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Filed Pursuant to Rule 424(b)(1)
Registration Number 333-10009
SOFTKEY INTERNATIONAL INC.
1,123,998 SHARES
COMMON STOCK
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This Prospectus relates to the registration of 1,123,998 shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
SoftKey International Inc. ("SoftKey" or the "Company"). The Shares may be
offered and sold from time to time for the account of certain stockholders of
the Company (the "Selling Stockholders") and represent (i) 752,275 issued and
outstanding shares held by the Selling Stockholders, and (ii) 371,723 additional
shares of Common Stock which may be issued to certain of the Selling
Stockholders (the "Earn Out Shares"), in each case pursuant to the terms of the
Stock Purchase Agreement (as defined herein) between the Company and the Selling
Stockholders. See "Selling Stockholders" and "Plan of Distribution." The Shares
may be offered and sold in transactions quoted on the Nasdaq National Market
(the "NNM"), in negotiated transactions, at fixed prices which may be changed,
at market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. See "Plan of Distribution." The Selling
Stockholders and any agents or broker-dealers that participate with any of the
Selling Stockholders in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by the Selling Stockholders and
any profit on the resale of the Shares may be deemed to be underwriting
commissions or discounts under the Securities Act. See "The Selling
Stockholders" and "Plan of Distribution." The Company will not receive any of
the proceeds from the sale of the Shares.
The Common Stock is traded on the NNM under the symbol "SKEY." On August
14, 1996, the last reported sale price of the Common Stock on the NNM was
$18 1/2 per share.
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
August 15, 1996
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices at Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, material filed by the
Company can be inspected at the offices of The Nasdaq Stock Market, Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006. In addition, the Company
is required to file electronic versions of these documents with the Commission
through the Commission's Electric Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at http:/
/www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Shares to be offered
and sold by means of this Prospectus. This Prospectus omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto in accordance with the rules and regulations of the
Commission. For further information regarding the Company and the Shares offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith, which may be inspected without charge at the office
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies
of which may be obtained from the Commission at prescribed rates. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated herein by reference and made a part hereof, each of
which is on file with the Commission, (i) the Annual Report on Form 10-K of the
Company for the fiscal year ended January 6, 1996, (ii) the Current Report on
Form 8-K/A of the Company dated January 25, 1996, (iii) pages 72 through 77
(inclusive) of the Joint Proxy Statement-Prospectus of the Company dated April
11, 1996, (iv) the Quarterly Report on Form 10-Q of the Company for the quarter
ended April 6, 1996, (v) Amendment No. 1 to the Annual Report on Form 10-K/A of
the Company dated May 15, 1996, (vi) the Current Report on Form 8-K of the
Company dated May 21, 1996 and (vii) the description of the Common Stock
contained in the Company's registration statement filed pursuant to Section
12(g) of the Exchange Act, including any amendments or reports filed for the
purpose of updating such description filed by the Company.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the Shares hereby shall be deemed to be incorporated herein by reference and
shall be a part hereof from the date of the filing of such documents. Any
statements contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or replaced for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or replaces such statement. Any such statement so
modified or replaced shall not be deemed, except as so modified or replaced, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of the documents incorporated by reference
herein, other than exhibits to such documents not specifically incorporated by
reference. Such requests should be directed to SoftKey International Inc., One
Athenaeum Street, Cambridge, Massachusetts 02142, Attention: Secretary
(telephone: (617) 494-1200).
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PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus and in the documents, consolidated financial statements and related
notes thereto and other information incorporated by reference herein. See "Risk
Factors."
THE COMPANY
General. SoftKey is a developer and publisher of high-quality consumer
software for personal computers ("PCs"), primarily produced on CD-ROM. The
Company currently offers over 500 software titles in consumer-oriented
categories, including education, lifestyle, edutainment, reference, productivity
and, to a lesser extent, entertainment, in North America. The Company
distributes additional products internationally. The Company's products include
titles such as: Calendar Creator Plus[Trademark], Infopedia[Trademark], SPORTS
ILLUSTRATED[Registered Trademark] Swimsuit Calendar, Time Almanac,
BodyWorks[Registered Trademark] 4.0, The American Heritage[Registered Trademark]
Talking Dictionary, PC Paintbrush[Registered Trademark], Key 3D Design
Center[Trademark] and Compton's Interactive Encyclopedia. The Company also
publishes lower priced boxed products under the "Key" brand and a line of
jewel-case only products under the "Platinum" brand. The Company's educational
products are classified into several product "families," including those in The
Learning Company's "Rabbit" family (including the Reader Rabbit Series),
"Treasure" family, "Super Solvers" family, "Writing Tools" family, "College
Prep" family and "Foreign languages" family and in those in Minnesota
Educational Computing Corporation's "Trail" family. The Company publishes school
editions of a number of these products.
SoftKey's objective is to be the leading worldwide producer of consumer
software. Accordingly, SoftKey's strategy is to develop, license and acquire a
broad range of high quality software products with significant unit-volume
potential and to continuously introduce these new products through a wide
variety of established and emerging distribution channels worldwide, including
retail channels, direct mail, original equipment manufacturers ("OEMs") and
school channels. Key elements of this strategy include focusing on high-growth
consumer software, including educational software, broadly distributing to the
consumer market at various price points, building strong relationships with
retail channels, acquiring complementary products, technologies and businesses
and enhancing brand awareness and customer loyalty.
On February 4, 1994, the Company, which was then known as WordStar
International Incorporated ("WordStar"), completed a three-way business
combination transaction with SoftKey Software Products Inc. ("Former SoftKey")
and Spinnaker Software Corporation ("Spinnaker"). Effective February 4, 1994,
the Company changed its name to SoftKey International Inc.
Recent Acquisitions. The Company has a history of acquiring companies in
order to broaden its product lines and geographic sales channels. In 1995, the
Company's acquisitions included, among others, The Learning Company, a publisher
of educational software, Compton's NewMedia, Inc. and Compton's Learning
Company, publishers of educational software and encyclopedia products (two
former wholly owned subsidiaries of Tribune Company), tewi Verlag GmbH, a German
publisher and distributor of CD-ROM software and computer-related books
("tewi"), and Future Vision Holding, Inc., a multimedia software company
("Future Vision"). In addition, the Company recently acquired Minnesota
Educational Computing Corporation (MECC) ("MECC"), a publisher and distributor
of high quality educational software for children, and Edusoft S.A., a French
publisher of educational and other consumer software ("Edusoft").
The Company's acquisitions of The Learning Company and MECC, which together
make the Company the largest educational software company in the world,
represent a new product-content focus for the Company's business in the
education area. The Company believes this new focus will likely result in, among
other things, significant investments by the Company in product planning and
research and development and a higher degree of product acceptance risk. In
order for the Company to sell a sufficient volume of products to offset the
increased costs associated with the development of educational software
products, the Company currently plans to continue its strategy of extending
product lines by offering multiple titles at various price points (including by
offering
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full-featured educational products in its Premium product line) based on a
common source code and to further expand its existing distribution channels.
The Company is incorporated in Delaware. Its principal executive offices
are located at One Athenaeum Street, Cambridge, Massachusetts 02142, and its
telephone number is (617) 494-1200. "SoftKey" and all of the Company's logos and
product names are trademarks of the Company.
RISK FACTORS
Prospective purchasers of the Shares offered hereby should carefully
consider the following risk factors, in addition to other information contained
or incorporated by reference in this Prospectus.
INTENSE COMPETITIVE ENVIRONMENT
The PC consumer software industry is intensely competitive and is
characterized by rapid changes in technology and customer requirements. The
changing nature of the consumer software industry and rapidly changing demand
for products make it difficult to predict the future success of the Company in
the business of producing packaged software products for the retail market. The
Company competes for retail shelf space and general consumer awareness with a
number of companies that market software products. The Company encounters
competition from both established companies, including the largest companies in
the industry, and new companies that may develop comparable products. A number
of the Company's competitors and potential competitors possess significantly
greater capital, marketing resources and brand recognition than the Company.
Rapid changes in technology, product obsolescence and advances in computer
software and hardware require the Company to develop or acquire new products and
to enhance its existing products on a timely basis. The Company's marketplace
has recently experienced a higher emphasis on on-line and Internet related
services and content tailored for this new delivery vehicle. To the extent that
demand increases for on-line products and content, the demand for the Company's
existing products and future performance may change. Furthermore, competitive
pressures have resulted in price reductions throughout the industry with the
result that industry-wide operating margins are likely to be adversely affected.
Many large companies with sophisticated product marketing and technical
abilities and financial resources that do not presently compete with the Company
may enter the PC software market. For example, technology companies have begun
to acquire greater access to content, and content-oriented companies have begun
to acquire greater technological capabilities. Competitors in these areas
include Microsoft Corporation, Mattel, Sony, The Walt Disney Company, Viacom,
IBM/Eduquest, Fisher-Price, Jostens, Electronic Arts, Sierra On-Line, Inc.,
Davidson & Associates, Mindscape, GT Interactive Software, Edmark and Broderbund
Software, Inc. To the extent that competitors achieve a performance, price or
distribution advantage, the Company could be adversely affected. Consolidation
in the consumer software industry creates new, larger competitors. For example,
CUC International Inc. recently announced proposed mergers with Sierra On-Line,
Inc. and Davidson & Associates. This increased consolidation of the consumer
software market may impact future growth potential and performance.
Microsoft Corporation is the dominant supplier of computer operating
systems and frequently coordinates its operating system marketing efforts with
those for its applications software. Competition in Microsoft's Windows
application segment from major software publishers is intensifying, and
"competitive upgrade" price discounting among the major firms is eroding the
traditional pricing structures that had previously existed in the software
industry. Microsoft launched the Windows `95 operating system in 1995. As a
result, the Company has embarked on a program to transition many of its titles
to Windows `95 format. In 1995, Microsoft Corporation announced that it was
reducing the price of a number of its common titles from $69.95 to $49.95.
There is no assurance that the Company will have the resources required to
respond to market or technological changes or to compete successfully in the
future.
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INTENSE COMPETITION FOR DISTRIBUTION CHANNELS
The Company competes with other companies for access to retail shelf space
and inclusion in OEM sales programs. Competition in this aspect of the industry
is intense, and the type and number of distribution channels is increasing to
include non-traditional software retailers such as book, music, video, magazine,
toy, gift, convenience, drug and grocery store chains. Additionally, as
technology changes, the type and number of distribution channels will further
change and new types of competitors, such as cable or telephone companies, are
likely to emerge.
The traditional channels of distribution in the software industry have
experienced increasing concentration during the past several years, in
particular with respect to PC chain stores and software distributors. With
increasing concentration in the traditional channels of distribution, the
Company's customers have increased leverage in negotiating favorable terms of
sale, including price discounts and product return policies. In addition, a
number of the Company's competitors, such as Davidson & Associates (through New
Media Express) and GT Interactive Software, have attempted, with some success,
to enter into exclusive software distribution arrangements with certain retail
outlets. If the occurrence of these exclusive arrangements increases and the
Company is not able to offer a competing product line or arrangement, the
Company's operating results may be negatively impacted. There can be no
assurance that the Company will be able to continue to have access to sufficient
retail marketing distribution channels or obtain adequate distribution for all
of its products in the future. Accordingly, such concentration may have an
adverse effect in the future on the profitability of the Company's operations.
Regardless of the retail strategy chosen by the Company, the retail
channels of distribution available for products will be subject to rapid changes
as retailers and distributors enter and exit the software market segments or
alter their product inventory preferences. Other types of retail outlets and
methods of product distribution may become important in the future. These new
methods may include delivery of software using on-line services or the Internet,
which will necessitate certain changes in the Company's business and operations,
including without limitation addressing operational challenges such as improving
download time for pictures, images and programs, ensuring proper regulation of
content quality and developing sophisticated security for transmitting payments.
Should on-line distribution channels increase, the Company will be required to
modify its existing technology bases in order for its products to be compatible
and remain competitive. It is critical to the success of the Company that, as
these changes occur, it maintain access to those channels of distribution
offering software in its market segments.
ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES
The Company has historically expanded its business through, among other
strategies, acquisitions, business combinations and strategic alliances.
Moreover, the consumer software industry as a whole has recently experienced
consolidation. The Company believes that its customers will in the future demand
that the Company offer increasing numbers of titles throughout the range of
product categories. The Company believes that in many cases the most efficient
means to acquire such titles or the ability to develop or license such titles is
to enter into acquisitions, business combinations or strategic alliances with
consumer software companies and others.
The Company continuously evaluates and considers other businesses of
varying sizes as potential strategic partners and candidates for acquisition
(whether negotiated or non-negotiated) and continuously engages in discussions
with certain businesses in pursuit of possible transactions. Certain of these
businesses may be substantial in size as compared to the Company. There can be
no assurance that the Company will enter into any such transaction or, if the
Company does identify and consummate such a transaction, that the transaction
will enable the Company to achieve its goals.
Acquisitions or business combination transactions that would result in
further expansion of the Company's business in the entertainment and educational
product areas may result in a higher degree of product acceptance risk and
longer development cycles for the Company's products. In addition, companies
that develop entertainment software (for PC, Sega, Nintendo and 3DO platforms)
typically experience lower gross margins than the Company has experienced from
its current operations. Further, should purchase accounting be used by the
Company for future acquisitions or business combination transactions, such
accounting treatment may result in large, one-time expense
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charges for in-process research and development costs and short amortization
periods for acquired technology and other intangible assets acquired in the
transaction.
Competition for suitable acquisitions, business combinations and strategic
alliances and the cost of these transactions have recently been increasing. The
future availability of desirable prospects for these transactions in the
computer software industry is uncertain. In addition, assuming that the Company
is able to identify appropriate transaction prospects, the execution and
implementation of acquisitions, business combinations and strategic alliances
involves a significant time commitment from senior management and can result in
large restructuring costs. There can be no assurance that suitable opportunities
will be identified, that transactions can be consummated or that assets,
businesses or relationships acquired in such transactions can be integrated
successfully into the Company's operations.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES; KEY EMPLOYEES
The Company is currently experiencing a period of exceptionally rapid
growth that is placing and will likely continue to place a strain on the
Company's financial, management and other resources in the future. The Company's
ability to continue to manage its growth effectively will require it, among
other things, to continue to improve its operational, financial and management
information systems and to continue to attract, train, motivate, manage and
retain key employees. If the Company's management becomes unable to manage
growth effectively, the Company's business, operating results and financial
condition could be adversely affected. For example, the Company has recently
completed the acquisition of The Learning Company, Compton's NewMedia, Compton's
Learning Company and MECC. Should certain key employees not be retained, future
operating results may be adversely affected.
Additionally, as a result of such acquisitions, the Company faces
challenges relating to integration of operations such as coordinating
geographically separate organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. The process of
combining organizations may cause an interruption of, or a loss of momentum in,
the activities of the Company's business, which could have an adverse effect on
the revenues and operating results of the Company, at least in the near term.
The ability of software companies with significant internal development and
marketing capabilities to continue to manage growth, develop competitive new
products and respond to rapid technological change depends on an ability to
attract, motivate, manage and retain talented developers, product marketers and
other employees with valuable technological and marketing expertise. The
Company's educational software products require a substantially larger internal
development and marketing staff than its operations had previously required. If
the Company is unable to attract, motivate, manage and retain such employees,
the Company's results of operations will likely be adversely affected.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
SoftKey operates in a highly competitive and technology driven environment.
The consumer software industry is undergoing substantial change and is subject
to a high level of uncertainty. Software companies must continue to develop or
acquire new products or upgrade existing products on a timely basis to sustain
revenues and profitable operations. Factors contributing to the short life span
of PC software have included rapid technological change and an expanded demand
for content-rich products. Software companies must continue to create or acquire
innovative new products reflecting technological changes in hardware and
software and translate current products into newly accepted hardware and
software formats, in order to gain and maintain a viable market for their
products. PC hardware, in particular, is steadily advancing in power and
function, expanding the market for increasingly complex and flexible software
products. This has also resulted in longer periods necessary for research and
development of new products and a greater degree of unpredictability in the time
necessary to develop products. Furthermore, the rapid changes in the market and
the increasing number of new products available to consumers have increased the
degree of consumer acceptance risk with respect to any specific title that the
Company may publish. It is expected that this trend will continue and may become
more pronounced in the future.
In the past, the Company focused primarily on the productivity, lifestyle
and edutainment product categories. These product categories have a lower
development cost and are not considered as "hit" driven as the high-end, 16-bit
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and 32-bit entertainment and games software category (including products offered
on the Sega, Nintendo and 3DO platforms) and the high-end, PC-based CD-ROM game
category. Additionally, the high-end entertainment and games category requires
higher development and marketing costs and a higher cost of goods sold than the
Company's traditional software business, is dominated by a number of very large
competitors and is subject to rapid change in consumer preference. Should the
Company substantially increase its presence in the high-end entertainment and
games industry segment, it will experience these additional risks and
competitive pressures.
Similarly, the Company's recent product-content focus and enhanced presence
in the educational software market have required the Company to evaluate and
adopt appropriate development and marketing strategies and methods, which differ
in certain respects from those historically employed by the Company and subject
the Company to the risks and competitive pressures associated with those new
strategies.
The Company's rights to license certain of its software products are
non-exclusive and, generally, of limited duration, and there is no assurance the
Company will be able to continue to obtain new products from developers or to
maintain or expand its market share in the event that a competitor offers the
same or similar software products. If the Company is unable to develop or
acquire new products in a timely manner as revenues decrease from products
reaching the end of their natural life cycle, the Company's results of
operations will be adversely affected.
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT
Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
high-quality educational software products for adequate levels of shelf space
and promotional support from retailers. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The amounts paid to retailers by software publishers for preferred shelf space
are customarily determined by an arms-length negotiation on a case by case
basis, and there is no general formula or industry standard for determining such
fees. Amounts typically paid by the Company for shelf space, cooperative
advertising, promotional costs and market developments funds represent
approximately 4-5% of gross sales. There can be no assurance that such retailers
will continue to purchase the Company's products, provide the Company's products
with adequate levels and quality of shelf space or continue to participate with
the Company in cooperative advertising, promotional or market development
arrangements.
SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE
Recently, several major publishers of PC software have significantly
reduced the prices of their products with the goal of gaining greater market
share. The retail and wholesale prices of many of the Company's products have
declined and the Company has introduced new lines of lower-priced software
products. There can be no assurance that such price reductions or new product
lines will result in an increase in unit sales volume or that prices will not
continue to decline in the future. Such a decline would lead to a decrease in
the revenues from, and gross margin on, sales of such products in the future and
could result in lower cash flow or operating margins.
RISK OF INTERNATIONAL OPERATIONS
The Company derived approximately 15% of its revenues in the year ended
January 6, 1996 from sales occurring outside North America. The Company's
international revenues increased by 96% in 1995 as compared to 1994. This
increase was driven by both the acquisition of tewi, a German company, on July
21, 1995 and increased penetration of personal computers in Europe, which in
turn caused an increase in demand for and sales of consumer software products.
International revenues should continue to increase as a result of the recent
acquisition of Edusoft. These revenues are subject to the risks normally
associated with international operations, including currency conversion risks,
limitations (including taxes) on the repatriation of earnings, slower and more
difficult accounts receivable collection, greater difficulty and expense in
administering business abroad, complications in complying with foreign laws and
the necessity of obtaining requisite export licenses, which on occasion may be
delayed or
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difficult to obtain. In addition, while U.S. copyright law, international
conventions and international treaties may provide meaningful protection against
unauthorized duplication of software, the laws of foreign jurisdictions may not
protect the Company's proprietary rights to the same extent as the laws of the
United States. Software piracy has been, and can be expected to be, a persistent
problem for participants in the "shrink-wrap" software industry, including the
Company. These problems are particularly acute in certain international markets
such as South America, the Middle East, the Pacific Rim and the Far East.
PROTECTION OF PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS
The Company relies on a combination of trade secret, copyright, trademark
and other proprietary rights laws and license agreements to protect its rights
to its software products and related documentation. The Company does not have
any patents. United States copyright law, international conventions and
international treaties, however, may not provide meaningful protection against
unauthorized duplication of the Company's software. The Company generally
licenses its externally developed products rather than transferring title and
has relied on contractual arrangements with recipients and users of its products
to establish certain proprietary rights and to maintain confidentiality of those
products protected by trade secret law. Consistent with standard industry
practice, the Company's products generally are licensed pursuant to
"shrink-wrap" licenses that are not signed by the licensee. The enforceability
of such licenses has not been conclusively determined. The Company's products do
not contain any mechanisms to prevent or inhibit unauthorized copying.
The Company has registered numerous trademarks in the United States and
Canada, and a smaller number in other countries, for titles or components of its
products and has trademark registrations pending in the United States and other
countries for various new products.
Policing unauthorized use of a broadly disseminated product such as PC
software is very difficult. Software piracy can be expected to be a persistent
problem for the "shrink-wrap" software industry. These problems are particularly
acute in certain international markets such as South America, the Middle East,
the Pacific Rim and the Far East.
The Company periodically receives communications alleging or suggesting
that its products may incorporate material covered by the copyrights, trademarks
or other proprietary rights of third parties. With the increased use of music
and animation in CD-ROM products and the increased number of software products
on the market generally, the Company is likely to experience an increase in the
number of infringement claims asserted against it in the future. With respect to
licensed products, the Company is generally indemnified against liability on
these matters. The Company's policy is to investigate the factual basis of such
communications and to resolve such matters promptly by enforcing its rights,
negotiating licenses (if necessary) or taking other appropriate actions.
In certain circumstances, litigation may be necessary to enforce the
Company's proprietary rights, to protect copyrights, trademarks and trade
secrets and other intellectual property rights owned by the Company or its
licensors, to defend the Company against claimed infringements of the rights of
others and to determine the scope and validity of the proprietary rights of the
Company and others. Any such litigation, whether with or without merit, could be
costly and a diversion of management's attention, which could have an adverse
effect on the Company's business, operating results or financial condition.
Adverse determinations in litigation relating to any of the Company's products
could result in the loss of the Company's proprietary rights, subject the
Company to liabilities, require the Company to seek licenses from third parties
or prevent the Company from selling that product.
DEPENDENCE ON MAJOR SUPPLIER
All duplication, assembly and fulfillment, with certain exceptions
(including CD-ROMs and products reproduced by OEMs), for all of the Company's
U.S. products are provided by one supplier, Stream International Inc., formerly
known as the Global Software Services business unit of R.R. Donnelley & Sons
Company ("Stream"), at facilities in Crawfordsville, Indiana. In July 1996,
Stream announced that it intends to close its Crawfordsville facilities and to
consolidate such operations at its facility in Orem, Utah. Any interruption in
Stream's manufacturing, assembly and fulfillment services caused by such
transition or otherwise could have a material adverse impact on
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the Company's business. The Company's agreement with Stream expires in April
1997, and there can be no assurance that such agreement will be renewed or that
the terms of any renewal will be the same as those currently in effect. Although
the Company believes that suitable alternative suppliers exist, there can be no
assurance that any termination or modification of the agreement with Stream
would not result in a short-term business interruption for the Company.
HISTORY OF OPERATING LOSSES
A variety of factors may cause period-to-period fluctuations in the
Company's operating results, including integration of operations resulting from
acquisitions of companies, products or technologies, revenues and expenses
related to the introduction of new products or new versions of existing
products, changes in selling prices, customer delays in purchases in
anticipation of upgrades to existing products, currency fluctuations, dealer and
distributor order patterns, general economic trends or a slowdown of PC sales
and seasonality of customer buying patterns. Historical operating results of the
Company and its predecessors cannot be relied upon as indicative of the future
performance of the Company. On an historical basis, the Company incurred net
losses of $57,250,000 for the year ended June 30, 1993 and $73,258,000 for the
transition period from July 4, 1993 to January 1, 1994 and $65,960,000 for the
year ended January 6, 1996 (after amortization of $18,229,000 of goodwill). The
Company had net income of $21,145,000 for the year ended December 31, 1994.
There can be no assurance that the Company will be profitable in the future.
CAPITAL RESOURCES
The expansion of the Company's current business involves significant
financial risk and capital investment. There is no assurance that financing will
be available in the future to meet the needs of the Company for additional
investment.
DEPENDENCE ON CONTINUED PERSONAL COMPUTER SALES
The success of the Company is dependent upon the continuing use of PCs, and
especially multimedia PCs, in the consumer and school market. A general decrease
in unit sales of PCs or shift to an alternative means of delivery could
adversely affect the Company's future results of operations.
VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the NNM. The market price of the Common
Stock, like that for the shares of many other high technology companies, has
been and may continue to be volatile. Recently, the stock market in general and
the shares of personal computer software companies in particular have
experienced significant price fluctuations. These broad market fluctuations, as
well as general economic and political conditions and factors such as quarterly
fluctuations in results of operations, the announcement of technological
innovations, the introduction of new products by the Company or its competitors
and general conditions in the computer hardware and software industries may have
a significant impact on the market price of the Common Stock. There can be no
assurance as to the effect of consummation of the recent acquisitions by the
Company on the market price of the Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares.
THE SELLING STOCKHOLDERS
Set forth below is certain information regarding the Selling Stockholders
and the Shares. At August 7, 1996, there were 42,742,843 shares of Common Stock
issued and outstanding. The Shares represent less than 3% of the Common Stock
outstanding as of August 7, 1996.
On August 12, 1996, the Company acquired all the outstanding shares of
Edusoft, a company organized and existing under the laws of France, pursuant to
a Stock Purchase Agreement, dated August 12, 1996 (the "Stock
<PAGE> 10
Purchase Agreement"), by and among SoftKey and the Selling Stockholders. The
table below sets forth certain information with respect to the Selling
Stockholders. Except as described below, none of the Selling Stockholders has
had any material relationship with the Company or any of its affiliates within
the past three years.
<TABLE>
<CAPTION>
Percentage
of Common
Stock of
the Company
Number of Number of owned by the
Shares of Shares of Selling Stockholders
Common Stock Common Stock --------------------------
owned by the Offered Before the After the
Name Selling Stockholders Hereby Offering Offering
---- -------------------- ------ -------- --------
<S> <C> <C> <C> <C>
Beaucour Investments BV 311,434 311,434 * 0
Societe Fabry 370,607 370,607 * 0
Michel Bussac(1) 441,957 441,957 1% 0
<FN>
- -------------
* Less than 1.0% of the number of shares of Common Stock outstanding.
(1) Pursuant to the Stock Purchase Agreement, Michel Bussac shall be
entitled to receive additional shares of the Company's Common Stock
in the event certain objectives are achieved following the closing of
the Company's acquisition of Edusoft S.A. The Shares offered and sold
hereby include 371,723 Earn-Out Shares, which represent shares of the
Company's Common Stock which may be issued to Bussac pursuant to the
Stock Purchase Agreement. Michel Bussac is employed by an affiliate of
the Company pursuant to the terms of an Employment Agreement, dated
August 12, 1996.
</TABLE>
Information concerning the Selling Stockholders may change from time to
time and any such changed information will be set forth on supplements to this
Prospectus if and when necessary.
PLAN OF DISTRIBUTION
GENERAL
The Company has been advised by the Selling Stockholders that, as of the
date hereof, they have not made any arrangement with any broker for the offering
or sale of the Shares. Brokers, dealers or agents may participate in such
transactions as agents and may, in such capacity, receive brokerage commissions
from the Selling Stockholders or from purchasers of such securities. Such
brokers, dealers or agents may also purchase and resell Shares for their own
account. The Selling Stockholders and such brokers, dealers or agents may be
considered "underwriters" as that term is defined by the Securities Act,
although each of the Selling Stockholders disclaims such status. Any
commissions, discounts or profits received by such brokers, dealers or agents in
connection with the foregoing transactions may be deemed to be underwriting
discounts and commissions under the Securities Act. Any broker or dealer may act
as a broker or dealer on behalf of one or more of the Selling Stockholders in
connection with the offering of certain of the shares by Selling Stockholders.
To comply with the securities laws of certain jurisdictions, if applicable,
the Shares will be offered or sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain jurisdictions, the
Shares may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or unless an exemption from such registration or
qualification is available and is complied with.
<PAGE> 11
Pursuant to applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may be limited in its ability to
engage in market activities with respect to such Shares. In addition and without
limiting the foregoing, the Selling Stockholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder which
may limit the timing of purchases and sales of the Shares. All of the foregoing
may affect the marketability of the Shares.
The Company has agreed to pay substantially all of the expenses incident to
the registration, offering and sale of the Shares to the public other than
commissions and discounts of agents or dealers. Such expenses (excluding such
commissions and discounts) are estimated to be approximately $155,203.
The Shares offered hereby may be offered and sold by the Selling
Stockholders from time to time in transactions on the NNM, in negotiated
transactions, at fixed prices which may be changed, at market prices prevailing
at the time of sale, at prices related to the prevailing market prices or at
negotiated prices. Such sales may be made pursuant to an underwritten offering
or pursuant to one or more of the following methods (among others): (a)
purchases by a broker-dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (b) ordinary brokerage transactions
and transactions in which a broker solicits purchasers; and (c) block trades in
which a broker-dealer so engaged will attempt to sell the Shares as agent but
may take a position and resell a portion of the block as principal to facilitate
the transaction.
The Selling Stockholders will act independently of the Company in making
decisions with respect to the timing, manner and size of each sale. Sales of the
Shares are, in general, expected to be made at the market price prevailing at
the time of each such sale; however, prices in negotiated transactions may
differ considerably.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Neal S. Winneg, General Counsel of the Company. Mr. Winneg owns
options to purchase an aggregate of 114,375 shares of Common Stock, which are or
become exercisable in periodic installments through February 1999.
EXPERTS
The consolidated financial statements and related schedule of the Company
as of and for the years ended January 6, 1996 and December 31, 1994, included in
the Company's Annual Report on Form 10-K for the year ended January 6, 1996,
have been audited by Coopers & Lybrand L.L.P., independent public accountants,
as set forth in their report therein dated February 20, 1996 and incorporated
herein by reference in reliance on such report, given on the authority of that
firm as experts in accounting and auditing. The consolidated statements of
operations, stockholders' equity (deficit) and cash flows and the related
financial statement schedule of the Company for the six-month transition period
from July 4, 1993 to January 1, 1994 and for the year ended June 30, 1993,
included in the Company's Annual Report on Form 10-K for the year ended January
6, 1996, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report therein dated January 16, 1995 and
incorporated herein by reference. In its report, Arthur Andersen LLP states that
with respect to the consolidated statements of operations, stockholders' equity
(deficit) and cash flows and the related financial statement schedule of
WordStar and Spinnaker for the year ended June 30, 1993, its opinion is based on
the reports of other independent accountants, namely KPMG Peat Marwick LLP and
Price Waterhouse LLP, respectively. The consolidated statements of operations,
stockholders' equity (deficit) and cash flows and the related financial
statement schedule of the Company have been included therein in reliance upon
the authority of those firms as experts in accounting and auditing. The report
of Price Waterhouse LLP on the consolidated financial statements of Spinnaker
for the year ended June 30, 1993 contains an explanatory paragraph relating to
Spinnaker's ability to continue as a going concern as described in Note 12 of
the consolidated financial statements of Spinnaker (not included herein).
The financial statements of MECC as of March 31, 1994 and March 31, 1995
and for each of the three years in the period ended March 31, 1995 incorporated
in this Prospectus by reference from the Company's Current Report
<PAGE> 12
on Form 8-K dated May 21, 1996, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon its authority as experts in accounting and auditing.
The combined financial statements of Compton's NewMedia, Inc. and Compton's
Learning Company as of December 25, 1994 and for the fiscal year then ended
included in the Current Report on Form 8-K/A of the Company dated January 25,
1996, incorporated by reference in this Registration Statement, have been
incorporated herein in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
<PAGE> 13
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No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or any Selling Stockholder. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby in any person to whom it is unlawful to
make such offer in such jurisdiction. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that the information herein is correct as of any time subsequent to
the date hereof or that there has been no change in the affairs of the Company
since such date.
---------------
TABLE OF CONTENTS
PAGE
----
Available Information.................................. 1
Documents Incorporated by Reference.................... 1
Prospectus Summary..................................... 2
Risk Factors........................................... 3
Use of Proceeds........................................ 8
The Selling Stockholders............................... 8
Plan of Distribution................................... 9
Legal Matters.......................................... 10
Experts................................................ 10
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1,123,998 SHARES
SOFTKEY
COMMON STOCK
----------
PROSPECTUS
----------
August 15, 1996
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