time and from
time to time prior to the expiration date, in our discretion, whether or not we
waive any other condition to the offer. Our failure at any time to exercise any
of these rights will not be deemed a waiver of any such rights. The waiver of
any of these rights with respect to particular facts and circumstances will not
be deemed a waiver with respect to any other facts and circumstances. Any
determination we make concerning the events described in this section will be
final and binding upon all persons.
7. PRICE RANGE OF COMMON STOCK UNDERLYING THE OPTIONS.
Our common stock has been quoted on the Nasdaq National Market System
("NASDAQ") under the symbol MACR since our initial public offering on December
13, 1993. Our fiscal year runs from April 1 through March 31. The following
table sets forth, for the periods indicated, the high and low sale prices per
share of our common stock as reported on the Nasdaq for each of our fiscal
quarters for the past two fiscal years:
High Low
---------- ---------
Fiscal year ended March 31, 2001
Fourth Quarter $ 64.25 $ 13.88
Third Quarter 85.25 54.75
Second Quarter 120.88 56.25
First Quarter 114.75 42.25
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Fiscal year ended March 31, 2000
Fourth Quarter $ 100.00 $ 62.00
Third Quarter 88.69 39.88
Second Quarter 49.25 27.38
First Quarter 53.25 32.88
WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON
STOCK BEFORE DECIDING WHETHER TO ELECT TO EXCHANGE YOUR OPTIONS.
8. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS.
Consideration. We will issue new options to purchase common stock in
exchange for outstanding eligible options properly elected and accepted for
exchange by us. The number of shares of common stock subject to new options to
be granted to each option holder will be equal to the number of shares subject
to the options elected by such option holder.
Terms of new options. We will issue a new option agreement to each
option holder who has elected to exchange options in the offer. Except for the
exercise price and blackout period, the terms and conditions of the new options
will be determined by the Compensation Committee.
The terms and conditions of current options under the Plans are set
forth in the respective plan and stock option agreement you entered into in
connection with the grant. The terms and conditions of the Plans are summarized
in the prospectuses prepared by us and previously distributed to you. You may
obtain copies of these prospectuses and the plans as indicated below.
IMPORTANT NOTE. THE STATEMENTS IN THIS OFFER CONCERNING THE PLANS AND
THE NEW OPTIONS ARE MERELY SUMMARIES AND DO NOT PURPORT TO BE COMPLETE. THE
STATEMENTS ARE SUBJECT TO, AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO,
ALL PROVISIONS OF THE PLANS, THE FORMS OF STOCK OPTION AGREEMENT UNDER THE PLANS
AND ANY OTHER TERMS AND CONDITIONS OF THE NEW OPTIONS DETERMINED BY THE
COMPENSATION COMMITTEE.
PLEASE CONTACT DARRELL HONG AT (415) 252-6860 OR BY EMAIL AT
DHONG@MACROMEDIA.COM, OR FRANCI CLAUDON AT (415) 252-4086 OR BY EMAIL AT
FCLAUDON@MACROMEDIA.COM, OR BY MAIL TO DARRELL HONG OR FRANCI CLAUDON,
MACROMEDIA, INC., 600 TOWNSEND ST., SAN FRANCISCO, CA 94103, TO RECEIVE A COPY
OF THE PLANS, PROSPECTUSES OR FORMS OF STOCK OPTION AGREEMENT. WE WILL PROMPTLY
FURNISH YOU COPIES OF THESE DOCUMENTS AT OUR EXPENSE.
9. INFORMATION CONCERNING MACROMEDIA.
Macromedia develops, markets and supports software products,
technologies and services that enable people to define what the Web can be. Its
customers, from developers to enterprises, use Macromedia solutions to help
build compelling and effective Web sites and e-business applications.
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Macromedia's 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 server and
e-business applications, Macromedia has the technology and services that enable
developers and enterprises to create and deliver Web sites.
Macromedia is based in San Francisco, California, and has more than
1,700 employees worldwide working with industry partners to deliver compelling
and effective Web experiences.
Macromedia was incorporated in Delaware on February 25, 1992, and has
acquired several other businesses, including Allaire Corporation, since its
incorporation. Its common stock is listed on the Nasdaq National Market under
the symbol MACR. Its World Wide Web site can be accessed at macromedia.com.
For financial information regarding Macromedia, please see the financial
statements beginning on page F-1 of this offer. Additional information about
Macromedia is available from the documents described in Section 16.
10. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS
CONCERNING THE OPTIONS.
The current directors and executive officers of Macromedia and their
positions and offices are set forth in the following table:
NAME POSITION
---- --------
Robert K. Burgess Chairman and Chief Executive Officer
Brian J. Allum Executive Vice President
Elizabeth A. Nelson Executive Vice President, Chief Financial Officer and Secretary
Kevin Lynch Executive Vice President and President, Products
Stephen A. Elop Executive Vice President, Worldwide Field Operations
David R. Mendels Senior Vice President, Chief Strategy Officer
John (Ian) Giffen Director
Mark D. Kvamme Director
Donald L. Lucas Director
Alan Ramadan Director
William B. Welty Director
The address of each director and executive officer is: c/o Macromedia,
Inc., 600 Townsend Street, San Francisco, CA 94103.
The following table sets forth information, as of April 16, 2001, with
respect to the beneficial ownership of our common stock by each director, each
of our executive officers and all directors and executive officers as a group.
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EXERCISABLE
WITHIN SHARES
60 DAYS HELD TOTAL
----------- ------ -------
Robert K. Burgess 541,949 59,005 600,954
Brian J. Allum 168,500 1,478 169,978
Elizabeth A. Nelson 132,826 25,001 157,827
Kevin Lynch 206,709 804 207,513
Stephen A. Elop 86,042 1,585 87,627
David R. Mendels 86,533 4,946 91,479
John (Ian) Giffen 38,194 -- 38,194
Mark D. Kvamme 21,493 -- 21,493
Donald L. Lucas 43,624 297 43,921
Alan Ramadan 19,792 -- 19,792
William B. Welty 8,029 -- 8,029
Totals 1,353,691 93,116 1,446,807
The following table lists the stock and stock option transactions
involving our officers and directors within the 60 days prior to this offering:
NAME TRANSACTION DATE TRANSACTION DESCRIPTION
---- ---------------- -----------------------
Burgess, Rob 3/19/01 Exercised 1,176 options held by children's trust.
Exercise price $7.7810; market value on date of exercise
$20.9375
Our executive officers are eligible to participate in this offer. Also,
we anticipate that several of our directors and executive officers will purchase
shares of common stock under our 1993 Employee Stock Purchase Plan on August 15,
2001, in the ordinary course pursuant to the terms of such plan. Except as
otherwise described above, there have been no transactions in options to
purchase our common stock or in our common stock which were effected during the
past 60 days by Macromedia, or to our knowledge, by any executive officer,
director, affiliate or subsidiary of Macromedia.
11. STATUS OF OPTIONS ACQUIRED BY US IN THE OFFER; ACCOUNTING CONSEQUENCES
OF THE OFFER.
Options we acquire pursuant to the offer will be canceled and the shares
of common stock subject to those options will be returned to the pool of shares
available for grants of new options under the Plans and for issuance upon the
exercise of such new options. To the extent such shares are not fully reserved
for issuance upon exercise of the new options to be granted in connection with
the offer, the shares will be available for future awards to employees and other
eligible plan participants without further stockholder action, except as
required by applicable law
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or the rules of the Nasdaq National Market or any other securities quotation
system or any stock exchange on which our common stock is then quoted or listed.
We believe that we will not incur any compensation expense solely as a
result of the transactions contemplated by the offer because we will not grant
any new options until a business day that is at least six months and one day
after the date that we accept and cancel options elected for exchange; and the
exercise price of all new options will equal the market value of the common
stock on the date we grant the new options.
If we were to grant any options to any option holder before the
scheduled replacement grant date, our grant of those options to the electing
option holder would be treated for financial reporting purposes as a variable
award to the extent that the number of shares subject to the newly granted
options is equal to or less than the number of the option holder's option shares
elected for exchange. In this event, we would be required to record as
compensation expense the amount by which the market value of the shares subject
to the newly granted options exceeds the exercise price of those shares. This
compensation expense would accrue as a variable accounting charge to our
earnings over the period when the newly granted options are outstanding. We
would have to adjust this compensation expense periodically during the option
term based on increases or decreases in the market value of the shares subject
to the newly granted options.
12. LEGAL MATTERS; REGULATORY APPROVALS.
We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our exchange of
options and issuance of new options as contemplated by the offer, or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the acquisition or ownership of our options as contemplated herein. Should any
such approval or other action be required, we presently contemplate that we will
seek such approval or take such other action. We are unable to predict whether
we may determine that we are required to delay the acceptance of options for
exchange pending the outcome of any such matter. We cannot assure you that any
such approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to our business. Our
obligation under the offer to accept options elected for exchange and to issue
new options for options elected for exchange is subject to conditions, including
the conditions described in Section 6.
13. MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES.
The following is a general summary of the material U.S. federal income
tax consequences of the exchange of options pursuant to the offer. This
discussion is based on the Internal Revenue Code, its legislative history,
Treasury Regulations thereunder and administrative and judicial interpretations
thereof as of the date of the offer, all of which are subject to change,
possibly on a retroactive basis. This summary does not discuss all of the tax
consequences that may be relevant to you in light of your particular
circumstances, nor is it intended to be applicable in all respects to all
categories of option holders.
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The option holders who exchange outstanding options for new options will
not be required to recognize income for U.S. federal income tax purposes at the
time of the exchange. We believe that the exchange will be treated as a
non-taxable exchange.
The new options that we will grant in the exchange of options pursuant
to the offer will be nonqualified stock options that are not intended to satisfy
the requirements of Section 422 of the Internal Revenue Code. Under U.S. law, an
optionee recognizes no taxable income upon the grant of a nonqualified option.
The optionee will, in general, recognize ordinary income in the year in which
the option is exercised. The amount of ordinary income is equal to the excess of
the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares. The optionee will be required to satisfy the
tax withholding requirements applicable to such income.
We will be entitled to a business expense deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
nonqualified option. The deduction will in general be allowed for the taxable
year of Macromedia in which the ordinary income is recognized by the optionee.
Special tax considerations may apply to employees located abroad. In
particular, for employees in the United Kingdom, which has adopted new laws
governing the exercise of stock options awarded after April 5, 1999, the grant
of the new option will be subject to the execution of a joint election between
you and Macromedia or any subsidiary of Macromedia to provide for the shifting
of any Secondary Class 1 National Insurance Contribution liability in connection
with the EXERCISE, ASSIGNMENT, RELEASE OR CANCELLATION of the option from
Macromedia and/or any subsidiary to you. This tax is currently set at 11.9% of
the difference between the strike price and the fair market value of the stock
at the time of exercise. By accepting the new option, to the extent allowable by
applicable law, you will be consenting to and agreeing to satisfy any liability
that Macromedia and/or any subsidiary realizes with respect to Secondary Class 1
National Insurance Contribution payments required to be paid by Macromedia
and/or any subsidiary in connection with the EXERCISE, ASSIGNMENT, RELEASE OR
CANCELLATION of the option. In addition, if you accept the new option, you will
be authorizing Macromedia or the subsidiary to withhold any such Secondary Class
1 National Insurance Contributions from the payroll AT ANY TIME or from the sale
of a sufficient number of Shares upon EXERCISE, ASSIGNMENT, RELEASE OR
CANCELLATION of the option. In the alternative, you agree to make payment on
demand for such contributions to Macromedia or any subsidiary that will remit
such contributions to the Inland Revenue. If additional consents and/or any
elections are required to accomplish the foregoing shifting of liability, you
agree to provide them promptly upon request. If you do not enter into the joint
election described above at the same time that you accept the new option, or if
the joint election is revoked at any time by the Inland Revenue, Macromedia will
have the right to cancel the new option without further liability.
WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE
FOREIGN, FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN THE
OFFER.
22
26
14. EXTENSION OF OFFER; TERMINATION; AMENDMENT.
We expressly reserve the right, in our discretion, at any time and from
time to time, and regardless of whether or not any event set forth in Section 6
has occurred or is deemed by us to have occurred, to extend the period of time
during which the offer is open and thereby delay the acceptance for exchange of
any options by giving oral, written, or electronic notice of such extension to
the option holders.
We also expressly reserve the right, in our reasonable judgment, prior
to the expiration date to terminate or amend the offer and to postpone our
acceptance and cancellation of any options elected for exchange upon the
occurrence of any of the conditions specified in Section 6, by giving oral,
written, or electronic notice of such termination or postponement to the option
holders. Notwithstanding the foregoing, we will pay the consideration offered or
return the options elected for exchange promptly after termination or withdrawal
of the offer to exchange.
Subject to compliance with applicable law, we further reserve the right,
in our discretion, and regardless of whether any event set forth in Section 6
has occurred or is deemed by us to have occurred, to amend the offer in any
respect, including, without limitation, by decreasing or increasing the
consideration offered in the offer to option holders or by decreasing or
increasing the number of options being sought in the offer.
Amendments to the offer may be made at any time and from time to time.
In the case of an extension, the amendment must be issued no later than 5 p.m.
Pacific Time, on the next business day after the last previously scheduled or
announced expiration date. Any amendment of the offer will be disseminated
promptly to option holders in a manner reasonably designated to inform option
holders of such change. Without limiting the manner in which we may choose to
disseminate any amendment of this offer, except as required by law, we have no
obligation to publish, advertise, or otherwise communicate any such
dissemination.
If we materially change the terms of the offer or the information
concerning the offer, or if we waive a material condition of the offer, we will
extend the offer. Except for a change in price or a change in percentage of
securities sought, the amount of time by which we will extend the offer
following a material change in the term of the offer or information concerning
the offer will depend on the facts and circumstances, including the relative
materiality of such terms or information. If we decide to take any of the
following actions, we will notify you of such action and extend the offer for a
period of ten business days after the date of such notice:
(a) (i) we increase or decrease the amount of consideration
offered for the options;
(i) we decrease the number of options eligible to be elected
for exchange in the offer; or
(ii) we increase the number of options eligible to be elected
for exchange in the offer by an amount that exceeds 10%
of the shares of common stock issuable upon exercise of
the options that are subject to the offer immediately
prior to the increase; and
23
27
(b) the offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from,
and including, the date that notice of such increase or decrease
is first given.
15. FEES AND EXPENSES.
We will not pay any fees or commissions to any broker, dealer or other
person for soliciting elections to exchange options pursuant to this offer to
exchange.
16. ADDITIONAL INFORMATION.
For financial information regarding Macromedia, please see the financial
statements beginning on page F-1 of this offer.
We recommend that, in addition to this offer to exchange and election
form, you review the following materials, which we have filed with the SEC,
before making a decision on whether to elect to exchange your options:
(a) our annual report on Form 10-K for our fiscal year ended March
31, 2000, filed with the SEC on June 27, 2000;
(b) our quarterly reports on Form 10-Q for the quarters ended June
30, September 30, and December 31, 2000, filed with the SEC on
August 14, 2000, November 13, 2000 and February 2, 2001,
respectively;
(c) our definitive proxy statement for our 2000 annual meeting of
stockholders, filed with the SEC on June 30, 2000;
(d) our registration statement on Form S-4 filed with the SEC on
February 2, 2001, and amended on February 14, 2001;
(e) our registration statements on Form S-8 (registering shares to
be issued under the Plans) filed with the SEC on August 17, 2000
and December 7, 1999;
(f) our current reports on Form 8-K and 8-K/A filed with the SEC on
January 24, January 26, January 30, March 7, March 28 and April
4, 2001; and
(g) the description of our common stock included in our registration
statement on Form 8-A, which was filed with the SEC on October
22, 1993, as amended on Form 8-A/A filed with the SEC on October
5, 1995, including any amendments or reports we file for the
purpose of updating that description.
The SEC file number for these filings, other than the registration
statements, is 000-22688. The file number for the registration statement on Form
S-4 filed with the SEC on February 2, 2001 is 333-54930. The file numbers for
the registration statements on Form S-8 filed with the SEC on August 17, 2000
and December 7, 1999 are 333-44016 and 333-92233, respectively. These filings,
our other annual, quarterly and current reports, our proxy statements
24
28
and our other SEC filings may be examined, and copies may be obtained, at the
following SEC public reference rooms:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
You may obtain information on the operation of the public reference
rooms by calling the SEC at 1-800-732-0330.
Our SEC filings are also available to the public on the SEC's website at
http://www.sec.gov.
Our common stock is quoted on the Nasdaq National Market under the
symbol "MACR," and our SEC filings can be read at the following Nasdaq address:
Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006
We will also provide without charge to each person to whom a copy of
this offer to exchange is delivered, upon the written or oral request of any
such person, a copy of any or all of the documents to which we have referred
you, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to:
Darrell Hong or Franci Claudon
Macromedia, Inc.
600 Townsend St.
San Francisco, CA 94103
or by telephoning Darrell Hong at (415) 252-6860 or Franci Claudon at (415)
252-4086 between the hours of 9:00 a.m. and 5:00 p.m., Pacific Time, Monday
through Friday.
As you read the foregoing documents, you may find some inconsistencies
in information from one document to another. If you find inconsistencies between
the documents, or between a document and this offer to exchange, you should rely
on the statements made in the most recent document.
The information about us contained in this offer to exchange should be
read together with the information contained in the documents to which we have
referred you.
17. MISCELLANEOUS.
This offer to exchange and our SEC reports referred to above include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act. When used in this offer to
exchange, the words "anticipate," "believe," "estimate," "expect," "intend"
25
29
and "plan" as they relate to Macromedia, Inc. or our management are intended to
identify these forward-looking statements. All statements by us regarding our
expected future financial position and operating results, our business strategy,
our financing plans and expected capital requirements, forecasted trends
relating to our services or the markets in which we operate and similar matters
are forward-looking statements. The documents filed by us with the SEC,
including our annual report on Form 10-K filed on June 27, 2000, discuss some of
the risks that could cause our actual results to differ from those contained or
implied in the forward-looking statements. These risks include risks related to
future growth and rapid expansion and variable revenues and operating results.
Other important risks include delays or difficulties in development, deployment,
and implementation of our products, pricing and market-share competition,
international uncertainties, adverse regulatory or legislative changes, and
other factors beyond our control. We undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
We are not aware of any jurisdiction where the making of the offer
violates applicable law. If we become aware of any jurisdiction where the making
of the offer violates applicable law, we will make a good faith effort to comply
with such law. If, after such good faith effort, we cannot comply with such law,
the offer will not be made to, nor will elections to exchange options be
accepted from or on behalf of, the option holders residing in such jurisdiction.
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR
BEHALF AS TO WHETHER YOU SHOULD ELECT TO EXCHANGE OR REFRAIN FROM EXCHANGING
YOUR OPTIONS PURSUANT TO THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT
AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS
CONTAINED IN THIS DOCUMENT OR IN THE ELECTION FORM. IF ANYONE MAKES ANY
RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST
NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN
AUTHORIZED BY US.
Macromedia, Inc. May 4, 2001
26
30
MACROMEDIA, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
1. Macromedia audited financial statements and related notes included in Macromedia's Annual Report on
Form 10-K for the fiscal year ended March 31, 2000, filed with the SEC on June 27, 2000
Independent Auditors' Report...........................................................................F-1
Consolidated Balance Sheets for the years ended March 31, 2000 and 1999................................F-2
Consolidated Statements of Operations for the years ended March 31, 2000, 1999 and 1998................F-3
Consolidated Statements of Cash Flows for the years ended March 31, 2000, 1999 and 1998................F-4
Consolidated Statements of Stockholder's Equity for the years ended March 31, 2000, 1999 and 1998......F-5
Notes to Consolidated Financial Statements for the years ended March 31, 2000, 1999 and 1998...........F-6
Schedule II - Valuation And Qualifying Accounts........................................................F-28
2. Macromedia unaudited financial statements included in Macromedia's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 2000, filed with the SEC on February 2, 2001
Consolidated Balance Sheets for the quarter ended December 31, 2000....................................F-29
Consolidated Statements of Operations for the quarter ended December 31, 2000..........................F-30
Consolidated Statements of Cash Flows for the quarter ended December 31, 2000..........................F-31
3. Book value per share for the quarter ended December 31, 2000............................................F-32
31
1. MACROMEDIA AUDITED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN
MACROMEDIA'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH
31, 2000, FILED WITH THE SEC ON JUNE 27, 2000
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-1
32
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-2
33
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-3
34
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-4
35
MACROMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK TREASURY STOCK ADDITIONAL
-------------------------- -------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- --------- --------- --------- ----------
BALANCES AS OF MARCH 31, 1997 ............... 38,751 $ 39 -- $ -- $ 149,626
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)
--------- --------- --------- --------- ---------
BALANCES AS OF MARCH 31, 1998 ............... 39,819 40 (510) (5,139) 166,565
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
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
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
Gain on sale of subsidiary stock ............ 21,109
Adjustment to conform acquired company's
year end (Note 4) ..................... 44 -- 320
--------- --------- --------- --------- ---------
BALANCES AS OF MARCH 31, 2000 ............... 50,674 $ 51 (1,818) $ (33,649) $ 335,497
========= ========= ========= ========= =========
ACCUMULATED (ACCUMULATED
OTHER DEFICIT) TOTAL
DEFERRED COMPREHENSIVE COMPREHENSIVE RETAINED STOCKHOLDERS'
COMPENSATION INCOME (LOSS) INCOME (LOSS) EARNINGS EQUITY
------------ ------------- ------------- ------------ -------------
BALANCES AS OF MARCH 31, 1997 ............... $ (149) $ 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 ....................... 62 49
--------- --------- --------- --------- ---------
BALANCES AS OF MARCH 31, 1998 ............... (87) 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 ....................... (1,457) 895
Adjustment to conform acquired company's
year end (Note 4) ...................... 2,084 (925)
--------- --------- --------- --------- ---------
BALANCES AS OF MARCH 31, 1999 ............... (1,544) 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 ....................... (21,747) 11,504
Gain on sale of subsidiary stock ............ 21,109
Adjustment to conform acquired company's
year end (Note 4) ...................... (174) (10) (3,826) (3,690)
--------- --------- --------- --------- ---------
BALANCES AS OF MARCH 31, 2000 ............... $ (23,465) $ 393 $ (24,551) $ 254,276
========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
36
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-6
37
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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.
F-7
38
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
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
F-8
39
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
purchased software to be sold and outside development on products that have
reached technological feasibility. The amounts capitalized under SFAS No. 86
were immaterial.
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.
F-9
40
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 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
F-10
41
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 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-11
42
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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,
------------------------------------------------
REVENUES: 2000 1999 1998
-------- -------- --------
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-12
43
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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-13
44
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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-14
45
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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.
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
F-15
46
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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
F-16
47
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
mandatorily redeemable preferred shares of Andromedia automatically converted
into Macromedia common stock.
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 Stock
Andromedia Andromedia ESI ESI ESI ESI Additional
Series A Series B Series A Series B Series C Series D Paid in
Shares Shares Shares Shares Shares Shares Capital
---------- ---------- --------- --------- --------- -------- ----------
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
======== ======== ======== ======== ======== ======== ========
F-17
48
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 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.
F-18
49
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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.
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
========
F-19
50
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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, $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-20
51
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 WEIGHTED WEIGHTED
NUMBER OF CONTRACTUAL AVERAGE NUMBER OF 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-21
52
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 $ 0.0 $ (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
======== ======== ========
F-22
53
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 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.
F-23
54
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 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):
SHOCKWAVE-
YEAR ENDED MARCH 31, SOFTWARE .COM TOTAL
-------------------- -------- ----------- --------
2000
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
-------- -------- --------
F-24
55
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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
-------- -------- --------
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
======== ======== ========
F-25
56
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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.
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):
YEAR ENDED MARCH 31, PAYMENTS INCOME
-------------------- -------- -------
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
F-26
57
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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-27
58
MACROMEDIA, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGE TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION PERIOD EXPENSES DEDUCTION OF 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
F-28
59
2. MACROMEDIA UNAUDITED FINANCIAL STATEMENTS INCLUDED IN MACROMEDIA'S
QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED DECEMBER 31,
2000, FILED WITH THE SEC ON FEBRUARY 2, 2001
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
DECEMBER 31, MARCH 31,
2000 2000
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 119,948 $ 115,084
Short-term investments ............................................ 87,992 71,952
--------- ---------
Total cash, cash equivalents and investments .................. 207,940 187,036
Accounts receivable, net .......................................... 50,108 41,883
Deferred tax assets, short-term ................................... 9,937 7,812
Other current assets .............................................. 21,761 14,293
--------- ---------
Total current assets .......................................... 289,746 251,024
Land and building, net ............................................... 18,322 18,982
Other fixed assets, net .............................................. 73,725 41,871
Related party loans .................................................. 14,904 9,944
Restricted cash ...................................................... 9,111 --
Other long-term assets ............................................... 29,472 17,538
--------- ---------
Total assets .................................................. $ 435,280 $ 339,359
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 3,118 $ 4,988
Accrued liabilities ............................................... 41,793 34,735
Accrued compensation, fringe benefits and payroll taxes ........... 19,070 19,107
Unearned revenue .................................................. 10,037 10,044
--------- ---------
Total current liabilities ..................................... 74,018 68,874
Other liabilities .................................................... 943 321
--------- ---------
Total liabilities ............................................. 74,961 69,195
--------- ---------
Minority interest .................................................... 11,409 15,888
--------- ---------
Stockholders' equity:
Common stock, par value $0.001 per share; 200,000 shares
authorized; 63,884 and 50,674 shares issued as of
December 31, and March 31, 2000, respectively ................... 62 51
Treasury stock at cost; 1,818 shares as of
December 31, and March 31, 2000 .................................. (33,649) (33,649)
Additional paid-in capital ........................................ 407,165 335,497
Notes receivable from stockholders ................................ (7,967) --
Deferred compensation ............................................. (27,833) (23,465)
Accumulated other comprehensive income ............................ 535 393
Retained earnings (deficit) ....................................... 10,597 (24,551)
--------- ---------
Total stockholders' equity .................................... 348,910 254,276
--------- ---------
Total liabilities and stockholders' equity .................... $ 435,280 $ 339,359
========= =========
F-29
60
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues ................................................. $ 103,338 $ 64,332 $ 300,523 $ 174,877
Cost of revenues ......................................... 9,737 6,853 32,237 18,536
--------- --------- --------- ---------
Gross profit .......................................... 93,601 57,479 268,286 156,341
--------- --------- --------- ---------
Operating expenses:
Sales and marketing ................................... 39,654 26,929 117,739 75,801
Research and development .............................. 29,940 15,653 84,223 43,980
General and administrative ............................ 10,774 5,558 29,430 16,649
Acquisition-related expenses .......................... -- 6,256 4,774 11,516
Non-cash compensation ................................. 1,767 305 5,900 955
Amortization of intangibles ........................... 634 249 1,558 758
--------- --------- --------- ---------
Total operating expenses ............................ 82,769 54,950 243,624 149,659
--------- --------- --------- ---------
Operating income .................................... 10,832 2,529 24,662 6,682
Other income (expense):
Interest and investment income, net ................... 3,659 1,837 10,411 4,225
Loss on investment .................................... (5,000) -- (5,000) --
Other ................................................. 268 (44) 1,080 (41)
--------- --------- --------- ---------
Total other income (expense) ........................ (1,073) 1,793 6,491 4,184
Minority interest ........................................ 6,727 -- 15,336 --
--------- --------- --------- ---------
Income before income taxes .......................... 16,486 4,322 46,489 10,866
Provision for income taxes ............................... 3,657 3,050 11,341 7,642
--------- --------- --------- ---------
Net income .......................................... 12,829 1,272 35,148 3,224
Accretion on mandatorily redeemable
convertible preferred stock ...................... -- (1,357) -- (2,538)
--------- --------- --------- ---------
Net income (loss) applicable to common stockholders $ 12,829 $ (85) $ 35,148 $ 686
========= ========= ========= =========
Net income applicable to common stockholders per share:
Basic ............................................... $ 0.25 $ -- $ 0.70 $ 0.02
Diluted ............................................. $ 0.23 $ -- $ 0.62 $ 0.01
Weighted average common shares outstanding used in
calculating net income applicable to common
stockholders per share:
Basic ............................................... 51,161 45,346 50,369 43,367
Diluted ............................................. 56,452 45,346 56,625 51,565
F-30
61
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
NINE MONTHS ENDED
----------------------------
DECEMBER 31,
2000 1999
--------- ------------
Cash flows from operating activities:
Net income ............................................................................ $ 35,148 $ 3,224
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ...................................................... 22,442 12,348
Write off of acquired in-process research and development .......................... 3,100 --
Deferred income taxes .............................................................. (1,426) 165
Tax benefit from employee stock plans .............................................. 9,038 2,759
Minority interest .................................................................. (15,336) --
Loss on impairment of investments .................................................. 5,000 --
Loss on disposal of fixed assets ................................................... 161 191
Change in operating assets and liabilities:
Accounts receivable, net ....................................................... (8,204) (15,713)
Other current assets ........................................................... (7,437) 2,328
Accounts payable ............................................................... (1,870) (3,192)
Accrued liabilities, accrued compensation, fringe benefits and payroll taxes ... 6,925 7,391
Unearned revenue ............................................................... (7) 2,502
--------- ---------
Net cash provided by operating activities .................................... 47,534 12,003
Cash flows from investing activities:
Capital expenditures ................................................................. (46,127) (23,118)
Proceeds from sale of fixed assets ................................................... -- 625
Purchase of short-term investments ................................................... (99,070) (93,714)
Maturities and sales of short-term investments ....................................... 83,172 96,459
Cash paid for acquisitions ........................................................... (8,607) --
Related party loans .................................................................. (4,960) (1,959)
Purchase of investments .............................................................. (9,680) (10,000)
Purchase of other assets ............................................................. (3,320) --
Additions to other long-term liabilities ............................................. 622 4,794
Deposit of restricted cash ........................................................... (9,111) --
--------- ---------
Net cash used in investing activities ........................................ (97,081) (26,913)
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable convertible preferred stock ......... -- 15,734
Proceeds from sale of subsidiary preferred stock ..................................... 9,384 --
Proceeds from issuance of common stock, net .......................................... 45,027 23,667
Proceeds from borrowings ............................................................. -- 999
Payments on capital lease ............................................................ -- (354)
Acquisition of treasury stock ........................................................ -- (8,204)
--------- ---------
Net cash provided by financing activities .................................... 54,411 31,842
Increase in cash and cash equivalents ................................................... 4,864 16,932
Adjustment to conform acquired company's year-end ..................................... -- (3,826)
--------- ---------
Total ................................................................................... 4,864 13,106
Cash and cash equivalents, beginning of period .......................................... 115,084 29,459
--------- ---------
Cash and cash equivalents, end of period ................................................ $ 119,948 $ 42,565
========= =========
Noncash investing and financing activities:
Issuance of notes receivable upon exercise of shockwave.com options .................. $ 7,967 $ --
F-31
62
3. BOOK VALUE PER SHARE FOR THE QUARTER ENDED DECEMBER 31, 2000
MACROMEDIA, INC. AND SUBSIDIARIES
BOOK VALUE PER SHARE FOR THE
QUARTER ENDED DECEMBER 31, 2000
Macromedia, Inc. Book Value Per Share
-------------------------------------
Book Value Per Share(1)...................................... $ 5.46
(1) Book value per common share is computed by dividing total
stockholders' equity by the number of shares of common stock outstanding at
December 31, 2000.
F-32