<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 6, 1996
Commission File Number 0-13069
SOFTKEY INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-2562108
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(Address of Principal Executive Offices)
(617) 494-1200
(Registrant's Telephone Number, Including Area Code)
Indicate by check [checkmark] whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
----- -----
As of August 7, 1996, there were 42,742,843 outstanding shares of the
issuer's Common Stock, par value $.01 per share.
<PAGE> 2
SOFTKEY INTERNATIONAL INC.
--------------------------
TABLE OF CONTENTS
-----------------
Part I - Financial Information
------------------------------
Page
----
ITEM 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995...................... 3
Condensed Consolidated Statements of
Operations for the Three Months and Six
Months Ended June 30, 1996 and 1995...................... 4
Condensed Consolidated Statements of
Cash Flows for the Six Months
Ended June 30, 1996 and 1995............................. 5
Notes to Condensed Consolidated Financial Statements..... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
Part II - Other Information
---------------------------
ITEM 1. Legal Proceedings ....................................... 14
ITEM 4. Submission of Matters to a Vote of Security Holders...... 14
ITEM 6. Exhibits and Reports on Form 8-K......................... 15
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SOFTKEY INTERNATIONAL INC.
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 96,716 $ 77,832
Accounts receivable (less allowances for returns
of $9,944 and $6,851, respectively) 49,870 32,402
Inventories 16,390 18,997
Other current assets 21,429 23,627
-------- --------
184,405 152,858
Property and equipment, net 20,936 19,621
Goodwill, net 560,551 580,165
Acquired technology and other intangible assets, net 200,173 147,769
-------- --------
$966,065 $900,413
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 51,339 $ 50,603
Current portion of long-term debt 953 4,434
Current portion of related party debt -- 4,314
Merger related accruals 20,771 40,089
Revolving line of credit 25,000 --
Due to The Learning Company stockholders 328 25,353
-------- --------
98,391 124,793
-------- --------
LONG-TERM OBLIGATIONS:
Senior Convertible Notes 350,000 350,000
Senior Exchangeable/Convertible Note 150,000 150,000
Other long-term obligations 3,416 3,982
-------- --------
503,416 503,982
-------- --------
DEFERRED INCOME TAXES 95,972 57,119
-------- --------
STOCKHOLDERS' EQUITY 268,286 214,519
-------- --------
$966,065 $900,413
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
3
<PAGE> 4
SOFTKEY INTERNATIONAL INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 76,120 $34,954 $ 147,253 $77,829
COSTS AND EXPENSES:
Costs of production 20,249 11,881 40,704 25,907
Sales, marketing and support 15,870 8,207 31,250 18,145
General and administrative 6,888 5,833 13,750 12,355
Research and development 8,850 2,827 16,747 5,667
Amortization and merger related
charges 162,077 -- 252,589 --
--------- ------- --------- -------
213,934 28,748 355,040 62,074
OPERATING INCOME (LOSS) (137,814) 6,206 (207,787) 15,755
INTEREST EXPENSE, net 6,371 336 12,719 757
--------- ------- --------- -------
INCOME (LOSS) BEFORE TAXES (144,185) 5,870 (220,506) 14,998
PROVISION FOR INCOME TAXES:
Current 4,530 834 8,009 2,203
Deferred (4,530) -- (8,009) --
--------- ------- --------- -------
-- 834 -- 2,203
--------- ------- --------- -------
NET INCOME (LOSS) $(144,185) $ 5,036 $(220,506) $12,795
========= ======= ========= =======
NET INCOME (LOSS) PER SHARE $ (3.63) $ 0.21 $ (6.08) $ 0.54
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 39,687,000 24,100,000 36,287,000 23,801,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE> 5
SOFTKEY INTERNATIONAL INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(220,506) $ 12,795
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Depreciation, amortization and write-off of intangible assets 198,954 3,304
Charge for purchased research and development 56,688 --
Changes in operating assets and liabilities:
Accounts receivable (20,027) (4,318)
Accounts payable and accruals (2,867) (12,497)
Other 4,422 3,445
--------- --------
16,664 2,729
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets and other (9,470) (4,329)
Payment of merger related accruals (23,998) --
Payments to stockholders of The Learning Company (25,025) --
Acquisitions, including cash received 21,481 --
--------- --------
(37,012) (4,329)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases and long-term debt (5,227) (1,472)
Borrowings (repayments) under line of credit 25,000 (7,700)
Proceeds from issuance of common stock for settlement of
expenses 2,888 --
Proceeds from issuance of common stock related to exercise of
stock options, net 19,352 91,686
Other (1,945) --
--------- --------
40,068 82,514
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (836) 279
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 18,884 81,193
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,832 12,205
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 96,716 $ 93,398
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE> 6
SOFTKEY INTERNATIONAL INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
-------- --------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Common stock issued to acquire MECC $220,184 --
Increase in APIC due to value of in-the-money employee stock
options acquired in connection with the acquisition of MECC 19,444 --
Common stock issued for settlement of expenses 10,132 --
Common stock issued to settle note payable to related party 3,053 --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
6
<PAGE> 7
SOFTKEY INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of SoftKey International Inc.
("SoftKey" or the "Company") for the three and six months ended June 30, 1996
and 1995 are unaudited and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended January 6, 1996. The results of
operations for the three and six months ended June 30, 1996 are not necessarily
indicative of the results for the entire year ending December 31, 1996.
The second quarter reporting period for 1996 ended on July 6, 1996 and the
second quarter reporting period for 1995 ended on July 1, 1995. For clarity of
presentation and comparison, all references to the Year Ended December 31, 1995
relate to the period January 1, 1995 to January 6, 1996. The periods from
January 7, 1996 to July 6, 1996 and from January 1, 1995 to July 1, 1995 are
referred to as the "Six Months Ended June 30, 1996" and the "Six Months Ended
June 30, 1995," respectively, throughout these financial statements. The periods
from April 2, 1995 to July 1, 1995 and from April 7, 1996 to July 6, 1996 are
referred to as the "Second Quarter 1995" and the "Second Quarter 1996,"
respectively.
On December 28, 1995, the Company acquired Compton's NewMedia, Inc. and
Compton's Learning Company (collectively, "Compton's") in exchange for a
combination of common stock and the assumption of certain intercompany
indebtedness from Tribune Company. On December 22, 1995, the Company acquired
control of The Learning Company for cash. On July 21, 1995, the Company acquired
tewi Verlag GmbH ("tewi") in exchange for a combination of cash and common
stock. Each of these acquisitions was accounted for using the purchase method of
accounting. On August 31, 1995, the Company acquired Future Vision Holding, Inc.
("Future Vision") for common stock. This transaction was accounted for using the
pooling-of-interests method. Prior period amounts have been restated to reflect
the pooling-of-interests with Future Vision.
<TABLE>
Summarized results of operations for the Six Months Ended June 30, 1995, on a
separate company and combined basis related to the pooling-of-interests with
Future Vision are as follows:
<CAPTION>
SoftKey Future Vision Combined
------- ------------- --------
<S> <C> <C> <C>
Revenues $74,721 $ 3,108 $77,829
Operating income (loss) 21,779 (6,024) 15,755
Net income (loss) 17,973 (5,178) 12,795
Net income (loss) per share 0.79 (4.76) 0.54
</TABLE>
On May 17, 1996, the Company acquired the Minnesota Educational Computing Corp.
(MECC) ("MECC"), in exchange for 9,174,349 shares of common stock.
7
<PAGE> 8
<TABLE>
The purchase price for MECC was allocated as follows:
<CAPTION>
<S> <C>
Purchase Price (inclusive of value of in-the-money
stock options and deferred income taxes) $283,496
Less: Fair value of net tangible assets 13,990
--------
Excess to allocate 269,506
--------
Less: excess allocated to:
Incomplete technology 56,688
Completed technology and products 88,501
Brands and trademarks 894
--------
146,083
--------
Goodwill $123,423
========
</TABLE>
<TABLE>
Summarized pro forma combined results of operations for the Six Months Ended
June 30, 1996 and the Six Months Ended June 30, 1995 are shown as if the
transactions had occurred at the beginning of the period presented. Pro forma
adjustments relate primarily to amortization of goodwill and complete
technology and merger related charges. The SoftKey pro forma results of
operations for the Six Months Ended June 30, 1995 have been prepared assuming
the acquisitions of The Learning Company, Compton's and tewi had occurred
at the beginning of the period and include the charge for MECC purchased
incomplete technology. These pro forma combined results of operations include
the historical results from each of the acquired businesses and do not reflect
any reductions in operating costs derived from consolidation of functional
departments in the companies or the one time charges for purchased incomplete
technology of The Learning Company and Compton's. In addition, pro forma
combined operating income (loss) includes pro forma amortization of assets
resulting from purchase accounting of $41,128 and $279,875, respectively, and
pro forma interest on convertible debt of $0 and $13,750, respectively, for the
Six Months Ended June 30, 1996 and the Six Months Ended June 30, 1995.
<CAPTION>
MECC
Including
Six Months Ended Pro Forma Pro Forma
June 30, 1996 SoftKey Adjustments Combined
- ----------------------- --------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 147,253 $ 7,800 $ 155,053
Operating income (loss) (207,787) (50,340) (258,127)
Net income (loss) (220,506) (41,030) (261,536)
Net income (loss)
per share $ (6.08) $ (6.10)
</TABLE>
<TABLE>
<CAPTION>
SoftKey MECC
Including Including
Six Months Ended Pro Forma Pro Forma Pro Forma
June 30, 1995 Adjustments Adjustments Combined
- ----------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 118,970 $ 13,465 $ 132,435
Operating income (loss) (214,486) (52,038) (266,524)
Net income (loss) (217,180) (42,780) (259,960)
Net income (loss)
per share $ (7.53) $ (6.84)
</TABLE>
2. GOODWILL AND OTHER INTANGIBLE ASSETS
The excess cost over the fair value of net assets acquired is recorded as
goodwill and is amortized on a straight-line basis over 2 years, except for the
goodwill associated with the Company's Canadian income tax software business,
which is being amortized on a straight-line basis over its estimated useful life
of 40 years. The cost of identified intangible assets is generally amortized on
a straight-line basis over its estimated useful life of 2 to 7 years. Deferred
financing costs are being amortized on a straight-line basis over the term of
the related debt financing. The carrying value of goodwill and intangible assets
is reviewed on a quarterly and annual basis for the existence of facts or
circumstances both internally and externally that may suggest impairment. To
date no such impairment has occurred. Should there be an impairment in the
future, the Company will measure the amount of the impairment based on
discounted expected future cash flows. The cash flow estimates that will be used
will contain management's best estimates, using appropriate and customary
assumptions and projections at the time.
8
<PAGE> 9
<TABLE>
3. LONG-TERM OBLIGATIONS
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Senior Convertible Notes $350,000 $350,000
Related party Senior Convertible/
Exchangeable Notes 150,000 154,314
Capital leases 1,219 1,614
Other 3,150 6,802
-------- --------
504,369 512,730
Less: current portion (953) (8,748)
======== ========
$503,416 $503,982
======== ========
</TABLE>
On April 5, 1996 the Company issued 158,099 shares of common stock in settlement
of $3,000 of related party debt plus accrued interest to Tribune Company, a
stockholder.
4. INVENTORIES
Inventories consist primarily of finished goods and components at June 30, 1996
and December 31, 1995.
5. COMPUTATION OF EARNINGS PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and dilutive common stock equivalent shares outstanding during the
period. Dilutive common stock equivalent shares consist of convertible notes and
stock options and warrants using the treasury stock method in both reporting
periods. The computations do not include common stock equivalents where the
effect would be antidilutive. Primary earnings per share computations do not
materially differ from fully diluted earnings per share due to the exclusion of
the dilutive effect of convertible debentures and notes plus the effect of using
the average price of the Company's common stock versus ending price in the
treasury stock computation.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
financial statements and the notes thereto and in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Annual Report on Form 10-K for the year ended January 6, 1996. All
dollar amounts presented in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are presented in thousands, except
per share amounts.
INTRODUCTION
SoftKey International Inc. ("SoftKey" or the "Company") is a leading developer
and publisher of high quality consumer software for PC's, primarily produced on
CD-ROM. The Company develops, licenses, manufactures, distributes and markets a
wide range of consumer titles in the lifestyle, edutainment, productivity,
entertainment and education categories. In addition, the Company develops,
markets and distributes income tax software and provides comprehensive
nationwide tax processing for personal, corporate and trust tax returns in
Canada.
On May 17, 1996, the Company acquired the Minnesota Educational Computing Corp.
(MECC) ("MECC") in exchange for common stock. On December 28, 1995, the Company
acquired Compton's NewMedia, Inc. and Compton's Learning Company (collectively
"Compton's") in exchange for a combination of common stock and cancellation of
certain intercompany indebtedness from Tribune Company. On December 22, 1995,
the Company acquired control of The Learning Company for cash. On July 21, 1995
the Company acquired tewi Verlag GmbH ("tewi") in exchange for a combination of
cash and common stock. Each of these transaction was accounted for as a
purchase. Accordingly, results are combined from the date of the respective
merger onwards for the above transactions. Results (in terms of dollar amounts)
for the Three and Six Months Ended June 30, 1996 are not directly comparable to
the Three and Six Months Ended June 30, 1995 because they do not include results
from the purchases. Accordingly, management's discussion and analysis for these
periods is generally based upon a comparison of specified results as a
percentage of total revenues.
On August 31, 1995, SoftKey acquired all of the outstanding common stock of
Future Vision Holdings, Inc. This transaction was accounted for using the
pooling-of-interests method of accounting. Prior period results have been
restated to reflect the pooling-of-interest.
RESULTS OF OPERATIONS
NET INCOME. The Company incurred a net loss of $144,185 ($3.63 per fully
diluted share) on revenues of $76,120 in the Second Quarter 1996 and a net loss
of $220,506 ($6.08 per fully diluted share) on revenues of $147,253 in the Six
Months Ended June 30, 1996 as compared to net income of $5,036 ($0.21 per fully
diluted share) on revenues of $34,954 in the Second Quarter 1995 and net income
of $12,795 ($0.54 per fully diluted share) on revenues of $77,829 in the Six
Months Ended June 30, 1995. The increase in revenue is primarily a result of the
acquisitions of The Learning Company and Compton's in December 1995. The net
loss in the Second Quarter 1996 and Six Months Ended June 30, 1996 is a result
of the effect of the amortization of goodwill and other merger related costs of
$162,077 and $252,589, respectively.
REVENUES. Revenues by distribution channel for the Second Quarter 1996 as
compared to the Second Quarter 1995 and the Six Months Ended June 30, 1996 as
compared to the Six Months Ended June 30, 1995 are as follows:
10
<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- --------------------------------------
1996 % 1995 % 1996 % 1995 %
------- --- ------- --- -------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail $38,950 51% $16,930 48% $ 73,109 50% $32,607 42%
OEM 7,260 10% 3,455 10% 13,595 9% 7,870 10%
School 7,076 9% -- -- 9,498 6% -- --
Direct response 7,605 10% 6,611 19% 14,134 10% 13,379 17%
International 11,416 15% 4,433 13% 22,670 15% 8,502 11%
Tax software and services 3,813 5% 3,525 10% 14,247 10% 15,471 20%
------- --- ------- --- -------- --- ------- ---
$76,120 100% $34,954 100% $147,253 100% $77,829 100%
======= === ======= === ======== === ======= ===
</TABLE>
Total revenues increased 118% in the Second Quarter 1996 as compared to Second
Quarter 1995 and 89% for the Six Months Ended June 30, 1996 as compared to the
Six Months Ended June 30, 1995 due to several factors, including the effect of
revenues from the acquisitions of The Learning Company, Compton's and MECC and
an increase in the sales of the Company's Platinum and KeyKids "jewel-case only"
line of products. Retail revenues increased as a result of the acquisitions of
The Learning Company, Compton's and MECC plus a general increase in sales of
consumer software products through retailers such as Office Depot, K-Mart and
Officemax. International sales increased primarily as a result of the
acquisition of tewi on July 21, 1995 and an increase in foreign language
translated versions of the Company's products available for sale. Original
equipment manufacturer ("OEM") revenues increased due to the availability of new
product offerings for this channel. Direct response revenues increased on a
dollar basis but decreased as a percentage of revenues due to the overall
increase in revenues resulting from product sales of the acquired companies
which did not formerly participate in the direct mail channel. Prior to the
acquisition of The Learning Company and MECC, the Company did not participate in
the school channel. Revenues from the Tax Division declined for the Six Months
Ended June 30, 1996 as compared to the Six Months Ended June 30, 1995 as a
result of increased competition in the Canadian income tax market.
<TABLE>
COSTS AND EXPENSES. The Company's costs and expenses and the respective
percentages of revenues for the Second Quarter 1996 as compared to the Second
Quarter 1995 and the Six Months Ended June 30, 1996 as compared to the Six
Months Ended June 30, 1995 are as follows:
<CAPTION>
Three Months ended June 30, Six Months Ended June 30,
--------------------------------------------- ----------------------------------------------
% of % of % of % of
1996 Revenues 1995 Revenues 1996 Revenues 1995 Revenues
------- -------- ------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs of production $20,249 27% $11,881 34% $ 40,704 28% $25,907 33%
Sales, marketing and
support 15,870 21% 8,207 23% 31,250 21% 18,145 23%
Research and
development 8,850 11% 2,827 8% 16,747 11% 5,667 8%
General and
administrative 6,888 9% 5,833 17% 13,750 9% 12,355 16%
------- -- ------- -- -------- -- ------- --
$51,857 68% $28,748 82% $102,451 69% $62,074 80%
======= == ======= === ======== == ======= ==
</TABLE>
Total costs and expenses decreased as a percentage of revenues to 68% and 69% in
the Second Quarter 1996 and in the Six Months Ended June 30, 1996, respectively,
as compared with 82% and 80% in the Second Quarter 1995 and the Six Months Ended
June 30, 1995, respectively. This decrease was caused primarily by the reduction
in general and administrative costs and costs of production as a percentage of
revenues as a result of the integration and centralization of the operations of
the acquired companies.
Costs of production includes the cost of manuals, packaging, diskettes,
duplication, assembly and fulfillment charges. In addition, costs of production
includes royalties paid to third-party developers and inventory obsolescence
reserves. Costs of production, as a percentage of revenues, decreased in the
Second Quarter 1996 and the Six Months Ended June 30, 1996 to 27% and 28% of
revenues respectively, as compared to the Second Quarter 1995 and the Six Months
Ended June 30, 1995. The decrease in costs of production as a percentage of
revenues was caused by reduced prices on the cost to manufacture product and the
impact from The Learning Company and MECC having historically higher gross
margin selling products than SoftKey, an increase in sales in the OEM, school
and direct response channels, all of which typically enjoy higher gross margins
than the Company's
11
<PAGE> 12
traditional retail box product. As well, the Company has seen an increase in
sales of its Platinum line of products, which due to the nature of the packaging
in a jewel-case also generate higher gross margins.
Sales, marketing and support expenses decreased to 21% of revenues in the Second
Quarter 1996 as compared to 23% of revenues in the Second Quarter 1995 and 21%
of revenues in the Six Months Ended June 30, 1996 as compared to 23% of revenues
in the Six Months Ended June 30, 1995. The percentage decrease was a result of
the Company reducing both fixed costs and employee headcount of the combined
Company following the acquisitions in 1995 and 1996.
Research and development costs increased to 11% of revenues in the Second
Quarter 1996 as compared to 8% in the Second Quarter 1995 and 11% of revenues in
the Six Months Ended June 30, 1996 as compared to 8% of revenues in the Six
Months Ended June 30, 1995. The increase is a result of a higher proportion of
internally developed products from The Learning Company and Compton's than
previously from SoftKey.
General and administrative expenses decreased to 9% of revenues for both the
Second Quarter 1996 and Six Months Ended June 30, 1996, as compared to 17% and
16% of revenues in the Second Quarter 1995 and Six Months Ended June 30, 1995,
respectively. This is primarily the result of the closure of a Future Vision
Holding, Inc. facility in New York and consolidation of finance and
manufacturing functions in Europe. In addition, the percentage of revenues
decrease resulted from a general reduction in overhead costs and employee
headcount following the acquisitions in 1995 and 1996.
During the Second Quarter 1996 and Six Months Ended June 30, 1996, charges of
$162,077 and $252,589, respectively, resulting from the acquisitions of The
Learning Company, Compton's and MECC were incurred. Included in this amount is
$56,688 related to a charge for in-process technology and the remainder relates
to amortization of goodwill and acquired technology related assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased from $77,832 at December 31, 1995 to $96,716
at June 30, 1996. This increase was attributable to the cash received from the
acquisition of MECC of $21,481 and proceeds from stock option exercises of
$19,352, offset by the repayment of approximately $23,998 of merger related
liabilities and purchases of equipment and other for $9,470. During the Six
Months Ended June 30, 1996 the Company paid $25,025 of amounts due to the former
stockholders of The Learning Company. During the Six Months Ended June 30, 1996
the Company generated cash from operations of $16,664.
The Company has outstanding $350,000 principal amount 5 1/2% Senior Convertible
Notes due 2000 (the "Senior Convertible Notes") and $150,000 principal amount 5
1/2% Senior Convertible/Exchangeable Notes due 2000 held by the Tribune Company
(the "Tribune Notes"). The Senior Convertible Notes and Tribune Notes will be
redeemable by the Company on or after November 2, 1998 at declining redemption
prices.
On August 1, 1996, the Company announced that its Board of Directors authorized
the repurchase by the Company over the next twelve months of up to $50 million
principal amount of its Senior Convertible Notes from time to time in the open
market and privately negotiated transactions. Any purchases would depend on
price, market conditions and other factors. The Company intends to use its
excess cash flow from operations for any such purchases.
The Company also has in place a revolving line of credit (the "Line"), to
provide for a maximum availability of $50,000. Borrowings under the Line become
due on July 1, 1997 and bear interest at the prime rate (8.25% at June 30,
1996). The Line is subject to certain financial covenants, is secured by a
general security interest in the assets of SoftKey Inc. and certain other
subsidiaries of the Company and by a pledge of the stock of certain of its
subsidiaries. The Line is guaranteed by the Company. There was $25,000 drawn on
the Line at June 30, 1996.
Income generated by the Company's subsidiaries in certain foreign countries
cannot be repatriated to the Company in the United States without payment of
additional taxes since the Company does not currently receive a U.S. tax credit
with respect to income taxes paid by the Company (including its subsidiaries) in
those foreign countries. The
12
<PAGE> 13
Company also conducts its tax software business in Canada, which has experienced
foreign currency exchange rate fluctuation relative to the US dollar. In order
to mitigate this exposure, from time to time the Company has purchased foreign
exchange options contracts, none of which are outstanding at June 30, 1996.
Cash flow from operations on a short-term basis is positively impacted by the
seasonality of the income tax software business in the first two quarters of the
calendar year. At the present time, the Company expects that its cash flows from
operations will be sufficient to finance the Company's operations for at least
the next twelve months. Longer-term cash requirements are dictated by a number
of external factors, which include the Company's ability to launch new and
competitive products, the strength of competition in the consumer software
industry and the growth of the home computer market. The Company is continuously
evaluating products and technologies for acquisitions, however, no estimation of
short-term or long-term cash requirements for such acquisitions can be made at
this time.
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report on Form 10-Q which
are not historical facts may include forward looking statements. The forward
looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward looking statements, including those discussed below or
in the Company's Annual Report on Form 10-K for the fiscal year ended January 6,
1996.
The Company's future operating results are subject to a number of uncertainties,
including its ability to develop and introduce new products, the introduction of
competitive products and general economic conditions. In addition, the Company
expects the level of competition in the consumer software industry will become
more intense and that companies with greater access to capital, new products and
retail shelf space may enter its market. In addition, should competitors of the
Company continue to consolidate, it will increase the risk associated with
channel management and product offerings.
The Company has recently completed the acquisitions of The Learning Company,
Compton's and MECC and may plan to seek acquisitions of businesses, products or
technologies in the future that are complementary to its current business. There
can be no assurance that the Company will not encounter difficulties in
integrating these or future businesses, products or technologies. As a result of
the acquisitions in 1995 and the acquisition of MECC in 1996, the Company will
have substantial amounts of non-cash amortization of goodwill and intangible
assets over the next few years. This will result in substantial operating losses
in the future.
The rate of change in the consumer software industry has continued to increase.
As consumers have become more accustomed to purchasing multimedia software the
Company believes they have developed, and will continue to develop, increased
sophistication with respect to the content and quality of their software
purchases, demanding increasingly full featured and content rich programs. In
addition, the development time for new platforms on which the Company's products
run is decreasing, requiring the Company to update or discontinue products at
shorter intervals. The Company also anticipates that the future demand for
on-line and Internet compatible products will increase and it will be required
to continuously re-evaluate its product strategy. The Company continually
assesses and redefines its existing distribution strategy to meet these future
demands. These factors make the Company's future revenue and profitability
increasingly unpredictable.
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations is provided pursuant to applicable
regulations of the Securities and Exchange Commission and is not intended to
serve as a basis for projections of future events.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings other than ordinary
routine litigation and arbitration incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's 1996 Special Meeting of Stockholders in lieu of an
Annual Meeting was held on May 16, 1996.
(b) The following directors were elected at the meeting and no other
directors' terms of office continued after the meeting: Michael
Bell, James C. Dowdle, Robert Gagnon, Kevin O'Leary, Michael J.
Perik, Robert Rubinoff and Scott M. Sperling.
(c) The first matter voted upon at the meeting was a proposal to
approve the issuance of up to 10,500,000 shares of common stock
of the Company in connection with the proposed merger of SchoolCo
Inc., a wholly owned subsidiary of the Company, with and into
MECC pursuant to an Agreement and Plan of Merger dated as of
October 30, 1995 by and between the Company, SchoolCo Inc. and
MECC. Upon motion duly made and seconded, such proposal was
approved. The votes were reported as follows:
Approval of Shares
Issued in Merger For: 22,906,014
Against: 178,825
Abstain: 35,311
Non-Votes: 3,590,224
The second matter voted upon at the meeting was the election of
Directors. Upon motion duly made and seconded, each of the
nominees was elected as a director to serve until the Company's
1997 Annual Meeting and until his successor is elected and
qualified. The votes for each of the nominees were reported as
follows:
Michael A. Bell For: 26,591,750
Withheld: 147,050
James C. Dowdle For: 26,558,698
Withheld: 180,102
Robert Gagnon For: 26,547,508
Withheld: 191,292
Kevin O'Leary For: 26,578,926
Withheld: 159,874
Michael J. Perik For: 26,578,426
Withheld: 160,374
Robert Rubinoff For: 26,591,320
Withheld: 147,480
14
<PAGE> 15
Scott M. Sperling For: 26,367,160
Withheld: 371,640
The third matter voted upon at the meeting was a proposal to
approve an amendment to the Company's Long Term Equity Incentive
Plan (the "LTIP"), to increase the number of shares issuable
under the LTIP from 5,450,000 to 7,000,000. Upon motion duly made
and seconded, such proposal was approved. The votes were reported
as follows:
Approval LTIP Amendment For: 19,120,130
Against: 7,308,890
Abstain: 48,822
Non-Votes: 259,339
The fourth matter voted upon at the meeting was the approval and
adoption of a proposed amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock of the Company from 60,000,000 to
120,000,000. Upon motion duly made and seconded, such proposal
was approved and adopted. The votes were reported as follows:
Increase of Authorized Shares For: 26,031,173
Against: 485,216
Abstain: 64,540
Non-Votes: 157,871
The fifth matter voted upon at the meeting was the ratification
of the Board's appointment of Coopers & Lybrand L.L.P. as
independent public accountants for the 1996 fiscal year. Upon
motion duly made and seconded, such appointment was approved. The
votes were reported as follows:
Coopers & Lybrand L.L.P. For: 26,678,108
Against: 32,088
Abstain: 28,604
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 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]
3.1 Restated Certificate of Incorporation, as amended
3.2 Bylaws of the Company, as amended
15
<PAGE> 16
4.1 Indenture dated as of October 16, 1995 between the Company and
State Street Bank and Trust Company, as Trustee, for 5 1/2% Senior
Convertible Notes due 2000 (the "Indenture")[3]
4.2 First Supplemental Indenture to the Indenture, dated as of
November 22, 1995, by and between the Company and State Street
Bank and Trust Company, as Trustee[4]
4.3 Note Resale Registration Rights Agreement dated as of October 23,
1995 by and between the Company, on the one hand, and the Initial
Purchasers set forth therein, on the other hand (the
"Registration Rights Agreement")[4]
4.4 Letter Agreement dated November 22, 1995 amending the Registration
Rights Agreement[4]
4.5 Form of Securities Resale Registration Rights Agreement by and
among the Company and Tribune Company[5]
4.6 Form of Indenture between the Company and State Street Bank and
Trust Company, as Trustee, for 5 1/2% Senior
Convertible/Exchangeable Notes Due 2000[2]
10.1 Employment Agreement dated as of June 18, 1996 by and between the
Company and Les Schmidt.
11.1 Statement Re: Computation of Per Share Earnings
- -------------------------
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.
4 Incorporated by reference to exhibits filed with Company's Registration
Statement on Form S-3 (Reg No. 333- 145), filed January 26, 1996.
5 Filed as exhibits to Exhibit 2.2 hereto.
(b) REPORTS ON FORM 8-K
On May 21, 1996 the Company filed a Current Report on Form 8-K
reporting the acquisition of MECC on May 17, 1996.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOFTKEY INTERNATIONAL INC.
August 16, 1996
/s/ R. Scott Murray
--------------------------------------------
R. Scott Murray
Chief Financial Officer
(principal financial and accounting officer)
17
<PAGE> 18
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION Number
- ------ ----------- ------
<S> <C> <C>
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 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]
3.1 Restated Certificate of Incorporation, as amended
3.2 Bylaws of the Company, as amended
4.1 Indenture dated as of October 16, 1995 between the Company and
State Street Bank and Trust Company, as Trustee, for 5 1/2% Senior
Convertible Notes due 2000 (the "Indenture")[3]
4.2 First Supplemental Indenture to the Indenture, dated as of
November 22, 1995, by and between the Company and State Street
Bank and Trust Company, as Trustee[4]
4.3 Note Resale Registration Rights Agreement dated as of October 23,
1995 by and between the Company, on the one hand, and the Initial
Purchasers set forth therein, on the other hand (the "Registration
Rights Agreement")[4]
4.4 Letter Agreement dated November 22, 1995 amending the Registration
Rights Agreement[4]
4.5 Form of Securities Resale Registration Rights Agreement by and
among the Company and Tribune Company[5]
4.6 Form of Indenture between the Company and State Street Bank and
Trust Company, as Trustee, for 5 1/2% Senior
Convertible/Exchangeable Notes Due 2000[2]
10.1 Employment Agreement dated as of June 18, 1996 by and between the
Company and Les Schmidt.
11.1 Statement Re: Computation of Per Share Earnings
<FN>
- -------------------------
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.
</TABLE>
18
<PAGE> 19
4 Incorporated by reference to exhibits filed with Company's Registration
Statement on Form S-3 (Reg No. 333-145), filed January 26, 1996.
5 Filed as exhibits to Exhibit 2.2 hereto.
19
<PAGE> 1
Exhibit 3.1
-----------
[NOTE: THE FOLLOWING RESTATED CERTIFICATE OF INCORPORATION HAS BEEN
FURTHER RESTATED, FOR PURPOSES OF FILING THE SAME WITH THE SECURITIES
AND EXCHANGE COMMISSION ONLY, TO GIVE EFFECT TO THE CERTIFICATE OF
AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF SOFTKEY
INTERNATIONAL INC. FILED WITH THE SECRETARY OF STATE OF THE STATE OF
DELAWARE ON MAY 30, 1996.]
RESTATED CERTIFICATE OF INCORPORATION
OF
SOFTKEY INTERNATIONAL INC.
SoftKey International Inc. a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), the original
Certificate of Incorporation of which was filed with the Secretary of State of
the State of Delaware on October 1, 1986 under the name Orporcim Corporation,
HEREBY CERTIFIES that this Restated Certificate of Incorporation restating,
integrating and amending its Certificate of Incorporation was duly adopted by
its Board of Directors in accordance with Sections 242 and 245 of the general
Corporation Law of the State of Delaware.
1. NAME. The name of the Corporation is "SoftKey International Inc."
2. REGISTERED OFFICE. The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
3. PURPOSES. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
4. CAPITAL STOCK
4.1 AUTHORIZED CAPITAL STOCK. The total number of shares of all
classes of capital stock that the Corporation is authorized to issue is
125,000,001, of which 120,000,000 shares are to be designated shares of "Common
Stock", each such share of Common Stock to have a par value of $0.01, 5,000,000
shares are to be designated shares of "Preferred Stock", each such share of
Preferred Stock to have a par value of $0.01, and one share is to be designated
the share of "Special Voting Stock," such share of Special Voting Stock to have
a par value of $1.00.
4.2 RIGHTS, PRIVILEGES AND RESTRICTIONS.
4.2.1 COMMON STOCK AND SPECIAL VOTING STOCK. The rights,
privileges and restrictions of the Common Stock and the Special Voting Stock
shall be set forth in this Section 4.
4.2.2 PREFERRED STOCK. The Board of Directors is
expressly authorized to provide for the issuance of all or any shares of the
Preferred Stock in
<PAGE> 2
one or more classes or series, and to fix for each such class or series such
voting powers, full or limited, or no voting powers, and such distinctive
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of such class or series and as may be
permitted by the General Corporation Law of the State of Delaware, including,
without limitation, the authority to provide that any such class or series may
be (i) subject to redemption at such time or times and at such price or prices;
(ii) entitled to receive dividends (which may be cumulative or non-cumulative)
at such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
of stock, or of any other series of the same or any other class or classes of
stock, of the Corporation; (iii) entitled to such rights upon the dissolution
of, or upon any distribution of the assets of, the Corporation; or (iv)
convertible into, or exchangeable for, shares of any other class or classes of
stock, or of any other series of the same or any other class or classes of
stock, of the Corporation at such price or prices or at such rates of exchange
and with such adjustments; all as may be stated in such resolution or
resolutions.
4.3 VOTING RIGHTS OF COMMON STOCK AND SPECIAL VOTING STOCK.
4.3.1 GENERAL. Except as otherwise required by law or
this Restated Certificate, (i) each holder of record of Common Stock shall have
one vote in respect of each share of stock held by the holder on the books of
the Corporation, and (ii) the holder of record of the share of Special Voting
Stock shall have a number of votes equal to the number of outstanding
Exchangeable Non-Voting Shares ("Exchangeable Shares") of SoftKey Software
Products Inc. from time to time which are not owned by the Corporation, any of
its subsidiaries or any person directly or indirectly controlled by or under
common control of the Corporation, in each case for the election of directors
and on all matters submitted to a vote of stockholders of the Corporation. Any
vacancy in the Board of Directors occurring because of the death, resignation or
removal of a director elected by the holders of Common Stock and Special Voting
Stock shall be filled by the vote or written consent of the holders of such
Common Stock and Special Voting Stock or, in the absence of action by such
holders, such vacancy shall be filled by action of the remaining directors. A
director elected by the holders of Common Stock and Special Voting Stock may be
removed from the Board of Directors with or without cause by the vote or consent
of the holders of such Common Stock and Special Voting Stock, as provided by the
Delaware General Corporation Law. For the purposes hereof, "control" (including
the correlative meanings, the terms "controlled by" and "under common control
of") as applied to any person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
that person through the ownership of voting securities, by contract or
otherwise.
2
<PAGE> 3
4.3.2 COMMON STOCK AND SPECIAL VOTING STOCK IDENTICAL IN
VOTING. In respect of all matters concerning the voting of shares, the Common
Stock and the Special Voting Stock shall vote as a single class and such voting
rights shall be identical in all respects.
4.4 LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the Corporation, and subject to any prior rights of holders of
shares of Preferred Stock, the holders of Common Stock shall be entitled to
receive, pro rata, all of the remaining assets of the Corporation available for
distribution to its stockholders and the holders of Special Voting Stock shall
not be entitled to receive any such assets.
4.5 DIVIDENDS. The holders of shares of Common Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
the assets of the Corporation which are by law available therefor, dividends
payable either in cash, in property or in shares of capital stock and the
holders of Special Voting Stock shall not be entitled to receive any such
dividends.
4.6 SPECIAL VOTING STOCK. (a) Pursuant to the terms of that
certain Combination Agreement, dated as of August 17, 1993, as amended and
restated, by and among the Corporation, SoftKey Software Products Inc., an
Ontario corporation, Spinnaker Software Corporation, a Minnesota corporation and
SSC Acquisition Corporation, a Delaware corporation, one share of Special Voting
Stock is being issued to the trustee (the "Trustee") under the Voting and
Exchange Trust Agreement, dated as of February 4, 1994, by and between the
Corporation, SoftKey Software Products Inc. and the Trustee.
(b) The holder of the share of Special Voting Stock is
entitled to exercise the voting rights attendant thereto in such manner as such
holder desires.
(c) At such time as the Special Voting Stock has no
votes attached to it because there are no Exchangeable Shares of SoftKey
outstanding which are not owned by the Corporation, any of its subsidiaries or
any person directly or indirectly controlled by or under common control of the
Corporation, and there are no shares of stock, debt, options or other agreements
of SoftKey Software Products Inc. which could give rise to the issuance of any
Exchangeable Shares of SoftKey Software Products Inc. to any person (other than
the Corporation, any of its subsidiaries or any person directly or indirectly
controlled by or under common control of the Corporation), the Special Voting
Stock shall be cancelled.
5. MANAGEMENT OF BUSINESS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors, and the
directors need not be elected by ballot unless required by the Bylaws of the
Corporation.
3
<PAGE> 4
6. BY-LAWS. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors and the stockholders of the Corporation are each
expressly authorized to adopt, amend, or repeal the Bylaws of the Corporation.
7. ARRANGEMENT WITH CREDITORS. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
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 director's 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.
4
<PAGE> 5
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 in 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 advance 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
5
<PAGE> 6
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.
9. AMENDMENTS. The Corporation reserves the right to amend and repeal any
provision contained in this Restated Certificate, and to take other corporate
action to the extent and in the manner now or hereafter permitted or prescribed
by the laws of the State of Delaware. All rights herein conferred are granted
subject to this reservation.
IN WITNESS WHEREOF, SoftKey International Inc. has caused this
Restated Certificate of Incorporation to be signed in its name and on its behalf
and attested on this 4th day of February, 1994.
SOFTKEY INTERNATIONAL INC.
By /S/ MICHAEL J. PERIK
-----------------------
Name: Michael J. Perik
Title: Chairman
ATTEST:
By /S/ DAVID L. LEWIS
---------------------
Name: David L. Lewis
Title: Secretary
6
<PAGE> 1
Exhibit 3.2
-----------
BYLAWS
OF
SOFTKEY INTERNATIONAL INC.
REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------
1. REGISTERED OFFICE. The registered office of the corporation shall be
in the City of Wilmington, County of New Castle, State of Delaware.
2. OTHER OFFICES. The corporation may also have offices at such other
places, both within or without the State of Delaware, as the Board of Directors
may from time to time determine or the business of the corporation may require.
MEETINGS OF STOCKHOLDERS
------------------------
3. TIME AND PLACE OF MEETINGS. All meetings of the stockholders shall be
held at such time and place, either within or without the State of Delaware, as
shall be fixed by the Board of Directors and stated in the notice or waiver of
notice of the meeting.
4. ANNUAL MEETING. An annual meeting of the stockholders for the election
of directors to succeed those whose terms expire and for the transaction of such
other business as may properly come before the meeting shall be held on such
date and at such time and place as the Board of Directors shall each year
designate.
5. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes prescribed in the notice of meeting, may be called by the
Board of Directors, the Chairman of the Board, the President, or the holders of
shares entitled to cast not less than fifteen percent of the votes at the
meeting, and shall be held on such date and at such time and place as they or he
or she shall designate.
6. NOTICE. Written notice of the place, date, and time of all meetings of
the stockholders shall be given not less than ten nor more than sixty days
before the date on which the meeting is to be held, to each stockholder entitled
to vote at such meeting, except as otherwise provided herein or required by law
(meaning, here and hereinafter, as required from time to time by the Delaware
General Corporation Law or the Certificate of Incorporation of the corporation).
When a meeting is adjourned to another place, date, or time, written
notice need not be given of the adjourned meeting if the place, date, and time
thereof are announced at the meeting at which the adjournment is taken and the
adjournment is not for more than thirty days; provided, however, that if the
date of any adjourned meeting is more than thirty days after the date of which
the meeting was originally noticed, or if a
<PAGE> 2
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
7. QUORUM AND REQUIRED VOTE. At any meeting of the stockholders, the
holders of a majority of all of the shares of the stock entitled to vote on the
subject matter at the meeting, present in person or by proxy, shall constitute a
quorum, unless or except to the extent that the presence of a larger number may
be required by law. The affirmative vote of the majority of shares present in
person or represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders. Where a separate vote by
class is required by law, the affirmative vote of the majority of shares of such
class present in person or represented by proxy at the meeting shall be the act
of the class.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
8. ORGANIZATION. Such person as the Board of Directors may have
designated or, in the absence of such a person, the Chairman of the Board or the
chief executive officer of the corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order any meeting of
the stockholders and act as chairman of the meeting. In the absence of the
Secretary of the corporation, the secretary of the meeting shall be such person
as the chairman appoints.
9. CONDUCT OF BUSINESS. The chairman of any meeting of stockholders
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seem to him or her in order.
10. PROXIES AND VOTING. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorize by an
instrument in writing filed in accordance with the procedure established for the
meeting.
Each stockholder shall have one vote for every share of stock
entitled to vote on the subject matter which is registered in his or her name on
the record date for the
2
<PAGE> 3
meeting, except as otherwise provided herein or required by law. Except as
required by law, all matters shall be determined by a majority of the votes
cast.
All voting, including on the election of directors but excepting
where otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefor by a stockholder entitled to vote or his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
11. STOCK LIST. A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each class of stock
and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The stock list shall also be kept at the place
of the meeting during the whole time thereof and shall be open to the
examination of any such stockholder who is present.
12. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided
by law, any action required to be taken, or any action which may be taken, at an
annual or special meeting of the stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing setting forth the action so taken shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize to take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
BOARD OF DIRECTORS
------------------
13. POWERS. The business and affairs of the corporation shall be managed
by or under the direction of its Board of Directors.
14. NUMBER, CLASSIFICATION, AND TERM OF OFFICE. The number of directors
who shall constitute the whole board shall be not less than six nor more than
eleven, as the Board of Directors shall at the time have designated, except that
in the absence of any such designation, such number shall be six. Each director
shall be elected for a term of one year and until his or her successor is
elected and qualified, except as otherwise provided herein or required by law.
3
<PAGE> 4
Whenever the authorized number of directors is increased between
annual meetings of the stockholders, a majority of the directors then in office
shall have the power to elect such new directors for the balance of a term and
until their successors are elected and qualified. Any decrease in the authorized
number of directors shall not become effective until the expiration of the term
of the directors then in office unless, at the time of such decrease, there
shall be vacancies on the board which are being eliminated by the decrease.
15. RESIGNATIONS. A director may resign at any time by giving written
notice to the corporation and such resignation shall be effective when given
unless the director specifies a later time. The resignation shall be effective
regardless of whether it is accepted by the corporation.
16. VACANCIES. If the office of any director becomes vacant by reason of
death, resignation, disqualification, removal or other cause, a majority of the
directors remaining in the office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected and
qualified; provided, however, that if the vacancy is caused by the removal of a
director by the stockholders, then the stockholders shall have the right to
elect a successor.
17. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be
held at such place or places, on such date or dates, and at such time or times
as shall have been established by the Board of Directors and publicized among
all directors. A notice of each regular meeting shall not be required.
18. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the President, the Secretary, any Vice
President, and any two directors.
19. NOTICE OF MEETINGS. Special meetings, and regular meetings not fixed
as provided in Section 17 of these Bylaws, shall be held upon four days notice
by mail or 48 hours notice delivered personally or by telephone or telegraph to
each director who does not waive such notice. The notice shall state the place,
date and time of the meeting. Unless otherwise indicated in the notice thereof,
any and all business may be transacted at a special meeting.
Notice of an adjourned meeting need not be given if the place, date,
and time of the adjourned meeting are announced at the meeting at which the
adjournment is taken and the adjournment is not for more than twenty-four hours.
If a meeting is adjourned for more than twenty-four hours, notice of the
adjourned meeting shall be given prior to the time of that meeting to the
directors who were not present at the time of the adjournment.
20. ACTION WITHOUT MEETING. Except as required by law, any action required
or permitted to be taken at any meeting of the Board of Directors or any
committee thereof may be taken without a meeting if all members of the Board of
Directors or committee
4
<PAGE> 5
thereof, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee thereof.
21. MEETING BY TELEPHONE. Except as required by law, members of the Board
of Directors or any committee thereof may participate in the meeting of the
Board of Directors or committee thereof by means of conference telephone or
similar communications equipment if all persons who participate in the meeting
can hear each other and such participation in a meeting shall constitute
presence in person at such meeting.
22. QUORUM AND MANNER OF ACTING. At any meeting of the Board of Directors,
a majority of the directors then in office shall constitute a quorum for all
purposes. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors. If a quorum shall
fail to attend any meeting, a majority of those present may adjourn the meeting
to another place, date, or time, without further notice or waiver thereof.
Except as provided herein, the act of the majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors.
23. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may
designate one or more committees of the Board, each committee to consist of one
or more of the directors of the corporation, with such lawfully delegable powers
and duties as the Board thereby confers, to serve at the pleasure of the Board
and shall, for those committees and any others provided for herein, elect a
director or directors to serve as the member or members, designating, if it
desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any committee and any alternate member in his
place, the member or members of the committee present at the meeting and not
disqualified from voting, whether or not he or she or they constitute a quorum,
may by unanimous vote appoint another member of the Board of Directors to act at
the meeting in the place of the absent or disqualified member. The principles
set forth in Sections 13 through 23 of these Bylaws shall apply to committees of
the Board of Directors and to actions taken by such committees.
24. CONDUCT OF BUSINESS OF COMMITTEES. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law. A
majority of the members of the committee shall constitute a quorum, and all
matters shall be determined by a majority vote of the members present.
25. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
or a committee thereof, and may receive fixed fees and other compensation for
their services as directors. No such payment shall
5
<PAGE> 6
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
OFFICERS
26. TITLES. The officers of the corporation shall be chosen by the Board
of Directors and shall include a Chairman of the Board or a President or both, a
Secretary, and a Treasurer. The Board of Directors may also appoint one or more
Vice-Presidents, Assistant Secretaries, Assistant Treasurers or other officers.
Any number of offices may be held by the same person. All officers shall perform
their duties and exercise their powers subject to the Board of Directors.
27. ELECTION, TERM OF OFFICE, AND VACANCIES. The officers shall be elected
annually by the Board of Directors at its regular meeting following the annual
meeting of the stockholders, and each officer shall hold office until the next
annual election of officers and until the officer's successor is elected and
qualified, or until the officer's death, resignation, or removal. Any officer
may be removed at any time, with or without cause, by the Board of Directors.
Any vacancy occurring in any office may be filled by the Board of Directors.
28. RESIGNATION. Any officer may resign at any time upon notice to the
corporation without prejudice to the rights, if any, of the corporation under
any contract to which the officer is a party. The resignation of an officer
shall be effective when given unless the officer specifies a later time. The
resignation shall be effective regardless of whether it is accepted by the
corporation.
29. CHAIRMAN OF THE BOARD; PRESIDENT. If the Board of Directors elects a
Chairman of the Board, such officer shall preside over all meetings of the Board
of Directors and of stockholders. If there be no Chairman of the Board, the
President shall perform such duties. The Board of Directors shall designate
either the Chairman of the Board or the President as the chief executive officer
and may prescribe the duties and powers of the chief executive officer. In the
absence of such a designation, the President shall be the chief executive
officer. If there be no Chairman of the Board, the President shall be the chief
executive officer.
Subject to the provisions of these Bylaws and to the direction of the
Board of Directors, the chief executive officer shall have the responsibility
for the general management and control of the business and affairs of the
corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to him or her
by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts, and other instruments of the corporation which are
authorized and shall have general supervision and direction of all of the other
officers, employees, and agents of the corporation.
6
<PAGE> 7
30. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall issue all
authorized notices for, and shall keep minutes of, all meetings of the
stockholders and the Board of Directors. He or she shall have charge of the
corporate books and shall perform such other duties as the Board of Directors
may from time to time prescribe. At the request of the Secretary, or in the
Secretary's absence or disability, any Assistant Secretary shall perform any of
the duties of the Secretary and when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the Secretary.
31. TREASURER AND ASSISTANT TREASURERS. Unless the Board of Directors
designates another chief financial officer, the Treasurer shall be the chief
financial officer of the corporation. Unless otherwise determined by the Board
of Directors or the chief executive officer, the Treasurer shall have custody of
the corporate funds and securities, shall keep adequate and correct accounts of
the corporation's properties and business transactions, shall disburse such
funds of the corporation as may be ordered by the Board or the chief executive
officer (taking proper vouchers for such disbursements), and shall render to the
chief executive officer and the Board, at regular meetings of the Board or
whenever the Board may require, an account of all transactions and the financial
condition of the corporation. At the request of the Treasurer or in the
Treasurer's absence or disability, any Assistant Treasurer may perform any of
the duties of the Treasurer and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the Treasurer.
32. OTHER OFFICERS. The other officers of the corporation, if any, shall
exercise such powers and perform such duties as the Board of Directors or the
chief executive officer shall prescribe.
33. COMPENSATION. The Board of Directors shall fix the compensation of the
chief executive officer and may fix the compensation of other employees of the
corporation, including the other officers. If the Board does not fix the
compensation of the other officers, the chief executive officer shall fix such
compensation.
34. ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the Chairman of the Board, the
President, or any officer of the corporation authorized by the Chairman of the
Board or the President, shall have power to vote and otherwise act on behalf of
the corporation, in person or by proxy, at any meeting of stockholders of, or
with respect to any action of stockholders of, any other corporation in which
this corporation may hold securities and otherwise shall have power to exercise
any and all rights and powers which this corporation may possess by reason of
its ownership of securities in such other corporation.
STOCK AND DIVIDENDS
-------------------
35. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate signed by, or in the name of the corporation by, the Chairman, the
President, or a Vice President, and by the Secretary or an Assistant Secretary,
or the Treasurer or an Assistant Treasurer,
7
<PAGE> 8
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be facsimile.
36. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the
transfer books of the corporation and kept at an office of the corporation or by
transfer agents designated to transfer shares of the stock of the corporation.
Except where a certificate is issued in accordance with the next sentence of
this Section, an outstanding certificate for the number of shares involved shall
be surrendered for cancellation before a new certificate is issued therefor. In
the event of the loss, theft, or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft, or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
37. REGULATIONS. The issue, transfer, conversion, and registration of
certificates of stock shall be governed by such other regulations as the Board
of Directors may establish.
RECORD DATE
-----------
38. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. If no
record date is fixed, the record date (1) for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, (2) for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed, (3) for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided that the
Board of Directors may fix a new record date for the adjourned meeting.
WAIVER OF NOTICE
----------------
39. WAIVER OF NOTICE. Whenever notice is required to be given by law or
these Bylaws, a written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the
8
<PAGE> 9
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Unless so required by the Certificate of
Incorporation or these Bylaws, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors, or
members of a committee of directors need be specified in any written waiver of
notice.
AMENDMENTS
----------
40. AMENDMENTS. These Bylaws may be amended or repealed or new bylaws may
be adopted, by the stockholders at any meeting or by the Board of Directors at
any meeting.
MISCELLANEOUS
-------------
41. FISCAL YEAR. The fiscal year of the corporation shall be as fixed by
the Board of Directors.
42. TIME PERIODS. In applying any provision of these Bylaws which require
that an act be done or not done a specified number of days prior to an event or
that an act be done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
43. FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
44. CORPORATE SEAL. The Board of Directors may provide a suitable seal,
containing the name of the corporation, which seal shall be in the charge of the
Secretary. If and when so directed by the Board of Directors or a committee
thereof, duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or Assistant Treasurer.
45. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member
of any committee designated by the Board of Directors, and each officer of the
corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
corporation, including reports made to the corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
9
<PAGE> 1
Exhibit 10.1
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT made as of this 18th day of June, 1996 by and
between SOFTKEY INTERNATIONAL, INC., a Delaware corporation (the "Corporation"),
and Les Schmidt (the "Employee").
WHEREAS the Corporation desires to employ the Employee in the position
of Chief Operating Officer or a position with similar responsibilities, and the
Employee wishes to be so employed by the Corporation; and
WHEREAS the Corporation and the Employee acknowledge that the
compensation and benefits payable hereunder are reasonable having regard to all
of the circumstances of the Employee's prospective employment with the
Corporation;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
EMPLOYMENT
1.1 EMPLOYMENT AND POSITION. Effective as of the date hereof and for the
Term (as defined in Section 3.1 herein), the Corporation hereby employs the
Employee in the capacity of Chief Operating Officer, and the Employee hereby
accepts such employment, all on and pursuant to the terms and conditions set out
herein.
1.2 DUTIES AND RESPONSIBILITIES. During the Term, the Employee shall report
and be responsible directly to the Chief Executive Officer of the Corporation or
to such other officer as the Chief Executive Officer or Board of Directors of
the Corporation (the "Board") may designate, and shall have such powers and
duties as may from time to time be prescribed by the Chief Executive Officer or
such other officer to whom the Employee may then report. Notwithstanding the
foregoing, it is expressly understood and agreed that the Board may at any time
give any other person authority equivalent or superior to that of the Employee
if, in the reasonable judgment of the Board such a change is advisable under the
circumstances.
1.3 FULL TIME AND ATTENTION. The Employee shall well and faithfully serve
the Corporation and its subsidiaries and shall devote his full business time and
attention to the business and affairs of the Corporation and its subsidiaries
and the performance of his duties and responsibilities hereunder; PROVIDED,
HOWEVER, that the Employee may participate in other business ventures and
activities from time to time which do not interfere with his duties hereunder,
including without limitation (a) serving on corporate boards with the approval
of the Corporation, (b) serving on civic or charitable boards or committees, (c)
delivering lectures or fulfilling speaking engagements and (d) managing personal
investments.
<PAGE> 2
1.4 PROHIBITED INTERESTS. Neither the Employee nor any member of his
immediate family shall purchase or hold an interest in any company doing
business with the Corporation (other than as a customer of the Corporation) or
competing with the Corporation other than ownership of not more than two percent
(2%) of the securities of any corporation or other entity which are traded on a
national securities exchange or market, except for those interests to which the
Corporation has given its prior written consent.
1.5 LOCATION. The Employee acknowledges that his regular place of work shall
be Fremont, California or such other location where offices of the Corporation
shall be located, except as may be otherwise required in connection with the
performance by the Employee of his duties and responsibilities hereunder;
PROVIDED; HOWEVER, that the Employee shall not be required to move beyond a
reasonable commuting distance from the San Francisco Bay area.
ARTICLE II
REMUNERATION AND BENEFITS
2.1 ANNUAL BASE SALARY. Effective as of the date hereof and for each year of
employment during the Term (an "Employment Year"), the Corporation shall pay to
the Employee an annual base salary (the "Annual Base Salary") of not less than
$280,000. The Annual Base Salary shall be payable twice monthly on the 15th and
last days of each calendar month in each Employment Year in equal installments
or in such other regular installments as the Corporation may pay its employees
from time to time. During the Term (as defined herein) the Annual Base Salary
shall be reviewed for possible increases at least annually.
2.2 BENEFITS. The Corporation shall provide to the Employee benefits
consistent with benefits provided under the existing benefit plans, practices,
programs and policies of the Corporation in effect for executive officers from
time to time during the Term. For purposes of determining length of service to
the Corporation in connection with any such plan, the Corporation shall give
full credit for the term of the Employee's employment with The Learning Company.
2.3 VACATION. The Employee shall be entitled to paid vacation in accordance
with the Corporation's vacation policy, as the same may be in effect from time
to time; provided, however that the Employee shall be entitled to at least five
weeks of paid vacation per year.
2.4 BONUS. In addition to the Annual Base Salary, the Employee shall be
eligible to receive a targeted annual cash bonus of $140,000, payable in
quarterly installments, based upon the Corporation's cash flow per share
pursuant to a plan to be agreed upon by the Corporation's Compensation Committee
(the "Compensation Committee") for the Corporation's Chief Executive Officer,
President and Chief Operating Officer.
2.5 EXPENSES. During the Term the Corporation will reimburse the Employee
for all normal and customary expenses incurred by the Employee in carrying out
his duties under
2
<PAGE> 3
this Agreement, provided that the Employee complies with the policies, practices
and procedures of the Corporation for submission of expense reports, receipts or
other similar documentation of such expenses.
ARTICLE III
TERM AND TERMINATION
3.1 TERM. Unless otherwise terminated in accordance with the provisions
hereof, this Agreement shall have a term of two years from the effective date
hereof, as the same is first set forth above (the "Term"). On the expiration of
the Term and on each anniversary of the expiration of the Term this Agreement
shall automatically renew for an additional one year period (each of which
renewal periods shall form part of the Term) unless the Corporation notifies the
Employee in writing two months in advance of the expiration of the Term, or any
subsequent anniversary thereof, that the Corporation does not wish to further
extend this Agreement.
3.2 TERMINATION FOR JUST CAUSE.
(a) The Corporation may terminate the employment of the Employee
hereunder at any time for Just Cause, such termination to be communicated by the
Corporation to the Employee by written notice. For the purposes hereof, "Just
Cause" means a determination by the Board, in the exercise of its reasonable
judgment and after permitting the Employee a reasonable opportunity to be heard,
that any of the following has occurred:
(i) the willful and continued failure by the Employee to
perform his duties and responsibilities with the Corporation under this
Agreement (other than any such failure resulting from his incapacity due
to physical or mental illness or disability) after written notice from
the Board of Directors (it being understood that this standard is
intended to assure the Corporation of the reasonable attendance, efforts
and good faith business attention of the Employee to his duties on
behalf of the Corporation, but may not be relied upon by the Corporation
to terminate the Employee solely based upon the operating performance of
the Corporation);
(ii) the willful engaging by the Employee in any act which is
materially injurious to the Corporation, financial or otherwise unless
such act is cured in all material respects within thirty days of written
notice of such acts by the Corporation;
(iii) the conviction of the Employee of a criminal offense
involving fraud, dishonesty or other moral turpitude; or
(iv) the engaging by the Employee in any intentional act of
dishonesty resulting or intended to result, directly or indirectly, in
personal gain to the Employee at the Corporation's expense.
3
<PAGE> 4
Any act or failure to act based upon direction given by the Board of Directors
or the advice of counsel for the Corporation shall not be considered "willful"
hereunder.
(b) Upon the termination of the Employee's employment for Just
Cause, the Employee shall not be entitled to any severance, termination or other
compensation payment other than compensation earned by the Employee before the
date of termination of employment (including quarterly bonus payments based upon
the average quarterly bonus paid to the Employee during the twelve months
preceding such termination calculated pro rata up to and including the date of
termination), together with any amount to which the Employee may be entitled
under the provisions of applicable employment legislation in force at the date
of termination of the Employee's employment.
3.3 TERMINATION WITHOUT JUST CAUSE OR FOR GOOD REASON.
(a) The Corporation may terminate the employment of the Employee
hereunder at any time without Just Cause, such termination to be communicated by
the Corporation to the Employee by at least 30 days prior written notice. In
addition, the Employee may terminate his employment for Good Reason, such
termination to be communicated by the Employee to the Corporation by written
notice. For purposes of this Agreement, "Good Reason" shall mean (i) a
substantial adverse alteration in the nature or status of the Employee's
responsibilities with the Corporation, (ii) any purported termination of the
Employee's employment which is not effected in accordance with this Agreement
(which purported termination shall not be effective), (iii) the failure of the
Corporation to obtain a satisfactory agreement from any successor to assume and
agree to perform this Agreement, as contemplated in Section 5.5 hereof or (iv)
any material breach by the Corporation of this Agreement, including without
limitation Section 1.5 hereof. The Employee's right to terminate his employment
for Good Reason shall not be affected by his incapacity due to physical or
mental illness or disability. The Employee's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
(b) Upon the termination of the Employee's employment without Just
Cause or for Good Reason, the Corporation shall have the following obligations:
(i) if not theretofore paid, the Corporation shall pay to or
to the order of the Employee within 10 days after the date of
termination of the Employee's employment hereunder the fraction of the
Annual Base Salary then in effect hereunder earned by or payable to the
Employee hereunder from the beginning of the then current Employment
Year to the date of termination (less any deductions required by law);
(ii) the Corporation shall pay to or to the order of the
Employee, in equal installments over an eighteen month period, as
compensation for the Employee's loss of employment, an amount equal to
one and one-half times the Annual Base Salary and bonuses pursuant to
Section 2.4 hereof paid to
4
<PAGE> 5
the Employee during the twelve month period immediately preceding such
termination (less any deductions required by law);
(iii) the Corporation shall pay to the Employee all
outstanding and accrued regular and special vacation pay, if any, to the
date of termination;
(iv) the Corporation will continue to provide to the
Consultant medical and health insurance for such eighteen month period
upon the same terms made available to employees of the Corporation
generally, for which the Employee shall contribute to the cost of such
insurance premiums at contribution levels required of employees of the
Corporation generally; and
(v) the Corporation will indemnify the Employee for any
taxes incurred by the Employee pursuant to Section 4999(a) of the
Internal Revenue Code of 1986, as amended, as a result of such
termination. The Corporation and the Employee agree to use their
respective reasonable efforts to minimize any taxes pursuant to Section
4999(a) payable as a result of such termination.
3.4 TERMINATION UPON DEATH OR DISABILITY.
a) The Corporation may terminate the employment of the Employee
hereunder at any time forthwith upon the death or permanent disability of the
Employee, such termination to be communicated by written notice given by the
Corporation to the Employee or, in the event of the death of the Employee, to
his personal representative or his estate. The Employee shall be considered to
have become permanently disabled if in any period of 12 consecutive months
during the Term, because of ill health, physical or mental disability, or for
other causes beyond the control of the Employee, the Employee has been or is
reasonably likely to be continuously unable or unwilling or has failed to
perform his duties and responsibilities hereunder for 120 consecutive days, or
if, during any period of 12 consecutive months during the Term, the Employee has
been unable or unwilling or has failed to perform his duties and
responsibilities hereunder for a total of 180 days, consecutive or not;
provided, however, that if the Corporation terminates the employment of the
Employee because it determines the Employee is reasonably likely to be unable or
unwilling to perform his duties as set forth above, if the Employee in fact
returns to work during the applicable period his salary and any bonus shall be
paid to him retroactively from the date of such termination.
b) On termination of the Employee's employment as a result of the
Employee's death or as a result of the Employee having become permanently
disabled, the Corporation shall pay to the Employee or his personal
representative on behalf of the estate of the Employee, within 10 days after
date of termination of the Employee's employment, (i) all outstanding and
accrued regular and special vacation pay, if any, to the date of termination and
(ii) the fraction of the Annual Base Salary then in effect hereunder and not
otherwise paid by the Corporation to the Employee as of the date of termination
(including quarterly
5
<PAGE> 6
bonus payments based upon the average quarterly bonus paid to the Employee
during the twelve months preceding such termination calculated pro rata up to
and including the date of termination) (less any deductions required by law).
3.5 VOLUNTARY TERMINATION BY EMPLOYEE FOR OTHER THAN GOOD REASON.
(a) The Employee may, upon three months' prior written notice to the
Corporation, voluntarily terminate his employment hereunder for other than Good
Reason.
(b) Upon the voluntary termination by the Employee of his employment
hereunder for other than Good Reason at any time hereunder, if not theretofore
paid, the Corporation shall pay to or to the order of the Employee within 10
days after the date of voluntary termination of the Employee's employment
hereunder the fraction of the Annual Base Salary then in effect hereunder earned
by or payable to the Employee hereunder from the beginning of the then current
Employment Year to the date of termination (including quarterly bonus payments
based upon the average quarterly bonus paid to the Employee during the twelve
months preceding such termination calculated pro rata up to and including the
date of termination) (less any deductions required by law).
(c) The several payments and other obligations of the Corporation
described in this Section 3.5 are the only severance, compensation or
termination payments or benefits that the Employee will receive in the event of
the voluntary termination of his employment for other than Good Reason as
contemplated by this Section 3.5.
3.6 RETURN OF PROPERTY. Upon the termination of the employment of the
Employee hereunder, regardless of the reason therefor, the Employee will
immediately deliver or cause to be delivered to the Corporation all books,
documents, effects, money, securities, equipment or other property (including
manuals, computer disks and software products) belonging to the Corporation, or
for which the Corporation is liable to others, which are in the possession,
charge or custody of the Employee. The Employee agrees not to make for personal
or business use or for the use of any other party any reproductions or copies of
any such books, documents, effects or other property belonging to the
Corporation or for which the Corporation is liable to others.
ARTICLE IV
GENERAL
4.1 CONFIDENTIAL INFORMATION. The Employee shall hold in a fiduciary
capacity for the benefit of the Corporation all secret or confidential
information, knowledge or data relating to the Corporation and its subsidiaries
and their respective businesses which shall have been obtained by the Employee
during the Employee's employment by the Corporation and which shall not be or
become public knowledge (other than by acts of the Employee or representatives
of the Employee in violation of this Agreement). If the employment of the
Employee hereunder is terminated for any reason, the Employee shall not, without
the prior written consent of the Corporation or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge or
data to any person other than
6
<PAGE> 7
the Corporation and those persons designated by it (other than any information
which the Employee is advised by counsel in writing is required to be disclosed
pursuant to applicable law, regulation or statute; provided that prior to any
such disclosure by the Employee, the Employee shall give the Corporation as much
advance notice as is practicable in order to contest such disclosure).
4.2 EQUITABLE RELIEF. The Employee acknowledges that a breach of the
restrictions contained in Section 4.1 hereof will cause irreparable damage to
the Corporation, the exact amount of which will be difficult to ascertain, and
that the remedies at law for any such breach will be inadequate. Accordingly,
the Employee and the Corporation agree that if the Employee breaches or attempts
to breach any of the restrictions contained in Section 4.1 hereof, then the
Corporation shall be entitled to temporary or permanent injunctive relief with
respect to any such breach or attempted breach (in addition to any other
remedies, at law or in equity, as may be available to the Corporation), without
posting bond or other security.
4.3 RESIGNATIONS. If the employment of the Employee hereunder is terminated
in accordance with the terms of this Agreement, the Employee shall tender his
resignation from all positions he may hold as an officer or director of the
Corporation or any of its subsidiaries.
4.4 MITIGATION. The Employee shall have no duty to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Agreement be
reduced by any compensation earned by the Employee as the result of employment
by another employer after the date of termination of the Employee's employment
with the Corporation, or otherwise.
4.5 NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be properly given if delivered
personally or mailed by prepaid registered mail addressed as follows:
7
<PAGE> 8
(a) in the case of the Corporation, to:
SoftKey International Inc.
One Athenaeum Street
Cambridge, Massachusetts 02142
Attention: Chief Executive Officer
(b) in the case of the Employee, to:
Les Schmidt
P.O. Box 595
Diablo, CA 94528
or to such other address as the parties may from time to time specify by notice
given in accordance herewith. Any notice so given shall be conclusively deemed
to have been given or made on the day of delivery, if delivered, or, if mailed
by registered mail, upon the date shown on the postal return receipt as the date
upon which the envelope containing such notice was actually received by the
addressee.
4.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the employment relationship contemplated
hereby and cancels and supersedes all prior understandings and agreements
between the parties with respect thereto, and no agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
4.7 SUCCESSORS AND ASSIGNS. Neither the Employee nor the Corporation may
assign its rights hereunder to another person without the consent of the other;
provided, however, that the Corporation may assign its rights hereunder to a
successor corporation which acquires (whether directly or indirectly, by
purchase, arrangement, merger, consolidation, dissolution or otherwise) all or
substantially all of the business or assets of the Corporation and expressly
assumes and agrees to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place and provided that such successor shall reasonably be
able to perform all of its obligations under this Agreement. As used in this
Agreement, the term "Corporation" shall mean the Corporation (as herein defined)
and any successor to its business or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law or otherwise.
4.8 ENUREMENT. This Agreement shall enure to the benefit of and be binding
upon the Employee and his personal representatives and upon the Corporation and
its successors and permitted assigns.
4.9 FURTHER ASSURANCES. Each of the Corporation and the Employee agrees to
execute all such documents and to do all such acts and things as the other party
may reasonably request and as may be lawful and within its power to do or to
cause to be done in order to
8
<PAGE> 9
carry out or implement in full the provisions and intent of this Agreement.
4.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California and the federal laws of the
United States of America applicable therein. Each of the parties assents to the
jurisdiction of the courts of the State of California to hear any action, suit
or proceeding arising in connection with this Agreement.
4.11 WAIVER OF RIGHTS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing by the party against whom the same is sought to be enforced and no
failure by any party to enforce any of its rights hereunder shall, except as
aforesaid, be deemed to be a waiver of such right. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any provision of this Agreement to be performed by such other party shall
be deemed to be a waiver of a similar or dissimilar provision hereof at the same
or at any prior or subsequent time.
IN WITNESS WHEREOF the parties hereto have executed this
Agreement on the date and year first above written.
/S/ Les Schmidt
------------------------------
LES SCHMIDT
SOFTKEY INTERNATIONAL INC.
By: /S/ Michael J. Perik
--------------------------
Michael J. Perik
Chief Executive Officer
9
<PAGE> 1
EXHIBIT 11.1
SOFTKEY INTERNATIONAL INC.
<TABLE>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FULLY DILUTED
Net income (loss) $ (144,185) $ 5,036 $ (220,506) $ 12,795
Weighted average common and Exchangeable Shares outstanding 39,687,000 22,870,000 36,287,000 22,490,000
Incremental shares calculated by the Treasury Stock
Method applied to options, convertible debentures
and warrants issued, using the greater of the closing
and average fair value -- 1,230,000 -- 1,311,000
----------- ----------- ----------- -----------
Common and common share equivalents outstanding for
purposes of calculating fully diluted earnings per
share 39,687,000 24,100,000 36,287,000 23,801,000
----------- ----------- ----------- -----------
Fully diluted earnings (loss) per share $ (3.63) $ 0.21 $ (6.08) $ 0.54
=========== =========== =========== ===========
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF SOFTKEY INTERNATIONAL INC. AS OF
JUNE 30, 1996, CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-04-1997
<PERIOD-START> JAN-07-1996
<PERIOD-END> JUL-06-1996
<EXCHANGE-RATE> 1
<CASH> 96,716
<SECURITIES> 0
<RECEIVABLES> 49,870
<ALLOWANCES> 9,944
<INVENTORY> 16,390
<CURRENT-ASSETS> 184,405
<PP&E> 20,936
<DEPRECIATION> 0
<TOTAL-ASSETS> 966,065
<CURRENT-LIABILITIES> 98,391
<BONDS> 500,000
<COMMON> 472
0
0
<OTHER-SE> 267,814
<TOTAL-LIABILITY-AND-EQUITY> 966,065
<SALES> 147,253
<TOTAL-REVENUES> 147,253
<CGS> 40,704
<TOTAL-COSTS> 40,704
<OTHER-EXPENSES> 314,336
<LOSS-PROVISION> 7,122
<INTEREST-EXPENSE> 12,719
<INCOME-PRETAX> (220,506)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,506)
<EPS-PRIMARY> (6.08)
<EPS-DILUTED> (6.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF SOFTKEY INTERNATIONAL INC. AS OF JUNE
30, 1995, CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1995. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-6-1996
<PERIOD-START> JAN-1-1995
<PERIOD-END> JUL-1-1995
<EXCHANGE-RATE> 1
<CASH> 93,447
<SECURITIES> 0
<RECEIVABLES> 20,607
<ALLOWANCES> 6,385
<INVENTORY> 11,725
<CURRENT-ASSETS> 133,875
<PP&E> 11,956
<DEPRECIATION> 0
<TOTAL-ASSETS> 183,339
<CURRENT-LIABILITIES> 30,088
<BONDS> 2,000
<COMMON> 394
0
0
<OTHER-SE> 140,814
<TOTAL-LIABILITY-AND-EQUITY> 183,339
<SALES> 77,829
<TOTAL-REVENUES> 77,829
<CGS> 25,907
<TOTAL-COSTS> 25,907
<OTHER-EXPENSES> 36,167
<LOSS-PROVISION> 6,399
<INTEREST-EXPENSE> 757
<INCOME-PRETAX> 14,998
<INCOME-TAX> 2,203
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,795
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
