REGISTRATION NO. 333-03271
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, please 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: ( )
[SOFTKEY LOGO]
726,885 SHARES
COMMON STOCK
This Prospectus relates to the registration of 726,885 shares
(the "Shares") of Common Stock, par value $.01 per share (the
"Common Stock"), of SoftKey International Inc. ("SoftKey" or the
"Company"). Of the 726,885 Shares offered hereby, 500,000 Shares
(the "Bear Stearns Shares") are being offered by the Company or
Bear, Stearns & Co. Inc. ("Bear Stearns") (as described herein) and
the remaining 226,885 Shares (the "Nordman Shares") may be offered
by Jean-Pierre Nordman (the "Selling Stockholder"). The Bear
Stearns Shares are being offered and sold pursuant to the terms of
the Adjustment Agreement (as defined herein) between the Company
and Bear Stearns. See "Plan of Distribution--Bear Stearns." The ^
Shares may be offered and sold from time to time in transactions
quoted on the Nasdaq National Market (the "NNM"), in negotiated
transactions, at fixed prices which may be changed, at market
prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices. See "Plan of
Distribution." Bear Stearns and the Selling Stockholder, and any
agents or broker-dealers that participate with either of them 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 Stockholder" and "Plan of Distribution."
Under certain circumstances, the Company may receive a portion
of the proceeds from the sale of the Bear Stearns Shares offered
hereby. The Company will not receive any of the proceeds from the
sale of the Nordman Shares.
The Common Stock is traded on the NNM under the symbol
"SKEY." On May 20, 1996, the last reported sale price of the Common
Stock on the NNM was $28 1/2 per share.
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 21, 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 Shares to be offered and sold by means of this
Prospectus. This Prospectus omits certain of the information
contained in the Registration Statement and the exhibits and
schedules thereto in accordance with the rules and regulations of
the Commission. For further information regarding the Company and
the Shares offered hereby, reference is made to the Registration
Statement and the exhibits and schedules filed therewith, which may
be inspected without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and copies of which may
be obtained from the Commission at prescribed rates. Statements
contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete, and
in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such
reference.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated herein by reference and made a part hereof,
each of which is on file with the Commission, (i) the Annual Report
on Form 10-K of the Company for the fiscal year ended January 6,
1996, (ii) the Current Report on Form 8-K/A of the Company dated
January 25, 1996, (iii) pages 72 through 77 (inclusive) of the
Joint Proxy Statement-Prospectus of the Company dated April 11,
1996, (iv) the Quarterly Report on Form 10-Q of the Company for
the quarter ended April 6, 1996, (v) the Current Report on Form 8-K
of the Company dated May 21, 1996 and (vi) the description of the
Common Stock contained in the Company's registration statement
filed pursuant to Section 12(g) of the Exchange Act, including any
amendments or reports filed for the purpose of updating such
description filed by the Company.
All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering of the Shares hereby shall be deemed to
be incorporated herein by reference and shall be a part hereof from
the date of the filing of such documents. Any statements contained
in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or replaced for
purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein
modifies or replaces such statement. Any such statement so
modified or replaced shall not be deemed, except as so modified or
replaced, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including
any beneficial owner, to whom a Prospectus is delivered, upon
written or oral request of such person, a copy of the documents
incorporated by reference herein, other than exhibits to such
documents not specifically incorporated by reference. Such
requests should be directed to SoftKey International Inc., One
Athenaeum Street, Cambridge, Massachusetts 02142, Attention:
Secretary (telephone: (617) 494-1200).
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is
qualified in its entirety by the more detailed information
appearing elsewhere in this Prospectus and in the documents,
consolidated financial statements and related notes thereto and
other information incorporated by reference herein. See "Risk
Factors."
THE COMPANY
General. SoftKey is a developer and publisher of high-quality
consumer software for personal computers ("PCs"), primarily
produced on CD-ROM. The Company currently offers over 500 software
titles in consumer-oriented categories, including education,
lifestyle, edutainment, reference, productivity and, to a lesser
extent, entertainment, in North America. The Company distributes
additional products internationally. The Company's products
include titles such as: Calendar Creator Plus(TM), Infopedia(TM), Sports
Illustrated(R) Swimsuit Calendar, Time Almanac, BodyWorks(R) 4.0, The
American Heritage(R) Talking Dictionary, Leonardo -- the Inventor(TM),
PC Paintbrush(R), Key 3D Design Center(TM) and Compton's Interactive
Encyclopedia. The Company also publishes lower priced boxed
products under the "Key" brand and a line of jewel-case only
products under the "Platinum" brand. 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 (including the Reader Rabbit Series),
"Treasure" family, "Super Solvers" family, "Writing Tools" family,
"College Prep" family and "Foreign Languages" family. The Company
publishes school editions of a number of these products.
SoftKey's objective is to be the leading worldwide producer of
value-priced, high-quality consumer software. Accordingly,
SoftKey's strategy is to develop, license and acquire a broad range
of high quality software products with significant unit-volume
potential and to continuously introduce these new products through
a wide variety of established and emerging distribution channels
worldwide, including retail channels, direct mail, original
equipment manufacturers ("OEMs") and school channels. Key elements
of this strategy include focusing on high-growth consumer software,
broadly distributing to the consumer market at various price
points, building strong relationships with retail channels,
acquiring complementary products, technologies and businesses and
enhancing brand awareness and customer loyalty.
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.
Recent Acquisitions. The Company has a history of acquiring
companies in order to broaden its product lines and geographic
sales channels. In 1995, the Company's acquisitions included,
among others, The Learning Company, a publisher of educational
software, Compton's NewMedia, Inc. and Compton's Learning Company,
publishers of educational software and encyclopedia products (two
former wholly owned subsidiaries of Tribune Company), tewi Verlag
GmbH, a German publisher and distributor of CD-ROM software and
computer-related books ("tewi"), and Future Vision Holding, Inc., a
multimedia software company ("Future Vision"). In addition, the
Company recently acquired Minnesota Educational Computing
Corporation (MECC) ("MECC"), a publisher and distributor of high
quality educational software for children.
The Company's acquisition of The Learning Company and MECC,
which together make the Company the largest educational software
company in the world, represent a new product-content focus for the
Company's business in the education area. The Company believes
this new focus will likely result in, among other things,
significant investments by the Company in product planning and
research and development and a higher degree of product acceptance
risk. In order for the Company to sell a sufficient volume of
products to offset the increased costs associated with the
development of educational software products, the Company currently
plans to continue its strategy of extending product lines by
offering multiple titles at various price points (including by
offering full-featured educational products in its Premium product
line) based on a common source code and to further expand its
existing distribution channels.
The Company is incorporated in Delaware. Its principal executive
offices are located at One Athenaeum Street, Cambridge,
Massachusetts 02142, and its telephone number is (617) 494-1200.
"SoftKey" and all of the Company's logos and product names are
trademarks of the Company.
RISK FACTORS
Prospective purchasers of the Shares offered hereby should
carefully consider the following risk factors, in addition to other
information contained or incorporated by reference in this
Prospectus.
INTENSE COMPETITIVE ENVIRONMENT
The PC consumer software industry is intensely competitive and is
characterized by rapid changes in technology and customer
requirements. The changing nature of the consumer software
industry and rapidly changing demand for products make it difficult
to predict the future success of the Company in the business of
producing packaged software products for the retail market. The
Company competes for retail shelf space and general consumer
awareness with a number of companies that market software products.
The Company encounters competition from both established
companies, including the largest companies in the industry, and new
companies that may develop comparable products. A number of the
Company's competitors and potential competitors possess
significantly greater capital, marketing resources and brand
recognition than the Company. Rapid changes in technology, product
obsolescence and advances in computer software and hardware require
the Company to develop or acquire new products and to enhance its
existing products on a timely basis. The Company's marketplace has
recently experienced a higher emphasis on on-line and Internet
related services and content tailored for this new delivery
vehicle. To the extent that demand increases for on-line products
and content, the demand for the Company's existing products and
future performance may change.
Many large companies with sophisticated product marketing and
technical abilities and financial resources that do not presently
compete with the Company may enter the PC software market. For
example, technology companies have begun to acquire greater access
to content, and content-oriented companies have begun to acquire
greater technological capabilities. Competitors in these areas
include Microsoft Corporation, Mattel, Sony, The Walt Disney
Company, Viacom, IBM/Eduquest, Fisher-Price, Jostens, Electronic
Arts, Sierra On-Line, Inc., Davidson & Associates, Mindscape, GT
Interactive Software, Edmark and Broderbund Software, Inc. To the
extent that competitors achieve a performance, price or
distribution advantage, the Company could be adversely affected.
Consolidation in the consumer software industry creates new, larger
competitors. For example, CUC International Inc. recently
announced proposed mergers with Sierra On-Line, Inc. and Davidson &
Associates. This increased consolidation of the consumer software
market may impact future growth potential and performance.
Microsoft Corporation is the dominant supplier of computer
operating systems and frequently coordinates its operating system
marketing efforts with those for its applications software.
Competition in Microsoft's Windows application segment from major
software publishers is intensifying, and "competitive upgrade"
price discounting among the major firms is eroding the traditional
pricing structures that had previously existed in the software
industry. Microsoft launched the Windows '95 operating system in
1995. As a result, the Company has embarked on a program to
transition many of its titles to Windows '95 format. In 1995,
Microsoft Corporation announced that it was reducing the price of a
number of its common titles from $69.95 to $49.95. 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. If the occurrence of
these exclusive arrangements increases and the Company is not able
to offer a competing product line or arrangement, the Company's
operating results may be negatively impacted. There can be no
assurance that the Company will be able to continue to have access
to sufficient retail marketing distribution channels or obtain
adequate distribution for all of its products in the future.
Accordingly, such concentration may have an adverse effect in the
future on the profitability of the Company's operations.
Regardless of the retail strategy chosen by the Company, the
retail channels of distribution available for products will be
subject to rapid changes as retailers and distributors enter and
exit the software market segments or alter their product inventory
preferences. Other types of retail outlets and methods of product
distribution may become important in the future. These new methods
may include delivery of software using on-line services or the
Internet, which will necessitate certain changes in the Company's
business and operations, including without limitation addressing
operational challenges such as improving download time for
pictures, images and programs, ensuring proper regulation of
content quality and developing sophisticated security for
transmitting payments. Should on-line distribution channels
increase, the Company will be required to modify its existing
technology bases in order for its products to be compatible and
remain competitive. It is critical to the success of the Company
that, as these changes occur, it maintain access to those channels
of distribution offering software in its market segments.
ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES
The Company has historically expanded its business through, among
other strategies, acquisitions, business combinations and strategic
alliances. Moreover, the consumer software industry as a whole has
recently experienced consolidation. The Company believes that its
customers will in the future demand that the Company offer
increasing numbers of titles throughout the 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 and others.
The Company continuously evaluates and considers other businesses
of varying sizes as potential strategic partners and candidates for
acquisition (whether negotiated or non-negotiated) and 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; INTEGRATION OF ACQUIRED BUSINESSES; KEY EMPLOYEES
The Company is currently experiencing a period of exceptionally
rapid growth that is placing and will likely continue to place a
strain on the Company's financial, management and other resources
in the future. The Company's ability to continue to manage its
growth effectively will require it, among other things, to continue
to improve its operational, financial and management information
systems and to continue to attract, train, motivate, manage and
retain key employees. If the Company's management becomes unable
to manage growth effectively, the Company's business, operating
results and financial condition could be adversely affected. For
example, the Company has recently completed the acquisition of The
Learning Company, Compton's NewMedia, Compton's Learning Company
and MECC. Should certain key employees not be retained, future
operating results may be adversely affected.
Additionally, as a result of such acquisitions, the Company faces
challenges relating to integration of operations such as
coordinating geographically separate organizations, integrating
personnel with disparate business backgrounds and combining
different corporate cultures. The process of combining
organizations may cause an interruption of, or a loss of momentum
in, the activities of the Company's business, which could have an
adverse effect on the revenues and operating results of the
Company, at least in the near term.
The ability of software companies with significant internal
development and marketing capabilities to continue to manage
growth, develop competitive new products and respond to rapid
technological change depends on an ability to attract, motivate,
manage and retain talented developers, product marketers and other
employees with valuable technological and marketing expertise. The
Company's educational software products require a substantially
larger internal development and marketing staff than its operations
had previously required. If the Company is unable to attract,
motivate, manage and retain such employees, the Company's results
of operations will likely be adversely affected.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
SoftKey operates in a highly competitive and technology driven
environment. The consumer software industry is undergoing
substantial change and is subject to a high level of uncertainty.
Software companies must continue to develop or acquire new products
or upgrade existing products on a timely basis to sustain revenues
and profitable operations. Factors contributing to the short life
span of PC software have included rapid technological change and an
expanded demand for content-rich products. Software companies must
continue to create or acquire innovative new products reflecting
technological changes in hardware and software and translate
current products into newly accepted hardware and software formats,
in order to gain and maintain a viable market for their products.
PC hardware, in particular, is steadily advancing in power and
function, expanding the market for increasingly complex and
flexible software products. This has also resulted in longer
periods necessary for research and development of new products and
a greater degree of unpredictability in the time necessary to
develop products. Furthermore, the rapid changes in the market and
the increasing number of new products available to consumers have
increased the degree of consumer acceptance risk with respect to
any specific title that the Company may publish. It is expected
that this trend will continue and may become more pronounced in the
future.
In the past, the Company focused primarily on the productivity,
lifestyle and edutainment product categories. These product
categories have a lower development cost and are not considered as
"hit" driven as the high-end, 16-bit 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.
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT
Retailers of the Company's products typically have a limited
amount of shelf space and promotional resources, and there is
intense competition among high-quality educational software
products for adequate levels of shelf space and promotional support
from retailers. To the extent that the number of consumer software
products and computer platforms increases, this competition for
shelf space may intensify. Due to increased competition for
limited shelf space, retailers and distributors are increasingly in
a better position to negotiate favorable terms of sale, including
price discounts and product return policies, as well as cooperative
market development funds. Retailers often require software
publishers to pay fees in exchange for preferred shelf space. The
amounts paid to retailers by software publishers for preferred
shelf space are customarily determined by an arms-length
negotiation on a case by case basis, and there is no general
formula or industry standard for determining such fees. Amounts
typically paid by the Company for shelf space, cooperative
advertising, promotional costs and market developments funds
represent approximately 4-5% of gross sales. There can be no
assurance that such retailers will continue to purchase the
Company's products, provide the Company's products with adequate
levels and quality of shelf space or continue to participate with
the Company in cooperative advertising, promotional or market
development arrangements.
SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE
Recently, several major publishers of PC software have
significantly reduced the prices of their products with the goal of
gaining greater market share, 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 15% of its revenues in the year
ended January 6, 1996 from sales occurring outside North America.
The Company's international revenues increased by 96% in 1995 as
compared to 1994. This increase was driven by both the acquisition
of tewi, a German company, on July 21, 1995 and increased
penetration of personal computers in Europe, which in turn caused
an increase in demand for and sales of consumer software products.
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 "shrink-wrap"
software industry, including the Company. These problems are
particularly acute in certain international markets such as South
America, the Middle East, the Pacific Rim and the Far East.
PROTECTION OF PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS
The Company relies on a combination of trade secret,
copyright, trademark and other proprietary rights laws and license
agreements to protect its rights to its software products and
related documentation. The Company does not have any patents.
United States copyright law, international conventions and
international treaties, however, may not provide meaningful
protection against unauthorized duplication of the Company's
software. The Company generally licenses its externally developed
products rather than transferring title and has relied on
contractual arrangements with recipients and users of its products
to establish certain proprietary rights and to maintain
confidentiality of those products protected by trade secret law.
Consistent with standard industry practice, the Company's products
generally are licensed pursuant to "shrink-wrap" licenses that are
not signed by the licensee. The enforceability of such licenses
has not been conclusively determined. The Company's products do
not contain any mechanisms to prevent or inhibit unauthorized
copying.
The Company has registered numerous trademarks in the United
States and Canada, and a small number in other countries, for
titles or components of its products and has trademark
registrations pending in the United States and other countries for
various new products.
Policing unauthorized use of a broadly disseminated product such
as PC software is very difficult. Software piracy can be expected
to be a persistent problem for the "shrink-wrap" software industry.
These problems are particularly acute in certain international
markets such as South America, the Middle East, the Pacific Rim and
the Far East.
The Company periodically receives communications alleging or
suggesting that its products may incorporate material covered by
the copyrights, trademarks or other proprietary rights of third
parties. With the increased use of music and animation in CD-ROM
products and the increased number of software products on the
market generally, the Company is likely to experience an increase
in the number of infringement claims asserted against it in the
future. With respect to licensed products, the Company is
generally indemnified against liability on these matters. The
Company's policy is to investigate the factual basis of such
communications and to resolve such matters promptly by enforcing
its rights, negotiating licenses (if necessary) or taking other
appropriate actions.
In certain circumstances, litigation may be necessary to enforce
the Company's proprietary rights, to protect copyrights, trademarks
and trade secrets and other intellectual property rights owned by
the Company or its licensors, to defend the Company against claimed
infringements of the rights of others and to determine the scope
and validity of the proprietary rights of the Company and others.
Any such litigation, whether with or without merit, could be costly
and a diversion of management's attention, which could have an
adverse effect on the Company's business, operating results or
financial condition. Adverse determinations in litigation relating
to any of the Company's products could result in the loss of the
Company's proprietary rights, subject the Company to liabilities,
require the Company to seek licenses from third parties or prevent
the Company from selling that product.
DEPENDENCE ON MAJOR SUPPLIER
All duplication, assembly and fulfillment, with certain
exceptions (including CD-ROMs and products reproduced by OEMs), for
all of the Company's U.S. products are provided by one supplier,
Stream International Inc., formerly known as the Global Software
Services business unit of R.R. Donnelley & Sons Company ("Stream"),
at facilities in Crawfordsville, Indiana. 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 $57,250,000
for the year ended June 30, 1993 and $73,258,000 for the transition
period from July 4, 1993 to January 1, 1994 and $65,960,000 for the
year ended January 6, 1996 (after amortization of $18,229,000 of
goodwill). The Company had net income of $21,145,000 for the year
ended December 31, 1994. There can be no assurance that the
Company will be profitable in the future.
CAPITAL RESOURCES
The expansion of the Company's current business involves
significant financial risk and capital investment. There is no
assurance that financing will be available in the future to meet
the needs of the Company for additional investment.
DEPENDENCE ON CONTINUED PERSONAL COMPUTER SALES
The success of the Company is dependent upon the continuing use
of PCs, and especially multimedia PCs, in the consumer and school
market. A general decrease in unit sales of PCs or shift to an
alternative means of delivery could adversely affect the Company's
future results of operations.
VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the NNM. The market price of the
Common Stock, like that for the shares of many other high
technology companies, has been and may continue to be volatile.
Recently, the stock market in general and the shares of personal
computer software companies in particular have experienced
significant price fluctuations. These broad market fluctuations,
as well as general economic and political conditions and factors
such as quarterly fluctuations in results of operations, the
announcement of technological innovations, the introduction of new
products by the Company or its competitors and general conditions
in the computer hardware and software industries may have a
significant impact on the market price of the Common Stock. There
can be no assurance as to the effect of consummation of the
recent acquisitions by the Company on the market price of the
Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Nordman Shares by Mr. Nordman. The Company will not receive any
proceeds from the sale of the Bear Stearns Shares by Bear Stearns,
except as a result of payments which may be received pursuant to
the terms of the Fee Adjustment Agreement dated as of May 20,
1996 by and between the Company and Bear Stearns (the "Adjustment
Agreement"), the material terms of which are described herein. See
"Plan of Distribution--Bear Stearns." Should the Company receive
any proceeds from this offering pursuant to the Adjustment
Agreement, the Company will use such proceeds for general corporate
purposes.
THE SELLING STOCKHOLDER
Set forth below is certain information regarding the Selling
Stockholder and the Nordman Shares. At March 20, 1996, there were
31,848,980 shares of Common Stock issued and outstanding.
Jean-Pierre Nordman beneficially owns, by sole voting and
investment power (except to the extent authority may be shared by a
spouse under applicable law), an aggregate of 122,322 shares of
Common Stock, all of which were acquired by Mr. Nordman pursuant to
a Stock Purchase Agreement dated as of November 15, 1995 between
Mr. Nordman and the Company (the "Nordman Agreement") and are
offered hereby. The remaining 104,563 Nordman Shares offered
hereby may be acquired by Mr. Nordman between the date hereof and
April 15, 1999 pursuant to certain provisions of the Nordman
Agreement. The Nordman Shares represent less than 1% of the Common
Stock outstanding as of March 20, 1996. Mr. Nordman has been
employed by the Company as the President of Personal Soft S.A., a
French societe anonyme and a wholly owned subsidiary of the
Company, from November 15, 1995 to the present. Other than as set
forth herein and as a result of the ownership of the Nordman
Shares, Mr. Nordman has not had any material relationship with the
Company or any of its affiliates within the past three years.
PLAN OF DISTRIBUTION
GENERAL
The Company has been advised by each of Bear Stearns and the
Selling Stockholder that, as of the date hereof, it has not made
any 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 Bear Stearns or the Selling Stockholder
or from purchasers of such securities. Such underwriters, brokers,
dealers or agents may also purchase and resell Shares for their own
account. Bear Stearns and the Selling Stockholder and such
underwriters, brokers, dealers or agents may be considered
"underwriters" as that term is defined by the Securities Act,
although the Selling Stockholder 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 Shares will be offered or sold in such
jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions, the Shares may not
be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or unless an exemption from such
registration or qualification is available and is complied with.
Pursuant to applicable rules and regulations under the Exchange
Act, any person engaged in a distribution of the Shares may be
limited in its ability to engage in market activities with respect
to such Shares. In addition and without limiting the foregoing,
Bear Stearns and the Selling Stockholder will be subject to
applicable provisions of the Exchange Act and the rules and
regulations thereunder which may limit the timing of purchases and
sales of the Shares. All of the foregoing may affect the
marketability of the Shares.
The Company has agreed to pay substantially all of the expenses
incident to the registration, offering and sale of the Shares to
the public other than commissions and discounts of agents, dealers
or underwriters. Such expenses (excluding such commissions and
discounts) are estimated to be approximately $90,000.
BEAR STEARNS
In the course of its normal business and trading operations, Bear
Stearns periodically buys and sells shares of Common Stock for its
own account and the accounts of others. Accordingly, Bear Stearns
may have beneficial ownership of varying amounts of Common Stock
from time to time. Bear Stearns acquired the Bear Stearns Shares
pursuant to the Adjustment Agreement, all of the Bear Stearns
Shares are offered hereby. The Bear Stearns Shares offered hereby
represent approximately 1.6% of the Common Stock outstanding as of
March 20, 1996.
The Bear Stearns Shares offered hereby will be issued to and
offered and sold by Bear Stearns pursuant to the terms and
provisions of the Adjustment Agreement and otherwise as described
below. As set forth in the Adjustment Agreement, the Adjustment
Agreement relates to the settlement of up to $10,131,394.17 in
fees, costs and expenses (the "Aggregate Fee Amount") payable by
the Company to Bear Stearns for investment banking advice and
financial advisory services rendered by Bear Stearns to the Company
in connection with certain recent acquisitions and the
reimbursement and settlement of certain fees, costs and expenses in
connection therewith. Pursuant to the terms of the Adjustment
Agreement, if the Sale Proceeds (as defined in the Adjustment
Agreement) to Bear Stearns relating to the offer and sale of the
Bear Stearns Shares are less than the Aggregate Fee Amount, the
Company has agreed to pay Bear Stearns an amount in cash equal to
the difference between the Aggregate Fee Amount and the Sale
Proceeds. In addition, pursuant to the terms of the Adjustment
Agreement, if the Sale Proceeds exceed the Aggregate Fee Amount,
Bear Stearns has agreed to pay the Company an amount in cash equal
to the portion of the Sale Proceeds which exceeds the Aggregate Fee
Amount.
Under the Adjustment Agreement, Bear Stearns has agreed to use
all reasonable efforts to sell all of the Bear Stearns Shares by
the halt of trading on the twentieth NNM trading day after the date
of this Prospectus. If all Bear Stearns Shares are not sold by the
halt of trading on the twentieth NNM trading day after the date of
this Prospectus, such remaining Bear Stearns Shares will be sold by
Bear Stearns for its own account pursuant to the terms of the
Adjustment Agreement. Such sales may be made by Bear Stearns,
subject to the timing, volume and price limitations of the
Adjustment Agreement described below, in transactions on the NNM,
in negotiated transactions, pursuant to an underwritten offering or
pursuant to one or more of the following methods (among others):
(a) purchases by a broker-dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (b)
ordinary brokerage transactions and transactions in which a broker
solicits purchasers; and (c) block trades in which a broker-dealer
so engaged will attempt to sell the Bear Stearns Shares as agent
but may take a position and resell a portion of the block as
principal to facilitate the transaction. In connection with any
such sales, Bear Stearns may be deemed to have received
compensation from the Company in the form of underwriting discounts
or commissions and may also receive commissions from purchasers of
the Bear Stearns Shares for whom it may act as agent.
Pursuant to the terms of the Adjustment Agreement, Bear Stearns
shall sell no more than 75,000 Shares in any single NNM trading day
without the prior consent of the Company and must sell all of the
Bear Stearns Shares at a price equal to or in excess of the
prevailing per share market price of the Common Stock at the time
of sale, as determined by reference to then current quotations on
the NNM, unless the Company gives prior consent to a sale of the
Bear Stearns Shares at a lower price.
The Adjustment Agreement provides that the Company will indemnify
Bear Stearns against certain liabilities, including civil
liabilities under the Securities Act, or will contribute to certain
payments Bear Stearns may be required to make in respect thereof.
In addition to advising the Company in connection with certain
recent acquisitions, Bear Stearns also served as the placement
agent for a private offering of convertible notes of the Company in
October 1995. Other than as set forth herein and as a result of
the ownership of the Bear Stearns Shares, Bear Stearns has not had
any material relationship with the Company or any of its affiliates
within the past three years.
NORDMAN
The Nordman Shares offered hereby may be offered and sold by Mr.
Nordman from time to time in transactions on the NNM, in negotiated
transactions, at fixed prices which may be changed, at market
prices prevailing at the time of sale, at prices related to the
prevailing market prices or at negotiated prices. Such sales may
be made pursuant to an underwritten offering or pursuant to one or
more of the following methods (among others): (a) purchases by a
broker-dealer as principal and resale by such broker or dealer for
its account pursuant to this Prospectus; (b) ordinary brokerage
transactions and transactions in which a broker solicits
purchasers; and (c) block trades in which a broker-dealer so
engaged will attempt to sell the Nordman Shares as agent but may
take a position and resell a portion of the block as principal to
facilitate the transaction.
Mr. Nordman will act independently of the Company in making
decisions with respect to the timing, manner and size of each sale.
Sales of the Nordman Shares are, in general, expected to be made at
the market price prevailing at the time of each such sale; however,
prices in negotiated transactions may differ considerably.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for
the Company by Neal S. Winneg, General Counsel of the Company. Mr.
Winneg owns options to purchase an aggregate of 114,375 shares of
Common Stock, which are or become exercisable in periodic
installments through February 1999.
EXPERTS
The consolidated financial statements and related schedule of the
Company as of and for the years ended January 6, 1996 and December
31, 1994, included in the Company's Annual Report on Form 10-K for
the year ended January 6, 1996, have been audited by Coopers &
Lybrand L.L.P., independent public accountants, as set forth in
their report therein dated February 20, 1996 and incorporated
herein by reference in reliance on such report, given on the
authority of that firm as experts in accounting and auditing. The
consolidated statements of operations, stockholders' equity
(deficit) and cash flows and the related financial statement
schedule of the Company for the six month transition period from
July 4, 1993 to January 1, 1994 and for the year ended June 30,
1993, included in the Company's Annual Report on Form 10-K for the
year ended January 6, 1996, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report
therein dated January 16, 1995 and incorporated herein by
reference. In its report, Arthur Andersen LLP states that with
respect to the consolidated statements of operations, stockholders'
equity (deficit) and cash flows and the related financial statement
schedule of WordStar and Spinnaker for the year ended June 30,
1993, its opinion is based on the reports of other independent
accountants, namely KPMG Peat Marwick LLP and Price Waterhouse LLP,
respectively. The consolidated statements of operations,
stockholders' equity (deficit) and cash flows and the related
financial statement schedule of the Company have been included
therein in reliance upon the authority of those firms as experts in
accounting and auditing. The report of Price Waterhouse LLP on the
consolidated financial statements of Spinnaker for the year ended
June 30, 1993 contains an explanatory paragraph relating to
Spinnaker's ability to continue as a going concern as described in
Note 12 of the consolidated financial statements of Spinnaker (not
included herein).
The financial statements of MECC as of March 31, 1994 and March
31, 1995 and for each of the three years in the period ended March
31, 1995 incorporated in this Prospectus by reference from the
Company's Current Report on Form 8-K dated May 21, 1996, have been
audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and
have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and
auditing.
The combined financial statements of Compton's NewMedia, Inc. and
Compton's Learning Company as of December 25, 1994 and for the
fiscal year then ended included in the Current Report on Form 8-K/A
of the Company dated January 25, 1996, incorporated by reference in
this Registration Statement, have been incorporated herein in
reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in
accounting and auditing.
No dealer, salesman or any
other person has been
authorized to give any
information or to make any
representation not contained
in this Prospectus, and, if
given or made, such
information or representation
must not be relied upon as
having been authorized by the
Company, Bear Stearns 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 Pro spectus
nor any sale made hereunder
shall, under any 726,885 SHARES
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.
____________ [SOFTKEY LOGO]
COMMON STOCK
____________________
PROSPECTUS
TABLE OF CONTENTS ____________________
Page
Available Information . . . 2
Documents Incorporated by
Reference . . . . . . . . . 2
Prospectus Summary . . . . 3
Risk Factors . . . . . . . 4
Use of Proceeds . . . . . 9
The Selling Stockholder . . 10
Plan of Distribution . . . 10
Legal Matters . . . . . . . 12
Experts . . . . . . . . . . 12
MAY 21, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the offering (all of which,
other than selling commissions or discounts, will be borne by the
Company and not the Selling Stockholder), are estimated as follows:
Securities and Exchange Commission Registration . . . $6,988.12
NASDAQ Additional Listing of Shares Fee . . . . . . . 14,538.00
Legal Fees and Expenses . . . . . . . . . . . . . . . 25,000.00
Accounting Fees and Expenses . . . . . . . . . . . . 25,000.00
State Securities Laws Registration Fees and Expenses. . 15,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 3,473.88
Total . . . . . . . . . . . . . . . . . . . . . . . $90,000.00
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 damages 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. In addition,
certain of SoftKey's directors may be entitled to indemnification
and advancement of expenses under the charter documents of Tribune
Company and may be covered by directors' and officers' liability
insurance maintained by Tribune Company.
16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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)
2.2 Agreement and Plan of Merger dated November 30,
1995 by and among the Company, Cubsco I Inc.,
Cubsco II Inc., Tribune Company, Compton's
NewMedia, Inc., and Compton's Learning
Company(2)
2.3 SoftKey/TLC Agreement and Plan of Merger dated
December 6, 1995 among the Company, Kidsco Inc.
and The Learning Company(2)
2.4 Agreement and Plan of Merger by and among the
Company, SchoolCo Inc. and Minnesota Educational
Computing Corporation (MECC) ("MECC") dated as
of October 30, 1995(3)
5.1 Opinion of Neal S. Winneg, Esq.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Arthur Andersen 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 Price Waterhouse LLP*
23.7 Consent of Neal S. Winneg, Esq. (included in Exhibit 5.1)*
24.1 Power of Attorney*
99.1 Fee Adjustment Agreement dated as of May 20,
1996 by and between the Company and Bear,
Stearns & Co. Inc.
_____________
* 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 exhibits filed with the Company's
Current Report on Form 8-K dated December 11, 1995.
(3) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 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 arising 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 Act and is, therefore, unenforceable. In the
event that a claim for 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 the 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
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 May 21,
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 by the following
persons in the capacities and on the dates indicated.
Signature Title Date
* Chairman of the May 21, 1996
__________________ Board and Chief Executive
Michael J. Perik Officer (principal executive
officer)
* Chief Financial Officer May 21, 1996
__________________ (principal financial
R. Scott Murray and accounting officer)
* President and Director May 21, 1996
___________________
Kevin O'Leary
* Director May 21, 1996
___________________
Michael Bell
* Director May 21, 1996
____________________
James C. Dowdle
* Director May 21, 1996
____________________
Robert Gagnon
* Director May 21, 1996
___________________
Robert Rubinoff
* Director May 21, 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
NUMBER DESCRIPTION
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)
2.2 Agreement and Plan of Merger dated November 30,
1995 by and among the Company, Cubsco I Inc.,
Cubsco II Inc., Tribune Company, Compton's
NewMedia, Inc., and Compton's Learning
Company(2)
2.3 SoftKey/TLC Agreement and Plan of Merger dated
December 6, 1995 among the Company, Kidsco Inc.
and The Learning Company(2)
2.4 Agreement and Plan of Merger by and among the
Company, SchoolCo Inc. and Minnesota Educational
Computing Corporation (MECC) dated as of October
30, 1995(3)
5.1 Opinion of Neal S. Winneg, Esq.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Arthur Andersen 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 Price Waterhouse LLP*
23.7 Consent of Neal S. Winneg, Esq. (included in Exhibit 5.1)*
24.1 Power of Attorney*
99.1 Fee Adjustment Agreement dated as of May 21,
1996 by and between the Company and Bear,
Stearns & Co. Inc.
_____________
* 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 exhibits filed with the Company's
Current Report on Form 8-K dated December 11, 1995.
(3) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995.
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in
Amendment No. 1 to the Registration Statement No. 333-
03271 of SoftKey International Inc. on Form S-3 of our
report dated May 24, 1995 (June 30, 1995 as to the second
paragraph of Note 4) relating to the financial statements
of Minnesota Educational Computing Corporation (MECC) for
each of the years in the period ended March 31, 1995
included in the Form 8-K of SoftKey International Inc.
filed on May 21, 1996.
We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
May 21, 1996
Exhibit 99.1
FEE ADJUSTMENT AGREEMENT
This FEE ADJUSTMENT AGREEMENT ("Adjustment
Agreement") dated as of May 20, 1996 by and between
SoftKey International Inc., a Delaware corporation
("SoftKey"), and Bear, Stearns & Co. Inc., a Delaware
corporation ("Bear Stearns").
WHEREAS, pursuant to a letter agreement, dated
October 29, 1995, between SoftKey and Bear Stearns (the
"Learning Company Agreement"), SoftKey engaged Bear
Stearns to provide investment banking advice and finan-
cial advisory services to SoftKey in connection with
SoftKey's acquisition of The Learning Company, a Delaware
corporation, and, as compensation therefor, SoftKey
agreed to pay certain fees to Bear Stearns, $7,000,000 of
which are currently due and owing (such $7,000,000 in
currently due and owing fees being hereinafter referred
to as the "Learning Company Fees"); and
WHEREAS, pursuant to a separate letter agree-
ment, dated October 29, 1995, between SoftKey and Bear
Stearns (the "MECC Agreement" and, together with the
Learning Company Agreement, the "Fee Agreements"),
SoftKey engaged Bear Stearns to provide investment bank-
ing advice and financial advisory services to SoftKey in
connection with SoftKey's acquisition of Minnesota Educa-
tional Computing Corporation (MECC), a Minnesota corpora-
tion, and, as compensation therefor, SoftKey agreed to
pay certain fees to Bear Stearns, $2,500,000 of which are
currently due and owing (such $2,500,000 in currently due
and owing fees being hereinafter referred to as the "MECC
Fees"); and
WHEREAS, pursuant to the Fee Agreements,
SoftKey currently owes Bear Stearns $616,394.17 in rea-
sonable out-of-pocket fees, expenses and costs (such
$616,394.17 in fees, expenses and costs being hereinafter
referred to as the "Reimbursement Fees" and, together
with the Learning Company Fees and the MECC Fees, the
"Fees"); and
WHEREAS, SoftKey and Bear Stearns now desire to
set forth certain terms and provisions with respect to
the payment by SoftKey of the Fees;
NOW, THEREFORE, in consideration of the forego-
ing and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowl-
edged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding
anything to the contrary in either of the Fee Agreements
with respect to the form and timing of payment of the
Fees, SoftKey's obligations to pay the Fees shall be
satisfied in full by SoftKey's compliance with the terms
and provisions of this Adjustment Agreement. In addi-
tion, SoftKey shall pay Bear Stearns $15,000 in excess of
the Reimbursement Fees toward fees, expenses and sales
commissions incurred by Bear Stearns in connection with
the transactions contemplated by this Adjustment Agree-
ment (the "Adjustment Fees"). The Fees and the Adjust-
ment Fees are collectively referred to herein as the
"Outstanding Fees." Under no circumstances will SoftKey
be obligated to pay Bear Stearns any fees, expenses and
costs in excess of the Outstanding Fees, except as pro-
vided in Sections 8 and 9 of this Adjustment Agreement.
2. Issuance of the Shares. On the next
business day after the date hereof, SoftKey is issuing to
Bear Stearns 500,000 shares of SoftKey's Common Stock,
par value $.01 per share collectively, the "Shares").
3. Sale of the Shares.
a. Bear Stearns shall use all reason-
able efforts to sell all of the Shares during the period
commencing on the next business day after the date hereof
and ending on the twentieth Trading Day (as defined
below) after such date (the "Selling Period") ; provided,
however, that if Bear Stearns is suspended from trading
in the Shares pursuant to Section 5(d)(ii) hereof during
the Selling Period, the Selling Period shall be length-
ened by an equal period of time. For purposes of this
Adjustment Agreement, "Trading Day" means a day on which
the Nasdaq National Market is open for the purpose of
quoting transactions in securities.
b. In the event that, using all reason-
able efforts, Bear Stearns does not sell all of the
Shares during the Selling Period, Bear Stearns may there-
after continue to sell any Shares remaining unsold at the
end of the Selling Period for its own account in accor-
dance with the terms of this Adjustment Agreement.
c. Bear Stearns shall sell no more than
75,000 Shares in any single Trading Day during or after
the Selling Period without SoftKey's prior consent, no
sale of Shares shall have a settlement date more than
three business days after the date on which such sale was
effected, and all sales of Shares shall be effected at a
price equal to or in excess of the prevailing market
price per Share at the time of sale, as determined by
reference to then current quotations on the Nasdaq Na-
tional Market, unless SoftKey gives prior consent to a
sale of Shares at a lower price. Bear Stearns shall
maintain records of each sale of Shares and the amount of
gross proceeds received therefrom, and a true and correct
copy of each such record shall be sent or delivered to
SoftKey by facsimile or overnight courier as soon as
practicable after the subject sale.
4. Disposition of the Sales Proceeds. Upon
the later to occur of the last Trading Day in the Selling
Period or the settlement date for the last sale of the
Shares by Bear Stearns during the Selling Period (such
later date being hereinafter referred to as the "Expira-
tion Date"), Bear Stearns shall be entitled to retain
that portion of the Sales Proceeds (as defined below)
equal to the Outstanding Fees. In the event that the
Sales Proceeds exceed the Outstanding Fees, Bear Stearns
shall remit such excess amount to SoftKey in cash by wire
transfer in same-day funds to one or more accounts desig-
nated by SoftKey on the next business day after the
Expiration Date. In the event that the Outstanding Fees
exceed the Sales Proceeds, SoftKey shall pay such excess
amount to Bear Stearns in cash by wire transfer in same-
day funds to one or more accounts designated by Bear
Stearns on the next business day after the Expiration
Date. For purposes of this Adjustment Agreement, "Sales
Proceeds" means (a) if Bear Stearns sells all of the
Shares during the Selling Period, the amount of the gross
proceeds of such sales or (b) if Bear Stearns, using all
reasonable efforts, does not sell all of the Shares
during the Selling Period, the sum of (i) the gross
proceeds of the sales of Shares occurring during the
Selling Period and (ii) the product of (A) the volume-
weighted average of the per share closing prices of the
Common Stock as quoted on the Nasdaq National Market for
each Trading Day in the Selling Period and (B) the number
of Shares remaining unsold at the end of the Selling
Period.
5. Representations, Warranties and Cove-
nants of SoftKey. SoftKey represents and warrants to and
covenants with Bear Stearns as follows:
a. A registration statement on Form S-3
with respect to the Shares, including any amendment or
amendments thereto, has (i) been prepared by SoftKey in
conformity with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules
and regulations of the Securities and Exchange Commission
(the "Commission") thereunder (the "Regulations"),
(ii) been filed with the Commission under the Securities
Act and (iii) become effective under the Securities Act
on the next business day after the date hereof (the "Effective
Date"). Such registration statement, as so amended, including
the prospectus, financial statements and schedules, exhibits
and all other documents filed as a part thereof, as amended at
the Effective Date, is herein called the "Registration Statement,"
and the prospectus, in the form first filed with the Commission
pursuant to Rule 424(b) of the Regulations or in the form filed
as part of the Registration Statement at the Effective Date,
if no Rule 424(b) filing is required, is herein called
the "Prospectus." Any reference herein to the Registra-
tion Statement or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 which were filed
under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), on or before the Effective Date or
the date of the Prospectus, as the case may be, and any
reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement
or the Prospectus shall be deemed to refer to and include
(x) the filing of any document under the Exchange Act
after the Effective Date or the date of the Prospectus,
as the case may be, which is incorporated therein by
reference and (y) any such document so filed.
b. At the Effective Date or the time
effectiveness of any post-effective amendment to the
Registration Statement, at the time the Prospectus is
first filed with the Commission pursuant to Rule 424(b)
of the Regulations (if a Rule 424(b) filing is required),
at the time any supplement to or amendment of the Pro-
spectus is filed with the Commission and at the time any
document filed under the Exchange Act is filed, the
Registration Statement and the Prospectus and any amend-
ments thereof and supplements thereto complied or will
comply in all material respects with the applicable
provisions of the Securities Act and the Regulations or
the Exchange Act and the respective rules and regulations
thereunder and do not or will not contain an untrue
statement of a material fact and do not or will not omit
to state any material fact required to be stated therein
or necessary in order to make the statements therein (i)
in the case of the Registration Statement, not misleading
and (ii) in the case of the Prospectus, in the light of
the circumstances under which they were made, not mis-
leading.
c. All of the outstanding shares of
Common Stock are duly and validly authorized and issued,
fully paid and nonassessable and were not issued and are
not now in violation of or subject to any preemptive
rights. The Shares, when issued and delivered in accor-
dance with this Adjustment Agreement, will be duly and
validly issued and outstanding, fully paid and nonassess-
able and will not have been issued in violation of or be
subject to any preemptive rights.
d. If at any time when a prospectus
relating to the Shares is required to be delivered under
the Securities Act any event shall occur as a result of
which the Prospectus as then amended or supplemented, in
the judgment of Bear Stearns or SoftKey, includes an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary
to make the statements therein, in the light of the
circumstances under which they were made, not misleading,
or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to
comply with the Securities Act or the Regulations, or to
file under the Exchange Act so as to comply therewith any
document incorporated by reference in the Registration
Statement or the Prospectus or in any amendment thereof
or supplement thereto, (i) the Company will notify Bear
Stearns promptly and prepare and file with the Commission
an appropriate amendment or supplement (in form and
substance satisfactory to Bear Stearns) which will cor-
rect such statement or omission or which will effect such
compliance and will use its best efforts to have any
amendment to the Registration Statement declared effec-
tive by the Commission as soon as possible and (ii) Bear
Stearns shall suspend trading in the Shares until (A)
such amendment or supplement to the Prospectus has been
filed or (B) any amendment to the Registration Statement
has been declared effective by the Commission.
e. SoftKey is providing Bear Stearns
with conformed copies of the Registration Statement and
copies of the Prospectus.
6. Representations, Warranties and Cove-
nants of Bear Stearns. Bear Stearns represents and
warrants to and covenants with SoftKey as follows:
a. Bear Stearns acknowledges that it has
reviewed certain publicly available materials related to
SoftKey, including reports, proxy statements and other
information filed by SoftKey with the Commission in
compliance with the reporting requirements of the Ex-
change Act and has been afforded the opportunity to ask
such questions of representatives of SoftKey and receive
answers thereto, as Bear Stearns deems necessary in
connection with its decision to acquire the Shares pursu-
ant to this Adjustment Agreement.
7. Conditions to Bear Stearns's Obliga-
tions. The obligations of Bear Stearns hereunder are
subject to the accuracy, when made on the date hereof, of
the representations and warranties of SoftKey contained
herein, to the performance by SoftKey of its obligations
hereunder and to the receipt by Bear Stearns of an opin-
ion of Neal S. Winneg, Esq., General Counsel of SoftKey,
addressed to Bear Stearns, dated the Effective Date, and
in form and substance satisfactory to Bear Stearns to the
effect that:
a. all of the outstanding shares of
Common Stock are duly and validly authorized and issued,
are fully paid and nonassessable and were not issued in
violation of or subject to any preemptive rights;
b. the issuance of the Shares has been
duly authorized by requisite corporate action and, when
issued and delivered by SoftKey in accordance with this
Adjustment Agreement, the Shares will be validly issued,
fully paid and nonassessable and will not have been
issued in violation of or subject to any preemptive
rights;
c. the Registration Statement, at the
Effective Date, and the Prospectus, at its date, and any
amendments thereof or supplements thereto, at their
respective dates (other than financial statements and
schedules and other financial and statistical data in-
cluded or incorporated by reference therein, as to which
no opinion need be rendered), appeared to be appropriate-
ly responsive in all material respects to the require-
ments of the Securities Act and the Regulations and he
has no reason to believe that the Registration Statement,
at the Effective Date, contained an untrue statement of a
material fact or omitted to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus,
at its date, contained an untrue statement of a material
fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
and
d. each of the documents filed under the
Exchange Act and incorporated by reference in the Regis-
tration Statement, the Prospectus or any amendment there-
of or supplement thereto (other than the financial state-
ments and schedules and other financial and statistical
data included or incorporated by reference therein, as to
which no opinion need be rendered), at the time it was
filed with the Commission, appeared to be appropriately
responsive in all material respects to the requirements
of the Exchange Act and he has no reason to believe that
any of such documents, when such documents were so filed,
contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to
make the statements therein, in the light of the circum-
stances under which they were made when such documents
were so filed, not misleading.
8. Indemnification.
a. SoftKey agrees to indemnify and hold
harmless Bear Stearns and each person (each, a "Bear
Stearns Controlling Person"), if any, who controls Bear
Stearns within the meaning of Section 15 of the Securi-
ties Act or Section 20(a) of the Exchange Act, against
any and all losses, liabilities, claims, damages and
expenses whatsoever as incurred (including but not limit-
ed to attorneys' fees and any and all expenses whatsoever
incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of
any claim or litigation), joint or several, to which they
or any of them may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement,
as originally filed or any amendment thereof, or the
Prospectus, or in any supplement thereto or amendment
thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, however,
that SoftKey shall not be liable to Bear Stearns or any
Bear Stearns Controlling Person for any such losses,
liabilities, claims, damages or expenses which arise out
of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission con-
tained or made in the Registration Statement or the
Prospectus or any amendment thereof or Supplement thereto
in reliance upon and in conformity with information
furnished to SoftKey by Bear Stearns. SoftKey and Bear
Stearns hereby agree that the information set forth in
the first sentence of the second paragraph and the third
sentence of the third paragraph under the caption "Plan
of Distribution--Bear Stearns" in the Prospectus is the
only information supplied to SoftKey by Bear Stearns for
use in connection with the preparation of the Registra-
tion Statement and the Prospectus. This indemnity agree-
ment will be in addition to any liability which SoftKey
may otherwise have, including under this Adjustment
Agreement. Bear Stearns agrees to indemnify and hold
harmless SoftKey and each person (each, a "SoftKey Con-
trolling Person" and, together with any Bear Stearns
Controlling Person, "Controlling Persons"), if any, who
controls SoftKey within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, each
officer of SoftKey who signed the Registration Statement
and each director of SoftKey against any and all losses,
liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investi-
gating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any
and all amounts paid in settlement of any claim or liti-
gation), joint or several, to which they or any of them
may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect there-
of) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained
in the Registration Statement, as originally filed or any
amendment thereof, or the Prospectus, or in any supple-
ment thereto or amendment thereof, or arise out of or are
based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
but only insofar as such losses, liabilities, claims,
damages or expenses arise out of or are based upon an
untrue statement or alleged untrue statement or omission
or alleged omission contained or made in the Registration
Statement or the Prospectus or any amendment thereof or
Supplement thereto in reliance upon and in conformity
with information furnished to SoftKey by Bear Stearns.
This indemnity agreement will be in addition to any
liability which Bear Stearns may otherwise have, includ-
ing under this Adjustment Agreement.
b. Promptly after receipt by any indem-
nified party under subsection a. above of notice of the
commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the
party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so
to notify an indemnifying party shall not relieve it from
any liability which it may have under this Section 8).
In case any such action is brought against any indemni-
fied party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent it may
elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof
with counsel satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such coun-
sel shall have been authorized in writing by the indemni-
fying party in connection with the defense of such ac-
tion, (ii) the indemnifying party shall not have employed
counsel to have charge of the defense of such action
within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties
shall have reasonably concluded that there may be defens-
es available to it or them which are different from or
additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of
the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying
party. Anything in this subsection to the contrary
notwithstanding, the indemnifying party shall not be
liable for any settlement of any claim or action effected
without its written consent; provided, however, that such
consent was not unreasonably withheld.
9. Contribution. In order to provide for
contribution in circumstances in which the indemnifica-
tion provided for in Section 8 hereof is for any reason
held to be unavailable from the indemnifying party or is
insufficient to hold harmless a party indemnified there-
under, SoftKey and Bear Stearns shall contribute to the
aggregate losses, claims, damages, liabilities and ex-
penses of the nature contemplated by such indemnification
provision (including any investigation, legal and other
expenses incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any
claims asserted, but after deducting any contribution
received by the indemnified party from persons, other
than the indemnifying party, who may also be liable for
contribution, including Controlling Persons of the indem-
nified party and, if SoftKey is the indemnified party,
officers of SoftKey who signed the Registration Statement
and directors of SoftKey) as incurred to which SoftKey
and Bear Stearns may be subject, in such proportions as
is appropriate to reflect the relative benefits received
by SoftKey and Bear Stearns from the sale of the Shares
or, if such allocation is not permitted by applicable law
or indemnification is not available as a result of the
indemnifying party not having received notice as provided
in Section 8 hereof, in such proportion as is appropriate
to reflect not only the relative benefits referred to
above but also the relative fault of SoftKey and Bear
Stearns in connection with the statements or omissions
which resulted in such losses, claims, damages, liabili-
ties or expenses, as well as any other relevant equitable
considerations. The relative benefits received by
SoftKey and Bear Stearns shall be deemed to be in the
same proportion as (x) the Sales Proceeds are to (y) the
aggregate gross proceeds received by Bear Stearns of
sales of the Shares occurring after the Selling Period,
if any, less an amount equal to the product, if any,
calculated under Section 4(b)(ii) hereof. The relative
fault of SoftKey and of Bear Stearns shall be determined
by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact
relates to information supplied by SoftKey or Bear
Stearns and the parties' relative intent, knowledge,
access to information and opportunity to correct or
prevent such statement or omission. SoftKey and Bear
Stearns agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined
by pro rata allocation or by any other method of alloca-
tion which does not take account of the equitable consid-
erations referred to above. Notwithstanding the provi-
sions of this Section 9, Bear Stearns shall not be re-
quired to contribute any amount in excess of the amount
by which the Sales Proceeds exceed the amount of any
damages that Bear Stearns has otherwise been required to
pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this
Section 9, each Bear Stearns Controlling Person shall
have the same rights to contribution as Bear Stearns, and
each SoftKey Controlling Person, each officer of SoftKey
who signed the Registration Statement and each director
of SoftKey shall have the same rights to contribution as
SoftKey. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect
of which a claim for contribution may be made against the
other party, notify each party from whom contribution may
be sought, but the omission to so notify such party shall
not relieve the party from whom contribution may be
sought from any obligation it may have under this Section
9 or otherwise. No party shall be liable for contribu-
tion with respect to any action or claim settled without
its consent; provided, however, that such consent was not
unreasonably withheld.
10. Entire Agreement. This Adjustment
Agreement and the Fee Agreements (to the extent not
inconsistent herewith) constitute the entire agreement
between the parties hereto with respect to the subject
matter hereof and supersede all prior written agreements
and negotiations and oral understandings, if any, with
respect thereto. This Adjustment Agreement may not be
amended or supplemented except by an instrument in writ-
ing signed by each of the parties hereto.
11. Notices. All notices, requests and
other communications hereunder shall be in writing and
delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight
courier or facsimile, addressed as follows:
If to SoftKey, to
SoftKey International Inc.
One Athenaeum Street
Cambridge, Massachusetts 02142
Telephone: (617) 494-1200
Facsimile: (617) 494-1219
Attn: Neal S. Winneg, Esq.
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Beacon Street
Boston, Massachusetts 02108
Telephone: (617) 573-4800
Facsimile: (617) 573-4822
Attn: Louis A. Goodman, Esq.
If to Bear Stearns, to:
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Telephone: (212) 272-3331
Facsimile: (212) 272-4041
Attn: Michael J. Urfirer
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 455-2000
Facsimile: (212) 455-2502
Attn: Andrew R. Keller, Esq.
The address of a party, for the purposes of this Section
11, may be changed by giving written notice to the other
party of such change in the manner provided herein for
giving notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been
duly given: at the time delivered by hand, if personally
delivered; five calendar days after mailing, if sent by
registered or certified mail; the next business day after
timely delivery to the courier, if sent by overnight
courier; and when receipt is acknowledged, if sent by
facsimile transmission (except that a notice of change of
address shall not be deemed to have been given until
actually received by the addressee).
12. Governing Law. This Adjustment Agree-
ment shall be construed in accordance with and governed
by the laws of the Commonwealth of Massachusetts, without
regard to the conflicts of law principles thereof.
IN WITNESS WHEREOF, the undersigned have duly
executed this Adjustment Agreement as of the date first
set forth above.
SOFTKEY INTERNATIONAL INC.
By /s/ R. Scott Murray
________________________
Name: R. Scott Murray
Title: Chief Financial Officer
BEAR, STEARNS & CO. INC.
By /s/ Michael J. Urfirer
___________________________
Name: Michael J. Urfirer
Title: Senior Managing Director
