<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___ to ___
COMMISSION FILE NO. 000-22688
MACROMEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3155026
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 TOWNSEND STREET
SAN FRANCISCO, CALIFORNIA 94103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(415) 252-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
- -
As of October 30, 1998, there were outstanding 39,994,947 shares of the
Registrant's Common Stock, par value $0.001 per share.
This Report, including exhibits, consists of 36 sequentially numbered pages.
The Index to Exhibits appears on sequentially numbered page 15.
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MACROMEDIA, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
September 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,446 $ 10,019
Short-term investments 77,887 76,112
Accounts receivable, net 6,707 7,696
Inventory, net 458 743
Prepaid expenses and other current assets 10,175 3,819
Deferred tax assets, short-term 8,548 8,548
------------------ -----------------
Total current assets 117,221 106,937
Land and building, net 20,016 20,372
Other fixed assets, net 18,227 18,528
Other long-term assets 10,928 8,347
------------------ -----------------
Total assets $ 166,392 $ 154,184
------------------ -----------------
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,776 $ 4,091
Accrued liabilities 25,479 19,132
Unearned revenue 8,671 1,927
------------------ -----------------
Total current liabilities 35,926 25,150
Deferred tax liabilities, long term 306 306
Other long-term liabilities 150 263
------------------ -----------------
Total liabilities 36,382 25,719
Stockholders' equity:
Common stock, par value $0.001 per share;
80,000,000 shares authorized; 38,429,772 and
38,297,968 shares issued and outstanding (net of
1,340,000 and 510,000 treasury shares)
at September 30, 1998 and March 31, 1998, respectively 40 39
Other stockholders' equity 129,970 128,426
------------------ -----------------
Total stockholders' equity 130,010 128,465
------------------ -----------------
Total liabilities and stockholders' equity $166,392 $ 154,184
------------------ -----------------
------------------ -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 35,226 $ 29,166 $ 67,561 $ 56,495
Cost of revenues 3,229 5,307 6,348 9,875
-------- -------- -------- --------
Gross profit 31,997 23,859 61,213 46,620
Operating expenses:
Sales and marketing 15,249 13,834 29,578 28,174
Research and development 8,753 7,965 17,281 16,666
General and administrative 3,234 2,757 6,586 5,367
-------- -------- -------- --------
Total operating expenses 27,236 24,556 53,445 50,207
-------- -------- -------- --------
Operating income (loss) 4,761 (697) 7,768 (3,587)
Other income, net 1,285 1,151 2,567 2,245
-------- -------- -------- --------
Income (loss) before income taxes 6,046 454 10,335 (1,342)
(Provision) benefit for income taxes (1,874) (141) (3,204) 416
-------- -------- -------- --------
Net income (loss) $ 4,172 $ 313 $ 7,131 $ (926)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share
Basic $ 0.11 $ 0.01 $ 0.18 $ (0.02)
Diluted $ 0.10 $ 0.01 $ 0.16 $ (0.02)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares
outstanding
Basic 38,928 38,082 38,777 37,975
Diluted 43,549 40,239 43,696 37,975
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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MACROMEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended September 30,
----------------------------------------
1998 1997
------------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $7,131 $ (926)
Adjustments to reconcile net income (loss) to net cash provided by /
(used in) operating activities:
Depreciation and amortization 3,948 3,817
Deferred compensation 87 25
Changes in operating assets and liabilities:
Accounts receivable, net 989 (5,394)
Inventory, net 285 1,523
Prepaid expenses and other current assets (6,356) 68
Accounts payable (2,315) (3,003)
Accrued liabilities 6,347 742
Unearned revenue 6,744 (1,195)
Other long-term liabilities (113) 665
------- -------
Net cash provided by / (used in) operating activities 16,747 (3,678)
------- -------
Cash flows from investing activities:
Capital expenditures (4,143) (9,206)
Proceeds of sales of fixed assets 961 -
Net (purchases) / sales / maturities of short-term
available-for-sale investments (1,762) 20,508
Other long-term assets (2,690) (5,126)
------- -------
Net cash (used in) / provided by investing activities (7,634) 6,176
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 5,721 2,041
Acquisition of treasury stock (11,407) (90)
------- -------
Net cash (used in)/provided by financing activities (5,686) 1,951
------- -------
Increase in cash and cash equivalents 3,427 4,449
Cash and cash equivalents, beginning of period 10,019 15,397
------- -------
Cash and cash equivalents, end of period $13,446 $19,846
------- -------
------- -------
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ -
------- -------
------- -------
Cash paid for income taxes $ - $ -
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION
The condensed consolidated financial statements at September 30, 1998 and for
the three and six months ended September 30, 1998 and 1997 are unaudited and
reflect all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of the
Company's financial position and operating results for the interim periods.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's annual report on Form 10-K for the
fiscal year ended March 31, 1998.
The results of operations for the three and six months ended September 30,
1998 are not necessarily indicative of the results for the fiscal year ending
March 31, 1999 or any other future periods.
2. EARNINGS PER SHARE
"Basic" earnings per share is calculated by dividing net income or loss by
the weighted average common shares outstanding during the period. "Diluted"
earnings per share reflects the net incremental shares that would be issued
if outstanding stock options were exercised and if the funds collected for
the employee stock purchase plan were used to purchase treasury shares.
In the case of a net loss, it is assumed that no incremental shares would be
issued because they would be antidilutive. In addition, certain options are
considered antidilutive because the options' exercise prices were above the
average market price during the period. Antidilutive shares are not included
in the computation of diluted earnings per share, in accordance with SFAS No.
128.
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
(In thousands except per share data) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC NET INCOME (LOSS) PER SHARE COMPUTATION
Numerator:
Net income (loss) $ 4,172 $ 313 $ 7,131 $ (926)
------------------ -------------------
Denominator:
Weighted average number of common shares outstanding
during the period 38,928 38,082 38,777 37,975
Basic net income (loss) per share $ 0.11 $ 0.01 $ 0.18 $ (0.02)
------------------ -------------------
DILUTED NET INCOME (LOSS) PER SHARE COMPUTATION
Numerator:
Net Income (loss) $ 4,172 $ 313 $ 7,131 $ (926)
------------------ -------------------
Denominator:
Weighted average number of common shares outstanding
during the period 38,928 38,082 38,777 37,975
Effect of dilutive securities:
Employee stock options 4,619 2,154 4,916 -
Employee stock purchase plans 2 3 3 -
------------------ -------------------
Total 43,549 40,239 43,696 37,975
------------------ -------------------
Diluted net income (loss) per share $ 0.10 $ 0.01 $ 0.16 $ (0.02)
------------------ -------------------
------------------ -------------------
</TABLE>
<PAGE>
Options to purchase 0.3 million shares were outstanding for the three and six
month periods ended September 30, 1998 but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive. The effect on earnings per share
if these antidilutive shares were included would be immaterial.
3. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards of
reporting and display of 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. SFAS No. 130 is effective for
annual and interim periods beginning after December 15, 1997 and for periods
ended before that date when presented for comparative purposes. Total
comprehensive income for the quarter ended September 30, 1998 amounted to
approximately $4.2 million, and total comprehensive income for the quarter
ended September 30, 1997 amounted to approximately $0.1 million. Total
comprehensive income for the six months ended September 30, 1998 amounted to
approximately $7.1 million, and total comprehensive loss for the six months
ended September 30, 1997 amounted to approximately $0.8 million. In addition
to net income or net loss, the primary components of comprehensive income
related to unrealized gains and losses of the Company's available-for-sale
investments. For the three and six month periods ended September 30, 1998,
the components of other comprehensive income totaled $0.06 million and
$0.01 million, respectively. For the comparable periods in the prior year,
the components of other comprehensive income totaled $0.2 million and
$0.1 million, respectively.
4. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the manner in which public companies report
information about operating segments in annual and interim financial
statements. The Company is currently evaluating the operating segment
information that it will be required to report. The Company is required to
adopt the new standard for its year ending March 31, 1999.
In March 1998, the American Institute of Certified Public Accountants
released Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on capitalization of certain costs incurred in the development of
software for internal use. SOP 98-1 is effective for financial statements
issued for fiscal years beginning after December 15, 1998. In accordance with
SOP 98-1, the Company capitalizes costs of consulting services, hardware, and
payroll related costs incurred during internal-use software development. The
Company expenses costs incurred during preliminary project assessment,
research and development, re-engineering, training and application
maintenance.
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Company is currently evaluating the impact of the
new rule on the Company's consolidated financial statements. The Company is
required to adopt the new standard in the first quarter of fiscal year 2001.
5. INCOME TAXES
The Company provides for income taxes during interim reporting periods based
upon an estimate of the annual effective tax rate. Such an estimate reflects
an effective tax rate lower
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than the federal statutory rate primarily because of utilization of research
and experimentation tax credits, and foreign operating results, which are
taxed at rates other than the US statutory rate. The effective rate used for
the quarter ended September 30, 1998 was 31%.
6. RELATED PARTY TRANSACTIONS
During the six months ended September 30, 1998, the Company made loans
totaling $2.5 million to two officers in conjunction with their hiring and
relocation. The loans are full recourse and are included in other long-term
assets. The notes bear interest at 5.56% and 5.51% per annum and are secured
by the personal residences of the officers. The notes mature in 2001 and are
callable on demand if the officers terminate employment with the Company. For
the three and six months ended September 30, 1998, interest income on the
notes was immaterial.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained in this Form 10-Q, the
matters discussed herein are forward-looking statements that involve risks
and uncertainties, including those detailed below under "Factors That May
Affect Future Results of Operations," and from time to time in the Company's
other reports filed with the Securities and Exchange Commission. The actual
results that the Company achieves may differ materially from any
forward-looking statements due to such risks and uncertainties.
RESULTS OF OPERATIONS
REVENUES. Macromedia develops and markets software tools, servers, and
services for web publishing, web learning and web traffic. The Company sells
its products in North America, Europe, Asia Pacific, and Latin America
through a network of distributors, value-added resellers (VARs), its own
sales force and web site, and to original equipment manufacturers (OEMs). In
addition, the Company derives revenues from advertising, maintenance, and
technology licensing contracts.
Revenues increased $6.1 million or 21% to $35.2 million in the second quarter
of fiscal 1999 as compared to the same period in fiscal 1998. Revenues from
the Company's new web products, including Dreamweaver, Flash, Fireworks, and
web traffic, comprised the majority of the increase, accounting for 39% of
total revenue in the second quarter of fiscal 1999. During the second quarter
of fiscal 1999 the Company shipped a new version of Authorware, and two new
products, Generator and Dreamweaver Attain. Comparing the first six months of
fiscal year 1999 over the same period last year, revenues increased $11.1
million or 20% due to the sales of new web products, and an increase in the
sales of Freehand due to product cycle timing. These increases offset a
decline in the sales of Director over the same period, again due to product
cycle timing. Windows and hybrid product revenues represented 57% of total
product revenues, while Macintosh-related revenue was 43% of product revenue,
with growth on both platforms over the same period a year ago.
North American revenues reached $20.7 million in the second quarter of fiscal
1999, an increase of $7.3 million or 54% over the second quarter of 1998. For
the first six months of the current year, North American sales increased $9.3
million or 31% over the same period last year due to the shipment of new
products. International revenues decreased 8% from the second quarter fiscal
1998 to $14.5 million in the second quarter of fiscal 1999. The decrease was
primarily the result of the economic slowdown in Japan. Excluding Japan from
the comparison, international revenues increased 28% over the prior year.
Revenues by geographic region vary quarter to quarter depending on product
cycles and the timing of the release of localized versions of products, and
the economic conditions of the various regions.
8
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The table below summarizes revenue by geography:
<TABLE>
<CAPTION>
(In millions) Three months ended September 30, Six months ended September 30,
----------------------------------------- ---------------------------------------
1998 1997 % change 1998 1997 % change
<S> <C> <C> <C> <C>
North America $20.7 $13.4 54% $39.1 $29.8 31%
% of total revenues 59% 46% 58% 53%
International $14.5 $15.8 (8%) $28.5 $26.7 7%
% of total revenues 41% 54% 42% 47%
Total revenues $35.2 $29.2 $67.6 $56.5
</TABLE>
GROSS MARGIN. Gross margin as a percentage of revenue was 91% for the three
and six months ended September 30, 1998, compared with 82% and 83% for the
comparable periods last year. Gross profit of $32.0 million for the second
quarter of fiscal 1999 was up 34% over the second quarter of fiscal 1998. The
improvement over both periods is the result of cost control programs
implemented over the last year, including a move to just-in-time
manufacturing which resulted in lower inventory obsolescence and lower
inventory levels, and improved inventory review procedures. The Company
believes these business process changes will result in ongoing, sustained
margin performance. However, gross margins may be affected from time to time
by the mix of distribution channels used, mix of products sold, and the mix
of international versus domestic revenues.
SALES AND MARKETING. Sales and marketing expenses increased $1.4 million for
both the three and six months ended September 30, 1998, when compared to the
same periods last year. The increase was due primarily to higher compensation
and benefit levels associated with higher headcount, as well as to the
amortization of capitalized costs arising from distribution agreements. As a
percentage of revenues, expenses decreased to 43% and 44%, respectively, for
the three and six month periods ended September 30, 1998 from 47% and 50% in
the comparable period in the preceding year. The improvement was due to
higher sales levels in the current year.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three and
six months ended September 30, 1998 were $8.8 million and $17.3 million,
respectively, an increase of $0.8 million and $0.6 million, as compared to
the same periods last year. In both periods, expenses grew as a result of
higher compensation and benefit expenses associated with additional headcount
to support new product development and technology infrastructure. As a
percentage of revenues, costs for the three and six months ended September
30, 1998 were 25% and 26%, respectively, compared with 27% and 29% for the
same periods last year. The improvement was due to higher sales levels in
fiscal 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
second quarter of fiscal 1999 increased $0.5 million or 17% over the second
quarter of the prior year. The increase in costs was due to higher
compensation and benefit expenses, increased legal fees arising out of the
class action lawsuits (described below), and additional accounting and tax
fees for the establishment of an offshore tax structure (described below).
General and administrative costs as a percentage of revenues remained
constant at 9% for the three months ended September 30, 1998 and 1997, and at
10% and 9%, respectively, for the six months ended September 1998 and 1997.
OTHER INCOME. Other income in the second quarter of fiscal 1999 of $1.3
million was $0.1 million higher than the second quarter of 1998. Comparing
the first six months of fiscal 1999 with the same period in fiscal year 1998,
other income was higher by $0.3 million. In both periods, the increase was
primarily due to interest income earned on higher investment balances.
PROVISION/BENEFIT FOR INCOME TAXES. The Company's provision for income taxes
for the second quarter of fiscal 1999 increased $1.7 million over the second
quarter of 1998, due to an increase in net profit before tax of $5.6 million.
For the first six months of fiscal year 1999, the current year provision
increased by $3.6 million over fiscal year 1998, due to an increase in net
profit before tax of $11.7 million. The effective tax rate for both the
second quarter and first six months of both fiscal years was 31%.
9
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OFFSHORE, INTANGIBLE HOLDING COMPANY (IHC). The Company established
Macromedia Ireland Limited as an offshore, intangible holding company,
resident and registered in Barbados effective October 1, 1998. The purpose of
this new corporate structure is to take advantage of certain tax provisions
which allow deferral of taxes on international product sales. Macromedia
Ireland Limited, an Irish company, buys existing core technology from
Macromedia, Inc. (US) in the form of royalty payments and sells Macromedia
products in the European market. The IHC has two branches, Macromedia UK, a
United Kingdom company serving as an administrative arm processing customer
orders, and Macromedia BV, a Dutch (Netherlands) company operating as the
European sales arm, employing sales representatives and selling to
distributors. Macromedia KK (Japan), Macromedia Canada Limited, and
Macromedia, Inc. in Australia may be integrated into the structure at a later
date, and if so, will be treated as branches of Macromedia Ireland Limited.
Due to this change in tax structure and the utilization of research and
experimentation credits, the Company anticipates that its tax rate will
decrease below its current rate of 31%. This estimate is based on current tax
law and is subject to change.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash, cash equivalents and short-term
investments of $91.3 million. For the six months ended September 30, 1998,
cash provided by operating activities of $16.7 million was primarily
attributable to net income for the period of $7.1 million and an increase in
unearned revenue of $6.7 million associated with licensing agreements,
partially offset by an increase in prepaid marketing costs, plus the net
impact of the sales, cash disbursements and cash collection cycles. Cash used
in investment activities of $7.6 million related primarily to the purchase of
fixed and other long-term assets. Cash used in financing activities of $5.7
million was attributable to the acquisition of treasury stock of $11.4
million, offset by proceeds of $5.7 million received from the exercise of
common stock options. Collectively, the above activity resulted in an
increase in cash and cash equivalents of $3.4 million from the March 31, 1998
balances. Working capital decreased by $0.5 million from the March 31, 1998
balance of $81.8 million, to $81.3 million at September 30, 1998. The Company
anticipates future capital expenditures of at least $8.0 million for the
remainder of fiscal 1999.
In the second quarter of fiscal year 1999, the Company made investments in
property and equipment totaling $4.1 million. This amount includes $2.0
million related to the development of a new information technology
infrastructure for sales and marketing, customer support, on-line product
distribution, and technical support. The costs capitalized under the project
are comprised primarily of hardware, software and consulting fees for
software development. The Company expects to spend approximately $5.0 million
on the project over the next year, the majority of which will be capitalized.
Amortization of the project will begin in the third quarter fiscal 1999.
In addition to cash, cash equivalents, and short-term investments, the
Company has $15.0 million available under an unsecured revolving line of
credit. The line of credit bears interest at the bank's prime rate and
expires on July 15, 1999. As of September 30, 1998, the Company had no
borrowings outstanding.
The Company believes that existing cash resources, available bank borrowings
and cash generated from operations will be sufficient to meet the Company's
cash and investment requirements through at least September 30, 1999.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
INTENSE COMPETITION. The markets for the Company's products are highly
competitive and characterized by pressure to reduce prices, incorporate new
features, and accelerate the release of new product versions. A number of
companies currently offer products that compete directly or indirectly with
one or more of the Company's products. These companies include Adobe Systems
Inc. (Adobe), Apple Computer, Inc., Asymetrix Corporation, Corel Corporation
(Corel), MetaCreations Corporation, and Microsoft Corporation (Microsoft). As
the Company competes with larger competitors such as Adobe, Corel and
Microsoft across a
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broader range of product lines and different platforms, the Company may face
increasing competition from such companies.
FLUCTUATIONS OF OPERATING RESULTS; PRODUCT INTRODUCTION DELAYS. The Company's
quarterly operating results may vary significantly depending on the timing of
new product introductions and enhancements by the Company. A majority of the
Company's revenues is derived from four products: Director, FreeHand, Flash,
and Dreamweaver. The Company has in the past experienced delays in the
development of new products and enhancement of existing products, and such
delays may occur in the future. If the Company is unable, due to resource
constraints or technological or other reasons, to develop and introduce such
products in a timely manner, this inability could have a material adverse
effect on the Company's results of operations. If the Company does not ship
new versions of its products as planned, sales of existing versions decline,
or new products do not receive market acceptance, the Company's results of
operations in a given quarter could be materially adversely affected as they
were during the fourth quarter of fiscal 1997 when the Company delayed
shipment of a new version of Director to the following quarter.
DEPENDENCE ON DISTRIBUTORS. A substantial majority of the Company's revenues
is derived from the sale of its products through a variety of distribution
channels, including traditional software distributors, mail order,
educational distributors, VARs, OEMs, hardware and software superstores,
retail dealers, and direct sales. Domestically, the Company's products are
sold primarily through distributors, VARs, and OEMs. In particular, one
distributor, Ingram Micro, Inc., accounted for 28% of gross revenues in
fiscal 1998 and in the first six months of fiscal 1999. Internationally, the
Company's products are sold through distributors.
DEPENDENCE ON MACINTOSH PLATFORM. In the past, a majority of the Company's
revenues was derived from its products for the Macintosh. Macintosh revenues
accounted for 43% of product revenues for the first six months of fiscal
1999, down from 44% of revenues for all of fiscal 1998. Although the relative
percentage of Macintosh platform revenues will vary from quarter to quarter
based on product release schedules, the Company remains heavily dependent on
the sale of products for the Macintosh platform. A continuing leveling-off or
decline in the sales rate of multimedia-capable Macintosh computers or shifts
in mail order or other distribution mechanisms for Macintosh products could
have a material adverse effect on the Company's results of operations.
RISKS OF INTERNATIONAL OPERATIONS. For the first six months of fiscal 1999,
the Company derived approximately 42% of its revenues from international
sales, compared with 48% for all of fiscal 1998. The Company expects that
international sales will continue to generate a significant percentage of its
revenues. The Company relies on distributors for sales of its products in
foreign countries and, accordingly, is dependent on their ability to promote
and support the Company's products, and in some cases, to translate them into
foreign languages. International business is subject to a number of special
risks, including: foreign government regulation; general geopolitical risks
such as political and economic instability, hostilities with neighboring
countries and changes in diplomatic and trade relationships; more prevalent
software piracy; unexpected changes in, or imposition of, regulatory
requirements, tariffs, import and export restrictions and other barriers and
restrictions; longer payment cycles, greater difficulty in accounts
receivable collection, potentially adverse tax consequences, the burdens of
complying with a variety of foreign laws; foreign currency risk; and other
factors beyond the control of the Company.
In addition, the Company's results may be adversely affected by macroeconomic
events beyond the control of the Company, such as the general economic
downturn in Japan. The Company has experienced a significant decline in its
revenue from Japan beginning in fiscal 1998, from 21% of the Company's total
revenue in fiscal 1997 to 15% of total revenues in fiscal 1998, and just 10%
of revenues in the first six months of fiscal year 1999. There can be no
assurances that Japan's economy will recover in the near term or that the
Company's results or growth rates in this geographic region will return to
previous levels even if the recovery occurs.
11
<PAGE>
The Company enters into foreign exchange forward contracts to reduce economic
exposure associated with sales and asset balances denominated in various
European currencies and Japanese Yen. As of September 30, 1998, the notional
principal of forward contracts outstanding amounted to $6.5 million. There
were no significant unrealized gains or losses at September 30, 1998. There
can be no assurance that such contracts will adequately hedge the Company's
exposure to currency fluctuations.
VOLATILITY OF STOCK. Due to the factors noted above, the Company's future
earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in revenues or earnings from
levels expected by securities analysts could have an immediate and
significant adverse effect on the trading price of the Company's common stock
in any given period. Additionally, the Company may not learn of such
shortfalls until late in the fiscal quarter, which could result in an even
more immediate and adverse effect on the trading price of the Company's
common stock. Finally, the Company participates in a highly dynamic industry.
In addition to factors specific to the Company, changes in analysts' earnings
estimates for the Company or its industry and factors affecting the corporate
environment or the securities markets in general will often result in
significant volatility of the Company's common stock price.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code and
embedded technology in existing systems as the year 2000 approches. The "Year
2000 Issue" arises from the potential for computers to fail or operate
incorrectly because their programs incorrectly interpret the two digit date
fields "00" as 1900 or some other year, rather than the year 2000. The year
2000 issue creates risk for the Company from unforeseen problems in its own
computer systems and from third parties, including customers, vendors and
manufacturers, with whom the Company deals on financial transactions
worldwide. Failures of the Company's and/or third parties' computer systems
could result in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the Company's results of operations, liquidity, and financial condition,
though the impact is unknown at this time.
To mitigate this risk, the Company has established a formal year 2000 program
to oversee and coordinate the assessment, remediation, testing and reporting
activities related to this issue. The Company believes that with the
completion of the project as scheduled, the possibility of significant
interruptions of normal operations should be reduced.
The Company has completed the assessment phase of its year 2000 program. As
part of this assessment, the Company's application systems (e.g., financial
systems, various custom-developed business applications), technology
infrastructure (e.g., networks, servers, desktop equipment), facilities
(e.g., security systems, fire alarm systems), vendors/partners and products
were reviewed to determine their state of year 2000 compliance. This review
included the collection of documentation from software and hardware
manufacturers, the detailed review of programming code for custom
applications, the physical testing of desktop equipment using software
designed to test for year 2000 compliance, the examination of key
vendors'/partners' year 2000 programs and the ongoing testing of the
Company's products as part of normal quality assurance activities.
This assessment revealed no significant issues with the Company's
applications systems, technology infrastructure, facilities or products. The
assessment identified that certain of the Company's vendors/partners
themselves have significant year 2000 programs, the successes of which are
important to the Company. The Company will establish a contingency plan for
each critical vendor/partner, the activation of which will be dependent on
the failure of the vendor/partner to achieve key milestones in their
programs. The Company anticipates these contingency plans will be completed
by December 31, 1998.
With the completion of the Company's assessment phase, and with very little
remedial action necessary, the Company is now beginning the testing phase of
its program. Testing of the Company's internal software will be accomplished
through simulation situations. The Company will simulate January 1, 2000 on
its network, servers and desktop equipment to ensure compliance with year
2000 readiness. It is forecast that all important systems (both computer
systems and systems dependent on embedded technologies) will be tested by
March 31, 1999. The Company is targeting June 30, 1999 for the completion of
all other testing.
12
<PAGE>
The Company believes that the costs associated with completing its year 2000
program will be $.8 million. The Company reached this assessment with the
assistance of outside consultants, which the Company paid $0.2 million.
However, there can be no assurance that the Company will not experience
serious unanticipated negative consequences and/or additional material costs
caused by undetected errors or defects in the technology used in its internal
systems, or by failures of its vendors/partners to address their year 2000
issues in a timely and effective manner.
As of the end of second quarter of fiscal year 1999, approximately 20% of the
total estimated year 2000 program costs have been incurred. Of the
expenditures remaining for the program, it is estimated that 25% of this
represents costs associated with human resources performing testing, and 75%
represents miscellaneous hardware and software upgrades required for the
completion of the year 2000 program. The funding for the year 2000 program is
being provided as a normal operating expense (except in the case of any new
capital hardware, which is being funded from standard capital budgets).
Should miscalculations or other operational errors occur as a result of the
Year 2000 issue, the company or the parties on which it depends may be unable
to produce reliable information or to process routine transactions.
Furthermore, in the worst case, the Company or the parties on which it
depends may, for an extended period of time, be incapable of conducting
critical business activities which include but are not limited to,
manufacturing and shipping products, invoicing customers and paying vendors.
The Company is currently evaluating its software products for Year 2000
compliance. The Company believes that the changes and improvements it is
making to its software will handle Year 2000 compliance correctly, assuming
that the operating systems upon which they will run have been updated to
comply. Macromedia's software products obtain date information, such as
creation dates and modification dates, directly from the computers' operating
system. Both Microsoft and Apple have stated that their operating systems
will continue to operate properly into the twenty-first century.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 31, 1997, a complaint entitled Rosen et al. v. Macromedia, Inc., et
al., (Case No. 988526) was filed in the Superior Court for San Francisco,
California. The complaint alleges that Macromedia and five of its former or
current officers and directors engaged in securities fraud in violation of
California Corporations Code Sections 25400 and 25500 by seeking to inflate
the value of Macromedia stock by issuing statements that were allegedly false
or misleading (or omitted material facts necessary to make any statements
made not false or misleading) regarding 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. 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 19, 1997 and
January 5, 1998. Before the demurrers could be heard, one defendant, Richard
Wood, died in an automobile accident. By order dated March 6, 1998, claims
against Susan Bird were dismissed with leave to amend and the Court overruled
the demurrers as to Macromedia, John Colligan, James Von Ehr, II, and Kevin
Crowder. The Plaintiffs did not file an amended complaint, and defendants
have answered. By agreement of the parties, the rulings apply to the other
state court actions, and separate answers to the remaining complaints need
not be filed. Discovery is now proceeding.
On September 25, 1997, a complaint entitled City Nominees v. Macromedia, Inc.
et al., (Case No. C-97-3521-SC) was filed in the United States District Court
for the Northern District of California. The complaint alleges that
Macromedia and five of its former or current officers and directors engaged
in securities fraud in violation of Sections 10 and 20(a) of the Securities
and Exchange Act of 1934 by seeking to inflate the value of Macromedia stock
by issuing statements that were allegedly false or misleading (or omitted
material facts necessary to make any statements made not false or misleading)
regarding the Company's financial results and prospects. Plaintiffs seek to
represent a class of all persons who purchased Macromedia common stock from
April 18, 1996 through January 9, 1997. Three similar complaints by persons
seeking to represent the same class of purchasers subsequently have been
filed in United States District Court for the Northern District of
California. All of these cases have been consolidated. Lead plaintiffs and
lead counsel have been appointed under the provisions of the Private
Securities Law Reform Act by the District Court pursuant to an Order of
January 23, 1998. A consolidated complaint was filed on February 13, 1998.
Defendants promptly moved to dismiss, which motion was granted by order filed
May 18, 1998, on the grounds that plaintiffs' claims were barred by the
applicable statute of limitations. Judgment was entered in favor of all
defendants. Plaintiffs have filed a notice of appeal of the dismissal.
Briefing on the appeal is underway.
All complaints seek damages in unspecified amounts, as well as other forms of
relief. The Company believes the complaints are without merit and intends to
vigorously defend the actions.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- ------- -------------
<S> <C>
10.01 Loan agreement between Macromedia, Inc. and Ian Richmond and Danielle
Li Chong, dated July 16, 1998
10.02 Loan agreements between Macromedia, Inc. and Stephen and Nancy Elop,
dated April 24, 1998
27.01 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the period ended
September 30, 1998.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACROMEDIA, INC.
(Registrant)
Date: November 10, 1998 /s/ Robert K. Burgess
--------------------------------
Robert K. Burgess
President and Chief Executive Officer
Date: November 10, 1998 /s/ Elizabeth A. Nelson
--------------------------------
Elizabeth A. Nelson
Senior Vice President and Chief Financial Officer
16
<PAGE>
LOAN AGREEMENT
This Loan Agreement (this "AGREEMENT") is made and entered into effective
as of July 16, 1998 (the "EFFECTIVE DATE") by and among, jointly and severally,
Macromedia, Inc., a Delaware corporation ("LENDER"), and Ian Richmond and
Danielle Li Chong, husband and wife (collectively referred to as "BORROWER").
The term "LOAN DOCUMENTS" as used herein means, collectively, this Agreement,
the Note and Deed of Trust (each as defined below) executed and delivered
pursuant hereto, and any other documents executed or delivered by Borrower
pursuant to this Agreement or in connection with the Loan (as defined below).
WHEREAS, Lender desires to loan a certain sum to Borrower and Borrower
wishes to borrow a certain sum from Lender in order that Borrower may purchase
his primary residence, on and subject to the terms and conditions contained in
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, Lender and
Borrower hereby agree as follows:
1. AMOUNT AND TERMS OF CREDIT.
1.1 COMMITMENT TO LEND. Subject to all the terms and conditions of
this Agreement, and in reliance on the representations, warranties and covenants
of Borrower set forth in this Agreement, the Lender agrees to make a loan of
funds on the date of the Note to Borrower on a non-revolving basis (the "LOAN")
in the principal amount of One Million Five Hundred Thousand Dollars (U.S.
$1,500,000.00), for the purchase of Borrower's primary residence.
1.2 NOTE. Borrower's indebtedness to Lender under the Loan will be
evidenced by a Promissory Note executed by Borrower in the form attached hereto
as EXHIBIT "A" (the "NOTE"). The Note will provide that annually compounded
interest on unpaid principal will accrue at a rate equal to five and fifty-six
hundredths percent (5.56%) per annum.
1.3 SECURITY. Borrower's indebtedness to Lender under the Loan will
be secured by a first deed of trust in the form attached hereto as EXHIBIT "B"
(the "DEED OF TRUST"). The Deed of Trust will be executed by Borrower in favor
of Lender, with Fidelity National Title Company, a California corporation (the
"ESCROW AGENT"), acting as trustee, on certain real property located at 221
Warren Road, San Mateo, California (the "PROPERTY").
1.4 MATURITY. The unpaid principal amount of the Loan and all unpaid
interest accrued thereon will be immediately due and payable to Lender in full
on the date (the "MATURITY DATE") which is the earlier to occur of: (a) the
third anniversary of the date of the Note or (b) the date on which the entire
unpaid principal amount and all accrued interest on the Note becomes immediately
due and payable in full under Section 6.1.
<PAGE>
1.5 PREPAYMENT. Borrower may at any time and from time to time
prepay the Loan in whole or in part in amounts of at least Ten Thousand Dollars
(U.S. $10,000.00). Each prepayment will be applied as follows: (a) first, to
the payment of interest accrued on the Loan, and (b) second, to the extent that
the amount of such prepayment exceeds the amount of all such accrued interest,
to the payment of principal on the Loan.
2. CLOSING DATE; DELIVERIES.
2.1 CLOSING DATE. The closing of the Loan (the "CLOSING") will be
held at Escrow Agent's offices on the Effective Date (the "CLOSING DATE"), or at
such other time and place as Borrower and Lender may mutually agree.
2.2 DELIVERY BY LENDER OF LOAN. At the Closing, Lender will deliver
to the Escrow Agent the Loan, which delivery Borrower agrees shall constitute a
full funding of the Loan to Borrower.
2.3 DELIVERY BY BORROWER OF LOAN DOCUMENTS. At the Closing, Borrower
will execute and deliver to Lender the Note and Deed of Trust.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
represents and warrants to Lender that:
3.1 NATURE OF PURCHASE. Borrower's purchase on the Effective Date of
the Property is an arm's length transaction.
3.2 TITLE TO PROPERTY. The Property is free and clear of all
mortgages, deeds of trust, liens, encumbrances and security interests except for
statutory liens for the payment of current taxes that are not yet delinquent.
3.3 BALLOON PAYMENT. Borrower acknowledges that the unpaid principal
amount of the Loan and all unpaid interest accrued thereon will be immediately
due and payable to Lender in full as one balloon payment on the third
anniversary of the date of the Note evidencing this Loan, if not due earlier
under Section 6.1.
4. CONDITIONS PRECEDENT TO LOAN. The obligation of Lender to make the
Loan is subject to the satisfaction (or written waiver by Lender) of all the
following conditions precedent:
4.1 REPRESENTATIONS TRUE. All representations and warranties of
Borrower contained in this Agreement and in all other Loan Documents will be
true, correct and complete in all respects.
4.2 NOTE AND DEED OF TRUST. Lender will have received the Note and
Deed of Trust representing the Loan, duly executed by Borrower.
5. OTHER COVENANTS OF BORROWER. Borrower hereby covenants and agrees
with Lender as follows:
2
<PAGE>
5.1 INSURANCE COVERING COLLATERAL. Borrower shall maintain all
property damage insurance policies covering the Property in an amount at least
equal to the value of the dwelling on the Property.
5.2 FURTHER ASSURANCES. In addition to the obligations and documents
that this Agreement expressly requires Borrower to execute, deliver and perform,
Borrower will execute, deliver and perform any and all further acts or documents
which Lender may reasonably require in order to carry out the purposes of this
Agreement or any of the other Loan Documents.
6. DEFAULT OF BORROWER.
6.1 DEFAULT; ACCELERATION. Borrower will be deemed to be in default
under the Note and the outstanding unpaid principal sum of the Note, together
with all interest accrued thereon, will immediately become due and payable in
full without the need for any further action on the part of Lender (a) one
hundred eighty (180) days after the termination of the employment of Ian
Richmond, for any reason, with Lender; (b) upon Borrower's sale or other
voluntary conveyance of the Property; (c) upon the filing by or against Borrower
of any voluntary or involuntary petition in bankruptcy or any petition for
relief under the federal bankruptcy code or any other state or federal law for
the relief of debtors; PROVIDED HOWEVER, that with respect to an involuntary
petition in bankruptcy, Borrower will not be deemed to be in default of the Note
unless such involuntary petition has not been dismissed within sixty (60) days
after the filing of such petition; or (d) upon the execution by Borrower of an
assignment for the benefit of creditors or the appointment of a receiver,
custodian, trustee or similar party to take possession of Borrower's assets or
property.
6.2 REMEDIES UPON DEFAULT. Upon any default of Borrower under the
Note, Lender will have, in addition to its rights under the Note and the Deed of
Trust, full recourse against any real, personal, tangible or intangible assets
of Borrower and may pursue any legal or equitable remedies that are available to
Lender. The rights and remedies of Lender herein provided will be cumulative
and not exclusive of any other rights or remedies provided by law or otherwise.
7. MISCELLANEOUS.
7.1 SURVIVAL. The representations and warranties of Borrower
contained in or made pursuant to this Agreement and all the other Loan Documents
will survive the execution and delivery of the Loan Documents.
7.2 ENTIRE AGREEMENT. This Agreement, the Note, the Deed of Trust
and the exhibits and schedules attached thereto constitute the entire agreement
and understanding among the parties with respect to the subject matter thereof
and supersede any prior understandings or agreements of the parties with respect
to such subject matter.
7.3 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors and assigns of the parties; PROVIDED HOWEVER, that Borrower may not
assign or delegate any of its rights or
3
<PAGE>
obligations hereunder or under any other Loan Document or any interest herein or
therein without Lender's prior written consent.
7.4 NO THIRD PARTY BENEFICIARIES; CONSTRUCTION. Nothing in this
Agreement, express or implied, is intended to confer upon any third party any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. This Agreement and
its exhibits are the result of negotiations between the parties and have been
reviewed by each party hereto; accordingly, this Agreement will be deemed to be
the product of the parties hereto, and no ambiguity will be construed in favor
of or against any party.
7.5 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the internal laws of the State of California as applied to
agreements entered into solely between residents of, and to be performed
entirely in, such State, without reference to that body of law relating to
conflicts of law or choice of law.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
7.7 MODIFICATION; WAIVER. This Agreement may be modified or amended
only by a writing signed by both parties hereto. No waiver or consent with
respect to this Agreement will be binding unless it is set forth in writing and
signed by the party against whom such waiver is asserted. No course of dealing
between Borrower and Lender will operate as a waiver or modification of any
party's rights under this Agreement or any other Loan Document. No delay or
failure on the part of either party in exercising any right or remedy under this
Agreement or any other Loan Document will operate as a waiver of such right or
any other right. A waiver given on one occasion will not be construed as a bar
to, or as a waiver of, any right or remedy on any future occasion.
7.8 SEVERABILITY. The invalidity or unenforceability of any term or
provision of this Agreement will not affect the validity or enforceability of
any other term or provision hereof. In the event of any conflict between the
terms of this Agreement and the Note, the terms of the Note will control.
7.9 ATTORNEYS' FEES. If any party hereto commences or maintains any
action at law or in equity (including counterclaims or cross-complaints) against
the other party hereto by reason of the breach or claimed breach of any term or
provision of this Agreement or any other Loan Document, then the prevailing
party in said action will be entitled to recover its reasonable attorney's fees
and court costs incurred therein.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
as of the Effective Date.
BORROWER: MACROMEDIA, INC.
/s/ Ian S. Richmond Name: /s/ Robert K. Burgess
- ------------------------------- ----------------------------------
Ian S. Richmond
/s/ Danielle Li Chong By: ROBERT K. BURGESS
- ------------------------------- ------------------------------------
Danielle Li Chong
Title: Chief Executive Officer
----------------------------------
ATTACHMENTS:
Exhibit A - Promissory Note
Exhibit B - Deed of Trust
[SIGNATURE PAGE TO LOAN AGREEMENT]
5
<PAGE>
SECURED FULL RECOURSE PROMISSORY NOTE
$1,500,000.00 JULY 16, 1998
1. OBLIGATION. For value received in the form of a loan of the
principal face amount of this Note, receipt of which is hereby acknowledged,
Ian S. Richmond and Danielle K. LiChong, husband and wife (the
"UNDERSIGNED"), jointly and severally hereby promise to pay on or before the
third anniversary of the date of this Note, to the order of Macromedia, Inc.,
a Delaware corporation (the "COMPANY"), at the Company's principal place of
business at 600 Townsend Street, Suite 310W, San Francisco, California 94103,
or at such other place as the holder hereof may direct, the principal sum of
One Million Five Hundred Thousand Dollars (U.S. $1,500,000.00), together with
annually compounded interest thereon at the rate of five and fifty-six
hundredths (5.56%) per annum; PROVIDED HOWEVER, that the rate at which
interest will accrue on unpaid principal under this Note will not exceed the
highest rate permitted by applicable law.
2. BALLOON PAYMENT. This Note provides for a balloon payment.
3. PREPAYMENTS; TENDER AND APPLICATION OF PAYMENTS. Prepayment of
principal and/or interest due under this Note may be made at any time, without
penalty, in amounts of at least Ten Thousand Dollars (U.S. $10,000.00). Unless
otherwise agreed to in writing by the holder hereof, all payments and
prepayments will be made in lawful tender of the United States and will first be
applied to the payment of accrued interest and the remaining balance of such
payment, if any, will then be applied to the payment of principal.
4. DEFAULT; ACCELERATION. The undersigned will be deemed to be in
default under this Note and the outstanding unpaid principal sum of this Note,
together with all interest accrued thereon, will immediately become due and
payable in full without the need for any further action on the part of the
holder hereof: (a) one hundred eighty (180) days after the termination of the
employment of Ian S. Richmond, for any reason, with the Company; (b) upon the
undersigned's sale or other voluntary conveyance of the real property securing
this Note; (c) upon the filing by or against the undersigned of any voluntary or
involuntary petition in bankruptcy or any petition for relief under the federal
bankruptcy code or any other state or federal law for the relief of debtors;
PROVIDED HOWEVER, that with respect to an involuntary petition in bankruptcy,
the undersigned will not be deemed to be in default of this Note unless such
involuntary petition has not been dismissed within (60) days after the filing of
such petition; or (d) upon the execution by the undersigned of an assignment for
the benefit of creditors or the appointment of a receiver, custodian, trustee or
similar party to take possession of the undersigned's assets or property.
5. REMEDIES UPON DEFAULT. Upon any default of the undersigned
under this Note, the holder hereof will have, in addition to its rights under
this Note and the deed of trust referred to in Section 6 below, full recourse
against any real, personal, tangible or intangible assets of the undersigned,
and may pursue any legal or equitable remedies that are available to it.
<PAGE>
The rights and remedies of the holder herein provided will be cumulative and not
exclusive of any other rights or remedies provided by law or otherwise.
6. SECURITY. Payment of this Note is secured by a Loan Agreement
of even date herewith and a first deed of trust executed by the undersigned
in favor of Company, with Fidelity National Title Company, a California
corporation, acting as trustee, on certain real property located a 221 Warren
Road, San Mateo, California, a legal description of which is attached hereto
as EXHIBIT A. The holder hereof will be entitled to the benefits of the
security provided by the first deed of trust and will have the right to
enforce the covenants and agreements of the undersigned contained in the
first deed of trust.
7. WAIVER AND AMENDMENT. Any provision of this Note may be amended
or modified only by a writing signed by both the holder hereof and the
undersigned. No waiver or consent with respect to this Note will be binding or
effective unless it is set forth in writing and signed by the party against whom
such waiver is asserted. No course of dealing between the holder hereof and the
undersigned will operate as a waiver or modification of any party's rights or
obligations under this Note. No delay or failure on the part of either party in
exercising any right or remedy under this Note will operate as a waiver of such
right or any other right. A waiver given on one occasion will not be construed
as a bar to, or as a waiver of, any right or remedy on any future occasion.
8. GOVERNING LAW. This Note will be governed by and construed in
accordance with the internal laws of the State of California as applied to
agreements entered into solely between residents of, and to be performed
entirely in, such State, without reference to that body of law relating to
conflicts of law or choice of law.
9. WAIVERS. The undersigned hereby waive presentment, notice of
nonpayment, notice of dishonor, protest, demand and diligence.
10. ATTORNEYS' FEES. The undersigned agree to pay reasonable
expenses and costs of the holder hereof in enforcing and collecting this Note,
including without limitation attorneys' fees and court costs, whether or not a
lawsuit is brought and whether or not any such suit is prosecuted to judgment.
11. SUCCESSORS AND ASSIGNS. The provisions of this Note will inure
to the benefit of, and be binding on, each party's respective heirs, successors
and assigns. The undersigned acknowledge that they may not assign or delegate
any of their obligations under this Note without prior written consent of the
holder hereof.
12. SEVERABILITY. The invalidity or unenforceability of any term or
provision of this Note will not affect the validity or enforceability of any
other term or provision hereof. In the event of any conflict between the terms
of this Note and the Loan Agreement, the terms of the Note will control.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
2
<PAGE>
IN WITNESS WHEREOF, Ian S. Richmond and Danielle K. LiChong have
executed this Note as of the date indicated above.
/s/ Ian S. Richmond /s/ Danielle K. LiChong
- ---------------------------------- ---------------------------------
Ian S. Richmond Danielle K. LiChong
[SIGNATURE PAGE TO PROMISSORY NOTE]
3
<PAGE>
EXHIBIT A
Legal Description
All that real property situated in the city of San Mateo, County of San Mateo,
State of California, described as follows:
Lot 4 as designated on the map entitled, "BALDWIN & HOWELL'S RE-SUBDIVISION OF
LOTS 167 AND 168 SUBDIVISION NO. 2 AND LOTS 86 TO 92 INCLUSIVE SUBDIVISION NO. 1
OF SAN MATEO PARK SAN MATEO COUNTY CALIFORNIA", which map was filed in the
office of the recorder of the County of San Mateo, State of California on
October 16, 1905 in Liber "E" of Maps at page 23 and a copy entered in Liber 3
of Maps at Page 78.
JPN 032-001-012-35
Assessor's Parcel No. 032-012-350
and commonly known as 221 Warren Road, San Mateo, California.
<PAGE>
LOAN AGREEMENT
This Loan Agreement (this "AGREEMENT") is made and entered into
effective as of April 24, 1998 (the "EFFECTIVE DATE") by and among, jointly
and severally, Macromedia, Inc., a Delaware corporation ("LENDER"), and
Stephen A. Elop and Nancy M. Elop, husband and wife (collectively referred to
as "BORROWER"). The term "LOAN DOCUMENTS" as used herein means, collectively,
this Agreement, the Note and Deed of Trust (each as defined below) executed
and delivered pursuant hereto, and any other documents executed or delivered
by Borrower pursuant to this Agreement or in connection with the Loan (as
defined below).
WHEREAS, Lender desires to loan a certain sum to Borrower and Borrower
wishes to borrow a certain sum from Lender in order that Borrower may purchase
his primary residence, on and subject to the terms and conditions contained
in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, Lender and Borrower hereby agree as follows:
1. AMOUNT AND TERMS OF CREDIT.
1.1 COMMITMENT TO LEND. Subject to all the terms and conditions of
this Agreement, and in reliance on the representations, warranties and
covenants of Borrower set forth in this Agreement, the Lender agrees to make
a loan of funds on the date of the Note to Borrower on a non-revolving basis
(the "LOAN") in the principal amount of One Million Dollars
(U.S.$1,000,000.00), for the purchase of Borrower's primary residence.
1.2 NOTE. Borrower's indebtedness to Lender under the Loan will be
evidenced by a Promissory Note executed by Borrower in the form attached
hereto as EXHIBIT "A" (the "NOTE"). The Note will provide that annually
compounded interest on unpaid principal will accrue at a rate equal to five
and fifty-one hundredths percent (5.51%) per annum.
1.3 SECURITY. Borrower's indebtedness to Lender under the Loan will
be secured by a first deed of trust in the form attached hereto as EXHIBIT
"B" (the "DEED OF TRUST"). The Deed of Trust will be executed by Borrower in
favor of Lender, with Financial Title Company, a California corporation (the
"ESCROW AGENT"), acting as trustee, on certain real property located at 1506
Serafix Road, Alamo, California (the "PROPERTY").
1.4 MATURITY. The unpaid principal amount of the Loan and all
unpaid interest accrued thereon will be immediately due and payable to Lender
in full on the date (the "MATURITY DATE") which is the earlier to occur of:
(a) the third anniversary of the date of the Note or (b) the date on which
the entire unpaid principal amount and all accrued interest on the Note
becomes immediately due and payable in full under Section 6.1.
1.5 PREPAYMENT. Borrower may at any time and from time to time
prepay the Loan in whole or in part in amounts of at least Ten Thousand
Dollars (U.S. $10,000.00). Each prepayment will be applied as follows: (a)
first, to the payment of interest accrued on the Loan,
<PAGE>
and (b) second, to the extent that the amount of such prepayment exceeds the
amount of all such accrued interest, to the payment of principal on the Loan.
2. CLOSING DATE; DELIVERIES.
2.1 CLOSING DATE. The closing of the Loan (the "CLOSING") will be
held at Escrow Agent's offices on the Effective Date (the "CLOSING DATE"), or
at such other time and place as Borrower and Lender may mutually agree.
2.2 DELIVERY BY LENDER OF LOAN. At the Closing, Lender will
deliver to the Escrow Agent the Loan, which delivery Borrower agrees shall
constitute a full funding of the Loan to Borrower.
2.3 DELIVERY BY BORROWER OF LOAN DOCUMENTS. At the Closing,
Borrower will execute and deliver to Lender the Note and Deed of Trust.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
represents and warrants to Lender that:
3.1 NATURE OF PURCHASE. Borrower's purchase on the Effective Date
of the Property is an arm's length transaction.
3.2 TITLE TO PROPERTY. Other than the deed of trust (the "SELLER'S
DEED OF TRUST") currently recorded in Contra Costa County as security for the
indebtedness of Greenbriar Stonebridge Partners, L.P., a California limited
partnership (the "SELLER"), which Seller's Deed of Trust shall be canceled at
the Closing, the Property is free and clear of all mortgages, deeds of trust,
liens, encumbrances and security interests except for statutory liens for the
payment of current taxes that are not yet delinquent.
3.3 BALLOON PAYMENT. Borrower acknowledges that the unpaid
principal amount of the Loan and all unpaid interest accrued thereon will be
immediately due and payable to Lender in full as one balloon payment on the
third anniversary of the date of the Note evidencing this Loan, if not due
earlier under Section 6.1.
4. CONDITIONS PRECEDENT TO LOAN. The obligation of Lender to make the
Loan is subject to the satisfaction (or written waiver by Lender) of all the
following conditions precedent:
4.1 REPRESENTATIONS TRUE. All representations and warranties of
Borrower contained in this Agreement and in all other Loan Documents will be
true, correct and complete in all respects.
4.2 NOTE AND DEED OF TRUST. Lender will have received the Note and
Deed of Trust representing the Loan, duly executed by Borrower.
4.3 CANCELLATION OF SELLER'S DEED OF TRUST. Seller's Deed of Trust
shall have been fully reconveyed by the beneficiary thereunder and shall
properly be marked "canceled."
2
<PAGE>
5. OTHER COVENANTS OF BORROWER. Borrower hereby covenants and agrees with
Lender as follows:
5.1 INSURANCE COVERING COLLATERAL. Borrower shall maintain all risk
property damage insurance policies covering the Property in an amount at
least equal to the value of the dwelling on the Property.
5.2 FURTHER ASSURANCES. In addition to the obligations and
documents that this Agreement expressly requires Borrower to execute,
deliver and perform, Borrower will execute, deliver and perform any and all
further acts or documents which Lender may reasonably require in order to
carry out the purposes of this Agreement or any of the other Loan Documents.
6. DEFAULT OF BORROWER.
6.1 DEFAULT; ACCELERATION. Borrower will be deemed to be in default
under the Note and the outstanding unpaid principal sum of the Note, together
with all interest accrued thereon, will immediately become due and payable in
full without the need for any further action on the part of Lender (a) one
hundred eighty (180) days after the termination of the employment of Stephen
A. Elop, for any reason, with Lender; (b) upon Borrower's sale or other
voluntary conveyance of the Property; (c) upon the filing by or against
Borrower of any voluntary or involuntary petition in bankruptcy or any
petition for relief under the federal bankruptcy code or any other state or
federal law for the relief of debtors; PROVIDED HOWEVER, that with respect to
an involuntary petition in bankruptcy, Borrower will not be deemed to be in
default of the Note unless such involuntary petition has not been dismissed
within sixty (60) days after the filing of such petition; or (d) upon the
execution by Borrower of an assignment for the benefit of creditors or the
appointment of a receiver, custodian, trustee or similar party to take
possession of Borrower's assets or property.
6.2 REMEDIES UPON DEFAULT. Upon any default of Borrower under the
Note, Lender will have, in addition to its rights under the Note and the Deed
of Trust, full recourse against any real, personal, tangible or intangible
assets of Borrower and may pursue any legal or equitable remedies that are
available to Lender. The rights and remedies of Lender herein provided will
be cumulative and not exclusive of any other rights or remedies provided by
law or otherwise.
7. MISCELLANEOUS.
7.1 SURVIVAL. The representations and warranties of Borrower
contained in or made pursuant to this Agreement and all other Loan Documents
will survive the execution and delivery of the Loan Documents.
7.2 ENTIRE AGREEMENT. This Agreement, the Note, the Deed of Trust
and the exhibits and schedules attached thereto constitute the entire
agreement and understanding among the parties with respect to the subject
matter thereof and supersede any prior understandings or agreements of the
parties with respect to such subject matter.
3
<PAGE>
7.3 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors and assigns of the parties; PROVIDED HOWEVER, that the Borrower
may not assign or delegate any of its rights or obligations hereunder or
under any other Loan Document or any interest herein or therein without
Lender's prior written consent.
7.4 NO THIRD PARTY BENEFICIARIES; CONSTRUCTION. Nothing in this
Agreement, express or implied, is intended to confer upon any third party any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. This Agreement and
its exhibits are the result of negotiations between the parties and have been
reviewed by each party hereto; accordingly, this Agreement will be deemed to
be the product of the parties hereto, and no ambiguity will be construed in
favor of or against any party.
7.5 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the internal laws of the State of California as applied to
agreements entered into solely between residents of, and to be performed
entirely in, such State, without reference to that body of law relating to
conflicts of law or choice of law.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
7.7 MODIFICATION; WAIVER. This Agreement may be modified or amended
only by a writing signed by both parties hereto. No waiver or consent with
respect to this Agreement will be binding unless it is set forth in writing
and signed by the party against whom such waiver is asserted. No course of
dealing between Borrower and Lender will operate as a waiver or modification
of any party's rights under this Agreement or any other Loan Document. No
delay or failure on the part of either party in exercising any right or
remedy under this Agreement or any other Loan Document will operate as a
waiver of such right or any other right. A waiver given on one occasion will
not be construed as a bar to, or as a waiver of, any right or remedy on any
future occasion.
7.8 SEVERABILITY. The invalidity or unenforceability of any term or
provision of this Agreement will not affect the validity or enforceability of
any other term or provision hereof. In the event of any conflict between the
terms of this Agreement and the Note, the terms of the Note will control.
7.9 ATTORNEYS' FEES. If any party hereto commences or maintains any
action at law or in equity (including counterclaims or cross-complaints)
against the other party hereto by reason of the breach or claimed breach of
any term or provision of this Agreement or any other Loan Document, then the
prevailing party in said action will be entitled to recover its reasonable
attorney's fees and court costs incurred therein.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the Effective Date.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the Effective Date.
BORROWER: MACROMEDIA, INC.
/s/ STEPHEN A. ELOP Name: /s/ Betsey Nelson
- ---------------------------------- ---------------------------------
Stephen A. Elop
/s/ Nancy M. Elop By: BETSEY NELSON
- ---------------------------------- -----------------------------------
Nancy M. Elop
Title: SENIOR VP AND CFO
MACROMEDIA, INC.
(415) 252-4102
--------------------------------
ATTACHMENTS:
Exhibit A - Promissory Note
Exhibit B - Deed of Trust
[SIGNATURE PAGE TO LOAN AGREEMENT]
5
<PAGE>
SECURED FULL RECOURSE PROMISSORY NOTE
$1,5000,000.00 JULY 16, 1998
1. OBLIGATION. For value received in the form of a loan of the
principal face amount of this Note, receipt of which is hereby acknowledged, Ian
S. Richmond and Danielle K. LiChong, husband and wife (the "UNDERSIGNED"),
jointly and severally hereby promise to pay or before the third anniversary of
the date of this Note, to the order of Macromedia, Inc., a Delaware corporation
(the "COMPANY"), at the Company's principal place of business at 600 Townsend
Street, Suite 310W, San Francisco, California 94103, or at such other place as
the holder hereof may direct, the principal sum of One Million Five Hundred
Thousand Dollars (U.S. $1,500,000.00), together with annually compounded
interest thereon at the rate of five and fifty-six hundredths (5.56%) per annum;
PROVIDED HOWEVER, that the rate at which interest will accrue on unpaid
principal under this Note will not exceed the highest rate permitted by
applicable law.
2. BALLOON PAYMENT. This Note provides for a balloon payment.
3. PREPAYMENTS; TENDER AND APPLICATION OF PAYMENTS. Prepayment of
principal and/or interest due under this Note may be made at any time, without
penalty, in amount of at least Ten Thousand Dollars (U.S. $10,000.00). Unless
otherwise agreed to in writing by the holder hereof, all payments and
prepayments will be made in lawful tender of the United States and will first be
applied to the payment of accrued interest and the remaining balance of such
payment, if any, will then be applied to the payment of principal.
4. DEFAULT; ACCELERATION. The undersigned will be deemed to be in
default under this Note and the outstanding unpaid principal sum of this Note,
together with all interest accrued thereon, will immediately become due and
payable in full without the need for any further action on the part of the
holder hereof: (a) on hundred eighty (180) days after the termination of the
employment of Ian S. Richmond, for any reason, with the Company; (b) upon the
undersigned's sale or other voluntary conveyance of the real property securing
this Note; (c) upon the filing by or against the undersigned of any voluntary or
involuntary petition in bankruptcy or any petition for relief under the federal
bankruptcy code or any other state or federal law for the relief of debtors;
PROVIDED HOWEVER, that with respect to an involuntary petition in bankruptcy,
the undersigned will not be deemed to be in default of this Note unless such
involuntary petition has not been dismissed within (60) days after the filing of
such petition; or (d) upon the execution by the undersigned of an assignment for
the benefit of creditors or the appointment of a receiver, custodian, trustee or
similar party to take possession of the undersigned's assets or property.
5. REMEDIES UPON DEFAULT. Upon any default of the undersigned
under this Note, the holder thereof will have, in addition to its rights
under this Note and the deed of trust referred to in Section 6 below, full
recourse against any real, personal, tangible in intangible assets of the
undersigned, and may pursue any legal or equitable remedies that are
available to it. The rights and remedies of the holder herein provided will
be cumulative and not exclusive of any other rights or remedies provided by
law or otherwise.
<PAGE>
6. SECURITY. Payment of this Note is secured by a Loan Agreement of
even date herewith and a first deed of trust executed by the undersigned in
favor of Company, with Fidelity National Title Company, a California
corporation, acting as trustee, on certain real property located a 221 Warren
Road, San Mateo, California, a legal description of which is provided by the
first deed of trust and will have the right to enforce the covenants and
agreements of the undersigned contained in the first deed of trust.
7. WAIVER AND AMENDMENT. Any provision of the Note may be amended
or modified only by a writing signed by both the holder hereof and the
undersigned. No waiver or consent with respect to this Note will be binding or
effective unless it is set forth in writing and signed by the party against whom
such waiver is asserted. No course of dealing between the holder hereof and the
undersigned will operate as a waiver or modification of any party's rights or
obligations under this Note. No delay or failure on the part of either party in
exercising any right or remedy under this Note will operate as a waiver of such
right or any other right. a waiver given on one occasion will not be construed
as a bar to, or as a waiver of, any right or remedy on any future occasion.
8. GOVERNING LAW. This Note will be governed by and construed in
accordance with the internal laws of the State of California as applied to
agreements entered into solely between residents of, and to be performed
entirely in, such State, without reference to that body of law relating to
conflicts of law or choice of law.
9. WAIVERS. The undersigned hereby waive presentment, notice of
nonpayment, notice of dishonor, protest, demand and diligence.
10. ATTORNEYS' FEES. The undersigned agree to pay reasonable
expenses and costs of the holder hereof in enforcing and collecting this Note,
including without limitation attorneys' fees and court costs, whether or not a
lawsuit is brought and whether or not any such suit is prosecuted to judgment.
11. SUCCESSORS AND ASSIGNS. The provisions of this Note will inure
to the benefit of and be binding on, each party's respective heirs, successors
and assigns. The undersigned acknowledge that they may not assign or delegate
any of their obligations under this Note without prior written consent of the
holder thereof.
12. SEVERABILITY. The invalidity or unenforceability of any term or
provision of this Note will not affect the validity or enforceability of any
other term or provision hereof. In the event of any conflict between the terms
of this Note and the Loan Agreement, the terms of the Note will control.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
2
<PAGE>
IN WITNESS WHEREOF, Ian S. Richmond and Danielle K. LiChong have
executed this Note as of the date indicated above.
/s/ Ian S. Richmond /s/ Danielle K. LiChong
- ---------------------------------- ---------------------------------
Ian S. Richmond Danielle K. LiChong
[SIGNATURE PAGE TO PROMISSORY NOTE]
3
<PAGE>
EXHIBIT A
Legal Description
All that real property situated in the Unincorporated Area, County of Contra
Costa, State of California, described as follows:
PARCEL ONE:
Lot 2, as shown on SUBDIVISION 7633, filed August 10, 1995 in Book 381 of
Maps at Page 36, Contra Costa County Records.
PARCEL TWO:
Easement granted in the Deed from Martin L. Sherman, Jr. Trustee to BJ VI,
Horse Ranch, et al, recorded July 6, 1995, Series No. 905-105986, as follows:
Easement for ingress and egress for vehicles of all kinds, pedestrians and
animals, storm water drainage and for installation, maintenance, repair and
replacement of road improvements and utility lines such as gas, electricity,
sewer, television, water and storm drain lines, described as follows:
A portion of Parcel A of MS 40-80, filed December 4, 1981 in Book 98 of
Parcel Maps, Page 42, Contra Costa County Records further described as
follows:
A Right of Way, 38 feet in width, the centerline of which is described as
follows:
Commencing at the Northeast corner of said Parcel A (Book 98, Parcel Maps,
Page 42); thence from said point of commencement along the East boundary of
said Parcel A, South 03DEG. 49'04" West, 259.36 feet to the point of
beginning; thence from said point of beginning Northwesterly along a 292.00
foot radius curve concave to the Northeast, the radius of which bears South
13DEG. 25'10" West, through a central angle of 8DEG. 54'32" an arc distance of
45.40 feet; thence tangent to said curve North 67DEG. 40'18" West, 212.90
feet to a 302.00 foot radius tangent curve concave to the Northeast; thence
along said curve through a central angle of 25DEG. 47'47" an arc distance of
135.97 feet to a point of reverse curvature; thence along a 148.00 foot
radius curve concave to the Southwest, through a central angle of 40DEG.
22'24" an arc distance of 104.29 feet; thence tangent to last said curve North
82DEG. 14'55" West, 203.22 feet to a 122.00 foot radius tangent curve concave
the North; thence along said tangent curve through a central angle of 6DEG.
13'58" an arc distance of 13.27 feet to a point of reverse curvature; thence
along a 268.00 foot radius curve concave to the South, through a central
angle of 10DEG. 32'29" an arc distance of 49.31 feet to a point of reverse
curvature; thence along a 302.00 foot radius curve concave to the North,
through a central angle of 6DEG. 07'20" an arc distance of 32.27 feet to a
point on the West boundary of said Parcel A (Book 98, Parcel Maps, Page 42)
and said Westerly boundary of said Parcel A (Book 98, Parcel Maps, Page 42).
<PAGE>
Legal Description (Continued)
PARCEL THREE:
Easement for ingress and egress, for vehicles of all kinds, pedestrians and
animals, storm water drainage and for installation, maintenance, repair and
replacement of road improvements and utility lines such as gas, electricity,
sewer, television, water and storm drain lines, described as follows:
A portion of Section 6, Township 1 South, Range 1 West, Mount Diablo Base and
Meridian, described as follows:
Beginning at the Northeasterly corner of that certain parcel of land
described in the Deed to Anderson, et al, recorded November 1, 1963 in Book
4484 of Official Records at Page 749, also being the Southeasterly corner of
parcel "B" as designated on the Map of SUBDIVISION 6743, filed June 19, 1987
in Book 313 of Maps at Page 28; thence from said point of beginning Westerly
along the Northerly line of said Anderson Parcel (Book 4484, Official
Records, Page 749) the following 10 courses: North 69DEG. 15'29" West,
23.95 feet; North 63DEG. 34'29" West, 27.01 feet; North 89DEG. 17'29" West,
60.49 feet; South 83DEG. 11'31" West, 92.08 feet; South 81DEG. 12'31" West,
39.03 feet; North 75DEG. 37'29" West, 58.29 feet; South 73DEG. 03'31" West,
49.57 feet; North 84DEG. 21'29" West, 56.91 feet; South 81DEG. 36'31" West,
171.19 feet; South 83DEG. 12'05" West, 119.09 feet to 120.00 foot radius
tangent curve concave to the South; thence along said tangent curve through a
central angle of 16DEG 14'57" an arc distance of 34.03 feet; thence South
66DEG 57'08" West, 49.55 feet to an 81.00 foot radius tangent curve concave
to the North; thence along said tangent curve through a central angle of
34DEG. 18'48" an arc distance of 48.51 feet to a point of compound
curvature; thence along a 23.00 foot radius curve concave to the Northwest,
through a central angle of 72DEG. 12'28" an arc distance of 28.99 feet to a
point of cusp on the Easterly Right of Way line of Livorna Road of
SUBDIVISION 6743; thence leaving said point of cusp Southwesterly along a
290.00 foot radius curve, the radius of which bears South 57DEG. 16'46" East
through a central angle of 11DEG. 23'25" an arc distance of 57.65 feet to a
point of cusp; thence leaving said point of cusp and Livorna Road Right of
Way line along a 22.00 foot radius curve concave to the South, the radius of
which bears North 45DEG. 53'21" West, through a central angle of 39DEG
44'19", an arc distance of 15.26 feet to a point of reverse curvature;
thence leaving said point of reverse curvature along a 120.00 foot radius
curve concave to the North, through a central angle of 55DEG. 40'00" an arc
distance of 116.59 feet; thence North 61DEG. 41'09" East, 29.37 feet to a
80.00 foot radius tangent curve concave to the South; thence along said curve
through a central angle of 47DEG 36'09" an arc distance of 66.47 feet; thence
along the following 12 courses, South 70DEG. 42'12" East, 11.53 feet; thence
North 79DEG. 25'15" East, 100.69 feet; thence North 75DEG. 03'23" East, 25.00
feet; North 83DEG. 24'36" East, 47.32 feet, South 89DEG. 35'29" East, 100.50
feet; South 83DEG. 45'29" East, 32.00 feet; North 87DEG. 24'31" East, 118.50
feet; South 81DEG. 50'29" East, 59.00 feet; South 66DEG. 20'29" East, 120.00
feet; South 15DEG. 10'29" East, 28.50 feet; South 47DEG. 40'29" East, 35.00
feet; South 89DEG. 57'29" East, 5.43 feet to a point on the Westerly line of
said Anderson Parcel (Book 4484, Official Records, Page 749); thence along
last said Easterly line North 00DEG. 02'31" East, 146.37 feet to the point of
beginning.
5
<PAGE>
Legal Description (Continued)
PARCEL FOUR:
A non-exclusive Easement for ingress and egress for vehicles of all kinds,
pedestrians and animals, storm water drainage and for installation,
maintenance, repair and replacement of road improvements and utility lines
such as gas, electricity, sewer, television, water and storm drain lines to
be appurtenant to Parcel One, over, under and across that portion shown as
"Serafix Road Private Street".
A.P.N. 193-880-002-4
and commonly known as 1506 Serafix Road, Alamo, California.
6
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<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,446
<SECURITIES> 77,887
<RECEIVABLES> 13,891
<ALLOWANCES> 7,184
<INVENTORY> 458
<CURRENT-ASSETS> 117,221
<PP&E> 62,192
<DEPRECIATION> 23,949
<TOTAL-ASSETS> 166,392
<CURRENT-LIABILITIES> 35,926
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 129,970
<TOTAL-LIABILITY-AND-EQUITY> 166,392
<SALES> 67,561
<TOTAL-REVENUES> 67,561
<CGS> 6,348
<TOTAL-COSTS> 53,445
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 10,335
<INCOME-TAX> 3,204
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