The original complaint alleges that during the class period Macromedia issued false and misleading statements about the success of Macromedia's principal products, business prospects, financial results, domestic and international sales, and other aspects of its business. These statements allegedly inflated Macromedia's stock price, enabling the company to complete an acquisition in exchange for 600,000 of the company's stock. Individual defendants also allegedly sold stock during the class period. On January 9, 1997 it was disclosed that Macromedia's sales and prices had decreased and that its expenses had increased.

As summarized by the Company's Form 10-Q dated August 14, 2000, on September 25, 1997, a complaint entitled City Nominees v. Macromedia, Inc et al., (Case No. C-97-3521-SC) was filed in the United States District Court for the Northern District of California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of Sections 10 and 20(a) of the Securities and Exchange Act of 1934 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding the Company's financial results and prospects. Plaintiffs seek to represent a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Three similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in United States District Court for the Northern District of California. All of these cases have been consolidated. Lead plaintiffs and lead counsel have been appointed under the provisions of the Private Securities Law Reform Act by the District Court. A consolidated complaint was filed in February 1998. Defendants moved to dismiss that complaint on the grounds that plaintiffs' claims were barred by the applicable statute of limitations. In May 1998, the United States District Court for the Northern District of California granted defendants' motion to dismiss with prejudice, and entered judgment in favor of defendants. Plaintiffs have appealed to the United States Court of Appeals for the Ninth Circuit, which reversed on April 21, 2000 and remanded the action to the District Court for further proceedings. On July 7, 2000, the District Court granted the plaintiff's motion to voluntarily dismiss the action without prejudice.

According to the Notice of Settlement dated October 17, 2001, a settlement in the amount of $48,000,000 in cash has been established for the State Action pending in the Superior Court of the State of California for the County of San Francisco, titled Rosen v. Macromedia, Inc., et al., Case No.: 988526. The proposed settlement includes the settlement of the Federal Action, which was voluntarily dismissed without prejudice on July 7, 2000, based on the fact that the State Actions sought redress on behalf of the same class as the Federal Actions, against the same defendants, based on the same allegedly wrongful conduct.

According to the Company’s Form 10-Q For the Quarterly Period Ended December 31, 2001, on January 9, 2002, the Superior Court for San Francisco, California entered a final judgment dismissing a complaint entitled Rosen et al. v. Macromedia, Inc. et al., (Case No. 988526) filed in the Court. The January 9, 2002 judgment implements a settlement under which the claims against us and all other defendants in the Rosen case and related state and federal cases were resolved without presumption or admission of any liability or wrongdoing. The Rosen complaint alleged that we and five of our former officers and directors engaged in securities fraud in violation of California Corporations Code Sections 25400 and 25500 by seeking to inflate the value of our stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding our financial results and prospects. The settlement amount is $48.0 million, of which approximately $19.5 million was paid by insurance, net of reimbursable legal fees and subject to a reservation by one insurer to seek reimbursement of its $5.0 million settlement contribution.