-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HuCRXtBj8gFoK2dP/fZvk7XrVUg7KOW52mmguf/n4JobujTsJMGyhEDGM8EKNmez N6VmyTsl/BYjm7LN+WLBNA== 0000891554-97-000386.txt : 19970415 0000891554-97-000386.hdr.sgml : 19970415 ACCESSION NUMBER: 0000891554-97-000386 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970414 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRODERBUND SOFTWARE INC /DE/ CENTRAL INDEX KEY: 0000812490 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942768218 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15811 FILM NUMBER: 97580296 BUSINESS ADDRESS: STREET 1: 500 REDWOOD BLVD CITY: NOVATO STATE: CA ZIP: 94948-6121 BUSINESS PHONE: 4153824400 MAIL ADDRESS: STREET 1: 500 REDWOOD BLVD CITY: NOVATO STATE: CA ZIP: 94948-6121 10-Q 1 QUARTERLY REPORT 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 February 28, 1997 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 number 0-15811 BRODERBUND SOFTWARE, INC. (Exact name of registrant as specified in its charter) Delaware 94-2768218 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 Redwood Blvd. Novato, CA 94948-6121 (Address of principal executive offices) Telephone Number (415) 382-4400 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 February 28, 1997 there were 20,754,555 shares of the Registrant's Common Stock Outstanding. 1 BRODERBUND SOFTWARE, INC. Table of Contents PART I. FINANCIAL INFORMATION Page ---- Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets At February 28, 1997 and August 31, 1996....................... 3 Condensed Consolidated Statements of Operations Three and Six Months Ended February 28 and 29, 1997 and 1996.................................................... 4 Condensed Consolidated Statements of Cash Flows Six Months Ended February 28 and 29, 1997 and 1996.......... 5 Notes to Condensed Consolidated Financial Statements.......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders........... 15 Item 6. Exhibits and Reports on Form 8-K.............................. 16 Signature.................................................................. 17 2 PART I -- FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements BRODERBUND SOFTWARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
February 28, 1997 August 31, 1996 ----------------- --------------- ASSETS Current assets: Cash and short-term investments $144,521 $150,893 Accounts receivable, net 13,164 5,956 Inventories 4,819 3,140 Deferred income taxes 22,228 15,057 Other current assets 1,038 869 -------- -------- Total current assets 185,770 175,915 Equipment and improvements, net 7,009 7,014 Purchased technology and advances, net 16,970 13,090 Investments in affiliates 4,300 4,053 Other assets 1,124 360 -------- -------- $215,173 $200,432 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,919 $ 4,442 Accrued compensation 6,375 8,794 Accrued income taxes 18,815 8,966 Other accrued expenses 12,187 11,220 -------- -------- Total current liabilities 46,296 33,422 Deferred income taxes 1,465 1,462 -------- -------- Total liabilities 47,761 34,884 Stockholders' equity: Common stock 27,552 31,383 Retained earnings 139,860 134,165 -------- -------- Total stockholders' equity 167,412 165,548 -------- -------- $215,173 $200,432 ======== ========
See accompanying notes. 3 BRODERBUND SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three months ended Six months ended February 28 and 29, February 28 and 29, --------------------------- --------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Net revenues $ 44,315 $ 48,044 $ 105,806 $ 119,005 Cost of revenues 15,258 15,035 37,435 39,955 --------- --------- --------- --------- Gross margin 29,057 33,009 68,371 79,050 Operating expenses: Sales and marketing 11,220 9,288 25,374 20,080 Research and development 9,527 7,576 17,240 15,013 General and administrative 3,610 2,929 6,517 5,761 Charge for acquired in-process technology and amortization 10,542 -- 11,564 -- --------- --------- --------- --------- Total operating expenses 34,899 19,793 60,695 40,854 --------- --------- --------- --------- Income (loss) from operations (5,842) 13,216 7,676 38,196 Interest and dividend income, net 1,524 1,697 3,073 3,008 Equity in earnings (loss) of joint venture -- 1,022 (603) 1,291 Terminated merger fee, net -- 15,464 -- 15,464 --------- --------- --------- --------- Income (loss) before income taxes (4,318) 31,399 10,146 57,959 Provision for income taxes (856) 12,560 4,713 23,184 --------- --------- --------- --------- Net income (loss) $ (3,462) $ 18,839 $ 5,433 $ 34,775 ========= ========= ========= ========= Net income (loss) per share $ (0.17) $ 0.87 $ 0.26 $ 1.61 ========= ========= ========= ========= Shares used in computing net income (loss) per share 20,601 21,559 21,128 21,641 ========= ========= ========= =========
See accompanying notes. 4 BRODERBUND SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended February 28 and 29, --------------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net income $ 5,433 $ 34,775 Adjustments to reconcile net income to net cash provided by operating activities: Equity in (earnings) loss of joint venture 603 (1,291) Depreciation and amortization 1,619 1,438 Deferred income taxes (5,666) (3,728) Charge for acquired in-process technology and amortization 11,564 -- Changes in operating assets and liabilities 4,590 20,986 --------- --------- Net cash provided by operating activities 18,143 52,180 Cash flows from investing activities: Additions to equipment and improvements (1,520) (2,371) Investments in affiliates (850) -- Purchase of Living Books, net of cash (7,594) -- Advance royalties (2,662) -- Other (613) (26) --------- --------- Net cash (used in) investing activities (13,239) (2,397) Cash flows from financing activities: Repurchase of common stock (12,453) -- Employee stock purchase plan 413 -- Exercise of stock options 672 1,197 Tax benefit of stock option exercises 217 1,084 --------- --------- Net cash provided by (used in) financing activities (11,151) 2,281 --------- --------- Translation adjustment (125) (145) --------- --------- Increase (decrease) in cash and short-term investments (6,372) 51,919 Cash and short-term investments, beginning of period 150,893 126,547 --------- --------- Cash and short-term investments, end of period $ 144,521 $ 178,466 ========= =========
See accompanying notes 5 BRODERBUND SOFTWARE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The condensed consolidated financial statements for Broderbund Software, Inc. (the "Company") for the three and six months ended February 28 and 29, 1997 and 1996 are unaudited and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report (Form 10-K) for the year ended August 31, 1996. The results of operations for the three months and six months ended February 28, 1997 are not necessarily indicative of the results for the entire fiscal year ending August 31, 1997. Note 2. Recently Issued Accounting Principles In October 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation" which will be effective for the Company's fiscal year ending August 31, 1997. SFAS No. 123 permits a company to choose either a new fair value based method or the current Accounting Principles Board Opinion No. 25 intrinsic value based method of accounting for its stock-based compensation arrangements. The Company has elected to continue to follow current practice but SFAS No. 123 requires pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied. In February 1997, the FASB issued Statement No. 128 (SFAS No. 128), "Earnings per Share" which will be effective for the Company's fiscal year ending August 31, 1998. SFAS No. 128 requires a change in the method currently used to compute earnings per share and that all prior periods be restated. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in primary earnings per share but the impact on the calculation of fully diluted earnings per share is not expected to be material. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with the consolidated financial statements and the notes thereto and in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report (Form 10-K) for the fiscal year ended August 31, 1996. This Quarterly Report on Form 10-Q, and in particular Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward looking statements regarding future events or the future performance of the Company that involve certain risks and uncertainties including, but not limited to, those discussed in "Factors Affecting Future Operating Results" below at pages 11 to 14, as well as in the Company's 1996 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission ("S.E.C."). Actual events or the actual future results of the Company may differ materially from any forward looking statements due to such risks and uncertainties. The Company assumes no obligation to update these forward looking statements to reflect actual results or changes in factors or assumptions affecting such forward looking assumptions. This analysis is provided pursuant to applicable S.E.C. regulations and is not intended to serve as a basis for projections of future events. RESULTS OF OPERATIONS The following table sets forth certain consolidated statement of income data as a percentage of net revenues for the periods indicated:
Three months ended Six months ended February 28 and 29, February 28 and 29, ------------------ ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Net revenues 100% 100% 100% 100% Cost of revenues 34% 31% 35% 34% ---- ---- ---- ---- Gross margin 66% 69% 65% 66% Operating expenses: Sales and marketing 25% 19% 24% 17% Research and development 22% 16% 17% 13% General and administrative 8% 6% 6% 4% Charge for acquired in-process technology and amortization 24% -- 11% -- ---- ---- ---- ---- Total operating expenses 79% 41% 58% 34% ---- ---- ---- ---- Income (loss) from operations (13%) 28% 7% 32% Interest and dividend income, net 3% 3% 3% 3% Equity in earnings of joint venture -- 2% (1%) 1% Terminated merger fee, net -- 32% -- 13% ---- ---- ---- ---- Income (loss) before income taxes (10%) 65% 9% 49% Provision for income taxes (2%) 26% 4% 20% ---- ---- ---- ---- Net income (loss) (8%) 39% 5% 29% ==== ==== ==== ====
7 NET REVENUES The Company derives revenue from products which are published by Broderbund (published products) and products from other software developers which are distributed by Broderbund (affiliated label products). The Company sells its products in North America through distributors and retailers, as well as directly to consumers. The Company's international sales are derived from a foreign subsidiary and licensing arrangements with foreign distributors. Net revenues for the second quarter of fiscal 1997 were $44.3 million, a decrease of 8% from the $48.0 million recorded in the second quarter of fiscal 1996. For the first half of fiscal 1997 and 1996, net revenues were $105.8 million and $119.0 million, respectively, down 11%. The decrease in net revenues in these periods was largely a result of the Company's aggressive sales and marketing strategy of decreasing prices to increase unit volume and market share as further discussed below and in prior filings. Net revenues in the personal productivity category for the second quarter of fiscal 1997 were down 2% over the same period last year. The decrease in the productivity revenues during this second quarter compared to the second quarter of the prior year was primarily due to price reductions in The Print Shop(R) product line and increases to the return reserves taken in anticipation of future product returns resulting from the introduction of new product upgrades during the second quarter. The decrease in prices and additions to return reserves more than offset the increased revenue from the introduction of The Print Shop(R) PressWriter(TM) and released upgrades to The Print Shop(R) Deluxe III and The Print Shop(R) Ensemble(TM) III. For the quarter, unit volume increased 30% for this category over the same period last year. For year-to-date, the productivity category posted an 11% increase in net revenues over the first half of fiscal year 1996. Personal productivity comprised 51% of the Company's total net revenue for both the second quarter and first half of fiscal 1997. Net revenues in the entertainment category decreased 33% and 45% for the second quarter and the first half of fiscal 1997 compared to fiscal 1996, respectively, although unit volume increased by 18% for the second quarter of fiscal 1997 when compared to the second quarter of fiscal 1996. The decreases were primarily attributable to a decrease in revenues from Myst(R) due to reductions in pricing. The entertainment category contributed 15% and 14% toward the Company's total net revenues for the second quarter and first half of fiscal 1997, respectively. Net revenues in the education category for the second quarter and first half of fiscal 1997, increased 22% and 14%, respectively, over fiscal 1996. The increases in this category were primarily a result of the acquisition of Random House's 50% interest in the Living Books joint venture, which, prior to January 1, 1997, was reflected in the affiliated label category. The education category made up 25% and 22% of the Company's total net revenues for the second quarter and first half of fiscal 1997, respectively. Net revenues from sales of affiliated label products declined 34% and 42% for the second quarter and first half of fiscal 1997 compared to fiscal 1996, respectively. The decrease in the second quarter of fiscal 1997 was attributable to the decline in the Living Books affiliated label net revenue due to the acquisition of Random House's 50% interest in the Living Books joint venture, as well as significant decreases for the other affiliated label products. This category contributed 9% and 13% of the Company's total net revenues for the second quarter and first half of fiscal 1997, respectively. During the second quarter of fiscal 1997, the Company released a total of 12 new products, nine of which were published products and three of which were affiliated label products. In the same period of the prior year, the Company released ten new products, five of which were published products and five of which were affiliated label products. 8 COST OF REVENUES Cost of revenues includes cost of goods sold, royalties paid to developers and accrued technical support costs, which relate primarily to telephone support provided to consumers shortly after they purchase software. The Company does not capitalize software development costs as the impact on the financial statements would be immaterial. In the second quarter of fiscal 1997, the Company's gross margin was 66% compared to 69% in the second quarter of fiscal 1996. For the first half of fiscal 1997 and 1996, gross margin was 65% and 66%, respectively. The decrease in gross margins for such periods was primarily due to the impact of lower prices on revenues; however this decrease was partially offset by an increase in the mix of published products, which carry a higher gross margin, versus affiliated label products. The Company currently expects the gross margin to increase as net revenues from affiliated label products should continue to be less than the prior year primarily as a result of the acquisition of Random House's 50% interest in the Living Books joint venture. However, there can be no assurance that the Company will be able to increase the gross margin as the Company will continue to be pressured by lower retail sales prices as compared to the previous year. SALES AND MARKETING Sales and marketing expenses increased 21% to $11.2 million in the second quarter of fiscal 1997 from $9.3 million in the second quarter of fiscal 1996. Similarly for the first half of fiscal 1997, sales and marketing expenses increased 26% to $25.4 million from $20.1 million in the comparable period last year. The increase was primarily due to the Company's increased emphasis on advertising, promotions and other sales and marketing programs which resulted in additional expenditures for marketing programs with the Company's channel partners. In addition, the inclusion of sales and marketing expenses for Living Books for two months of the quarter due to the acquisition of Random House's 50% interest in the Living Books joint venture contributed to the increase in sales and marketing expenses for the second quarter. The Company also incurred additional expenses in order to monitor its channel partners' compliance with these programs and to track inventory levels at individual retail outlets. The intense competition for high quality and adequate levels of retail shelf space continues to increase as the number of software products increases. As a result, the Company believes that it may sustain, or incur increases in, these sales and marketing expenses in the future, particularly in the entertainment category where it is common for significant marketing costs to be incurred in advance of product release, in an effort to more clearly distinguish its products from its competitors' products and to obtain adequate shelf space. RESEARCH AND DEVELOPMENT Research and development expenses increased 26% to $9.5 million in the second quarter of fiscal 1997 from $7.6 million in the second quarter of fiscal 1996. Similarly for the first half of 1997, research and development expenses increased 15% to $17.2 million from $15.0 million for the same period in the prior year. The increase in the second quarter was partially attributable to the inclusion of research and development for two months of the quarter resulting from the acquisition of Random House's 50% interest in the Living Books joint venture, higher employee-related expenses from increased headcount as well as expanded localization efforts to adapt products for foreign markets and reserves against advance royalties, which were partially offset by lower bonus and profit sharing provisions due to the decline in profitability. In addition, the Company continues to invest in the development of CD-ROM based multimedia products which have the capacity for expanded sound, animation and information content. The development of products with more content increases research and development costs and in future periods, the development of products for emerging platforms, such as DVD, may cause development expenses to increase even further. To partially offset this increase in content costs, the Company has implemented proprietary development systems to reduce the number of programming hours required to bring a product to market on multiple platforms. 9 GENERAL AND ADMINISTRATIVE General and administrative expenses increased 23% to $3.6 million in the second quarter of fiscal 1997 from $2.9 million in the second quarter of fiscal 1996. General and administrative expenses increased 13% to $6.5 million in the first half of fiscal 1997 from $5.8 million in the same period in the prior year. The increases were due to the Company's increased staffing, increased insurance expense and the inclusion of general and administrative expenses for two months of the quarter due to the acquisition of Random House's 50% interest in the Living Books joint venture. CHARGE FOR ACQUIRED IN-PROCESS TECHNOLOGY AND AMORTIZATION As of January 1, 1997, the Company acquired Random House's 50% interest in the Living Books joint venture. The acquisition was accounted for under the purchase method of accounting and was accomplished by a combination of cash and restricted stock. In connection with the acquisition, a portion of the excess purchase price, approximately $9.5 million, was allocated to in-process technology. Prior to this date, the Company and Random House, Inc. were equal partners in a joint venture to publish Living Books(R) products. The Company is amortizing, over a three year period, the value of the technology purchased in the Company's acquisition of Random House's 50% interest in the Living Books joint venture in January 1997, and its acquisition of T/Maker Company in August 1996 and Banner Blue Software, Inc. in April 1995. NONOPERATING INCOME Nonoperating income includes equity in earnings of the Living Books joint venture through December 31, 1996. The Company reported its 50% share in earnings and losses of the Living Books joint venture under the equity method of accounting through December 31, 1996. The Company's share was based on the joint venture's most recent quarter-end results, which were reported on a calendar year basis. The Company's equity in the joint venture resulted in losses of $0.6 million and earnings of $1.3 million for the first half of fiscal 1997 and 1996, respectively. Also included in nonoperating income is interest and dividend income and other nonrecurring items. Interest and dividend income was $1.5 million and $1.7 million in the second quarter of 1997 and 1996, respectively. Interest and dividend income was $3.1 million and $3.0 million in the first half of 1997 and 1996, respectively. In the second quarter of fiscal 1996, the Company received a one-time payment of $18.0 million in conjunction with a terminated merger. The Company recorded a pretax gain of $15.5 million, net of expenses related to the terminated merger. PROVISION FOR INCOME TAXES The Company's effective income tax rate decreased to 19.8% for the second quarter of fiscal year 1997. The decline was due to the impact of the in-process technology write-off, excluding this write-off the tax rate would have been 38.5% for the second quarter, down from 40.0% in the second quarter and first half of fiscal 1996. This was primarily a result of higher tax exempt income as a percentage of pre-tax earnings. NET INCOME Net loss was $3.5 million or $0.17 per share in the second quarter of fiscal 1997 compared with net income of $18.8 million or $0.87 per share for the same period in 1996. Excluding a one-time pretax charge of $9.5 million resulting from the acquisition of Living Books, net income for the second quarter of fiscal 1997 totaled $3.2 million or $0.15 per share. Excluding the one-time gain in the 10 second quarter of fiscal 1996 related to a break-up fee received in a terminated merger, net income for the quarter was $9.6 million or $0.45 per share. For the first half of fiscal 1997, net income was $5.4 million or $0.26 per share compared with $34.8 million or $1.61 per share for fiscal 1996. Excluding the one-time charge resulting from the Living Books acquisition, net income for the six month period totaled $12.1 million or $0.57 per share. Excluding the one-time gain in the second quarter of fiscal 1996, net income for the six months ended February 29, 1996 was $25.5 million or $1.18 per share. LIQUIDITY AND CAPITAL RESOURCES To date, the Company's primary source of liquidity has been cash generated from operations. The Company's working capital decreased $3.0 million during the first half of fiscal 1997 to $139.5 million from $142.5 million at August 31, 1996. Cash and short-term investments decreased $6.4 million to $144.5 million at February 28, 1997 from $150.9 million at the end of the prior fiscal year. Accounts receivable, net of reserves, increased $7.2 million to $13.2 million at February 28, 1997, from $6.0 million at August 31, 1996. The decrease in cash and short-term investments was due to the purchase of Random House's share of the Living Books joint venture for approximately $7.6 million, net of the cash balance, during the second quarter and the purchase of 400,000 shares of the Company's common stock in the open market during the second quarter for approximately $12.5 million. These transactions were offset by strong cash collections in the first half of fiscal 1997 from products sold during the holiday selling season. Each year the Company experiences a seasonal fluctuation due to higher revenues generated by the holiday selling season, which increases the Company's receivables and working capital in the first half of the fiscal year, and temporarily requires some of the Company's available cash balances to fund operating activities. In the second half of the fiscal year, the Company expects to collect a substantial amount of the receivables generated during the first half of the fiscal year, thereby increasing cash and decreasing outstanding receivables. The Company uses its working capital to finance ongoing operations and to fund the expansion and development of its product lines. In addition, the Company evaluates from time to time acquisitions of products or companies that complement the Company's business. Management believes the existing cash and short-term investments balances and cash generated from operations will be sufficient to meet the Company's liquidity and capital needs for the coming year. FACTORS AFFECTING FUTURE OPERATING RESULTS Broderbund operates in a rapidly changing environment that is subject to many risks and uncertainties. Some of the important risks and uncertainties which may cause the Company's operating results to differ materially and/or adversely are discussed below and in the Company's Annual Report and Form 10-K for the 1996 fiscal year, both of which are on file with the S.E.C. FLUCTUATIONS IN PERFORMANCE AND OPERATING RESULTS The Company has experienced, and expects to continue to experience, significant fluctuations in operating results due to a variety of factors, including but not limited to, the rate of growth of the consumer software market, market acceptance of the Company's products or those of its competitors, the timing of new product introductions, expenses relating to the development and promotion of new product introductions, changes in pricing policies by the Company or its competitors, projected and actual changes in platforms and technologies, timely and successful adaptation to such platforms or technologies, the accuracy of forecasts of consumer demand, product returns, market seasonality, the timing of orders from major customers and order cancellations, and changes or disruptions in the consumer software distribution channels. 11 The Company's business has generally been highly seasonal, with net revenues and operating income normally highest in the first fiscal quarter during the calendar year-end holiday selling season, lower in the second fiscal quarter, and lowest in the seasonally slow third and fourth fiscal quarters. Although the Company had previously anticipated that its results may differ from that seasonal pattern with results more heavily weighted to the second half of the fiscal year, it now believes that, due to the delay in certain product development, the traditional seasonal pattern will likely continue for the 1997 fiscal year. The Company also believes that the market conditions which resulted in the year-over-year decline in revenues and profitability experienced in the first half of fiscal 1997 may continue in future periods. The Company has adjusted its sales and marketing strategy in an effort to increase prices on several products, and increase net revenues while maintaining the increases in unit volume and market share achieved during the last quarter. However, there can be no assurance that the Company will be successful in implementing the strategy, or that, if successfully implemented, such strategy will be effective or will generate or sustain revenue growth, unit volume or market share in the future. In addition to seasonal and product pricing factors, the Company anticipates that its quarterly results for the next two fiscal quarters will be affected by the timing and the number of new product releases or upgraded versions of existing products, as well as marketing and promotional expenditures in connection with the product releases and the timing of product announcements or introductions by the Company's competitors. Products are generally shipped as orders are received, therefore quarterly sales and operating results depend on the volume and timing of orders received during the quarter, which are difficult to predict. A significant portion of the Company's operating expenses are relatively fixed and planned expenditures are based on sales forecasts. Thus, if net revenue levels are below expectations due to either the timing of orders received or delays in product releases, operating results are likely to be materially adversely affected. Due to the foregoing factors, the Company believes that quarter to quarter comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Any significant shortfall in net revenues and earnings from the levels expected by securities analysts and stockholders could result in a substantial decline in the trading price of the Company's common stock. There can be no assurance that the Company's stock price will remain at or near its current level. Moreover, the Company's stock is subject to the volatility generally associated with technology stocks and may also be affected by broader market trends or the results reported by other market participants. For example, during the most recently completed fiscal year, the price per share of the Company's common stock ranged from $28.50 to $76.88 and in the first half of the current fiscal year ranged from $22.38 to $35.13. INDUSTRY AND COMPETITION Recent data indicates a slowdown in the growth of end user demand for consumer software for calendar year 1996 and the first two months of calendar year 1997 when compared to the same periods in prior years. There can be no assurance that such demand will not continue to slow or to decline. If such results persist, the Company's future growth in net revenues could be adversely affected. In addition, the intense competition in the consumer software business continues to accelerate as an increasing number of companies, many of which have financial, managerial, technical and intellectual property resources greater than those of the Company, offer products that compete directly with one or more of the Company's products. As a result, an increasingly large number of products are competing for limited shelf space. As discussed above and in prior filings, the Company decreased prices on a number of its products in order to increase market share including its best-selling series, The Print Shop, as well as Myst, which placed negative pressure on net revenues and gross margins. Although the Company is attempting to increase prices on certain products, there can be no assurance that its attempts will be successful or that product prices will not continue to decline as competition increases, and if such conditions persist, the Company's net revenues and profitability could be materially and adversely affected. Further, there can be no assurance that sales of the Company's existing products will continue to sustain market acceptance and to generate significant 12 levels of revenue in subsequent quarters or that a shortfall in revenue from any product could be replaced in a timely manner. In addition, sales of products on older platforms and in certain product lines have declined, and there can be no assurance that sales of these products will not decline further or experience lower than expected sales levels. Retailers of the Company's products typically have a limited amount of shelf space and promotional resources for which there is intense competition. For example, there are 19 products available from Living Books and it has become increasingly difficult to maintain shelf space in the retail channel for all of these products. There can be no assurance that retailers will continue to purchase all of these products or provide these products with adequate levels of shelf space and promotional support. In addition, competition for creative talent, including independent developers, has also intensified, and the attraction and retention of key personnel has become increasingly difficult. PRODUCTS AND PLATFORMS The Company's future success will depend in large part on its ability to develop and release new products on a timely basis and to achieve widespread market acceptance for such products. There can be no assurance that expected new product introductions will not experience material delays, that new products introduced by the company will achieve any significant degree of market acceptance, or that such acceptance will be sustained for any length of time. In addition, because the Company expects that the cost of developing and introducing new products will continue to increase, the financial risks associated with new product development will increase as will the risks associated with material delays in the introduction of such new products. The Company's increased focus and commitment towards the development and introduction of entertainment titles increases the risk associated with the development and marketing of products and their market acceptance since the entertainment sector is more hit-driven, with titles generally having a relatively shorter life-cycle. Further, the substantial year-over-year decline in Myst revenues during the second half of fiscal 1996 and first half of fiscal 1997 was not fully replaced, and there can be no assurance that the shortfall from the continuing decline in Myst revenues will be replaced in a timely manner. The Myst sequel product, Riven(TM), is not expected to be released in fiscal 1997. Although Riven is currently on schedule for commercial release in the first quarter of fiscal 1998, there can be no assurance that it will achieve widespread market acceptance or that its remaining development effort will not be delayed. In addition, the Company believes that electronic or internet products and services will become an increasingly important platform and distribution media. The Company's failure to timely and successfully adapt to and utilize such technologies could materially and adversely affect its competitive position and its fiscal results. DISTRIBUTION The distribution channels through which consumer software products are sold have been characterized by intense competition and continuing uncertainties, and there can be no assurance that distributors and retailers will continue to purchase the Company's products or provide the Company's products with adequate levels of shelf space and promotional support. There is increasing pressure from distributors and retailers to obtain marketing and promotional funds and discounts in connection with access to shelf space, in-store promotion and sale of products which has an adverse impact on the Company's net revenues and profitability, and there can be no assurance that these pressures will not continue or increase. In addition, certain distributors and retailers have experienced business difficulties and there can be no assurance such difficulties for these or additional distributors and retailers will not continue which could have an adverse effect on the operating results and financial condition of the Company. The Company also permits distributors and retailers to return products under certain circumstances, and the Company believes that the rate of product returns will increase as competition in the distribution channel increases and as mass merchants, office and warehouse stores become an increasing percentage of the Company's sales. The Company establishes 13 allowances based on estimated future returns of product after considering various factors, and accordingly, if the level of actual returns exceed management's estimates, it could have a material adverse impact on the Company's operating results. In addition, the Company manufactures its products based upon estimated future sales, and accordingly, if the level of actual orders of products fall short of management's estimates, inventory levels could be excessive which could lead to inventory write-offs and have an adverse impact on the Company's operating results. 14 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on January 23, 1997. The results of voting were as follows: Proposal 1: Election of Directors of the Company Nominee Votes For Votes Withheld ------- --------- -------------- Douglas G. Carlston 18,299,293 72,831 Edmund R. Auer 18,299,503 72,621 Gary L. Buckmiller 18,299,203 72,921 Scott D. Cook 18,299,103 73,021 Joseph P. Durrett 18,299,303 72,821 William P. Egan 18,299,503 72,621 David E. Liddle 18,299,603 72,521 William M. McDonagh 18,162,249 209,875 Lawrence H. Wilkinson 18,299,303 72,821 Proposal 2: Approval of the Company's 1996 Employee Stock Purchase Plan, including the reservation of 250,000 Shares of Common Stock for issuance Votes For: 13,270,965 Votes Against: 324,489 Votes Abstaining: 46,988 Broker Non-votes: 4,729,682 Proposal 3: Approval to Increase by 1,500,000 Shares the Number of Shares Authorized Under the Company's 1996 Employee and Consultant Stock Option Plan Votes For: 11,104,405 Votes Against: 2,178,470 Votes Abstaining: 69,871 Broker Non-votes: 5,019,378 Proposal 4: Ratification of Ernst and Young LLP as the Company's Independent Auditors Votes For: 18,065,444 Votes Against: 18,123 Votes Abstaining: 288,557 15 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Employment Agreement Amended and Restated Bylaws (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended February 28, 1997. 16 SIGNATURE 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. BRODERBUND SOFTWARE, INC. (Registrant) Dated: April 14, 1997 By: /s/ Michael J. Shannahan ------------------------------ Michael J. Shannahan Vice President and Chief Financial Officer (Principal Financial Officer) 17 INDEX OF EXHIBITS Sequentially Exhibit Numbered Number Page Employment Agreement 19 Amended and Restated Bylaws 24 18 EX-99 2 EMPLOYMENT AGREEMENT BRODERBUND SOFTWARE, INC. EMPLOYMENT AGREEMENT This Agreement is made by and between Broderbund Software, Inc. (the "Company"), and Joseph P. Durrett ("Executive"). The Agreement memorializes the agreement upon which the Company employed the Executive beginning October 1, 1996, the Executive's first date of employment. 1. Duties and Scope of Employment. (a) Position; Employment Commencement Date. The Company shall employ the Executive as the Chief Executive Officer of the Company reporting to the Board of Directors (the "Board") of the Company; provided, however, that the Board shall have the right to revise employee's duties, consistent with such position, from time to time as the Board may deem necessary or appropriate. Executive's employment with the Company pursuant to this Agreement commenced October 1, 1996. Additionally, it is intended that Executive serve as a member of the Board during the period of his employment hereunder, subject to election by shareholders of the Company. Executive shall not receive any additional compensation for his service as a Board member while he remains an employee of the Company. (b) Obligations. Executive shall devote his full business efforts and time to the Company. Executive agrees not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Board; provided, however, that Executive may serve in any capacity with any civic, educational or charitable organization without the approval of the Board, so long as such activities do not interfere with his duties and obligations under this Agreement. 2. Employee Benefits. During his employment hereunder, Executive and his family shall be eligible to participate in the employee benefit plans maintained by the Company to the full extent provided for under those plans and except as otherwise specifically provided for herein. 3. At-Will Employment. Executive and the Company understand and acknowledge that Executive's employment with the Company constitutes "at-will" employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, with or without good cause or for any or no cause, at the option either of the Company or Executive. 4. Compensation, Fringe Benefits and Stock Options. (a) Base Salary. While employed by the Company pursuant to this Agreement, the Company shall pay the Executive as compensation for his services a bi-weekly base salary of Fifteen Thousand Three Hundred Eighty-Four and 62/100 Dollars ($15,384.62) (annualized rate of $400,000) (the "Base Salary"). Such salary shall be paid periodically in accordance with normal Company payroll practices and subject to the usual, required withholding. Executive's salary shall be reviewed yearly for possible raises and/or bonuses in light of Executive's performance of his duties, as determined by the Board. Executive understands and agrees that neither his job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of this Agreement. (b) Stock Options. 19 (i) Initial Grant Subject to Board approval, Executive has been granted a stock option, which shall be, to the extent possible under the $100,000 rule of Section 422(d) of the Internal Revenue Code of 1986, as amended (the "Code") an "incentive stock option" (as defined in Section 422 of the Code) to purchase a total of 300,000 shares of Company Common Stock with a per share exercise price equal to 100% of the fair market value of such stock on the date of grant, which was October 1, 1996; the stock price on such date was $28.375. This option shall vest over five years as follows: 20% of the shares originally subject to the option shall vest one year from the date of hire and 20% of the shares originally subject to the option shall vest each year thereafter, conditioned upon Executive's continued employment with the Company as of each vesting date. This option grant is in all respects subject to the terms, definitions and provisions of the Company's Stock Option Plan (the "Option Plan") and the stock option agreement by and between Executive and the Company (the "Option Agreement"), both of which documents are incorporated herein by reference. (ii) Future Stock Grants. The current stock option program recommends an additional annual grant of a stock option for 50,000 shares of Company Common Stock, with a per share exercise price equal to 100 percent of the fair market value of such stock on the date of grant, to Executive after one year of employment. This grant may occur on an annual basis, typically in October, is subject to Board approval, and is conditioned upon Executive's continued employment with the Company. Such grants are in all respects subject to the terms, definitions and provisions of the Company's Stock Option Plan and any stock option agreement by and between Executive and the Company. (c) Incentive Bonus. Executive shall be eligible for an incentive bonus under the Company's Executive Bonus Plan. The bonus is scaled at 50% of base salary if the Company attains an annual growth rate of 30% on pretax income, net of bonuses and contributions. This bonus rate scales up (and down) if the Company exceeds (or falls short) of the planned growth rate. This bonus plan is reviewed by the Compensation Committee of the Company's Board each October. To be eligible to receive the bonus, Executive must be employed by the Company through the last day of the Company's fiscal year. This bonus, to the extent payable, shall be paid to Executive within ninety days of the end of the Company's fiscal year. (d) Relocation Expense Reimbursement. Executive agrees to maintain his principal residence within reasonable commuting distance of the Company's headquarters in Novato, California. The Company will reimburse Executive for all reasonable costs associated with Executive's relocation to California (including moving of household goods, house hunting trips for Executive and his family, and temporary housing arrangements for up to six months). Executive will be fully "grossed-up" by the Company for these reimbursements so that the economic effect to Executive is the same as if these reimbursements were provided to Executive on a non-taxable basis. 5. Expenses. The Company will pay or reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder in accordance with the Company's established policies. This shall include a one-time lump sum payment of One Hundred Thousand Dollars ($100,000), subject to applicable withholding, upon commencement of Executive's employment for the purpose of covering temporary living expenses and travel expenses for Executive and Executive's family to and from the East Coast. 6. Severance Benefits. If Executive's employment with the Company terminates other than voluntarily, or for "Cause" (as defined herein), or as a result of a change in control (as defined herein), then (i) Executive shall be entitled to receive continuing payments of severance pay (less applicable withholding taxes) at a rate equal to his base salary rate, as then in effect (but not less than $400,000 per year) for a period of 12 months from the date of such termination, and (ii) a bonus, scaled at 50% of base salary, for the year Executive is terminated. For this purpose, "Cause" is defined as (i) an act of dishonesty made by Executive in connection with Executive's responsibilities as an employee and intended to result in Executive's substantial personal enrichment, (ii) Executive's conviction of a felony, (iii) an act by Executive which constitutes gross misconduct and which is injurious to the Company, or (iv) Executive's continued substantial violations of his employment duties after Executive has received a written demand for performance from the Company which specifically sets forth the factual basis for the Company's belief that Executive has not substantially performed his duties. 7. Total Disability of Executive. Upon Executive's becoming totally disabled during the term of this Agreement, employment hereunder shall automatically terminate and all payments of compensation by the Company to Executive hereunder shall immediately terminate. Executive shall be deemed to be "totally disabled" ninety (90) days following written notice by the Company to Executive of such determination by an independent physician acceptable to the Board and Executive (which acceptance will not be unreasonably withheld); provided, however, that if Executive resumes work on a regular basis prior to the end of such 90 day period, Executive shall not be deemed to be "totally disabled." 8. Death of Executive. If Executive dies during the term of this Agreement, this Agreement shall terminate immediately. 9. Change of Control. In the event of a change of control of the Company, Executive's granted but unvested options will vest 100% subject, during the first six months of employment, to a total cap of appreciated value of One Million Dollars ($1,000,000) for each full month of employment prior to the effective date of the change of control. For purposes of this Agreement, "change of control of the Company" is defined as: a. Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 30% or more of the total voting power represented by the Company's then outstanding voting securities; or b. A change in the composition of the Board of Directors of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or c. The date of the consummation of a merger or consolidation of the Company with any other corporation that has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior 20 thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 10. Enforcement. The Parties agree that any and all disputes arising out of the terms of this Agreement, their interpretation, and any of the matters herein released, shall be subject to binding arbitration in Marin County before the American Arbitration Association under its Commercial Rules, or by a judge to be mutually agreed upon. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties agree that the prevailing party in any arbitration shall be awarded its reasonable attorney's fees and costs. 11. Assignment. This Agreement shall be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive following termination without cause. Any attempted assignment, transfer, conveyance or other disposition (other than as aforesaid) of any interest in the rights of Executive to receive any form of compensation hereunder shall be null and void. 12. Notices. All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given if delivered personally or three (3) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors in interest at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to the Company: Broderbund Software, Inc. 500 Redwood Boulevard Post Office Box 6121 Novato, CA 94948-6121 Attention: General Counsel If to Executive: Joseph P. Durrett at the last residential address known by the Company. 13. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 14. Entire Agreement. This Agreement, the Stock Option Plan, the Option Agreement, and the Proprietary Information Agreement represent the entire agreement and understanding between the Company and Executive concerning Executive's employment relationship with the Company, and supersede and replace any and all prior agreements and understandings concerning Executive's employment relationship with the Company. To the extent there is any conflict among the agreements referenced herein, the terms of this Agreement govern. 15. No Oral Modification, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged in writing signed by Executive and the Company. 16. Governing Law. This Agreement shall be governed by the laws of the State of California. 17. Effective Date. This Agreement is effective immediately after it has been signed. 18. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth below. BRODERBUND SOFTWARE, INC. By: __________________________ _______________________________________ Signature Title: _______________________ Date: ________________________ JOSEPH P. DURRETT _______________________________________ Signature Date: ________________________ 21 EX-99.1 3 AMENDED AND RESTATED BYLAWS AMENDED AND RESTATED BYLAWS OF BRODERBUND SOFTWARE, INC. REGISTERED OFFICE AND REGISTERED AGENT 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. The name of the registered agent of the corporation at such address shall be the Corporation Trust Company. 2. Other Offices. The corporation may also have offices at such other places, both within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. MEETINGS OF STOCKHOLDERS 3. Time and Place of Meetings. All meetings of the stockholders shall be held at such time and place, either within or without the State of Delaware, as shall be fixed by the Board of Directors and stated in the notice or waiver of notice of the meeting. 4. Annual Meeting. An annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such time and place as the Board of Directors shall each year designate. 5. Special Meetings. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of meeting, may be called only by the Chairman of the Board, the Chief Executive Officer, the President or the Board of Directors. No business may be conducted at a special meeting of stockholders except as specified in the notice of meeting delivered to the stockholders. 6. Notice. (a) Written notice of the place, date, and time of all meetings of the stockholders shall be given not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the corporation). 22 (b) When a meeting is adjourned to another place, date, or time, written notice need not be given of the adjourned meeting if the place, date, and time thereof are announced at the meeting at which the adjournment is taken and the adjournment is not for more than 30 days; provided, however, that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. 7. Nominations and Proposals. (a) The Board of Directors of the corporation may nominate candidates for election as directors of the corporation and may propose such other matters for approval of the stockholders as the board deems necessary or appropriate. (b) No nominations for director of the corporation by any person other than the Board of Directors shall be presented to any meeting of stockholders unless the person making the nomination is a record stockholder and shall have delivered a written notice to the Secretary of the corporation no later than the close of business 60 days in advance of the stockholder meeting or 10 days after the date on which notice of the meeting is first given to the stockholders, whichever is later. Such notice shall (i) set forth the name and address of the person advancing such nomination and the nominee, together with such information concerning the person making the nomination and the nominee as would be required by the appropriate Rules and Regulations of the Securities and Exchange Commission to be included in a proxy statement soliciting proxies for the election of such nominee, and (ii) shall include the duly executed written consent of such nominee to serve as director if elected, and (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholders. (c) No proposal by any person other than the Board of Directors shall be submitted for the approval of the stockholders at any regular or special meeting of the stockholders of the corporation unless the person advancing such proposal shall have delivered a written notice to the Secretary of the corporation no later than the close of business 60 days in advance of the stockholder meeting or 10 days after the date on which notice of the meeting is first given to the stockholders, whichever is later. Such notice shall set forth the name and address of the person advancing the proposal, any material interest of such person in the proposal, and such other information concerning the person making such proposal and the proposal itself as would be required by the appropriate Rules and Regulations of the Securities and Exchange Commission to be included in a proxy statement soliciting proxies for the proposal. 8. Quorum and Required Vote. 23 (a) At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote on the subject matter at the meeting, present in person or by proxy, shall constitute a quorum, unless or except to the extent that the presence of a larger number may be required by law. Except as may be required by law, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Where a separate vote by class is required by law, the affirmative vote of the majority of shares of such class present in person or represented by proxy at the meeting shall be the act of the class. (b) If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. (c) If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then, except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. (d) Except as may otherwise be provided in the certificate of incorporation or the last paragraph of this Section 8, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. At a stockholders' meeting at which directors are to be elected, or at elections held under special circumstances, a stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast). Each holder of stock of any class or series who elects to cumulate votes shall be entitled to as many votes as equals the number of votes which (absent this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes. Except as may otherwise be provided in the certificate of incorporation, effective upon such time as (i) shares of the capital stock of the corporation are designated as qualified for trading as National Market System securities on the National Association of Securities Dealers, Inc. Automated Quotation System (or any successor national market system) and the corporation has at least 800 holders of shares of its capital stock or (ii) at such time as the company becomes exempt from Section 2115 of the California corporation Code, the cumulative voting rights set forth in this Section 2.9 shall terminate. 9. Organization. Such person as the Board of Directors may have designated or, in the absence of such a person, the Chairman of the Board or the chief executive officer of the 24 corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. 10. Conduct of Business. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seen to him or her in order. 11. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedures established for the meeting. No proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. 12. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. BOARD OF DIRECTORS 13. Powers. The business and affairs of the corporation shall be managed by or under the direction of its Board of Directors. 14. Number and Term of Office. The number of directors who shall constitute the whole Board shall be nine (9). Each director shall be elected for a term of one year and until his or her successor is elected and qualified, except as otherwise provided herein or required by law. 15. Resignations. A director may resign at any time by giving written notice to the corporation and such resignation shall be effective when given unless the director specifies a later time. The resignation shall be effective regardless of whether it is accepted by the corporation. 16. Vacancies. If the office of any director becomes vacant by reason of death, resignation, disqualification, removal or other cause, a majority of the directors remaining in office, although less than a quorum, may elect a successor for the unexpired term and until his or her successor is elected and qualified; provided, however, that if the vacancy is caused by the removal of a director by the stockholders, then the stockholders shall have the right to elect a successor. 25 17. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. 18. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, the Secretary, any Vice President or any two directors. 19. Notice of Meetings. (a) Special meetings, and regular meetings not fixed as provided in these Bylaws, shall be held upon four days notice by mail or 48 hours notice delivered personally or by telephone or facsimile to each director who does not waive such notice. The notice shall state the place, date and time of the meeting. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. (b) Notice of an adjourned meeting need not be given if the place, date, and time of the adjourned meeting are announced at the meeting at which the adjournment is taken and the adjournment is not for more than 24 hours. If a meeting is adjourned for more than 24 hours, notice of the adjourned meeting shall be given prior to the time of that adjourned meeting to the directors who were not present at the time of the adjournment. 20. Action Without Meeting. Except as required by law, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or committee thereof, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the Board of Directors or committee. 21. Meeting by Telephone. Except as required by law, members of the Board of Directors or any committee thereof may participate in the meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment if all persons who participate in the meeting can hear each other. Such participation in a meeting shall constitute presence in person at such meeting. 22. Quorum and Manner of Acting. At any meeting of the Board of Directors, a majority of the authorized directors shall constitute a quorum for all purposes. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Except as provided herein, the act of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. 23. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such 26 lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to approve a merger pursuant to Section 253 of the Delaware General Corporation Law, if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provides. The principles set forth in Sections 15 through 22 of these Bylaws shall apply to committees of the Board of Directors and to actions taken by such committees. 24. Compensation of Director. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof, and may receive fixed fees and other compensation for their services as directors. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 25. Approval of Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. OFFICERS 26. Titles. The officers of the corporation shall be chosen by the Board of Directors and shall include a Chairman of the Board, a President or both, and a Secretary, a Treasurer or both. The Board of Directors may also appoint one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers or other officers. Any number of offices may be held by the same person. All officers shall perform their duties and exercise their powers subject to the authority of Board of Directors. 27. Election, Term of Office, and Vacancies. The officers shall be elected annually by the Board of Directors at its regular meeting following the annual meeting of the stockholders, and each officer shall hold office until the next annual election of officers and until the officer's successor is elected and qualified, or until the officer's death, resignation, or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. Any vacancy occurring in any office may be filled by the Board of Directors. 27 28. Resignation. Any officer may resign at any time upon notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. The resignation of an officer shall be effective when given unless the officer specifies a later time. The resignation shall be effective regardless of whether it is accepted by the corporation. 29. Chief Executive Officer. The Board of Directors may designate either the Chairman of the Board or the President as the chief executive officer and may prescribe the duties and powers of the chief executive officer. In the absence of such a designation, the President shall be the chief executive officer. If there be no Chairman of the Board, the President shall be the chief executive officer. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the chief executive officer shall have the responsibility for the general management and control of the business and affairs of the corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts, and other instruments of the corporation which are authorized and shall have general supervision and direction of all of the other officers, employees, and agents of the corporation. 30. Secretary and Assistant Secretaries. The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe. At the request of the Secretary, or in the Secretary's absence or disability, any Assistant Secretary shall perform any of the duties of the Secretary and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Secretary. 31. Treasurer and Assistant Treasurers. Unless the Board of Directors designates another chief financial officer, the Treasurer shall be the chief financial officer of the corporation. Unless otherwise determined by the Board of Directors or the chief executive officer, the Treasurer shall have custody of the corporate funds and securities, shall keep adequate and correct accounts of the corporation's properties and business transactions shall disburse such funds of the corporation as may be ordered by the Board or the chief executive officer (taking proper vouchers for such disbursements), and shall render to the chief executive officer and the Board, at regular meetings of the Board or whenever the Board may require, an account of all transactions and the financial condition of the corporation. At the request of the Treasurer or in the Treasurer's absence or disability, any Assistant Treasurer may perform any of the duties of the Treasurer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. 32 Other Officers. The other officers of the corporation, if any, shall exercise such powers and perform such duties as the Board of Directors or the chief executive officer shall prescribe. 28 33 Compensation. The Board of Directors shall fix the compensation of the chief executive officer and may fix the compensation of other employees of the corporation, including the other officers. If the Board does not fix the compensation of the other officers, the chief executive officer shall fix such compensation. 34. Actions with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the Chairman of the Board, the President, or any officer of the corporation authorized by the Chairman of the Board or the President, shall have power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of stockholders of, or with respect to any action of stockholders of, any other corporation in which this corporation may hold securities and otherwise shall have power to exercise any and all rights and powers which this corporation may possess by reason of its ownership of securities in such other corporation. INDEMNITY 35 Indemnification of Directors and Officers. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 35, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 36. Indemnification of Others. The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 36, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 37. Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving 29 at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the General Corporation Law of Delaware. STOCK AND DIVIDENDS 38. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of, the corporation by the Chairman, the President, or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be facsimile. 39. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated to transfer shares of the stock of the corporation. Except where a certificate is issued in accordance with the next sentence of this Section, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. In the event of the loss, theft, or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft, or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. 40. Regulations. The issue, transfer, conversion, and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. RECORD DATE 41. Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action if no record date is fixed, the record date (1) for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business and the day next preceding the day on which the meeting is held, and (2) for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the 30 meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. WAIVER OF NOTICE 42. Waiver of Notice. Whenever notice is required to be given by law or these Bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless so required by the Certificate of Incorporation or these Bylaws, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. AMENDMENTS 43. Amendments. These Bylaws may be amended or repealed or new bylaws may be adopted by the stockholders at any meeting or by the Board of Directors. MISCELLANEOUS 44. Fiscal Year. The fiscal year of the corporation shall be as fixed by the Board of Directors. 45. Time Periods. In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. 46. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. 47. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. 31 48. Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser. * * * The undersigned hereby certifies that the foregoing Amended and Restated Bylaws were duly adopted by Broderbund Software, Inc. and are in full force and effect as of the date hereof. Date: October 8, 1996 ___________________________________ Thomas L. Marcus, Secretary Broderbund Software, Inc. 32 EX-27 4 FDS --
5 6-MOS AUG-31-1997 DEC-01-1996 FEB-28-1997 144,521 45,783 (32,619) 4,819 185,770 20,020 (13,011) 215,173 46,296 0 0 0 0 27,552 139,860 215,173 0 105,806 37,435 60,695 0 0 0 10,146 4,713 0 0 0 0 5,433 0.26 0.26
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