<PAGE> 1
Filed pursuant to Rule 424(b)(1)
Registration No. 333-40543
PROSPECTUS
THE LEARNING COMPANY, INC.
2,735,081 SHARES OF COMMON STOCK
---------------------
This prospectus covers the offer and sale (the "Offering") of 2,735,081
shares (the "Shares") of common stock, $.01 par value per share (the "Common
Stock"), of The Learning Company, Inc. (the "Company"). The Shares may be
offered and sold from time to time for the account of certain stockholders of
the Company (the "Selling Stockholders"). See "The Selling Stockholders." The
Shares were issued to the Selling Stockholders in connection with acquisitions
by the Company of Learning Services, Inc. ("Learning Services"), Skills Bank
Corporation ("Skills Bank") and Microsystems Software, Inc. ("Microsystems") on
September 19, 1997, September 29, 1997 and October 2, 1997, respectively.
An aggregate of 709,976 shares of Common Stock that may be sold in the
Offering were issued by the Company to the sole stockholder of Learning Services
in connection with the Company's acquisition of Learning Services pursuant to
the terms of a stock purchase agreement. An aggregate of 1,069,286 shares of
Common Stock that may be sold in the Offering were issued to the stockholders of
Skills Bank in connection with the acquisition by the Company of Skills Bank
pursuant to the terms of a merger agreement. The remaining 955,819 shares of
Common Stock that may be sold in the Offering were issued to the stockholders of
Microsystems (the "Microsystems Stockholders") in connection with the
acquisition by the Company of Microsystems pursuant to the terms of an agreement
and plan of merger. See "The Acquisitions."
The Company will not receive any of the proceeds from the sale of the
Shares covered by this Prospectus. The Company will bear all costs (excluding
any underwriting discounts and commissions or expenses incurred by the Selling
Stockholders for brokerage, accounting, tax or legal services or any other
expenses incurred by the Selling Stockholders in taking possession of or
disposing of the Shares), fees and expenses incurred in effecting the
registration of the Shares covered by this Prospectus, including, without
limitation, all registration and filing fees, exchange listing fees, fees and
expenses of counsel for the Company, fees and expenses of accountants for the
Company, printing expenses and blue sky fees and expenses.
The Shares covered by this Prospectus may be sold from time to time by
the Selling Stockholders, or by their pledgees, donees, transferees or other
successors in interest, in the over-the-counter market, through the writing of
options on the Shares, in ordinary brokerage transactions, in negotiated
transactions, or otherwise, at market prices prevailing at the time of sale or
at negotiated prices. See "Plan of Distribution."
<PAGE> 2
The Selling Stockholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Shares offered
hereby, and any profits realized or commissions received may be deemed
underwriting compensation. The Company and the Microsystems Stockholders have
agreed to certain indemnification arrangements with respect to the Offering. See
"Plan of Distribution."
The Company's Common Stock is traded on the New York Stock Exchange
(the "NYSE") under the symbol "TLC." On December 1, 1997, the closing sale
price of the Common Stock on the NYSE was $18.5625 per share.
----------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is December 3, 1997.
-2-
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Company is required to file electronic versions of these documents
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments, supplements, exhibits and schedules
thereto, the "Registration Statement") under the Securities Act, with respect to
the Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, as certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the Shares, reference is made
to such Registration Statement. Statements contained in this Prospectus
regarding the contents of any agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such agreement
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement may be inspected without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) The Company's Current Report on Form 8-K dated
March 21, 1997, filed with the Commission on
March 21, 1997;
(ii) The Company's Annual Report on Form 10-K for the year
ended January 4, 1997, filed with the Commission on
April 4, 1997;
(iii) Amendment No. 1 to the Company's Annual Report on
Form 10-K/A for the year ended January 4, 1997, filed
with the Commission on May 5, 1997;
(iv) The Company's Current Report on Form 8-K dated April
30, 1997, filed with the Commission on May 14, 1997;
(v) The Company's Quarterly Report on Form 10-Q for the
quarter ended April 5, 1997, filed with the
Commission on May 19, 1997;
(vi) The Company's Quarterly Report on Form 10-Q for the
quarter ended July 5, 1997, filed with the Commission
on August 19, 1997;
-3-
<PAGE> 4
(vii) The Company's Current Report on Form 8-K dated,
August 26, 1997, filed with the Commission on
September 3, 1997;
(viii) The Company's Preliminary Proxy Statement for the
Annual Meeting of Stockholders to be held on October
28, 1997, filed with the Commission on September 11,
1997;
(ix) The Company's Definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on
December 4, 1997, filed with the Commission on
October 24, 1997;
(x) The Company's Quarterly Report on Form 10-Q for the
quarter ended October 4, 1997, filed with the
Commission on November 18, 1997; and
(xi) The Company's Registration Statement on Form 8-A,
filed with the Commission on October 29, 1996.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Shares registered
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). All such requests shall be
directed to: The Learning Company, Inc., One Athenaeum Street, Cambridge,
Massachusetts 02142, Attention: Secretary, Telephone: (617) 494-1200.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents incorporated
herein constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 2B of the Exchange Act. For this purpose, any
statements contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "plans," "expects" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements.
These factors include those set forth in "Risk Factors" herein.
-4-
<PAGE> 5
THE COMPANY
The Learning Company, Inc. (the "Company") develops and publishes a
broad range of high quality consumer software for personal computers ("PCs")
that educate across every age category, from young children to adults. The
Company's primary emphasis is in education and reference software, but it also
offers a selection of lifestyle, productivity and, to a lesser extent,
entertainment products, both in North America and internationally.
The Company's families of educational products are principally sold
under The Learning Company and Minnesota Educational Computing Corporation
("MECC") brands and include, among other products, the "Reader Rabbit" family,
"Trail" family, "Writing and Creativity Tools" family, "College Prep" family,
and the "Foreign Languages" family. In addition to consumer versions, the
Company also publishes school editions of a number of these products. The
Company's reference products include a line of Compton's Home Library branded
products (including Compton's Interactive Encyclopedia) as well as the American
Heritage Talking Dictionary, Mosby's Medical Encyclopedia and BodyWorks. The
Company's premium productivity and lifestyle products are largely published
under the SoftKey brand. The Company also publishes lower priced boxed products
under the "Key" brand and a line of budget, jewel-case only products under the
"Platinum" brand.
The Company distributes its products through retail channels, including
direct sales to computer electronics stores, office superstores, mass
merchandisers, discount warehouse stores and software specialty stores which
control over 23,000 North American storefronts. The Company also sells its
products directly to consumers through the mail, telemarketing and the Internet,
and directly to schools. The Company's international sales are conducted from
subsidiaries in Germany, France, Holland, Ireland, the United Kingdom, Australia
and Japan. The Company also derives revenue from licensing its products to
original equipment manufacturers ("OEMs") which bundle the Company's products
for sale with computer systems or components and through on-line offerings.
The Company's strategy is to develop and publish a broad range of high
quality software products with significant unit-volume potential and to
continuously introduce these new products through a wide variety of established
and emerging distribution channels worldwide. Other key elements of this
strategy include focusing on consumer software that is broadly sold at multiple
price points, building strong relationships with the retail channel, acquiring
complementary products, technologies and businesses and enhancing brand
awareness and customer loyalty.
The Company has a history of acquiring companies in order to broaden
its product lines and sales channels. In May 1996, the Company consummated the
acquisition of MECC. That acquisition, together with the acquisitions in
December 1995 of The Learning Company and Compton's NewMedia, Inc. ("Compton's
NewMedia"), marked the completion of a strategic initiative launched by the
Company in 1995 to expand its educational software franchise. See "The
Acquisitions."
-5-
<PAGE> 6
The Company was incorporated in California in October 1978 and
reincorporated in Delaware in October 1986. In February 1994, the Company, which
was then known as WordStar International Incorporated, completed a three-way
business combination with SoftKey Software Products Inc. and Spinnaker Software
Corporation in which the Company changed its name to SoftKey International Inc.
In October 1996, the Company changed its name to The Learning Company, Inc. to
reflect its expanded emphasis on educational software. The Company's executive
offices are located at One Athenaeum Street, Cambridge, Massachusetts 02142. Its
telephone number is (617) 494-1200, and its internet web site is located at
http:/www.learningco.com. "The Learning Company, Inc." and all of the Company's
logos and product names are trademarks of the Company.
-6-
<PAGE> 7
RISK FACTORS
The Shares offered hereby involve a high degree of risk. The following
risk factors should be considered carefully in addition to the other information
included or incorporated by reference in this Prospectus before purchasing the
Shares offered hereby.
INTENSE COMPETITIVE ENVIRONMENT
The PC consumer software industry is intensely competitive and is
characterized by rapid changes in technology and customer requirements. The
changing nature of the consumer software industry and rapidly changing demand
for products make it difficult to predict the future success of the Company in
the business of producing packaged software products for the retail market. The
Company competes for retail shelf space and general consumer awareness with a
number of companies that market software products. The Company encounters
competition from both established companies, including the largest companies in
the industry, and new companies that may develop comparable products. A number
of the Company's competitors and potential competitors possess significantly
greater capital, marketing resources and brand recognition than the Company.
Rapid changes in technology, product obsolescence and advances in computer
software and hardware require the Company to develop or acquire new products and
to enhance its existing products on a timely basis. The Company's marketplace
has recently experienced a higher emphasis on on-line and Internet related
services and content tailored for this new delivery vehicle. To the extent that
demand increases for on-line products and content, the demand for the Company's
existing products and future performance may change. Furthermore, competitive
pressures have resulted in price reductions throughout the industry with the
result that industry-wide operating margins are likely to be adversely affected.
Many large companies with sophisticated product marketing and technical
abilities and financial resources that do not presently compete with the Company
may enter the PC software market. For example, technology companies have begun
to acquire greater access to content, and content-oriented companies have begun
to acquire greater technological capabilities. Competitors in these areas
include CUC Software, a division of CUC International Inc., Microsoft
Corporation, Mattel, Sony, The Walt Disney Company, Viacom, IBM/Eduquest,
Fisher-Price, Jostens, Electronic Arts, Mindscape, GT Interactive Software and
Broderbund Software, Inc. To the extent that competitors achieve a performance,
price or distribution advantage, the Company could be adversely affected.
Increased consolidation in the consumer software industry creates new, larger
competitors and may impact future growth potential and performance.
There is no assurance that the Company will have the resources required
to respond to market or technological changes or to compete successfully in the
future.
INTENSE COMPETITION FOR DISTRIBUTION CHANNELS
The Company competes with other companies for access to retail shelf
space and inclusion in OEM sales programs. Competition in this aspect of the
industry is intense, and the type and number of distribution channels is
increasing to include non-traditional software retailers such as book, music,
video, magazine, toy, gift, convenience, drug and grocery store chains.
Additionally, as technology changes, the type and number of distribution
channels will further change and new types of competitors, such as cable or
telephone companies, are likely to emerge.
The traditional channels of distribution in the software industry have
experienced increasing concentration during the past several years, in
particular with respect to PC chain stores and software
-7-
<PAGE> 8
distributors. With increasing concentration in the traditional channels of
distribution, the Company's customers have increased leverage in negotiating
favorable terms of sale, including price discounts and product return policies.
There can be no assurance that the Company will be able to continue to have
access to sufficient retail marketing distribution channels or obtain adequate
distribution for all of its products in the future. Accordingly, such
concentration may have an adverse effect in the future on the profitability of
the Company's operations.
Regardless of the retail strategy chosen by the Company, the retail
channels of distribution available for products are expected to be subject to
rapid changes as retailers and distributors enter and exit the software market
segments or alter their product inventory preferences. Other types of retail
outlets and methods of product distribution may become important in the future.
These new methods may include delivery of software using on-line services or the
Internet, which will necessitate certain changes in the Company's business and
operations, including without limitation addressing operational challenges such
as improving download time for pictures, images and programs, ensuring proper
regulation of content quality and developing sophisticated security for
transmitting payments. Should on-line distribution channels increase, the
Company will be required to modify its existing technology bases in order for
its products to be compatible and remain competitive. It is critical to the
success of the Company that, as these changes occur, it maintain access to those
channels of distribution offering software in its market segments.
ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES
The Company has historically expanded its business through, among other
strategies, acquisitions, business combinations and strategic alliances.
Moreover, the consumer software industry as a whole has recently experienced
consolidation. The Company believes that its customers will in the future demand
that the Company offer increasing numbers of titles throughout the range of
product categories. The Company believes that in many cases the most efficient
means to acquire such titles or the ability to develop or license such titles is
to enter into acquisitions, business combinations or strategic alliances with
consumer software companies and others.
The Company continuously evaluates and considers other businesses of
varying sizes as potential strategic partners and candidates for acquisition
(whether negotiated or non-negotiated) and continuously engages in discussions
with certain businesses in pursuit of possible transactions. Certain of these
businesses may be substantial in size as compared to the Company. There can be
no assurance that the Company will enter into any such transaction or, if the
Company does identify and consummate such a transaction, that the transaction
will enable the Company to achieve its goals.
Acquisitions or business combination transactions that would result in
further expansion of the Company's business in the entertainment and educational
product areas may result in a higher degree of product acceptance risk and
longer development cycles for the Company's products. In addition, companies
that develop entertainment software (for PC, Sega, Nintendo and 3DO platforms)
typically experience lower gross margins than the Company has experienced from
its current operations. Further, should purchase accounting be used by the
Company for future acquisitions or business combination transactions, such
accounting treatment may result in large, one-time expense charges for
in-process research and development costs and short amortization periods for
acquired technology and other intangible assets acquired in the transaction.
Competition for suitable acquisitions, business combinations and
strategic alliances and the cost of these transactions have recently been
increasing. The future availability of desirable prospects for these
transactions in the computer software industry is uncertain. In addition,
assuming that the Company is able to identify appropriate transaction prospects,
the execution and implementation of acquisitions, business combinations and
strategic alliances involves a significant time commitment
-8-
<PAGE> 9
from senior management and can result in large restructuring costs. There can be
no assurance that suitable opportunities will be identified, that transactions
can be consummated or that assets, businesses or relationships acquired in such
transactions can be integrated successfully into the Company's operations.
LEVERAGE
As of November 15, 1997, the Company has outstanding $303,650,000
principal amount of 5 1/2% Senior Convertible Notes due 2000 (the "Senior
Convertible Notes") and $150,000,000 principal amount of Convertible/
Exchangeable Notes due 2000 held by Tribune Company (the "Tribune Notes";
collectively with the Senior Notes, the "Notes"). The Company has entered into
an agreement to purchase for 750,000 shares of Series A Convertible
Participating Preferred Stock, $.01 par value per share, of the Company (the
"Preferred Stock"), the Tribune Notes from certain purchasers who have agreed to
purchase the Tribune Notes from the Tribune. The repurchase of the Tribune Notes
is subject to certain conditions, including approval of the Company's
stockholders of the sale and issuance of the Preferred Stock, and there can be
no assurance that such transaction will be completed. The Senior Convertible
Notes and, if they are not repurchased, the Tribune Notes will be redeemable by
the Company on or after November 2, 1998 at declining redemption prices. If the
holders of the Senior Convertible Notes and, if not repurchased, the Tribune
Notes do not convert the Notes held by them into Common Stock, there can be no
assurance that the Company's operating cash flow will be sufficient to meet its
debt service requirements, or that the Company will be able to repay the Notes
at maturity or in accordance with their respective terms or to refinance the
Notes on favorable terms or at all.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES; KEY EMPLOYEES
The Company is currently experiencing a period of rapid growth that is
placing and will likely continue to place a strain on the Company's financial,
management and other resources in the future. The Company's ability to continue
to manage its growth effectively will require it, among other things, to
continue to improve its operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
employees. If the Company's management becomes unable to manage growth
effectively, the Company's business, operating results and financial condition
could be adversely affected. For example, over the past two years, the Company
has acquired The Learning Company, Compton's NewMedia, Compton's Learning
Company, MECC, Learning Services, Skills Bank and Microsystems, among other
companies, and has signed an agreement to acquire Creative Wonders LLC. Should
certain key employees not be retained, future operating results may be adversely
affected.
Additionally, as a result of such acquisitions, the Company faces
challenges relating to integration of operations such as coordinating
geographically separate organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. The process of
combining organizations may cause an interruption of, or a loss of momentum in,
the activities of the Company's business, which could have an adverse effect on
the revenues and operating results of the Company, at least in the near term.
The ability of software companies with significant internal development
and marketing capabilities to continue to manage growth, develop competitive new
products and respond to rapid technological change depends on an ability to
attract, motivate, manage and retain talented developers, product marketers and
other employees with valuable technological and marketing expertise. The
Company's educational software products require a substantially larger internal
development and marketing staff than its operations had previously required. If
the Company is unable to attract, motivate, manage and retain such employees,
the Company's results of operations will likely be adversely affected.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The Company operates in a highly competitive and technology driven
environment. The consumer software industry is undergoing substantial change and
is subject to a high level of uncertainty. Software companies must continue to
develop or acquire new products or upgrade existing products on a timely basis
to sustain revenues and profitable operations. Factors contributing to the short
life span of PC software have included rapid technological change and an
expanded demand for content-rich products. Software companies must continue to
create or acquire innovative new products reflecting technological changes in
hardware and software and translate current products into newly accepted
hardware and software formats, in order to gain and maintain a viable market for
their products. PC hardware, in particular, is steadily advancing in power and
function, expanding the market for increasingly complex and flexible software
products. This has also resulted in longer periods necessary for research and
development of new products and a greater degree of unpredictability in the time
necessary to develop products. Furthermore, the rapid changes in the market and
the increasing number of new products available to consumers have increased the
degree of consumer acceptance risk with respect to any specific title that the
Company may publish. It is expected that this trend will continue and may become
more pronounced in the future.
-9-
<PAGE> 10
The Company's rights to license certain of its software products are
non-exclusive and, generally, of limited duration, and there is no assurance the
Company will be able to continue to obtain new products from developers or to
maintain or expand its market share in the event that a competitor offers the
same or similar software products. If the Company is unable to develop or
acquire new products in a timely manner as revenues decrease from products
reaching the end of their natural life cycle, the Company's results of
operations will be adversely affected.
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT
Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
high-quality educational software products for adequate levels of shelf space
and promotional support from retailers. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The amounts paid to retailers by software publishers for preferred shelf space
are customarily determined by arms-length negotiations on a case by case basis,
and there is no general formula or industry standard for determining such fees.
There can be no assurance that such retailers will continue to purchase the
Company's products, provide the Company's products with adequate levels and
quality of shelf space or continue to participate with the Company in
cooperative advertising, promotional or market development arrangements. In
addition, the Company has implemented new promotional programs, including coupon
rebates and other various programs through print and television media. These
programs may increase the Company's cost of marketing and reduce operating
margins.
SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE
Recently, several major publishers of PC software, including the
Company, have significantly reduced the prices of their products with the goal
of gaining greater market share. The retail and wholesale prices of many of the
Company's products have declined and the Company has introduced new lines of
lower-priced software products. There can be no assurance that such price
reductions or new product lines will result in an increase in unit sales volume
or that prices will not continue to decline in the future. Such a decline would
lead to a decrease in the revenues from, and gross margin on, sales of such
products in the future and could result in lower cash flow or operating margins.
RISK OF INTERNATIONAL OPERATIONS
The Company derived approximately 15% of its revenues in the year ended
January 4, 1997 from sales occurring outside North America. These revenues are
subject to the risks normally associated with international operations,
including currency conversion risks, limitations (including taxes) on the
repatriation of earnings, slower and more difficult accounts receivable
collection, greater difficulty and expense in administering business abroad,
complications in complying with foreign laws and the necessity of obtaining
requisite export licenses, which on occasion may be delayed or difficult to
obtain. In addition, while U.S. copyright law, international conventions and
international treaties may provide meaningful protection against unauthorized
duplication of software, the laws of foreign jurisdictions may not protect the
Company's proprietary rights to the same extent as the laws of the United
States. Software piracy has been, and can be expected to be, a persistent
problem for participants in the "shrink-wrap" software industry, including the
Company. These problems are particularly acute in certain international markets
such as South America, the Middle East, the Pacific Rim and the Far East.
-10-
<PAGE> 11
PROTECTION OF PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS
The Company relies on a combination of trade secret, copyright,
trademark and other proprietary rights laws and license agreements to protect
its rights to its software products and related documentation. The Company does
not have any patents. United States copyright law, international conventions and
international treaties, however, may not provide meaningful protection against
unauthorized duplication of the Company's software. The Company generally
licenses its externally developed products rather than transferring title and
has relied on contractual arrangements with recipients and users of its products
to establish certain proprietary rights and to maintain confidentiality of those
products protected by trade secret law. Consistent with standard industry
practice, the Company's products generally are licensed pursuant to
"shrink-wrap" licenses that are not signed by the licensee. The enforceability
of such licenses has not been conclusively determined. The Company's products do
not contain any mechanisms to prevent or inhibit unauthorized copying.
The Company has registered numerous trademarks in the United States and
Canada, and a smaller number in other countries, for titles or components of its
products and has trademark registrations pending in the United States and other
countries for various new products.
Policing unauthorized use of a broadly disseminated product such as PC
software is very difficult. Software piracy can be expected to be a persistent
problem for the "shrink-wrap" software industry. These problems are particularly
acute in certain international markets such as South America, the Middle East,
the Pacific Rim and the Far East.
The Company periodically receives communications alleging or suggesting
that its products may incorporate material covered by the copyrights, trademarks
or other proprietary rights of third parties. With the increased use of music
and animation in CD-ROM products and the increased number of software products
on the market generally, the Company is likely to experience an increase in the
number of infringement claims asserted against it in the future. With respect to
licensed products, the Company is generally indemnified against liability on
these matters. The Company's policy is to investigate the factual basis of such
communications and to resolve such matters promptly by enforcing its rights,
negotiating licenses (if necessary) or taking other appropriate actions.
In certain circumstances, litigation may be necessary to enforce the
Company's proprietary rights, to protect copyrights, trademarks and trade
secrets and other intellectual property rights owned by the Company or its
licensors, to defend the Company against claimed infringements of the rights of
others and to determine the scope and validity of the proprietary rights of the
Company and others. Any such litigation, whether with or without merit, could be
costly and a diversion of management's attention, which could have an adverse
effect on the Company's business, operating results or financial condition.
Adverse determinations in litigation relating to any of the Company's products
could result in the loss of the Company's proprietary rights, subject the
Company to liabilities, require the Company to seek licenses from third parties
or prevent the Company from selling that product.
DEPENDENCE ON MAJOR SUPPLIER
All duplication, assembly and fulfillment, with certain exceptions
(including CD-ROMs and products reproduced by OEMs), for all of the Company's
U.S. products are provided by one supplier, Bertelsmann AG ("BMG"). Any
interruption in BMG's manufacturing, assembly and fulfillment services caused by
such transition or otherwise could have a material adverse impact on the
Company's business. Although the Company believes that suitable alternative
suppliers exist, there can be no assurance that any termination or modification
of the agreement with BMG would not result in a short-term business interruption
for the Company.
-11-
<PAGE> 12
HISTORY OF OPERATING LOSSES
A variety of factors may cause period-to-period fluctuations in the
Company's operating results, including integration of operations resulting from
acquisitions of companies, products or technologies, revenues and expenses
related to the introduction of new products or new versions of existing
products, changes in selling prices, customer delays in purchases in
anticipation of upgrades to existing products, currency fluctuations, dealer and
distributor order patterns, general economic trends or a slowdown of PC sales
and seasonality of customer buying patterns. Historical operating results of the
Company and its predecessors cannot be relied upon as indicative of the future
performance of the Company. On an historical basis, the Company incurred net
losses of $65,960,000 for the year ended January 6, 1996 (after amortization of
$18,229,000 of goodwill) and $405,461,000 for the year ended January 4, 1997
(after amortization of $501,330,000 of good will). The Company had net income of
$21,145,000 for the year ended December 31, 1994. There can be no assurance that
the Company will be profitable in the future.
CAPITAL RESOURCES
The expansion of the Company's current business involves significant
financial risk and capital investment. There is no assurance that financing will
be available in the future to meet the needs of the Company for additional
investment.
DEPENDENCE ON CONTINUED PERSONAL COMPUTER SALES
The success of the Company is dependent upon the continuing use of PCs,
and especially multimedia PCs, in the consumer and school market. A general
decrease in unit sales of PCs or shift to an alternative means of delivery could
adversely affect the Company's future results of operations.
VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the NYSE. The market price of the Common
Stock, like that for the shares of many other high technology companies, has
been and may continue to be volatile. Recently, the stock market in general and
the shares of personal computer software companies in particular have
experienced significant price fluctuations. These broad market fluctuations, as
well as general economic and political conditions and factors such as quarterly
fluctuations in results of operations, the announcement of technological
innovations, the introduction of new products by the Company or its competitors
and general conditions in the computer hardware and software industries may have
a significant impact on the market price of the Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Stockholders. The Company will bear all costs (excluding any
underwriting discounts and commissions or expenses incurred by the Selling
Stockholders for brokerage, accounting, tax or legal services or any other
expenses incurred by the Selling Stockholders in taking possession of or
disposing of the Shares), fees and expenses incurred in effecting the
registration of the Shares covered by this Prospectus, including, without
limitation, all registration and filing fees, exchange listing fees, fees and
expenses of counsel for the Company, fees and expenses of accountants for the
Company, printing expenses and blue sky fees and expenses.
-12-
<PAGE> 13
THE ACQUISITIONS
LEARNING SERVICES, INC.
Pursuant to a Stock Purchase Agreement (the "Learning Services
Agreement"), dated September 19, 1997, by and among the Company, Learning
Services and John Crowder, the sole stockholder of Learning Services (the
"Learning Services Stockholder"), the Company acquired all of the outstanding
capital stock of Learning Services. As payment for the purchase price, the
Company issued 709,976 shares of its Common Stock to the Learning Services
Stockholder. In connection with the acquisition of Learning Services, the
Company entered into an employment agreement with the Learning Services
Stockholder under which the Learning Services Stockholder will perform certain
services for the Company through March 19, 1999.
Pursuant to the terms of the Learning Services Agreement, 70,997 shares
of the Common Stock of the Company issued to the Learning Services Stockholder
were placed in escrow as a source of indemnification for the Company. These
shares are scheduled to be released from escrow upon the date of the issuance of
the first independent audit report on the Company's financial statements which
include the financial results of Learning Services, provided that shares will
not be released from escrow to the extent necessary to secure or satisfy any
claim for indemnification made by the Company prior to such date.
SKILLS BANK CORPORATION
Pursuant to a Merger Agreement (the "Skills Bank Agreement"), dated
September 17, 1997, by and among the Company, Newco Acquisition, Inc., Skills
Bank, Edison Venture Fund II, L.P., Jake LaMotta, Garry McDaniels, Jan Gombert,
Len Hall, Jr., Annette McDaniels and certain other stockholders of Skills Bank
(collectively, the "Skills Bank Stockholders"), the Company acquired all of the
outstanding capital stock of Skills Bank. As payment for the purchase price, the
Company issued 1,069,286 shares of its Common Stock to the Skills Bank
Stockholders.
Pursuant to the terms of the Skills Bank Agreement, 106,930 shares of
the Common Stock of the Company issued to the Skills Bank Stockholders were
placed in escrow as a source of indemnification for the Company. These shares
are scheduled to be released from escrow upon, (i) for items expected to be
encountered in the audit process, the earlier of (A) September 29, 1998; and (B)
the issuance of the first independent audit report on the Company's financial
statements which includes the financial results of Skills Bank; and (ii) for all
other items, September 29, 1998, provided that shares will not be released from
escrow to the extent necessary to secure or satisfy any claim for
indemnification made by the Company prior to such date.
MICROSYSTEMS SOFTWARE, INC.
Pursuant to an Agreement and Plan of Merger (the "Microsystems
Agreement"), dated October 2, 1997, by and among the Company, TLC Acquisition
Corp. and Microsystems, the Company acquired all of the outstanding capital
stock of Microsystems. As payment for the purchase price, the Company issued
955,819 shares of its Common Stock to the Microsystems Stockholders. In
connection with the acquisition of Microsystems, the Company entered into
employment agreements with Richard A. Gorgens ("Gorgens") and Nigel R. Spicer
("Spicer") under which Gorgens and Spicer will perform certain services for the
Company through September 30, 1999.
Pursuant to the terms of the Microsystems Agreement, 66,894 shares of
the Common Stock of the Company issued to the Microsystems Stockholders were
placed in escrow as a source of indemnification for the Company. These shares
are scheduled to be released from escrow upon the earlier of (i) the date of the
issuance of the audited financial statements for the Company's 1997 fiscal
-13-
<PAGE> 14
year; and (ii) October 2, 1998, provided that shares will not be released from
escrow to the extent necessary to secure or satisfy any claim for
indemnification made by the Company prior to such date.
THE SELLING STOCKHOLDERS
The following table sets forth, to the knowledge of the Company,
certain information, as of October 30, 1997, with respect to the Selling
Stockholders for whom the Company is registering the Shares for resale to the
public. The Company will not receive any of the proceeds from the sale of the
Shares. The shares of Common Stock covered by this Prospectus were issued to the
Selling Stockholders in connection with the acquisitions of Learning Services,
Skills Bank and Microsystems.
See "The Acquisitions."
To the Company's knowledge, none of the Selling Stockholders holds any
position or office with, has been employed by, or has otherwise had a material
relationship with the Company or any of its subsidiaries within the past three
years, except that (i) in connection with the acquisition of Learning Services,
the Company entered into an employment agreement with the Learning Services
Stockholder under which the Learning Services Stockholder will perform certain
services for the Company through March 19, 1999; and (ii) in connection with the
acquisition of Microsystems, the Company entered into employment agreements with
Gorgens and Spicer under which Gorgens and Spicer will perform certain services
for the Company through September 30, 1999. See "The Acquisitions."
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Number of Shares Shares of
Common Stock Number of of Common Stock Common Stock
Beneficially Shares of Beneficially Beneficially
Name of Selling Owned Prior Common Stock Owned After Owned after
Stockholder to Offering(1) Offered Hereby Offering(1)(2) Offering (1)(2)
----------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
LEARNING SERVICES
John W. Crowder(3) 709,976(4) 709,976(4) 0 0%
SKILLS BANK
Edison Venture Fund II, 286,361(5) 286,361(5) 0 0%
L.P.(3)
Jan Gombert(3) 162,774(5) 162,774(5) 0 0%
Garry L. McDaniels 92,995(5) 92,995(5) 0 0%
& Annette
McDaniels JT Ten(3)
Leonard W. Hall and 64,492(5)(6) 63,597(5) 895 *
Nancy L. Hall(3)
Edison Venture Fund 55,069(5) 55,069(5) 0 0%
II-Pa, L.P.(3)
Annette McDaniels(3) 51,214(5) 51,214(5) 0 0%
Garry L. McDaniels(3) 46,092(5) 46,092(5) 0 0%
Laurie Liskin 31,619(5) 31,619(5) 0 0%
Leonard Hall 25,607(5) 25,607(5) 0 0%
Senior Trust
James R. Galloway 17,925(5) 17,925(5) 0 0%
Thomas Samph 22,278(5) 17,925(5) 4,353 *
</TABLE>
-14-
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
Jean Gombert 13,657(5) 13,657(5) 0 0%
Jesse Mashbaum 12,163(5) 12,163(5) 0 0%
Harry G. Schlitt 10,243(5) 10,243(5) 0 0%
Robert N. Armstrong 10,706(5)(7) 8,706(5) 2,000 *
and Carol Armstrong
Patsy Poche 8,706(5) 8,706(5) 0 0%
Wallace L. Bennett 54,715(5) 8,622(5) 46,093 *
Melissa McDaniels 7,938(5) 7,938(5) 0 0%
Martin H. Gerry 7,682(5) 7,682(5) 0 0%
SEP/IRA
Nicholas F. Rayder 7,682(5) 7,682(5) 0 0%
Charles D. 71,183(5) 6,976(5) 64,207 *
LaMotta (3)
Nancy L. Hall and 6,970(5)(8) 6,325(5) 645 *
Adam L. Hall
Larry D. Davis 5,205(5) 5,205(5) 0 0%
Michael M. Behrmann 5,121(5) 5,121(5) 0 0%
and June K. Behrmann
The Living Trust, 5,121(5) 5,121(5) 0 0%
dated October 1, 1993,
of Thomas R. Benefiel
and Janice H. Benefiel
Trustors and/or
Trustees
Edward G. R. Chalker, 5,121(5) 5,121(5) 0 0%
II
Thomas R. Cronin, as 5,121(5) 5,121(5) 0 0%
Trustee of the Thomas
R. Cronin Trust Dated
April 10, 1992
Ms. Leona Draper 5,121(5) 5,121(5) 0 0%
Nelson E. Fenwick 5,121(5) 5,121(5) 0 0%
Sam F. and June S. 5,121(5) 5,121(5) 0 0%
Hamra
R. Hart Mcintyre 5,621(5) 5,121(5) 500 *
Le Roy J. Riedy 5,121(5) 5,121(5) 0 0%
Ray C. Rist and 5,121(5) 5,121(5) 0 0%
Marlee C. Rist
Steven G. Rustman 5,121(5) 5,121(5) 0 0%
Jerry F. Steelman and 6,621(5)(9) 5,121(5) 1,500 *
Peggy J. Steelman
</TABLE>
-15-
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C>
Richard W. Ter Maat 5,121(5) 5,121(5) 0 0%
Stewart Way 5,121(5) 5,121(5) 0 0%
Todd A. Wills 5,121(5) 5,121(5) 0 0%
Ed Sontag 3,585(5) 3,585(5) 0 0%
Aryeh L. Sonnenberg 3,033(5) 3,033(5) 0 0%
Jeffri Brookfield 2,561(5) 2,561(5) 0 0%
Charles R. Campbell 2,561(5) 2,561(5) 0 0%
Audrey A. Chengelis 2,561(5) 2,561(5) 0 0%
Marty J. McGihon and 2,561(5) 2,561(5) 0 0%
Christopher C.
McGihon
Kathleen Stremel 2,561(5) 2,561(5) 0 0%
MLPF&S Custodian 2,561(5) 2,561(5) 0 0%
for Mr. Derry R.
Thompson IRRA, FBO
Mr. Derry R. Thompson
Roy F. Yahl and 2,561(5) 2,561(5) 0 0%
Marynell Yahl
William Kearney 7,818(5) 1,928(5) 5,890 *
Barbara Lee Wilcox 1,793(5) 1,793(5) 0 0%
Carolyn M. Sherman 1,280(5) 1,280(5) 0 0%
Adam Smith 1,280(5) 1,280(5) 0 0%
Jennifer Smith 1,280(5) 1,280(5) 0 0%
Louis S. Barber 1,058(5) 1,058(5) 0 0%
Loren Sucher 7,554(5) 896(5) 6,658 *
Patricia Mullinix and 871(5) 871(5) 0 0%
Carawan E. Peed Jr.
David Thomas 630(5) 630(5) 0 0%
Kathleen M. Hurly 26,119(5) 512(5) 25,607 *
Mark K. Jones 10,755(5) 512(5) 10,243 *
Edward Zaron, Jr. 512(5) 512(5) 0 0%
Arthur L. Giovannetti 282(5) 282(5) 0 0%
MICROSYSTEMS
Richard A. Gorgens(3) 504,134(10) 504,134(10) 0 0%
</TABLE>
-16-
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
Debra C. Gorgens(3) 209,744(10) 209,744(10) 0 0%
K Gorgens Spray Trust 74,908(10) 74,908(10) 0 0%
J Gorgens Spray Trust 74,908(10) 74,908(10) 0 0%
Nigel Spicer(3) 74,910(10) 41,199(10) 33,711 *
James Kendall 22,472(10) 22,472(10) 0 0%
Reed Lewis 17,079(10) 9,887(10) 7,192 *
Larry Mason 5,842(10) 3,595(10) 2,247 *
Alan Smith(3) 11,986(10) 2,996(10) 8,990 *
William Kilroy 4,794(10) 2,097(10) 2,697 *
Janet Erickson 3,895(10) 1,947(10) 1,948 *
Glenn Martyn 5,993(10) 1,498(10) 4,495 *
Peter Chesla 1,123(10) 1,123(10) 0 0%
Susan Getgood 5,018(10) 898(10) 4,120 *
Kevin Driscoll 2,696(10) 898(10) 1,798 *
Mark Stearns 1,348(10) 898(10) 450 *
Amy Laflamme 2,996(10) 749(10) 2,247 *
Teresa McGrath 1,947(10) 449(10) 1,498 *
David Norquist 1,374(10) 449(10) 898 *
Kimberly Baril 748(10) 299(10) 449 *
James Mourey 2,247(10) 224(10) 2,023 *
Elizabeth Gallagher 449(10) 149(10) 300 *
Henry Nguyen 449(10) 149(10) 300 *
Kirstie Spicer 449(10) 149(10) 300 *
</TABLE>
- ----------------------
* Less than one percent of the number of shares of Common Stock outstanding.
(1) The number of Shares beneficially owned is determined under rules
promulgated by the Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any Shares as to which the
individual has sole or shared voting power or investment power and also
any Shares which the individual has the right to acquire within 60 days
after October 30, 1997 through the exercise of any stock option or
other right. The inclusion herein of such Shares, however, does not
constitute an admission that the Selling Stockholders are direct or
indirect beneficial owners of such Shares. The Selling Stockholders
have sole voting power and investment power with respect to all Shares
listed as owned by the Selling Stockholders.
(2) It is unknown if, when or in what amounts a Selling Stockholder may
offer Shares for sale and there can be no assurance that the Selling
Stockholders will sell any or all of the Shares offered
-17-
<PAGE> 18
hereby. Because the Selling Stockholders may offer all or some of the
Shares pursuant to this Offering, and because there are currently no
agreements, arrangements or understandings with respect to the sale of
any of the Shares that will be held by the Selling Stockholders after
completion of the Offering, no estimate can be given as to the amount
of the Shares that will be held by the Selling Stockholders after
completion of the Offering. However, for purposes of this table, the
Company has assumed that, after completion of the Offering, no Shares
will be held by the Selling Stockholders.
(3) Each of these stockholders has agreed that he, she or it will not sell,
transfer or otherwise dispose of, or reduce his, her or its interest or
risk relating to shares of Common Stock of the Company until at such
time as the Company has published (within the meaning of Accounting
Series Release No. 130, as amended, of the Commission) financial
results covering at least 30 days of combined operations (the
"Combined Financial Results") of the Company and Learning Services,
Skills Bank or Microsystems, as the case may be. The Company expects
the Combined Financial Results to be published at the time of
publication of the Company's year end financial results for the fiscal
year ending January 3, 1998.
(4) Includes 70,997 shares of Common Stock placed in escrow pursuant to the
terms of the Learning Services Agreement.
(5) Includes the following shares of Common Stock placed in escrow pursuant
to the terms of the Skills Bank Agreement: Edison Venture Fund II, L.P.
(28,587); Jan Gombert (16,277); Garry McDaniels & Annette McDaniels JT
Ten (9,300); Leonard W. Hall and Nancy L. Hall (6,360); Edison Venture
Fund II-Pa, L.P. (5,506); Annette McDaniels (5,121); Garry L. McDaniels
(4,609); Laurie Liskin (3,162); Leonard Hall Senior Trust (2,561);
James R. Galloway (1,792); Thomas Samph (1,792); Jean Gombert (1,365);
Jesse Mashbaum (1,216); Harry G. Schlitt (1,024); Robert N. Armstrong
and Carol Armstrong (870); Patsy Poche (870); Wallace L. Bennett (862);
Melissa McDaniels (794); Martin H. Gerry SEP/IRA (768); Nicholas F.
Rayder (768); Charles D. LaMotta (697); Nancy L. Hall and Adam L. Hall
(633); Larry D. Davis (521); Michael M. Behrmann and June K. Behrmann
(512); The Living Trust, dated October 1, 1993, of Thomas R. Benefiel
and Janice H. Benefiel Trustors and/or Trustees (512); Edward G. R.
Chalker, II (512); Thomas R. Cronin, as Trustee of the Thomas R. Cronin
Trust Dated April 10, 1992 (512); Leona Draper (512); Nelson E. Fenwick
(512); Sam F. and June S. Hamra (512); R. Hart Mcintyre (512); Le Roy
J. Riedy (512); Ray C. Rist and Marlee C. Rist (512); Steven G. Rustman
(512); Jerry F. Steelman and Peggy J. Steelman (512); Richard W. Ter
Maat (512); Stewart Way (512); Todd A. Wills (512); Ed Sontag (358);
Aryeh L. Sonnenberg (304); Jeffri Brookfield (256); Charles R. Campbell
(256); Audrey A. Chengelis (256); Marty J. McGihon and Christopher C.
McGihon (256); Kathleen Stremel (256); MLPF&S Custodian for Mr. Derry
R. Thompson IRRA, FBO Mr. Derry R. Thompson (256); Roy F. Yahl and
Marynell Yahl (256); William Kearney (193); Barbara Lee Wilcox (180);
Carolyn M. Sherman (128); Adam Smith (128); Jennifer Smith (128); Louis
S. Barber (106); Loren Sucher (89); Patricia Mullinix and Carawan E.
Peed, Jr. (87); David Thomas (63); Kathleen M. Hurly (51); Mark K.
Jones (51); Edward Zaron, Jr. (51); and Arthur L. Giovannetti (28).
(6) Includes 645 shares of Common Stock beneficially owned by Nancy L. Hall
and 250 shares of Common Stock beneficially owned by Leonard W. Hall.
(7) Includes 2,000 shares of Common Stock beneficially owned by Robert N.
Armstrong.
(8) Includes 645 shares of Common Stock beneficially owned by Nancy L.
Hall.
(9) Includes 1,500 shares of Common Stock beneficially owned by the
Peggy J. Steelman Trust.
(10) Includes the following shares of Common Stock placed in escrow pursuant
to the terms of the Microsystems Agreement: Richard A. Gorgens
(35,289); Debra C. Gorgens (14,682); K Gorgens Spray Trust (5,243); J.
Gorgens Spray Trust (5,243); Nigel Spicer (2,883); James Kendall
(1,573); Reed Lewis (692); Larry Mason (251); Alan Smith (209); William
Kilroy (146); Janet Erickson (136); Glenn Martyn (104); Peter Chesla
(78); Susan Getgood (62); Kevin Driscoll (62); Mark Stearns (62); Amy
Laflamme (52); Teresa McGrath (31); David Norquist (31); Kimberly Baril
(20); James Mourey (15); Elizabeth Gallagher (10); Henry Nguyen (10);
and Kirstie Spicer (10).
PLAN OF DISTRIBUTION
The Shares covered hereby may be offered and sold from time to time by
the Selling Stockholders, or by their pledgees, donees, transferees or other
successors in interest. The Selling Stockholders will act independently of the
Company in making decisions with respect to the timing, manner and size of each
sale. Such sales may be made in the over-the-counter market or otherwise, at
prices related to the then current market price or in negotiated transactions,
including pursuant to one or more of the following methods: (i) purchases by a
broker-dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (ii) ordinary brokerage transactions and
transactions in which the broker
-18-
<PAGE> 19
solicits purchasers; and (iii) block trades in which the broker-dealer so
engaged will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction. In effecting
sales, broker-dealers engaged by the Selling Stockholders, or by their pledgees,
donees, transferees or other successors in interest may arrange for other
broker-dealers to participate. Broker-dealers will receive commissions or
discounts from the Selling Stockholders, or from their pledgees, donees,
transferees or other successors in interest in amounts to be negotiated
immediately prior to the sale.
In offering the Shares covered hereby, the Selling Stockholders, or
their pledgees, donees, transferees or other successors in interest and any
broker-dealers and any other participating broker-dealers who execute sales for
the Selling Stockholders may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any profits realized by
the Selling Stockholders and the compensation of such broker-dealer may be
deemed to be underwriting discounts and commissions. In addition, any of the
Shares covered by this Prospectus which qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this Prospectus.
The Microsystems Stockholders have agreed to indemnify in certain
circumstances the Company and certain related persons against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed with the Selling Stockholders to keep the
Registration Statement of which this Prospectus constitutes a part effective
until the earlier of (i) such time as all of the Shares have been disposed of
pursuant to and in accordance with such Registration Statement or pursuant to
Rule 144 under the Securities Act or any other applicable exemption under the
Securities Act without additional restriction upon public resale or are eligible
for resale pursuant to Rule 144(k) under the Securities Act; or (ii) October 2,
1998. The Company intends to de-register any of the Shares not sold by the
Selling Stockholders at the end of such period.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Neal S. Winneg, General Counsel of the Company. Mr. Winneg owns
options to purchase an aggregate of 98,750 shares of Common Stock, which are to
become exercisable in periodic installments through January 1999.
EXPERTS
The consolidated balance sheets as of January 4, 1997 and January 6,
1996 and the consolidated statements of income, retained earnings, and cash
flows for each of the three years in the period ended January 4, 1997,
incorporated by reference in this prospectus, have been incorporated herein in
reliance on the report of Coopers & Lybrand, L.L.P., independent accountants,
given on the authority of the firm as experts in accounting and auditing.
-19-
<PAGE> 20
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION OF AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE HEREOF.
---------------
TABLE OF CONTENTS
PAGE
Available Information........................ 3
Incorporation of Certain Documents
By Reference............................... 3
Special Note Regarding Forward-Looking
Information................................ 4
The Company.................................. 5
Risk Factors................................. 7
Use of Proceeds.............................. 12
The Acquisitions............................. 13
The Selling Stockholders..................... 14
Plan of Distribution......................... 18
Legal Matters................................ 19
Experts...................................... 19
---------------
THE LEARNING COMPANY, INC.
2,735,081 SHARES
COMMON STOCK
--------------
PROSPECTUS
--------------
December 3, 1997
