1.2.
REGISTRATION NO. 333-145
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SOFTKEY INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2562108
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
NEAL S. WINNEG
VICE PRESIDENT AND GENERAL COUNSEL
SOFTKEY INTERNATIONAL INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: ( )
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: (X)
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: ( )
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: ( )
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: ( )
CALCULATION OF REGISTRATION FEE
Amount Proposed Proposed
Title of Each Class to be Maximum Maximum Amount of
of Securities to be Registered Offering Aggregate Registration
Registered Price Offering Fee (1)
Per Security Price
5 1/2% Senior $350,000,000 100% $350,000,000 --
Convertible Notes
Due 2000
Common Stock, par 6,803,773(2) $15.44(3) $3,088,000(3) $1,070
value $.01 per
share
(1) A filing fee of $120,690 was previously paid in connection with the
initial filing of this Registration Statement relating to the
registration of $350,000,000 aggregate principal face amount of the
Registrant's 5 1/2% Senior Convertible Notes Due 2000 (the "Notes")
and the Registrant's Common Stock issuable upon conversion thereof.
A filing fee of $1,070 is being paid herewith pursuant to Rule 457(c)
under the Securities Act of 1933, as amended ("Rule 457(c)"), relating
to the registration hereunder of 200,000 additional shares of the
Registrant's Common Stock.
(2) Includes 6,603,773 shares of the Registrant's Common Stock issuable upon
conversion of the Notes, which number is based on a conversion price of
$53.00 per share, and is deemed to include any additional shares of Common
Stock that may be issuable upon conversion of the Notes as a result of the
antidilution provisions thereof.
(3) Estimated solely for purposes of calculating the registration fee
relating to the additional 200,000 shares of the Registrant's Common Stock
registered hereunder pursuant to Rule 457(c) based on the average of the
high and low prices per share of the Registrant's Common Stock reported on
the Nasdaq National Market on January 25, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to
be used in connection with the offer and sale, by the holders thereof, of
5 1/2% Senior Convertible Notes Due 2000 of SoftKey International Inc.
(the "Company") and the shares of common stock, par value $.01 per share,
of the Company (the "Common Stock") issuable upon conversion thereof (the
"Notes Prospectus") and the other to be used in connection with the offer
and sale, by a certain holder thereof, of Common Stock (the "Selling Holder
Prospectus"). The two prospectuses are identical except for the front and
back cover pages, the sections entitled "Selling Holders" and "Plan of
Distribution" and the absence from the Selling Holder Prospectus of the
"Offering" section of the "Prospectus Summary," certain risk factors
relating solely to the Notes in the section entitled "Risk Factors" and
the sections entitled "Description of Notes" and "Description of Capital
Stock" pursuant to Item 9 of Form S-3 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
SOFTKEY LOGO
$350,000,000
5 1/2% Senior Convertible Notes Due 2000
The 5 1/2% Senior Convertible Notes Due 2000 (the "Notes")
of SoftKey International Inc., a Delaware corporation ("SoftKey" or
the "Company"), and the shares of the Company's common stock, par
value $.01 per share (the "Common Stock" and together with the
Notes, the "Securities"), issuable upon conversion thereof, may be
offered for sale from time to time for the account of certain
holders of the Securities (the "Selling Holders") as described
under "Selling Holders." The Selling Holders may from time to time
sell the Securities offered hereby to or through one or more
underwriters, directly to other purchasers or through agents in
ordinary brokerage transactions, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale, at
prices related to then prevailing market prices or at negotiated
prices. See "Plan of Distribution."
The Notes will mature on November 1, 2000, unless
previously redeemed or converted. Interest on the Notes is payable
semi-annually on May 1 and November 1 each year commencing May 1,
1996. Holders of the Notes are entitled through November 1, 2000,
subject to prior redemption, to convert any Notes or portions
thereof into Common Stock at a conversion price of $53 per share,
subject to certain adjustments. See "Description of the Notes --
Conversion of Notes." The Notes have been designated for trading
in the Private Offerings, Resales and Trading through Automated
Linkages ("PORTAL") market. The Common Stock is quoted on the
Nasdaq National Market under the symbol "SKEY." On January 25,
1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $15 per share.
The Notes are redeemable, in whole or in part, at the
option of the Company, on or after November 2, 1998, at the
declining redemption prices set forth herein plus accrued interest.
In the event of a Change of Control (as defined herein), each
holder of Notes may require the Company to repurchase such holder's
Notes in whole or in part at a redemption price of 101% of the
principal amount thereof plus accrued interest. See "Description
of Notes -- Change of Control."
The Notes represent general unsecured obligations of the
Company. Because the Company's operations are conducted primarily
through its operating subsidiaries, claims of creditors and holders
of indebtedness of such subsidiaries have priority with respect to
the assets and earnings of such subsidiaries over the claims of
creditors of the Company, including holders of the Notes.
The Notes were originally issued by the Company on
October 17, 1995 in a transaction exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act").
The Company will not receive any of the proceeds from the
sale of any of the Notes or the Common Stock issuable upon
conversion thereof offered by the Selling Holders hereunder.
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SECURITIES OFFERED HEREBY.
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 AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
JANUARY 26, 1996
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.
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 Securities 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 Securities 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
The Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1994, all other reports filed by the
Company pursuant to Sections 13(a) or 15(d) of the Exchange Act
since December 31, 1994 and 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 amendment or
reports filed for the purpose of updating such description filed by
the Company, all of which are on file with the Commission, are
incorporated in this Prospectus by reference and made a part
hereof.
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 Securities hereunder 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).
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is
qualified in its entirety by the more detailed information and
consolidated financial statements and related notes incorporated by
reference in this Prospectus. The Securities offered hereby
involve a high degree of risk. See "Risk Factors."
THE COMPANY
General. SoftKey is a leading developer and publisher of
value-priced, 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 entertainment in North America and distributes
additional products internationally. The Company's products
include titles such as: Calendar Creator Plus , Infopedia , Sports
Illustrated Swimsuit Calendar, Time Almanac, BodyWorks 4.0, The
American Heritage Talking Dictionary, Leonardo -- the Inventor ,
PC Paintbrush , Key 3D Design Center and Compton's Interactive
Encyclopedia. As a result of the Company's recent acquisition of
The Learning Company, the Company added a number of educational
products, classified into several product "families," to its
offerings, including those in The Learning Company's "Rabbit"
family (Reader Rabbit 1, Reader Rabbit 2, Reader Rabbit 3, Reader
Rabbit's Ready for Letters, Reader Rabbit's Interactive Reading
Journey, Reader Rabbit's Reading Development Library, Math Rabbit
and MetroGnomes' Music), "Treasure" family (Treasure Mountain!,
Treasure MathStorm!, Treasure Cove! and Treasure Galaxy!), "Super
Solvers" family (Spellbound!, OutNumbered!, Midnight Rescues!,
Super Solvers Gizmos & Gadgets and Operation Neptune), "Writing
Tools" family (The Writing Center, The Children's Writing &
Publishing Center, Student Writing & Research Center with Compton's
Concise Encyclopedia and Read, Write & Type!), "College Prep"
family (ScoreBuilder for the SAT) and the "Foreign Languages"
family (the Learn to Speak . . . series, the Berlitz Think & Talk .
. . series, the Pronunciation Tutor . . . series and Vocabulary
Builder). School editions of certain of these products are also
now available through SoftKey. See "Recent Acquisitions."
The Company believes that in order to compete effectively,
successful companies will ultimately need to publish large numbers
of successful titles and introduce them to the market rapidly.
SoftKey's current product development strategy is to develop and
acquire products in high-growth categories for rapid release and
maintain development cycles that result in ongoing upgrades and
product rotations in short periods of time. This practice of
publishing a large number of titles in a broad range of categories
and refreshing those titles on an ongoing basis effectively reduces
the Company's dependence on any one "hit" title.
SoftKey's strategy is to develop, license and acquire a broad
range of quality software products with significant unit-volume
potential at the lowest possible cost and to continuously introduce
these new products through a wide variety of established and
emerging distribution channels worldwide, including retail
channels, direct mail and original equipment manufacturers
("OEMs"). Other key elements of this strategy include focusing on
high-growth consumer 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 loyalty.
The Company was created through a combination of three
corporations. 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.
SoftKey develops and publishes products through internal
development and licensing agreements with outside developers. The
Company's internal product development efforts are designed to
result in efficient and timely product introductions by focusing on
"core code" development. Where possible, the Company specifies,
develops and manages (or purchases) one base of source code from
which many products are created. The Company supplements its
development efforts through product acquisitions and royalty-
bearing licenses.
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,
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").
Additionally, the Company has entered into a definitive merger
agreement to acquire Minnesota Educational Computing Corporation
(MECC) ("MECC"), a publisher and distributor of high quality
educational software for children. The closing of this transaction
is subject to a number of conditions and approvals including the
approval of stockholders of each of MECC and the Company. There
can be no assurance that this transaction will be consummated.
The Company's acquisition of The Learning Company and proposed
acquisition of MECC, which together would 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,
SoftKey currently plans to continue its strategy of extending
product lines by offering multiple titles at various price points
(including by offering full-featured educational products in its
Premium product line) based on a common source code.
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.
THE OFFERING
Issuer . . . . . . SoftKey International Inc.
Securities Offered . $350,000,000 of 5 1/2% Senior Convertible Notes
due November 1, 2000 issued under an
indenture (the "Indenture") between SoftKey
and State Street Bank and Trust Company, as
trustee (the "Trustee"), and Common Stock
issuable upon conversion thereof.
Interest Payment May 1 and November 1 of each year, commencing
Dates . . . . . . . May 1, 1996.
Maturity . . . . . November 1, 2000.
Conversion Price . Convertible into Common Stock at $53 per
share, subject to adjustment as set forth
herein.
Redemption . . . . The Notes are redeemable, in whole or in
part, at the option of the Company, on or
after November 2, 1998, at the declining
redemption prices set forth herein plus
accrued interest.
Change of Control . In the event of a Change of Control, holders
of the Notes have the right to require that
the Company repurchase the Notes in whole or
in part at a redemption price of 101% of the
principal amount thereof plus accrued
interest. See "Description of Notes--Change
of Control."
Ranking . . . . . . The Notes are general unsecured obligations
of the Company and rank senior to or pari
passu with all existing and future unsecured
obligations of the Company. The Indenture
does not limit the amount of additional
indebtedness which the Company can create,
incur, assume or guarantee, nor does the
Indenture limit the amount of indebtedness
which any subsidiary of the Company can
create, incur, assume or guarantee.
Use of Proceeds . . The Company will not receive any of the
proceeds from the sale of any of the Notes or
the Common Stock issuable upon conversion
thereof.
Trading . . . . . The Notes have been designated for trading in
the PORTAL market. The Company intends to
apply to have the shares of Common Stock
issuable upon conversion of the Notes listed
on the Nasdaq National Market (the "NNM").
The Common Stock is quoted on the NNM under
the symbol "SKEY." On January 25, 1996 the
last reported sale price of the Common Stock
on the NNM was $15 per share.
RISK FACTORS
Prospective purchasers of the Securities 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.
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, Sony, The Walt Disney Company,
Viacom, IBM/Eduquest, Fisher-Price, Jostens, Electronic Arts,
Sierra On-Line, Inc., Davidson & Associates, Mindscape, 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.
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 the "competitive upgrade"
price discounting among the major firms is eroding the traditional
pricing structures that had previously existed in the software
industry. Recently, Microsoft Corporation announced that it was
reducing the price of a number of its common titles from $69.95 to
$49.95. Competitive pressures have resulted in price reductions
throughout the industry with the result that industry-wide
operating margins are likely to be adversely affected.
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.
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. Should the
occurrence of these exclusive arrangements increase and the Company
not be 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 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. 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 Company's existing
product categories and, in particular, the education and
entertainment 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.
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 has engaged in discussions with certain businesses in pursuit
of possible transactions. Certain of these businesses may be
substantial in size as compared to the Company. Except as
otherwise disclosed in this Prospectus, there are currently no
understandings, agreements or commitments with respect to any
acquisition, business combination or strategic alliance. Moreover,
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 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.
RISK OF NONPAYMENT
The Company anticipates that internally generated cash flow
will be sufficient to meet its operating expenses and to make
payments of interest under the Notes as they become due. There can
be no assurance, however, that the Company will generate sufficient
internal cash flow to cover all required interest payments on its
indebtedness, including that under the Notes.
To the extent that the Notes are not converted into Common
Stock prior to their maturity and the Company is unable to generate
sufficient cash flow from operations to cover its outstanding
obligations, the Company may be required to attempt to refinance
all or a portion of its then outstanding indebtedness under the
Notes, to dispose of assets or to seek additional financing. There
can be no assurance, however, that any necessary refinancing,
disposition of assets or additional financing will be available or
be able to be consummated on commercially reasonable terms.
MANAGEMENT OF GROWTH; 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 and Compton's Learning Company and has entered into a
definitive merger agreement with MECC. Should certain key
employees not be retained, future operating results may be
adversely affected.
The ability of software companies with significant internal
development 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 will require a substantially larger
internal development and marketing staff than its operations have
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
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.
The Company has in the past 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 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 new product-content focus and
enhanced presence in the educational software market will require
the Company to evaluate and adopt appropriate development and
marketing strategies and methods, which may differ 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 many 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.
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, to the extent that at least one
company (which is not a competitor of SoftKey) distributed its
product at no cost (except what it represented as shipping and
handling charges) in order to gain market share upon its entrance
into a new market. 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 10% of its revenues in the
year ended December 31, 1994 from sales occurring outside North
America. The Company believes that revenues from such
international sales in 1995 increased slightly and should continue
to increase in 1996 as a result of the Company's acquisition of
tewi in July 1995 and of Personal Soft S.A., a French societe
anonyme, in December 1995. 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 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 "shrinkwrap" 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.
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. Any interruption in
Stream's manufacturing, assembly and fulfillment services could
have a material adverse impact on 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, 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 $4,983,000 for
the year ended June 30, 1992, $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. The Company had net income of $21,145,000
for the year ended December 31, 1994 and $22,838,000 for the nine
months ended September 30, 1995. There can be no assurance that
the Company will continue to 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.
HOLDING COMPANY STRUCTURE
The Notes are obligations exclusively of the Company. Since
the operations of the Company are currently conducted primarily
through subsidiaries, the cash flow and the consequent ability to
service debt, including the Notes, of the Company, are dependent
upon the earnings of its subsidiaries and the distribution of those
earnings to, or upon loans or other payments of funds by those
subsidiaries to, the Company. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make
any funds available therefor, whether by dividends, loans or other
payments. In addition, the payment of dividends and the making of
loans and advances to the Company by its subsidiaries may be
subject to statutory or contractual restrictions, are dependent
upon the earnings of those subsidiaries and are subject to various
business considerations.
Any right of the Company to receive assets of any of its
subsidiaries upon their liquidation or reorganization (and the
consequent right of the holders of the Notes to participate in
those assets) is effectively subordinated to the claims of that
subsidiary's creditors (including trade creditors), except to the
extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be
subordinate to any security interests in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that
held by the Company.
Because the Company's operations are conducted primarily
through its operating subsidiaries, claims of holders of
indebtedness of such subsidiaries, as well as claims of trade
creditors of such subsidiaries, have priority with respect to the
assets and earnings of such subsidiaries over the claims of
creditors of the Company, including holders of the Notes. As of
December 31, 1995, there was approximately $6 million of
indebtedness and other obligations of subsidiaries of the Company
(excluding intercompany liabilities) outstanding as to which the
Notes were structurally subordinated. The Indenture does not limit
the amount of additional indebtedness which the Company can create,
incur, assume or guarantee, nor does the Indenture limit the amount
of indebtedness which any subsidiaries can create, incur, assume or
guarantee.
CHANGE OF CONTROL
The Indenture provides that holders of the Notes have the
right, in the event of a Change of Control, to require that the
Company repurchase the Notes in whole or in part at a redemption
price equal to 101% of the principal amount thereof plus accrued
interest. There can be no assurance that the Company will have the
financial resources necessary to purchase the Notes upon a Change
of Control. See "Description of Notes."
SECURITIES TRADING; VOLATILITY
The Notes have been designated for trading in the PORTAL
market, and the Common Stock is quoted on the NNM. The market
price of the Common Stock, like the shares of many other high
technology companies, has been and may continue to be volatile.
Volatility in the price of the Common Stock, changes in prevailing
interest rates and changes in perceptions of the Company's
creditworthiness may in the future adversely affect the price of
the Notes. In addition, the stock market has experienced and
continues to experience extreme price and volume fluctuations which
have particularly affected the market price for many technology
companies. These broad market fluctuations, as well as general
economic and political conditions, may adversely affect the market
prices of the Common Stock and the Notes.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Notes or the Common Stock issuable upon conversion thereof by the
Selling Holders.
THE SELLING HOLDERS
The Notes were initially issued and sold pursuant to a
Purchase Agreement dated as of October 17, 1995 between the
Company, on the one hand, and Bear, Stearns & Co. Inc. and
Montgomery Securities (together, the "Initial Purchasers"), on the
other hand. The Selling Holders acquired the Notes (a) from the
Initial Purchasers in transactions complying with Rule 144A,
Regulation D or Regulation S under the Securities Act or (b) in
other permitted resale transactions exempt from registration under
the Securities Act from the Initial Purchasers or holders who
acquired the Notes from the Initial Purchasers or other prior
holders thereof . The Company agreed to indemnify and hold the
Initial Purchasers harmless against certain liabilities under the
Securities Act that would arise in connection with the sale of the
Notes by the Initial Purchasers.
Except as otherwise indicated, the table below sets forth
certain information with respect to the Selling Holders and the
Securities as of December 18, 1995. The term Selling Holders
includes the beneficial owners of the securities listed below and
their transferees, pledgees, donees or other successors. Other
than as a result of the ownership of Securities indicated below,
none of the Selling Holders has had any material relationship with
the Company or any of its affiliates within the past three years.
Aggregate Number of Shares
Principal Amount of Common Stock
of Notes That May That May Be Sold*
Name Be Sold
Ashore & Co. . . . . . . $ 3,000,000 56,603
Bankers Trust Company(1). 48,000,000 905,660
Boston College
Endowment(2) . . . . . . 375,000 7,075
Bottle & Co. . . . . . . 4,750,000 89,622
BT Securities
Corporation(3) . . . . . 3,250,000 61,320
Central States Southeast
and Southwest Pension Fund . 1,250,000 23,584
Christian Science Peck
Management Stock . . . . . 125,000 2,358
Christian Science Trustees
for Gifts and Endowments . 125,000 2,358
Clarex Limited . . . . . 1,200,000 22,641
* Unless otherwise noted, the nature of beneficial ownership is
sole voting and/or investment power.
Aggregate Number of Shares
Principal Amount of Common Stock
of Notes That May That May Be Sold*
Name Be Sold
Columbus Life Insurance
Company . . . . . . . . . 2,175,000 41,037
Coutts & Co. AG - New York
Branch . . . . . . . . . 3,200,000 60,377
Custodial Trust Company . 3,010,000 56,792
Dean Witter Convertible
Securities Trust . . . . 5,795,000 109,339
Declaration of Trust for
Defined Benefit Plan of
ICI American Holdings Inc. . 700,000 13,207
Declaration of Trust for
Defined Benefit Plan of
Zeneca Holdings Inc. . . 455,000 8,584
Delaware State Employees'
Retirement Fund . . . . . 2,225,000 41,981
Delta Air Lines Master
Trust . . . . . . . . . . 2,895,000 54,622
Deutsche Morgan
Grenfell/C.J. Lawrence
Inc.(4) . . . . . . . . . 4,800,000 90,566
Dreyfus Growth and Income
Fund, Inc.(5) . . . . . 30,750,000 580,188
Eaton Vance Total Return
Portfolio . . . . . . . . 3,000,000 56,603
Fidelity Devonshire Trust:
Fidelity Equity-Income
Fund(6) . . . . . . . . . 4,030,000 76,037
Fidelity Financial Trust:
Fidelity Convertible
Securities Fund(6) . . . . 13,270,000 250,377
Fidelity Management Trust
Company, on behalf of
accounts managed by it(7) . 9,200,000 173,584
First Church of Christ,
Scientist - Endowments . . 210,000 3,962
First National Bank of
Omaha . . . . . . . . . . 715,000 13,490
Firstar Trust Company . . 1,000,000 18,867
General Motors Investment
Management Corporation . 19,545,000 368,773
George Eastman House
Endowment . . . . . . . . 100,000 1,886
Guardian Life Insurance
Co. of America . . . . . 9,500,000 179,245
Guardian Pension Fund . . 500,000 9,433
Hillside Industries
Corporate Account . . . . 150,000 2,830
Hillside Industries
Incorporated (Master
Trust) . . . . . . . . . 35,000 660
IDS Bond Fund, Inc.(8) . 11,250,000 212,264
IDS Extra Income Fund,
Inc.(8) . . . . . . . . . 2,000,000 37,735
IDS Life Managed Fund,
Inc.(8) . . . . . . . . . 8,000,000 150,943
IDS Life Special Income
Fund, Inc.(8) . . . . . 4,750,000 89,622
J.P. Morgan & Co.
Incorporated(9) . . . . . 15,000,000 283,018
Kellner, DiLeo & Co. . . 4,650,000 87,735
Lincoln National
Convertible Securities
Fund . . . . . . . . . . 2,430,000 45,849
Lincoln National Life
Insurance - Convertible
Securities Pool . . . . . 5,650,000 106,603
Mass. Mutual Corporate
Investors . . . . . . . . 630,000 11,886
Massachusetts Financial
Services Total
Return . . . . . . . . . 250,000 4,716
Massachusetts Pension
Reserves Investment
Management Board . . . . 2,080,000 39,245
McCullough, Andrews &
Cappiello, Inc. . . . . . 7,900,000 149,056
Mellon Bank, N.A. . . . . 1,250,000 23,584
Mercantile, Safe Deposit
and Trust Company . . . . 3,895,000 73,490
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated(10) . . . . 6,190,000 116,792
Montgomery Securities(11) . 2,860,000 53,962
Museum of Fine Art,
Boston(2) . . . . . . . . 165,000 3,113
New Hampshire Retirement
System(2) . . . . . . . . 980,000 18,490
Oaktree Capital Management
OCM Convertible Ltd . . . 250,000 4,716
OCM Convertible Trust . . 5,250,000 99,056
OCM Convertible L.P. . . 240,000 4,528
Pacific Horizon Capital
Income Fund . . . . . . . 1,100,000 20,754
PaineWebber Incorporated . 5,515,000 104,056
Phoenix Home Life . . . . 8,750,000 165,094
PNC Bank National
Association . . . . . . . 285,000 5,377
Putnam Balanced Retirement
Fund(12) . . . . . . . . 250,000 4,716
Putnam Convertible Income-
Growth Trust(12) . . . . . 8,050,000 151,886
Putnam Convertible
Opportunities and
Income Trust(12) . . . 895,000 16,886
Putnam High Income
Convertible and Bond
Fund(12) . . . . . . . . 2,000,000 37,735
Robertson, Stephens &
Company LLC(9) . . . . . 745,000 14,056
Rochester Fund Series -
The Bond Fund For Growth . 4,000,000 75,471
Royal Bank Investment
Management . . . . . . . 1,250,000 23,584
Sonem Partners Ltd. . . . 100,000 1,886
State Employees'
Retirement Fund of the
State of Delaware . . . . 1,035,000 19,528
Tennessee Consolidated
Retirement System . . . . 3,500,000 66,037
The TCW Group, Inc. . . . 6,720,000 126,792
Thermo Electron Corp.
Balanced Investment Fund . 275,000 5,188
Touchstone Portfolio
Growth & Income . . . . . 175,000 3,301
Touchstone Variable
Insurance Trust Growth &
Income 2 . . . . . . . . 150,000 2,830
TWA 401(k) - Balanced . 200,000 3,773
UBS Securities Inc. . . . 3,360,000 63,396
Union Bank . . . . . . . 265,000 5,000
Wagner, Stott & Co. . . . 5,650,000 106,603
Weirton . . . . . . . . . 670,000 12,641
Wells Fargo Bank,
N.A.(13) . . . . . . . . 4,000,000 75,471
Winchester Convertible
Plus Ltd. . . . . . . . . 500,000 9,433
________________
* Assumes a conversion price of $53.00 per share, and a cash payment
in lieu of any fractional share interest.
(1) Information is as of January 5, 1996. Bankers Trust Company
holds Notes solely as custodian or trustee for accounts over
which other persons exercise investment and voting discretion.
BT Securities Corporation is an affiliate of Bankers Trust
Company. Bankers Trust Company disclaims beneficial ownership
of Notes and shares of Common Stock listed herein as held in
its name or the name of BT Securities Corporation.
(2) Shares investment authority with The Putnam Advisory Company,
Inc., the investment adviser.
(3) Information is as of January 5, 1996. BT Securities
Corporation is an affiliate of Bankers Trust Company. BT
Securities Corporation disclaims beneficial ownership of all
Notes and shares of Common Stock listed as owned by Bankers
Trust Company.
(4) Information is as of January 15, 1996.
(5) Information is as of January 4, 1996.
(6) Each of such entities is either an investment company or a
portfolio of an investment company registered under Section 8
of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), or a private investment account
advised by Fidelity Management & Research Company ("FMR Co.").
FMR Co. is a Massachusetts corporation and an investment
advisor registered under Section 203 of the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and
provides investment advisory services to each of such entities
and to other registered investment companies and to certain
other funds which are generally offered to a limited group of
investors. FMR Co. is a wholly owned subsidiary of FMR Corp.
("FMR"), a Massachusetts corporation.
(7) Shares indicated as owned by such entity are owned directly by
various private investment accounts, primarily employee
benefit plans for which Fidelity Management Trust Company
("FMTC") serves as trustee or managing agent. FMTC is a
wholly owned subsidiary of FMR and a bank as defined in
Section 3(a)(6) of the Exchange Act .
(8) Each of these funds is an investment company registered under
the Investment Company Act and is a fund in the IDS Mutual
Fund Group (collectively, the "IDS Funds"). American Express
Financial Corporation, formerly known as IDS Financial
Corporation ("AEFC"), an investment adviser registered under
the Advisers Act , provides investment advisory services to
each of the IDS Funds and to certain other registered
investment companies. AEFC is a wholly owned subsidiary of
American Express Company. The information set forth in the
table with respect to each IDS Fund and the information set
forth in this footnote was provided by AEFC.
(9) Information is as of December 29, 1995
(10) Information is of January 8, 1996.
(11) Information is as of January 18, 1996.
(12) Shares investment authority with Putnam Investment Management,
Inc., the investment adviser.
(13) Information is as of January 5, 1996.
The preceding table has been prepared based upon information
furnished to the Company by the Depository Trust Company and by or
on behalf of the Selling Holders. Additional information
concerning ownership of the Securities offered hereby rests with
certain holders of the Securities who are not named in the
preceding table, with whom the Company believes it has no
affiliation and from whom the Company has received no response to
its request for such information.
In view of the fact that Selling Holders may offer all or a
portion of the Notes or shares of Common Stock held by them
pursuant to the offering contemplated by this Prospectus, and
because this offering is not being underwritten on a firm
commitment basis, no estimate can be given as to the amount of
Notes or the number of shares of Common Stock that will be held by
the Selling Holders after completion of the offering made hereby.
Information concerning the Selling Holders may change from
time to time and any such changed information will be set forth in
supplements to this Prospectus if and when necessary. In addition,
the per share conversion price, and therefor the number of shares
issuable upon conversion of the Notes, is subject to adjustment
under certain circumstances. Accordingly, the aggregate principal
amount of Notes and the number of shares of Common Stock issuable
upon conversion thereof offered hereby may increase or decrease.
As of the date of this Prospectus, the aggregate principal amount
of Notes outstanding is $350,000,000.
DESCRIPTION OF THE NOTES
The Notes are issued under an indenture dated as of October
16, 1995, as amended by the First Supplemental Indenture dated as
of November 22, 1995 (the "Indenture"), between the Company and
State Street Bank and Trust Company, as trustee (the "Trustee"). A
copy of the Indenture and such First Supplemental Indenture are
being filed with the Commission as exhibits to the Registration
Statement. The following summaries of certain provisions of the
Notes and the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and all the provisions of the Notes and the Indenture,
including the definitions therein of certain terms which are not
otherwise defined in this Prospectus and those terms made a part of
the Indenture by reference to the Trust Indenture Act. Wherever
particular provisions or defined terms of the Indenture (or of the
form of Notes which is a part thereof) are referred to, such
provisions or defined terms are incorporated herein by reference.
As used in this "Description of Notes," the "Company" refers to
SoftKey International Inc. and does not, unless the context
otherwise indicates, include its subsidiaries.
GENERAL
The Notes are general unsecured obligations of the Company
senior or pari passu in right of payment to all other unsecured
obligations of the Company as described below under the subheading
"Ranking" and are convertible into Common Stock as described below
under the subheading "Conversion of Notes." The Notes are limited
to $350,000,000 aggregate principal amount, have been issued in
fully registered form only in denominations of $1,000 or any
multiple thereof and will mature on November 1, 2000, unless
earlier redeemed at the option of the Company or at the option of
the holder thereof upon a Change of Control.
The Indenture does not contain any restrictions on the payment
of dividends, the repurchase of securities of the Company (other
than the Notes) or the incurrence of debt by the Company or any of
its subsidiaries.
The Notes bear interest from October 23, 1995 at the annual
rate set forth on the cover page hereof, payable semi-annually on
May 1 and November 1, commencing on May 1, 1996, to holders of
record at the close of business on the preceding April 15 and
October 15, respectively. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months.
Unless other arrangements are made, interest is paid by check
mailed to holders entitled thereto. Principal will be payable, and
the Notes may be presented for conversion, registration of transfer
and exchange, without service charge, at the office of the Trustee
in New York, New York.
CONVERSION OF NOTES
The holders of Notes are entitled at any time after 60 days
following the latest date of original issuance thereof through the
close of business on November 1, 2000, subject to prior redemption,
to convert any Notes or portions thereof (in denominations of
$1,000 or multiples thereof) into Common Stock, at the conversion
price set forth on the cover page of this Prospectus, subject to
adjustment as described below; provided that in the case of Notes
called for redemption, conversion rights will expire at the close
of business on the business day next preceding the date fixed for
redemption, unless the Company defaults in payment of the
redemption price. A Note (or portion thereof) in respect of which
a holder is exercising its option to require redemption upon a
Change of Control may be converted only if such holder withdraws
its election to exercise such option in accordance with the terms
of the Indenture. Except as described below, no adjustment will be
made on conversion of any Notes for interest accrued thereon or for
dividends on any Common Stock issued. If Notes not called for
redemption are converted after a record date for the payment of
interest and prior to the next succeeding interest payment date,
such Notes must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal
amount so converted. The Company is not required to issue
fractional shares of Common Stock upon conversion of Notes and, in
lieu thereof, will pay a cash adjustment based upon the market
price of the Common Stock on the last business day prior to the
date of conversion.
The conversion price is subject to adjustment (under formulae
set forth in the Indenture) upon the occurrence of certain events,
including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock; (ii) the issuance to all holders of
Common Stock of certain rights or warrants to purchase Common Stock
at less than the current market price; (iii) certain subdivisions,
combinations and reclassifications of Common Stock; (iv)
distributions to all holders of Common Stock of capital stock of
the Company (other than Common Stock) or evidences of indebtedness
of the Company or assets (including securities, but excluding those
dividends, rights, warrants and distributions referred to above and
dividends and distributions in connection with the liquidation,
dissolution or winding up of the Company and dividends and
distributions paid exclusively in cash); (v) distributions
consisting exclusively of cash (excluding any cash portion of
distributions referred to in clause (iv)) to all holders of Common
Stock in an aggregate amount that, combined together with all other
such all-cash distributions made within the preceding 12 months in
respect of which no adjustment has been made, exceeds 20% of the
Company's market capitalization (being the product of the then
current market price of the Common Stock times the number of shares
of Common Stock then outstanding) on the record date for such
distribution; and (vi) the purchase of Common Stock pursuant to a
tender offer made by the Company or any of its subsidiaries which
involves an aggregate consideration that, together with (x) any
cash and the fair market value of any other consideration payable
in any other tender offer by the Company or any of its subsidiaries
for Common Stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made and
(y) the aggregate amount of any such all-cash distributions
referred to in clause (v) above to all holders of Common Stock
within the 12 months preceding the expiration of such tender offer
in respect of which no adjustments have been made, exceeds 20% of
the Company's market capitalization on the expiration of such
tender offer. No adjustment of the conversion price will be made
for shares of Common Stock issued pursuant to a plan for
reinvestment of dividends or interest.
Except as stated above, the conversion price will not be
adjusted for the issuance of Common Stock or any securities
convertible into or exchangeable for Common Stock or carrying the
right to purchase any of the foregoing. No adjustment in the
conversion price will be required unless such adjustment would
require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be
required to be made shall be carried forward and taken into account
in any subsequent adjustment.
In the case of (i) any reclassification or change of the
Common Stock (other than changes in par value or from par value to
no par value or resulting from a subdivision or a combination) or
(ii) a consolidation or merger involving the Company or a sale or
conveyance to another corporation of the property and assets of the
Company as an entirety or substantially as an entirety, in each
case as a result of which holders of Common Stock shall be entitled
to receive stock, other securities, other property or assets
(including cash) with respect to or in exchange for such Common
Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares
of stock, other securities or other property or assets which they
would have owned or been entitled to receive upon such
reclassification, change, consolidation, merger, sale or conveyance
had such Notes been converted into Common Stock immediately prior
to such reclassification, change, consolidation, merger, sale or
conveyance assuming that a holder of Notes would not have exercised
any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith.
In the event of a taxable distribution to holders of Common
Stock (or other transaction) which results in any adjustment of the
conversion price, the holders of Notes may, in certain
circumstances, be deemed to have received a distribution subject to
the United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock.
The Company from time to time may to the extent permitted by
law reduce the conversion price by any amount for any period of at
least 20 days, in which case the Company shall give at least 15
days' notice of such decrease, if the Board of Directors of the
Company (the "Board of Directors") has made a determination that
such decrease would be in the best interests of the Company, which
determination shall be conclusive. The Company may, at its option,
make such reductions in the conversion price, in addition to those
set forth above, as the Company deems advisable to avoid or
diminish any income tax to its stockholders resulting from any
dividend or distribution of stock (or rights to acquire stock) or
from any event treated as such for income tax purposes.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the option of the Company
prior to November 2, 1998. At any time on or after that date, the
Notes may be redeemed at the Company's option on at least 30 but
not more than 60 days' notice, in whole at any time or in part from
time to time, at the following prices (expressed in percentages of
the principal amount), together with accrued interest to the date
fixed for redemption:
If redeemed during the 12-month period beginning:
Redemption
Year Price
November 2, 1998 . . . . . . . . 102.2%
November 1, 1999 . . . . . . . . 101.1%
and 100% at November 1, 2000.
If fewer than all the Notes are to be redeemed, the Trustee
will select the Notes to be redeemed in principal amounts of $1,000
or integral multiples thereof by lot or, in its discretion, on a
pro rata basis. If any Note is to be redeemed in part only, a new
Note or Notes in principal amount equal to the unredeemed principal
portion thereof will be issued. If a portion of a holder's Notes
is selected for partial redemption and such holder converts a
portion of such Notes, such converted portion shall be deemed to be
taken from the portion selected for redemption. No sinking fund is
provided for the Notes.
CHANGE IN CONTROL
Upon the occurrence of a Change of Control, each holder of the
Notes shall have the right to require that the Company repurchase
such holder's Notes in whole or in part in integral multiples of
$1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, together with accrued and unpaid
interest to the date of purchase, pursuant to an offer (the "Change
of Control Offer") made in accordance with the procedures described
below and the other provisions in the Indenture.
A "Change of Control" means an event or series of events in
which (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) acquires "beneficial
ownership" (as determined in accordance with Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the
total Voting Stock of the Company at an Acquisition Price (each
term as defined herein) less than the conversion price then in
effect with respect to the Notes and (ii) the holders of the Common
Stock receive consideration which is not all or substantially all
common stock that is (or upon consummation of or immediately
following such event or events will be) listed in a United States
national securities exchange or approved for quotation on the
Nasdaq National Market or any similar United States system of
automated dissemination of quotations of securities' prices;
provided, however, that any such person shall not be deemed to be
the beneficial owner of, or to beneficially own, any Voting Stock
tendered into a tender offer until such tendered Voting Stock is
accepted for purchase under the tender offer. "Voting Stock" means
stock of the class or classes pursuant to which the holders thereof
have the general voting power under ordinary circumstances to elect
at least a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time stock
of any other class or classes shall have or might have voting power
by reason of the happening of any contingency).
Within 30 days following any Change of Control, the Company
shall send by first-class mail, postage prepaid, to the Trustee and
to each holder of Notes, at such holder's address appearing in the
security register, a notice stating, among other things, that a
Change of Control has occurred, the purchase price, the purchase
date, which shall be a business day no earlier than 30 days nor
later than 60 days from the date such notice is mailed, and certain
other procedures that a holder of the Notes must follow to accept a
Change of Control Offer or to withdraw such acceptance.
The Company will comply, to the extent applicable, with the
requirements of Rule 13e-4 under the Exchange Act and other
securities laws or regulations in connection with the repurchase of
the Notes as described above.
The occurrence of certain of the events which would constitute
a Change of Control would constitute a default under the revolving
line of credit of SoftKey Inc., a wholly owned subsidiary of the
Company (the "Credit Facility"). Future indebtedness of the
Company may contain prohibitions of certain events which would
constitute a Change of Control or require the Company to offer to
redeem such indebtedness upon a Change of Control. Moreover, the
exercise by the holders of the Notes of their right to require the
Company to purchase the Notes could cause a default under such
indebtedness, even if the Change of Control itself does not, due to
the financial effect of such purchase on the Company. Finally, the
Company's ability to pay cash to holders of the Notes upon a
purchase may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be
available when necessary to make any required purchases.
Furthermore, the Change of Control provisions may in certain
circumstances make more difficult or discourage a takeover of the
Company and the removal of the incumbent management.
RANKING
The indebtedness evidenced by the Notes are senior unsecured
obligations of the Company. Because the Company's operations are
conducted primarily through its operating subsidiaries, claims of
holders of indebtedness of such subsidiaries, as well as claims of
trade creditors of such subsidiaries, have priority with respect to
the assets and earnings of such subsidiaries over the claims of
creditors of the Company, including holders of the Notes.
The Notes are obligations exclusively of the Company. Since
the operations of the Company are currently partially conducted
through subsidiaries, the cash flow and the consequent ability to
service debt, including the Notes, of the Company, are partially
dependent upon the earnings of its subsidiaries and the
distribution of those earnings to, or upon loans or other payments
of funds by those subsidiaries to, the Company. The subsidiaries
are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether by
dividends, loans or other payments. In addition, the payment of
dividends and the making of loans and advances to the Company by
its subsidiaries may be subject to statutory or contractual
restrictions, are dependent upon the earnings of those subsidiaries
and are subject to various business considerations.
Any right of the Company to receive assets of any of its
subsidiaries upon their liquidation or reorganization (and the
consequent right of the holders of the Notes to participate in
those assets) is effectively subordinated to the claims of that
subsidiary's creditors (including trade creditors), except to the
extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be
subordinate to any security interests in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that
held by the Company.
As of December 31, 1995, subsidiaries of the Company had
approximately $6 million of indebtedness outstanding (excluding
accrued interest thereon) as to which the Notes were structurally
subordinated. The Indenture does not limit the amount of
additional indebtedness which the Company can create, incur, assume
or guarantee, nor does the Indenture limit the amount of
indebtedness which any subsidiary can create, incur, assume or
guarantee.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company shall not consolidate with or merge with or into,
or convey, transfer or lease all or substantially all its assets to
any person unless: (i) either the Company is the resulting,
surviving or transferee person (the "Successor Company") or the
Successor Company is a person organized and existing under the laws
of the United States or any State thereof or the District of
Columbia, and the Successor Company (if not the Company) expressly
assumes by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations
of the Company under Indenture and the Notes, including the
conversion rights described above under "Conversion of Notes;" (ii)
immediately after giving effect to such transaction no Event of
Default has happened and is continuing; and (iii) the Company
delivers to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Indenture.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being:
default in payment of the principal of or premium, if any, on the
Notes; default for 30 days in payment of any installment of
interest on the Notes; default by the Company for 90 days after
notice in the observance or performance of any other covenants in
the Indenture; or certain events involving bankruptcy, insolvency
or reorganization of the Company. The Indenture provides that the
Trustee may withhold notice to the holders of Notes of any default
(except in payment of principal, premium, if any, or interest with
respect to the Notes) if the Trustee considers it in the interest
of the holders of the Notes to do so.
The Indenture provides that if any Event of Default shall have
occurred and be continuing, the Trustee or the holders of not less
than 25% in principal amount of the Notes then outstanding may
declare the principal of and premium, if any, on the Notes to be
due and payable immediately, but if the Company shall cure all
defaults (except the nonpayment of interest on, premium, if any,
and principal of any Notes which shall have become due by
acceleration) and certain other conditions are met, such
declaration may be cancelled and past defaults may be waived by the
holders of a majority in principal amount of Notes then
outstanding.
The holders of a majority in principal amount of the Notes
then outstanding shall have the right to direct the time, method
and place of conducting any proceedings for any remedy available to
the Trustee, subject to certain limitations specified in the
Indenture.
The Company shall furnish to the Trustee at least annually
evidence as to compliance with the terms of the Indenture.
SATISFACTION AND DISCHARGE; DEFEASANCE
The Indenture will cease to be of further effect as to all
outstanding Notes (except as to (i) rights of registration of
transfer and exchange and the Company's right of optional
redemption; (ii) substitution of apparently mutilated, defaced,
destroyed, lost or stolen Notes; (iii) rights of holders of the
Notes to receive payments of principal and interest on the Notes;
(iv) rights, obligations and immunities of the Trustee under the
Indenture; and (v) rights of the holders of the Notes as
beneficiaries of the Indenture with respect to the property so
deposited with the Trustee payable to all or any of them), if (A)
the Company will have paid or caused to be paid the principal of
and interest on the Notes as and when the same will have become due
and payable or (B) all outstanding Notes (except lost, stolen or
destroyed Notes which have been replaced or paid) have been
delivered to the Trustee for cancellation or (C)(x) the Notes not
previously delivered to the Trustee for cancellation will have
become due and payable or are by their terms to become due and
payable within one year or are to be called for redemption under
arrangements satisfactory to the Trustee upon delivery of notice
and (y) the Company will have irrevocably deposited with the
Trustee, as trust funds, cash, in an amount sufficient to pay
principal of and interest on the outstanding Notes, to maturity or
redemption, as the cause may be. Such trust may only be
established if such deposit will not result in a breach or
violation of, or constitute a default under, any agreement or
instrument to which the Company is party or by which it is bound
and the Company has delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all
conditions related to such defeasance have been complied with.
The Indenture will also cease to be in effect (except as
described in clauses (i) through (v) in the immediately preceding
paragraph) and the indebtedness on all outstanding Notes will be
discharged on the 123rd day after the irrevocable deposit by the
Company with the Trustee, in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the holders
of the Notes, of cash, U.S. Government Obligations (as defined in
the Indenture) or a combination thereof, in an amount sufficient,
in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof
delivered to the Trustee, to pay the principal of an interest on
the Notes then outstanding in accordance with the terms of the
Indenture and the Notes ("legal defeasance"). Such legal
defeasance may only be effected if (i) such deposit will not result
in a breach or violation of, or constitute a default under, any
agreement or instrument to which the Company is party or by which
it is bound; (ii) the Company has delivered to the Trustee an
opinion of counsel stating that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a
change in the applicable federal income tax law, in either case to
the effect that, based thereon, the holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge by the Company and
will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred; (iii) the
Company has delivered to the trustee an opinion of counsel to the
effect that after the 123rd day following the deposit, the trust
funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (iv) the Company has delivered to
the Trustee an Officer's Certificate and an opinion of counsel
stating that all conditions related to the defeasance have been
complied with.
The Company may also be released from its obligations under
the covenants described above under "Change of Control" and
"Merger, Consolidation and Sale of Assets" with respect to the
Notes outstanding on the 123rd day after the irrevocable deposit by
the Company with the Trustee, in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the holders
of the Notes, cash, U.S. Government Obligations or a combination
thereof, in an amount sufficient in the opinion of a nationally
recognized firm of independent public accounts expressed in a
written certification thereof delivered to the Trustee, to pay the
principal of and interest on the Notes then outstanding in
accordance with the terms of the Indenture and the Notes ("covenant
defeasance"). Such covenant defeasance may only be effected if (i)
such deposit will not result in a breach or violation of, or
constitute a default under, any agreement or instrument to which
the Company is a party or by which it is bound; (ii) the Company
has delivered to the Trustee an opinion of counsel to the effect
that the holders of the Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit
and covenant defeasance by the Company and will be subject to
federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit and
covenant defeasance had not occurred; (iii) the Company has
delivered to the Trustee an opinion of counsel to the effect that
after 123rd day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights
generally; and (iv) the Company has delivered to the Trustee an
Officers' Certificate and an opinion of counsel stating that all
conditions related to the covenant defeasance have been complied
with. Following such covenant defeasance, the Company will no
longer be required to comply with and will have no obligation to
repurchase the Notes pursuant to the provisions described under
"Change of Control."
Notwithstanding any satisfaction and discharge or defeasance
of the Indenture, the obligations of the Company described under
"Conversion of Notes" will survive.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a
majority in principal amount of the Notes at the time outstanding,
to modify the Indenture or any supplemental indenture or the rights
of the holders of the Notes, except that no such modification shall
(i) extend the fixed maturity of any Note, reduce the rate or
extend the time or payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any
amount payable upon redemption thereof, change the obligation of
the Company to make redemption of any Note upon the happening of a
Change of Control, impair or affect the right of a holder to
institute suit for the payment thereof, change the currency in
which the Notes are payable or impair the right to convert the
Notes into Common Stock subject to the terms set forth in the
Indenture, without the consent of the holder of each Note so
affected or (ii) reduce the aforesaid percentage of Notes, without
the consent of the holders of all of the Notes then outstanding.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, the Trustee under the
Indenture, has been appointed by the Company as the paying agent,
conversion agent, registrar and custodian with regard to the Notes.
The Trustee and/or its affiliates may in the future provide banking
and other services to the Company in the ordinary course of their
respective businesses.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 60,000,000
shares of Common Stock, par value $.01 per share, 5,000,000 shares
of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), and one share of special voting stock, par value $1.00 per
share (the "Special Voting Share").
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Subject to the
rights of holders of outstanding Preferred Stock, if any, the
holders of Common Stock are entitled to receive such dividends, if
any, as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation,
dissolution, or winding up of the Company, holders of Common Stock
have the right to a ratable portion of the assets remaining after
payment of liabilities, subject to preferential payments required
to be made to holders of outstanding Preferred Stock, if any.
Holders of Common Stock do not have cumulative voting, preemptive,
redemption or conversion rights. All outstanding shares of Common
Stock are, and the shares to be sold in this offering will be,
fully paid and nonassessable. The preferences and rights of holders
of shares of Common Stock may become subject to those of holders of
shares of any series of Preferred Stock which the Company may issue
in the future.
PREFERRED STOCK
The Board of Directors has the authority, without further
stockholder approval, to issue available shares of Preferred Stock
in one or more series from time to time and to fix the powers,
designations, preferences, and rights, and the qualifications,
limitations, or restrictions of such preferences and/or rights.
3,300,000 shares of the Preferred Stock have been retired and are
no longer available for issuance. Of the remaining 1,700,000
shares of Preferred Stock available for issuance, 150,000 have been
designated as 5 1/2% Series C Convertible Preferred Stock (the "Series
C Preferred Stock"), all of which are reserved for issuance upon
exchange of the Company's 5 1/2% Senior Convertible/Exchangeable Notes
due 2000 (the "Additional Notes").
SERIES C PREFERRED STOCK
Dividend Rights. The holders of shares of the Series C
Preferred Stock are entitled to receive, in preference to the
holders of shares of Common Stock, dividends in an amount equal to
5 1/2% per annum of the liquidation preference of $1,000 per share of
Series C Preferred Stock. Dividends are payable on May 1 and
November 1 of each year (each such date a "Dividend Payment Date")
to the persons in whose names the Series C Preferred Stock is
registered at the close of business on the April 15 and October 15
immediately preceding such Dividend Payment Date.
Conversion Rights. The holder of any shares of Series C
Preferred Stock has the right to convert any number of such shares
into that number of shares of Common Stock obtained by dividing
$1,000 for each share of Series C Preferred Stock to be converted
by the conversion price in effect at such time (the "Conversion
Price"). The Conversion Price may be adjusted from time to time
upon the occurrence of certain events, including, but not limited
to, the payment of certain dividends and distributions to the
holders of Common Stock. The Conversion Price is currently $53.00.
A holder of Series C Preferred Stock is not entitled to any rights
of a holder of Common Stock until such holder has converted his
Series C Preferred Stock to Common Stock.
Redemption. The Company may, at its option, redeem all or,
from time to time, any part of the Series C Preferred Stock at the
redemption prices set forth below; provided, however, that no such
redemption shall be effected before November 2, 1998; and provided,
further, that on November 1, 2000, the Company shall redeem all of
the Series C Preferred Stock then outstanding. The redemption
prices (expressed as percentages of the liquidation value of
$1,000) shall be as follows:
If redeemed during the 12-month period beginning:
Date Percentage
November 1, 1998 102.2%
November 1, 1999 101.1%
and 100% on and after November 1, 2000.
If dividends payable on shares of Series C Preferred Stock are
not paid in full, then until all unpaid dividends have been paid in
full or declared and set aside for payment, the Company may not,
subject to certain exceptions, redeem, purchase or otherwise
acquire any shares of Series C Preferred Stock or any shares of
capital stock of the Company ranking on a parity with ("Parity
Stock"), or junior to, the Series C Preferred Stock.
Voting Rights. Each share of Series C Preferred Stock
entitles the holder thereof to vote on all matters voted on by
holders of Common Stock, voting together as a single class. With
respect to any such vote, each share of Series C Preferred Stock
shall entitle the holder thereof to cast the number of votes equal
to the number of votes which could be cast in such vote by a holder
of the shares of capital stock of the Company into which such share
of Series C Preferred Stock is convertible on the record date for
such vote. The affirmative vote of the holders of at least 66-2/3%
of the outstanding shares of Series C Preferred Stock is necessary
for certain actions that would affect the Series C Preferred Stock,
including, but not limited to, changing the number of authorized
shares of Series C Preferred Stock, increasing or decreasing the
par value of such shares, or altering the powers, preferences and
rights of such shares so as to affect them adversely.
If on any date dividends payable on the Series C Preferred
Stock shall have been in arrears and not paid in full for three
semi-annual periods, whether or not consecutive, the number of
directors constituting the Board of Directors shall be increased
by two and the holders of shares of Series C Preferred Stock shall
have the right, voting separately as a single class (or as a class
with the holders of shares of Parity Stock, if such holders are
similarly entitled to elect additional directors), to elect
directors to fill such newly created directorships. Such
additional directors shall continue as directors until such time as
all dividends accumulated on the Series C Preferred Stock (and on
the Parity Stock, if applicable) have been paid in full or all
necessary funds have been set aside for payment.
At each meeting of stockholders at which the holders of shares
of Series C Preferred Stock shall have the right to take any
action, the presence in person or by proxy of the holders of record
of one-third of the total number of shares of Series C Preferred
Stock then outstanding and entitled to vote shall be necessary to
constitute a quorum.
Transfer Restrictions. Under the terms of the Securities
Resale Registration Rights Agreement dated as of December 22, 1995
between the Company and Tribune Company, the Company is to use its
best efforts to register the Series C Preferred Stock under the
Securities Act within 90 days of such agreement. Until such time
as the Series C Preferred Stock is so registered, then until the
date that is three years after the later of the issuance of the
Additional Note upon the exchange of which Series C Preferred Stock
was issued and the last date on which the Company or any affiliate
of the Company was the owner of such Additional Note, such Series C
Preferred Stock may only be sold (i) to the Company or any
subsidiary thereof, (ii) pursuant to Rule 144A, Rule 904 or Rule
144 under the Securities Act or (iii) to an institutional
"accredited investor" (as defined in the Securities Act) who makes
certain representations in connection with such sale. In addition,
the transferor must furnish to the transfer agent for the Series C
Preferred Stock such information as the Company may reasonably
require to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
The Company has no current plans to issue any Preferred Stock
other than the Series C Preferred Stock. While the issuance of
Preferred Stock could provide needed flexibility in connection with
possible acquisitions and other corporate purposes, such issuance
could also make it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company or
discourage an attempt to gain control of the Company.
SPECIAL VOTING SHARE
The Company's sole authorized and outstanding Special Voting
Share is held of record by The R-M Trust Company, as Trustee (the
"Special Voting Share Trustee"), under a Voting and Exchange Trust
Agreement pursuant to which each holder of Exchangeable Non-Voting
Shares of SoftKey Software Products Inc. (the "Exchangeable
Shares"), other than the Company or any entity controlled by the
Company (a "Controlled Entity"), is entitled to instruct the
Special Voting Share Trustee to exercise one of the votes attached
to the Special Voting Share for each Exchangeable Share held by
such holder. Except as otherwise required by law or the Company's
Restated Certificate of Incorporation, as amended, the holder of
record of the Special Voting Share will have a number of votes
equal to the number of Exchangeable Shares outstanding from time to
time not owned by the Company or any Controlled Entity. The holders
of shares of the Common Stock and the Special Voting Share vote
together as a single class on all matters, except as may be
required by applicable law. The holder of the Special Voting Share
is not entitled to receive dividends. In the event of any
liquidation, dissolution or winding-up of the Company, the holder
of the Special Voting Share will not be entitled to receive any
assets of the Company available for distribution to its
stockholders. At such time as the Special Voting Share has no votes
attached to it because there are no Exchangeable Shares outstanding
not owned by the Company or a Controlled Entity, and there are no
shares of stock, debt, options or other agreements of the Company
which could give rise to the issuance of any Exchangeable Shares to
any person (other than the Company or a Controlled Entity), the
Special Voting Share will be cancelled.
The Exchangeable Shares were originally issued to certain
holders of common shares of Former SoftKey in the Three-Party
Combination. All Exchangeable Shares not exchanged for an
equivalent number of shares of Common Stock by February 4, 2005
(the "Redemption Date") will be redeemed by SoftKey Software
Products Inc., an Ontario corporation and a subsidiary of the
Company ("SoftKey Software"), for a price per share equal to the
current market price of a share of Common Stock (which shall be
paid in Common Stock) plus a cash amount equivalent to the full
amount of all unpaid dividends thereon, and the Special Voting
Share will thereupon be cancelled. The Board of Directors of
SoftKey Software may extend the Redemption Date or, if at any time
there are less than 50,000 outstanding Exchangeable Shares (other
than Exchangeable Shares held by the Company or any Controlled
Entity, subject to adjustment to reflect permitted changes to the
Exchangeable Shares), accelerate the Redemption Date.
TRANSFER AGENT AND REGISTRAR
The Company has appointed The First National Bank of Boston as
transfer agent and registrar of the Common Stock.
PLAN OF DISTRIBUTION
The Securities covered hereby may be offered and sold from
time to time by the Selling Holders. The Selling Holders 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. Such sales may be made in
the over-the-counter market or otherwise, at market prices
prevailing at the time of sale, at prices related to the then
prevailing market prices or in negotiated transactions, including
without limitation pursuant to an underwritten offering or pursuant
to one or more of the following methods: (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 Securities as agent but may take
a position and resell a portion of the block as principal to
facilitate the transaction.
The Company has been advised that, as of the date hereof, the
Selling Holders have made no arrangement with any broker for the
offering or sale of the Notes or the shares of Common Stock
issuable upon conversion thereof. Underwriters, brokers, dealers
or agents may participate in such transactions as agents and may,
in such capacity, receive brokerage commissions from the Selling
Holders or purchasers of such securities. Such underwriters,
brokers, dealers or agents may also purchase the Notes or shares of
Common Stock issuable upon conversion thereof and resell such
securities for their own account. The Selling Holders and such
underwriters, brokers, dealers or agents may be considered
"underwriters" as that term is defined by the Securities Act,
although the Selling Holders disclaim such status. Any
commissions, discounts or profits received by such underwriters,
brokers, dealers or agents in connection with the foregoing
transactions may be deemed to be underwriting discounts and
commissions under the Securities Act.
To comply with the securities laws of certain jurisdictions,
if applicable, the Notes and Common Stock issuable upon conversion
thereof will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the Notes and Common Stock issuable upon conversion
thereof 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.
Under applicable rules and regulations under the Exchange Act,
any person engaged in a distribution of the Notes or the shares of
Common Stock issuable upon conversion thereof may be limited in its
ability to engage in market activities with respect to such Notes
or the shares of Common Stock issuable upon conversion thereof. In
addition and without limiting the foregoing, each Selling Holder
will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without
limitation, rules 10b-2, 10b-5, 10b-6 and 10b-7, which provisions
may limit the timing of purchases and sales of any of the Notes and
shares of Common Stock issuable upon conversion thereof by the
Selling Holders. All of the foregoing may affect the marketability
of the Notes and shares of Common Stock issuable upon conversion
thereof.
The Company may suspend the use of this Prospectus and any
supplements hereto in certain circumstances due to pending
corporate developments, public filings with the commission or
similar events. The Company is obligated in the event of such
suspension to use its reasonable efforts to ensure that the use of
the Prospectus may be resumed as soon as practicable.
The Company has agreed to pay substantially all of the
expenses incident to the registration, offering and sale of the
Notes or the shares of Common Stock issuable upon conversion
thereof to the public other than commissions and discounts of
agents, dealers or underwriters. Such expenses (excluding such
commissions and discounts) are estimated to be approximately
$350,000. The Company has also agreed to indemnify the Selling
Holders against certain liabilities, including certain liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the Securities 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
99,375 shares of Common Stock, which are or become exercisable in
periodic installments through January 1999.
EXPERTS
The consolidated financial statements and related schedules of
the Company as of and for the year ended December 31, 1994,
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, have been audited by Coopers & Lybrand
L.L.P., independent public accountants, as set forth in their
report therein dated March 3, 1995 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
financial statements and related schedules of the Company as of
December 31, 1993 and June 30, 1993 and for the six month
transition period from July 4, 1993 to January 1, 1994 and for each
of the two years in the period ended June 30, 1993, included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1994, have been audited by Arthur Andersen LLP, independent
public accountants, as set forth 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 financial statements and related schedules of WordStar
as of June 30, 1993 and for each of the two years in the period
ended June 30, 1993, Spinnaker as of June 30, 1993 and for the year
then ended and Spinnaker as of June 30, 1992 and for the year then
ended, its opinion is based on the reports of other independent
accountants, namely KPMG Peat Marwick LLP, Price Waterhouse LLP and
Deloitte & Touche LLP, respectively. The consolidated financial
statements and related schedules of the Company have been included
therein in reliance upon such reports given 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 as of June 30, 1993 and for the year then ended 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 report of Deloitte & Touche LLP on the consolidated
financial statements of Spinnaker for the year ended June 30, 1992
expresses an unqualified opinion and includes an explanatory
paragraph referring to an uncertainty in connection with an
arbitration proceeding referred to in Note 12 of the consolidated
financial statements of Spinnaker (not included herein).
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
information or representation
must not be relied upon as SOFTKEY LOGO
having been authorized by the
Company or any Selling Holder.
This Prospectus does not $350,000,000
constitute an offer to sell or 5 1/2% SENIOR
a solicitation of an offer to CONVERTIBLE NOTES
buy any of the securities DUE 2000
offered hereby in any AND
jurisdiction to any person to COMMON STOCK
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.
____________
____________________
PROSPECTUS
____________________
TABLE OF CONTENTS
Page
Available Information . 2
Documents Incorporated by
Reference . . . . . . . . . 2
Prospectus Summary . . . . 3
Risk Factors . . . . . . . 6
Use of Proceeds . . . . . . 11
The Selling Holders . . . . 11
Description of the Notes . 16
Description of Capital Stock . 22
Plan of Distribution . . . 25
Legal Matters . . . . . . . 26
Expert . . . . . . . . . . 26
JANUARY 26, 1996
SOFTKEY LOGO
200,000 SHARES
COMMON STOCK
This Prospectus relates to 200,000 shares (the "Shares") of
Common Stock, par value $.01 per share (the "Common Stock"), of
SoftKey International Inc. ("SoftKey" or the "Company"). Robert
A. Ellis (the "Selling Holder") may from time to time sell the
Shares offered hereby to or through one or more underwriters,
directly to other purchasers or through agents in ordinary
brokerage transactions, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale, at prices related to
then prevailing market prices or at negotiated prices. The
Selling Holder, and any agents or broker-dealers that participate
with the Selling Holder 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 them and any profit on their resale of the Shares may
be deemed to be underwriting commissions or discounts under the
Securities Act. See "The Selling Holder" and "Plan of
Distribution."
The Company will not receive any of the proceeds from the
sale of any of the Shares offered by the Selling Holder hereunder.
The Common Stock of the Company is quoted on the Nasdaq
National Market under the symbol "SKEY." On January 25, 1996,
the last reported sale price of the Common Stock on the Nasdaq
National Market was $15 per share.
SEE "RISK FACTORS" ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
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 AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
January 26, 1996
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.
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 Securities 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 Securities 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
The Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1994, all other reports filed by the
Company pursuant to Sections 13(a) or 15(d) of the Exchange Act
since December 31, 1994 and 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 amendment or
reports filed for the purpose of updating such description filed by
the Company, all of which are on file with the Commission, are
incorporated in this Prospectus by reference and made a part
hereof.
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 Securities hereunder 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).
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is
qualified in its entirety by the more detailed information and
consolidated financial statements and related notes incorporated by
reference in this Prospectus.
THE COMPANY
General. SoftKey is a leading developer and publisher of
value-priced, 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 entertainment in North America and distributes
additional products internationally. The Company's products
include titles such as: Calendar Creator Plus , Infopedia , Sports
Illustrated Swimsuit Calendar, Time Almanac, BodyWorks 4.0, The
American Heritage Talking Dictionary, Leonardo -- the Inventor ,
PC Paintbrush , Key 3D Design Center and Compton's Interactive
Encyclopedia. As a result of the Company's recent acquisition of
The Learning Company, the Company added a number of educational
products, classified into several product "families," to its
offerings, including those in The Learning Company's "Rabbit"
family (Reader Rabbit 1, Reader Rabbit 2, Reader Rabbit 3, Reader
Rabbit's Ready for Letters, Reader Rabbit's Interactive Reading
Journey, Reader Rabbit's Reading Development Library, Math Rabbit
and MetroGnomes' Music), "Treasure" family (Treasure Mountain!,
Treasure MathStorm!, Treasure Cove! and Treasure Galaxy!), "Super
Solvers" family (Spellbound!, OutNumbered!, Midnight Rescues!,
Super Solvers Gizmos & Gadgets and Operation Neptune), "Writing
Tools" family (The Writing Center, The Children's Writing &
Publishing Center, Student Writing & Research Center with Compton's
Concise Encyclopedia and Read, Write & Type!), "College Prep"
family (ScoreBuilder for the SAT) and the "Foreign Languages"
family (the Learn to Speak . . . series, the Berlitz Think & Talk .
. . series, the Pronunciation Tutor . . . series and Vocabulary
Builder). School editions of certain of these products are also
now available through SoftKey. See "Recent Acquisitions."
The Company believes that in order to compete effectively,
successful companies will ultimately need to publish large numbers
of successful titles and introduce them to the market rapidly.
SoftKey's current product development strategy is to develop and
acquire products in high-growth categories for rapid release and
maintain development cycles that result in ongoing upgrades and
product rotations in short periods of time. This practice of
publishing a large number of titles in a broad range of categories
and refreshing those titles on an ongoing basis effectively reduces
the Company's dependence on any one "hit" title.
SoftKey's strategy is to develop, license and acquire a broad
range of quality software products with significant unit-volume
potential at the lowest possible cost and to continuously introduce
these new products through a wide variety of established and
emerging distribution channels worldwide, including retail
channels, direct mail and original equipment manufacturers
("OEMs"). Other key elements of this strategy include focusing on
high-growth consumer 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 loyalty.
The Company was created through a combination of three
corporations. 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. and Spinnaker Software Corporation
( Spinnaker ). Effective February 4, 1994, the Company changed its
name to SoftKey International Inc.
SoftKey develops and publishes products through internal
development and licensing agreements with outside developers. The
Company's internal product development efforts are designed to
result in efficient and timely product introductions by focusing on
"core code" development. Where possible, the Company specifies,
develops and manages (or purchases) one base of source code from
which many products are created. The Company supplements its
development efforts through product acquisitions and royalty-
bearing licenses.
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,
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.
Additionally, the Company has entered into a definitive merger
agreement to acquire Minnesota Educational Computing Corporation
(MECC) ("MECC"), a publisher and distributor of high quality
educational software for children. The closing of this transaction
is subject to a number of conditions and approvals including the
approval of stockholders of each of MECC and the Company. There
can be no assurance that this transaction will be consummated.
The Company's acquisition of The Learning Company and proposed
acquisition of MECC, which together would 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,
SoftKey currently plans to continue its strategy of extending
product lines by offering multiple titles at various price points
(including by offering full-featured educational products in its
Premium product line) based on a common source code.
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 Common Stock 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.
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, Sony, The Walt Disney Company,
Viacom, IBM/Eduquest, Fisher-Price, Jostens, Electronic Arts,
Sierra On-Line, Inc., Davidson & Associates, Mindscape, 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.
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 the "competitive upgrade"
price discounting among the major firms is eroding the traditional
pricing structures that had previously existed in the software
industry. Recently, Microsoft Corporation announced that it was
reducing the price of a number of its common titles from $69.95 to
$49.95. Competitive pressures have resulted in price reductions
throughout the industry with the result that industry-wide
operating margins are likely to be adversely affected.
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.
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.
Should the occurrence of these exclusive arrangements increase and
the Company not be 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 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. 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 Company's existing
product categories and, in particular, the education and
entertainment 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.
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 has engaged in discussions with certain businesses in pursuit
of possible transactions. Certain of these businesses may be
substantial in size as compared to the Company. Except as
otherwise disclosed in this Prospectus, there are currently no
understandings, agreements or commitments with respect to any
acquisition, business combination or strategic alliance. Moreover,
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 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; 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 and Compton's Learning Company and has entered into a
definitive merger agreement with MECC. Should certain key
employees not be retained, future operating results may be
adversely affected.
The ability of software companies with significant internal
development 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 will require a substantially larger
internal development and marketing staff than its operations have
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
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.
The Company has in the past 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 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 new product-content focus and
enhanced presence in the educational software market will require
the Company to evaluate and adopt appropriate development and
marketing strategies and methods, which may differ 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 many 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.
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, to the extent that at least one
company (which is not a competitor of SoftKey) distributed its
product at no cost (except what it represented as shipping and
handling charges) in order to gain market share upon its entrance
into a new market. 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 10% of its revenues in the
year ended December 31, 1994 from sales occurring outside North
America. The Company believes that revenues from such
international sales in 1995 increased slightly and should continue
to increase in 1996 as a result of the Company's acquisition of
tewi in July 1995 and of Personal Soft S.A., a French societe
anonyme, in December 1995. 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 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 "shrinkwrap" 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.
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. Any interruption in
Stream's manufacturing, assembly and fulfillment services could
have a material adverse impact on 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, 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 $4,983,000 for
the year ended June 30, 1992, $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. The Company had net income of $21,145,000
for the year ended December 31, 1994 and $22,838,000 for the nine
months ended September 30, 1995. There can be no assurance that
the Company will continue to 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.
SECURITIES TRADING; VOLATILITY
The Common Stock is quoted on the NNM. The market price of
the Common Stock, like the shares of many other high technology
companies, has been and may continue to be volatile. In
addition, the stock market has experienced and continues to
experience extreme price and volume fluctuations which have
particularly affected the market price for many technology
companies. These broad market fluctuations, as well as general
economic and political conditions, may adversely affect the market
price of the Common Stock .
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Common Stock by the Selling Holder.
THE SELLING HOLDER
Robert A. Ellis, the Selling Holder, beneficially owns1
an aggregate of 200,000 shares of Common Stock, all of which are
offered hereby. At December 28, 1995, there were 30,364,864 shares
of Common Stock issued and outstanding. The Shares offered hereby
by the Selling Holder represent less than 1% of the outstanding
Common Stock as of such date. The Selling Holder and the Company
are parties to a Stock Purchase Agreement dated as of July 5, 1994,
pursuant to which the Selling Holder acquired an aggregate of
409,407 shares of Common Stock. The Selling Holder was employed by
the Company from July 5, 1994 through August 1995. Other than as
set forth herein and a result of the ownership of the Shares,
the Selling Holder has not had any material relationship with the
Company or any of its affiliates within the past three years.
______________
1 The nature of beneficial ownership is sole voting and/or
investment power, except to the extent authority is shared by
a spouse under applicable law.
PLAN OF DISTRIBUTION
The Shares covered hereby may be offered and sold from time
to time by the Selling Holder. The Selling Holder 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. Such sales may be made in
the over-the-counter market or otherwise, at market prices
prevailing at the time of sale, at prices related to the then
prevailing market prices or in negotiated transactions, including
without limitation pursuant to an underwritten offering or pursuant
to one or more of the following methods: (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 Company has been advised that, as of the date hereof, the
Selling Holders have made no arrangement with any broker for the
offering or sale of the Shares. Underwriters, brokers, dealers
or agents may participate in such transactions as agents and may,
in such capacity, receive brokerage commissions from the Selling
Holder or purchasers of such securities. Such underwriters,
brokers, dealers or agents may also purchase and resell Shares
for their own account. The Selling Holder and such underwriters,
brokers, dealers or agents may be considered "underwriters" as that
term is defined by the Securities Act, although the Selling
Holder disclaims such status. Any commissions, discounts or
profits received by such underwriters, brokers, dealers or agents
in connection with the foregoing transactions may be deemed to be
underwriting discounts and commissions under the Securities Act.
To comply with the securities laws of certain jurisdictions,
if applicable, the Notes and Common Stock issuable upon conversion
thereof 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.
Under 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
the Shares. In addition and without limiting the foregoing,
Selling Holder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including,
without limitation, rules 10b-2, 10b-5, 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of any of
the Shares by the Selling Holder. 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, dealers or underwriters. Such expenses (excluding such
commissions and discounts) are estimated to be approximately
$350,000. The Company has also agreed to indemnify the Selling
Holder against certain liabilities, including certain liabilities
under the Securities Act.
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
99,375 shares of Common Stock, which are or become exercisable in
periodic installments through January 1999.
EXPERTS
The consolidated financial statements and related schedules of
the Company as of and for the year ended December 31, 1994,
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, have been audited by Coopers & Lybrand
L.L.P., independent public accountants, as set forth in their
report therein dated March 3, 1995 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
financial statements and related schedules of the Company as of
December 31, 1993 and June 30, 1993 and for the six month
transition period from July 4, 1993 to January 1, 1994 and for each
of the two years in the period ended June 30, 1993, included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1994, have been audited by Arthur Andersen LLP, independent
public accountants, as set forth 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 financial statements and related schedules of WordStar
as of June 30, 1993 and for each of the two years in the period
ended June 30, 1993, Spinnaker as of June 30, 1993 and for the year
then ended and Spinnaker as of June 30, 1992 and for the year then
ended, its opinion is based on the reports of other independent
accountants, namely KPMG Peat Marwick LLP, Price Waterhouse LLP and
Deloitte & Touche LLP, respectively. The consolidated financial
statements and related schedules of the Company have been included
therein in reliance upon such reports given 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 as of June 30, 1993 and for the year then ended 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 report of Deloitte & Touche LLP on the consolidated
financial statements of Spinnaker for the year ended June 30, 1992
expresses an unqualified opinion and includes an explanatory
paragraph referring to an uncertainty in connection with an
arbitration proceeding referred to in Note 12 of the consolidated
financial statements of Spinnaker (not included herein).
No dealer, salesman or 200,000 Shares
any other person has been
authorized to give any
information or to make any
representation not contained
in this Prospectus, and, if SOFTKEY LOGO
given or made, such
information or representation
must not be relied upon as
having been authorized by the
Company or the 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 jurisdiction to 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.
____________
Common Stock
--------------------
PROSPECTUS
____________________
TABLE OF CONTENTS
Page
Available Information . 2
Documents Incorporated by
Reference . . . . . . . 2
Prospectus Summary . . 3
Risk Factors . . . . 5
Use of Proceeds . . . . 9
The Selling Holder . . 9
Plan of Distribution . 10
Legal Matters . . . . 11
Experts . . . . . . . 11
JANUARY 26, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the distribution of the
securities being registered (all of which (other than selling
commissions) will be borne by the Company and not the Selling
Holders), are estimated as follows:
Securities and Exchange Commission Registration Fee . . $121,760
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . 30,500
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . 50,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . 50,000
State Securities Laws Registration Fees and Expenses . . 15,000
Trustee and Registrar Fees and Expenses . . . . . . . . . 12,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 70,740
Total . . . . . . . . . . . . . . . . . . . . . . . $ 350,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law, as
amended, allows a corporation to eliminate the personal liability
of directors of a corporation to the corporation or its
stockholders for monetary damage for a breach of fiduciary duty as
a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or
approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit.
Section 145 of the Delaware General Corporation Law, as
amended, provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of
the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at its request in such
capacity in another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
Section 8 of the Company's Restated Certificate of
Incorporation, as amended, provides for elimination of directors'
personal liability and indemnification as follows:
"8. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
8.1 ELIMINATION OF CERTAIN LIABILITIES OF DIRECTORS. A
director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any
breach of the directors' duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is
amended after approval by the stockholders of this Section to
authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so
amended. Any repeal or modification of this Section by the
stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at
the time of such repeal or modification.
8.2 INDEMNIFICATION AND INSURANCE
8.2.1 RIGHT TO INDEMNIFICATION. Each person who was
or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil,
criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of
whom he or she is the legal representative, is or was a director or
officer, of the Corporation or is or was serving at the request of
the Corporation, as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless
by the Corporation to its fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability,
and loss (including attorneys' fees, judgments, fines, Employee
Retirement Income Security Act of 1974, excise taxes or penalties,
and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be
a director, officer, employee, or agent and shall inure to the
benefit of his or her heirs, executors, and administrators;
provided, however, that the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or
part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred defending any such
proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, the payment
of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay
all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its
Board of Directors, provide indemnification to employees and agents
of the Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
8.2.2 NON-EXCLUSIVITY OF RIGHTS. The right to
indemnification and the payment of expenses incurred in defending a
proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of this
Restated Certificate, Bylaw, agreement, vote of stockholders, or
disinterested directors or otherwise.
8.2.3 INSURANCE. The Corporation may maintain
insurance, at its expense, to protect itself and any director,
officer, employee, or agent of the Corporation or another
corporation, partnership, joint venture, trust, or other enterprise
against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against
such expense, liability, or loss under the Delaware General
Corporation Law."
SoftKey has purchased directors' and officers' liability
insurance which would indemnify the directors and officers of
SoftKey against damages arising out of certain kinds of claims
which might be made against them based on their negligent acts or
omissions while acting in their capacity as such.
16. EXHIBITS
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
2.1 Amended and Restated Combination
Agreement by and among WordStar
International Incorporated, SoftKey
Software Products Inc., Spinnaker
Software Corporation and SSC
Acquisition Corporation dated as of
August 17, 1993, as amended.(1)
4.1 Indenture dated as of October 16,
1995 between the Company and State
Street Bank and Trust Company, as
Trustee, for 5 1/2% Senior Convertible
Notes due 2000 (the "Indenture").(2)
4.2 First Supplemental Indenture to the
Indenture, dated as of November 22,
1995 by and between the Company and
State Street Bank and Trust Company,
as Trustee.*
4.3 Note Resale Registration Rights
Agreement dated as of October 17,
1995 by and between the Company, on
the one hand, and the Initial
Purchasers on the other hand (the
"Registration Rights Agreement).*
4.4 Letter Agreement dated November 22,
1995 amending the Registration Rights
Agreement.
4.5 Securities Purchase Agreement dated
November 30, 1995 by and between the
Company and Tribune.(3)
5.1 Opinion of Neal S. Winneg, Esq.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Arthur Anderson LLP.*
23.3 Consent of KPMG Peat Marwick LLP.*
23.4 Consent of Deloitte & Touche LLP.*
23.5 Consent of Price Waterhouse LLP.*
23.6 Consent of Neal S. Winneg, Esq.
(included in Exhibit 5.1).*
24.1 Power of Attorney.*
25.1 Statement of eligibility of trustee.*
_____________
* Previously filed.
(1) Incorporated by reference to schedules included in the
Company's definitive Joint Management Information Circular and
Proxy Statement dated December 27, 1993.
(2) Incorporated by reference to Exhibit 10.21 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995.
(3) Incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated December 11, 1995.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 15 above, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In
the event that a claim of indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or proceeding) is
asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the
trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-
3 and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of Cambridge, the Commonwealth of Massachusetts on January
26, 1996.
SOFTKEY INTERNATIONAL INC.
By:/s/ Michael J. Perik
____________________________
Michael J. Perik
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below on January 26,
1996 by the following persons in the capacities indicated.
Signature Title Date
Chairman of the January 26, 1996
* Board and
--------------------- Chief Executive
Michael J. Perik Officer
(principal executive
officer)
Chief Financial January 26, 1996
* Officer
_____________________ (principal financial
R. Scott Murray and accounting
officer)
President and January 26, 1996
* Director
____________________
Kevin O'Leary
_____________________ Director January , 1996
Michael Bell
* Director January 26, 1996
---------------------
James C. Dowdle
* Director January 26, 1996
---------------------
Robert Gagnon
* Director January 26, 1996
---------------------
Robert Rubinoff
Director January , 1996
----------------------
Scott M. Sperling
*By:/s/ Neal S. Winneg
Neal S. Winneg,
as attorney-
in-fact for
each of the persons
indicated
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
2.1 Amended and Restated Combination
Agreement by and among WordStar
International Incorporated, SoftKey
Software Products Inc., Spinnaker
Software Corporation and SSC
Acquisition Corporation dated as of
August 17, 1993, as amended.(1)
4.1 Indenture dated as of October 16,
1995 between the Company and State
Street Bank and Trust Company, as
Trustee, for 5 1/2% Senior Convertible
Notes due 2000 (the "Indenture").(2)
4.2 First Supplemental Indenture to the
Indenture, dated as of November 22,
1995 by and between the Company and
State Street Bank and Trust Company,
as Trustee.*
4.3 Note Resale Registration Rights
Agreement dated as of October 17,
1995 by and between the Company, on
the one hand, and the Initial
Purchasers on the other hand (the
"Registration Rights Agreement).*
4.4 Letter Agreement dated November 22,
1995 amending the Registration Rights
Agreement.
4.5 Securities Purchase Agreement dated
November 30, 1995 by and between the
Company and Tribune.(3)
5.1 Opinion of Neal S. Winneg, Esq.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Arthur Anderson LLP.*
23.3 Consent of KPMG Peat Marwick LLP.*
23.4 Consent of Deloitte & Touche LLP.*
23.5 Consent of Price Waterhouse LLP.*
23.6 Consent of Neal S. Winneg, Esq.
(included in Exhibit 5.1).*
24.1 Power of Attorney.*
25.1 Statement of eligibility of trustee.*
_____________
* Previously filed.
(1) Incorporated by reference to schedules included in the
Company's definitive Joint Management Information Circular and
Proxy Statement dated December 27, 1993.
(2) Incorporated by reference to Exhibit 10.21 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995.
(3) Incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated December 11, 1995.
Exhibit 4.4
November 22, 1995
Bear, Stearns & Co. Inc.
Montgomery Securities
c/o Bear, Stearns & Co. Inc.
245 Park Avenue, 2nd Floor
New York, New York 10167
Ladies and Gentlemen:
This letter is written in connection with the offering
of $350,000,000 5 1/2% Senior Convertible Notes Due 2000 by
SoftKey International Inc. (the "Company") and the Note Resale
Registration Rights Agreement (the "Note Resale Registration
Rights Agreement"), dated October 23, 1995, among the Company,
Bear, Stearns & Co. Inc. and Montgomery Securities (collectively,
the "Initial Purchasers"). Capitalized terms used herein and not
otherwise defined shall have the meanings given to them in the
the Note Resale Registration Rights Agreement.
1. The Company and the Initial Purchasers hereby
agree to amend the definition of "Transfer Restricted Securities"
contained in Section 1 of the Note Resale Registration Rights
Agreement by deleting such definition in its entirety and
substituting the following:
"Transfer Restricted Securities: Each Note (other than
any Note represented by the Regulation S Global Note or any
definitive Note not bearing the legend required by Section 2.5(d)
of the Indenture), and any Common Stock issued upon conversion of
any such Note, until the earliest to occur of (a) the date on
which such Note or Common Stock, as the case may be, has been
effectively registered under the Act and disposed of in
accordance with an effective Shelf Registration Statement, (b)
the date on which such Note is exchanged for a New Note in the
Exchange Offer and entitled to be resold to the public by the
Holder thereof without complying with the prospectus delivery
requirements of the Act, (c) the date on which such New Note or
Common Stock, as the case may be, is distributed to the public
pursuant to Rule 144 under the Act or by a Broker-Dealer pursuant
to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including delivery of the Prospectus
contained therein), and (d) the date on which such Note is
converted into Common Stock in accordance with the terms and
provisions of the Note and the Indenture."
2. Except as expressly modified hereby, all the
provisions of the Note Resale Registration Rights Agreement are
and shall continue to be in full force and effect. Each
reference in the Note Resale Registration Rights Agreement to
"this Agreement", "hereunder", "hereof" and words of like import
referring to the Note Resale Registration Rights Agreement and
each reference in any other transaction documents relating
thereto shall mean the Note Resale Registration Rights Agreement
as amended hereby.
If the above correctly reflects your understanding and
agreement with respect to the foregoing matters, please so
confirm by signing the enclosed copy of this letter agreement.
SOFTKEY INTERNATIONAL INC.
By: /s/ R. Scott Murray
Name: R. Scott Murray
Title: Chief Financial Officer
Accepted:
BEAR, STEARNS & CO. INC.
By: /s/ John C. MacDonald
Name: John C. MacDonald II
Title: Managing Director
MONTGOMERY SECURITIES
By: /s/ Joseph M. Schell
Name: Joseph M. Schell
Title: Senior Managing Managing Director
