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Macromedia Corporate Governance

Overview

Macromedia's Board of Directors has adopted, as part of the Macromedia Code of Conduct (the "Code of Conduct"), a series of corporate governance principles applicable to all employees, officers and directors of Macromedia, designed to affirm our high standards of business conduct, and to emphasize the importance of integrity and honesty in the conduct of our business. We believe that the ethical foundations outlined in our corporate governance principles and the Code of Conduct are critical to our ongoing success and the maximization of stockholder value. The Code of Conduct is distributed to all of our employees and is posted below .

Macromedia's corporate governance principles include, among other things, the following items:

  • Make business decisions with integrity and honesty
  • Comply with the laws and regulations in each country in which we do business
  • Avoid business situations that could cause a conflict of interest
  • Honor confidentiality obligations to Macromedia and others
  • Report any violations of our Code of Conduct

In addition, in order to ensure ethical financial results reporting to stockholders, and in order to comply with regulations, Macromedia adopted specific policies for employees relating to ethics for financial managers and accounting complaints.

Board Composition

The Board is composed of Robert K. Burgess, Charles M. Boesenberg, John (Ian) Giffen, Steven Gomo, William H. Harris, Jr., Donald L. Lucas, Timothy O'Reilly and William B. Welty, all of whom were elected at the July 26, 2004 Annual Meeting of Stockholders, as well as Stephen A. Elop and Betsey Nelson who were appointed to the Board on January 17, 2005. In the interim period between Annual Meetings, the Board has the authority under the Company's Bylaws to increase or decrease the size of the Board and to fill vacancies.

To assist in carrying out its duties, the Board has delegated certain authority to the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. For more information relating to the duties and composition of these committees, please see the section below, "Committees of the Board of Directors."

Board of Directors Biographies ›

Independence

It is important to Macromedia for investors to have confidence that the individuals serving as independent directors on our Board do not have a relationship with Macromedia that would impair their independence. Under the rules of The NASDAQ Stock Market (the "Nasdaq Rules"), our Board has a responsibility to make an affirmative determination that no such relationships exist. The Nasdaq Rules generally provide that an "independent director" is a person other than an officer or employee of Macromedia or its subsidiaries or any other individual having a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also provide specific criteria that, if met, disqualify a director from being independent.

The Board has determined that, except for Mr. Burgess, Mr. Elop, Ms. Nelson, and Mr. Giffen, each of its directors qualifies as an independent director under the Nasdaq Rules. Mr. Burgess is not considered independent because he formerly served as the Company's chief executive officer. Mr Elop and Ms. Nelson are not considered independent because they serve, respectively, as Chief Executive Officer and Chief Financial Officer of the Company. Mr. Giffen is not considered independent because of the inherent value of a stock option that he received in 1998 for performing consulting services to the Company separate from the services he provided as a member of the Board.

Committees of the Board of Directors ›

Director Attendance at the Annual Meeting of Stockholders

The Company believes that there are benefits to having members of the Board attend the Annual Meeting of Stockholders. In 2004, all seven directors attended the Meeting in person. From time to time, however, a member of the Board might have a compelling and legitimate reason for not attending the Meeting. As a result, the Board has decided that director attendance at the Meeting should be strongly encouraged, but is not required.

Compensation of Directors

The compensation of directors is set by the Company's Nominating and Corporate Governance Committee, and currently includes the following components:

Director Fees and Expenses

The Company pays an annual retainer fee of $15,000 to each director of the Company. Further, each director is compensated $1,500 for each meeting of the Board attended by such director. Each non-employee director is reimbursed for actual business expenses incurred in attending each Board meeting.

Additional fees are paid to directors who serve on a committee of the Board of Directors. Specifically,

  • Each member of the Audit Committee is compensated $1,500 for each meeting of the Audit Committee attended by such member.
  • Each member of the Compensation Committee and of the Nominating and Corporate Governance Committee is compensated $1,000 for each meeting of the respective committee attended by such member.

Director Equity Compensation

Each director of the Company who is not an employee of the Company (or of any parent or subsidiary of the Company) ("Outside Director") receives automatic grants of stock options. The following automatic equity compensation is paid to the Outside Directors:

  1. Each Outside Director who first becomes a member of the Board will be automatically granted an option to purchase 60,000 shares of the Company's Common Stock on the date the Outside Director first becomes a member of the Board (an "Initial Grant"), to be vested over a period of three years, with 16.67% of such shares to be vested six months after such Outside Director begins service and 2.78% of such shares each month thereafter;
  2. Each Outside Director will automatically receive, immediately following the annual meeting of the stockholders that occurs on or after the third anniversary of such Outside Director's prior grant, a new option to purchase 60,000 shares of the Company's Common Stock (less the number of unvested option shares then held by such Outside Director), to be vested on a monthly basis over a period of three years (a "Succeeding Grant");
  3. Each member of the Audit Committee will automatically receive, immediately following the annual meeting of stockholders, an annual option grant to purchase 10,000 shares, to be vested on a monthly basis over a period of one year;
  4. Each member of the Compensation Committee will automatically receive, immediately following the annual meeting of stockholders, an annual 7,500 share option grant, to be vested on a monthly basis over a period of one year; and
  5. The chair of the Compensation Committee and the chair of the Audit Committee will each receive, immediately following the annual meeting of stockholders, an additional annual 5,000 share option grant, to be vested on a monthly basis over a period of one year.

In addition to the automatic option grants described above, directors are eligible to receive discretionary option grants.

Compensation of Executives

The Compensation Committee acts on behalf of the Board to establish the general compensation policy of the Company for all employees of the Company. The Committee typically reviews base salary levels and target bonuses for the Chief Executive Officer ("CEO") and other executive officers and employees of the Company at or about the beginning of each fiscal year.

The Committee also administers the Company's incentive and equity plans, including, among others, the 1999 Stock Option Plan (the "1999 Stock Plan"), the 2001 Employee Stock Purchase Plan and the 2003 Employee Stock Purchase Plan, the equity incentive plans assumed by the Company in prior acquisitions, and the 2002 Equity Incentive Plan (the "2002 Plan"). In November 2001, the Compensation Committee delegated to the Chief Executive Officer the authority to grant options and stock awards to employees of the Company who are not directors or officers of the Company; provided, however, that no such individual award made by the Chief Executive Officer may exceed 250,000 shares or options to purchase more than 250,000 shares of the Company's stock.

The Committee's philosophy in compensating executive officers, including the CEO, is to relate compensation to corporate performance. We believe the Company's executive compensation should be linked to the Company's strategic business objectives of profitable growth and the creation of stockholder value. Consistent with this philosophy, the incentive component of executive officer compensation is based on the Company's profits and sales performance, as well as the individual executive's contribution to the Company's objectives. Long-term equity compensation for executive officers is made through the granting of stock options. Stock options generally have value for the executive only if the price of the Company's stock increases above the fair market value on the grant date and the executive remains in the Company's employ for the period required for the shares to vest.

The base salaries, incentive compensation and stock option grants of the executive officers are determined in part by the Committee reviewing data on prevailing compensation practices in technology companies with whom the Company competes for executive talent and by their evaluating such information in connection with the Company's corporate goals. Subject to the limitations regarding available data, the Committee compared the compensation of the Company's executive officers with the compensation practices of comparable companies to determine base salary, target bonuses and target total cash compensation. In addition to their base salaries, the Company's executive officers, including the CEO, are each eligible to receive quarterly and annual cash bonuses under the Company's executive bonus plan and are eligible to participate in equity incentive plans, including the 1999 Stock Plan and the 2002 Plan.

Director Nomination Process

Process for Identifying and Evaluating Nominees

The process for identifying and evaluating nominees to the Board of Directors is initiated by identifying the criteria for selection as a nominee, including the specific qualities or skills being sought based on input from members of the Board and, if appropriate, a third party search firm. The Nominating and Corporate Governance Committee, assisted as appropriate by a third party search firm and the Company's executives, reviews the candidates' biographical information and qualifications and checks the candidates' references. Qualified nominees are interviewed by at least one member of the Nominating and Corporate Governance Committee. Serious candidates meet with all members of the Board. Using the input from such interviews and the information obtained by the Nominating and Corporate Governance Committee, the Committee then evaluates which of the prospective candidates is qualified to serve as a director and whether the Committee should recommend to the Board that the Board nominate, or elect to fill a vacancy with, one or more of these final prospective candidates. Candidates recommended by the Nominating and Corporate Governance Committee are presented to the Board for selection as nominees to be presented for the approval of the stockholders or for election to fill a vacancy.

Criteria for Nomination to the Board

In evaluating director nominees, the Nominating and Corporate Governance Committee is committed to selecting candidates that offer a diversity of backgrounds, experiences and viewpoints. To assist in this regard, the Committee considers the following criteria:

  • Integrity
  • Education
  • Business experience
  • Director experience
  • Commitment to the Company

The Nominating and Corporate Governance Committee may also consider other factors, in addition to the ones listed above, as it may determine are in the best interest of Macromedia and its stockholders.

Board of Directors Review Process

The Board has decided to adopt and implement an annual Board of Directors Performance Review Process with the following components:

  • Each director will, on an annual basis, be afforded a reasonable time to assess the overall performance of the Board of Directors.
  • Each assessment will attempt to strike a balance between numerical and narrative evaluation.
  • After the assessments are collected, they will be provided to outside legal counsel who will report the results to the full Board of Directors without attributing opinions, comments or positions to a specific director.

The Board of Directors Performance Review Process covering performance in fiscal 2004 was initiated in April 2004 and was based on a program recommended by the Nominating and Corporate Governance Committee. The Board may also consider such other components, in addition to the ones listed above, as it may determine are in the best interest of Macromedia and its stockholders.

Stockholder Proposals

Stockholders wishing to submit proposals on matters appropriate for stockholder action to be presented at Macromedia's annual meeting of stockholders may do so in accordance with Rule 14a-8 promulgated under the Exchange Act. For such proposals to be included in Macromedia's proxy materials relating to its 2005 annual meeting of stockholders, all applicable requirements of Rule 14a-8 must be satisfied and such proposals must be received by the Company at its principal executive offices no later than February 18, 2005.

Stockholders wishing to bring a proposal before the 2005 annual meeting of stockholders (but not include it in the Company proxy materials), in accordance with Macromedia's bylaws, must provide written notice of such proposal to the Secretary of the Company at the principal executive offices of the Company no earlier than April 8, 2005 and no later than May 9, 2005.