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.
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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
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PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
BRODERBUND SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
February 28, 1997 August 31, 1996
----------------- ---------------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes.
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BRODERBUND SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
February 28 and 29, February 28 and 29,
--------------------------- ---------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
See accompanying notes.
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BRODERBUND SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
February 28 and 29,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
See accompanying notes
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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.
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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:
<TABLE>
<CAPTION>
Three months ended Six months ended
February 28 and 29, February 28 and 29,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
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%
==== ==== ==== ====
</TABLE>
7
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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)
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INDEX OF EXHIBITS
Sequentially
Exhibit Numbered
Number Page
Employment Agreement 19
Amended and Restated Bylaws 24
18
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.
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(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
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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
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).
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(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.
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(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
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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.
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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
<PAGE>
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
<PAGE>
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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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