<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 April 5, 1997
Commission File Number 0-13069
THE LEARNING COMPANY, 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 [x] 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 May 1, 1997, there were 44,662,374 outstanding shares of the
issuer's common stock, par value $.01 per share.
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THE LEARNING COMPANY, INC.
--------------------------
TABLE OF CONTENTS
-----------------
Part I - Financial Information
------------------------------
Page
----
ITEM 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 1997 (unaudited) and December 31, 1996. ............ 3
Condensed Consolidated Statements of
Operations for the Three Months
Ended March 31, 1997 and 1996 (unaudited) .................... 4
Condensed Consolidated Statements of
Cash Flows for the Three Months
Ended March 31, 1997 and 1996 (unaudited) .................... 5
Notes to Condensed Consolidated Financial Statements ......... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 8
Part II - Other Information
---------------------------
ITEM 1. Legal Proceedings ............................................ 13
ITEM 6. Exhibits and Reports on Form 8-K ............................. 13
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE LEARNING COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $100,029 $110,120
Accounts receivable (less allowances for returns
of $12,724 and $15,191, respectively) 68,826 79,610
Inventories 16,887 15,894
Other current assets 23,450 20,349
-------- --------
209,192 225,973
Intangible assets, net 423,227 544,570
Other long-term assets 23,043 22,975
-------- --------
$655,462 $793,518
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 57,402 $ 66,658
Current portion of long-term debt 5,761 2,819
Current portion of related party debt 2,727 5,264
Merger related accruals 6,625 10,667
Revolving line of credit 25,000 25,000
Purchase price payable 3,245 3,245
-------- --------
100,760 113,653
-------- --------
LONG-TERM OBLIGATIONS:
Senior Convertible Notes 321,650 331,650
Senior Convertible/Exchangeable Note - Related Party 150,000 150,000
Other long-term obligations 4,931 6,358
-------- --------
476,581 488,008
-------- --------
DEFERRED INCOME TAXES 80,859 86,920
STOCKHOLDERS' (DEFICIT) EQUITY (2,738) 104,937
-------- --------
$655,462 $793,518
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
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THE LEARNING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1996
--------- --------
<S> <C> <C>
REVENUES $ 81,027 $ 71,133
COSTS AND EXPENSES:
Costs of production 21,484 20,455
Sales and marketing 18,726 15,380
General and administrative 7,178 6,862
Research and development 10,091 7,897
Amortization and merger related charges 124,721 90,512
--------- --------
182,200 141,106
--------- --------
OPERATING LOSS (101,173) (69,973)
INTEREST EXPENSE, net (5,528) (6,348)
--------- --------
LOSS BEFORE TAXES (106,701) (76,321)
PROVISION FOR INCOME TAXES:
Current 4,417 3,479
Deferred (4,417) (3,479)
--------- --------
-- --
--------- --------
NET LOSS $(106,701) $(76,321)
========= ========
NET LOSS PER SHARE $ (2.32) $ (2.32)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 46,007,000 32,874,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
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THE LEARNING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(106,701) $(76,321)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 126,101 90,512
Provisions for returns and doubtful accounts 8,449 9,230
Changes in operating assets and liabilities:
Accounts receivable 2,335 (21,897)
Accounts payable and accruals (14,078) 3,406
Other (6,215) 1,483
--------- --------
9,891 6,413
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets and other (3,882) (2,855)
Payment of merger related accruals (7,898) (9,909)
Purchase price payable -- (25,088)
--------- --------
(11,780) (37,852)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases
and long-term debt (207) (4,695)
Repurchase of Senior Convertible Notes (7,000) --
Repurchase of common stock (121) --
Borrowings under line of credit -- 25,000
Proceeds from issuance of common stock
related to exercise of stock options 516 12,046
Other 54 --
--------- --------
(6,758) 32,351
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,444) (1,265)
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (10,091) (353)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 110,120 77,832
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 100,029 $ 77,479
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
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THE LEARNING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
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
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THE LEARNING COMPANY, 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 The Learning Company, Inc.
(formerly known as SoftKey International Inc.) ("TLC" or the "Company") for the
three months ended March 31, 1997 and 1996 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
4, 1997. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results for the entire year ending December
31, 1997.
The first quarter reporting period for 1997 ended on April 5, 1997 and the first
quarter reporting period for 1996 ended on April 6, 1996. The period from
January 5, 1997 to April 5, 1997 is referred to as the "Three Months Ended March
31, 1997" or the "First Quarter 1997", and the period from January 7, 1996 to
April 6, 1996 is referred to as the "Three Months Ended March 31, 1996" or the
"First Quarter 1996" throughout these financial statements. For clarity of
presentation and comparison, all references to the Year Ended December 31, 1996
relate to the period January 7, 1996 to January 4, 1997.
2. GOODWILL AND OTHER INTANGIBLE ASSETS
The excess cost over the fair value of net assets acquired is recorded as
goodwill and other identifiable intangible assets are 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. 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 or a
change in useful life. To date no such impairment or change in useful life 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.
3. CONTINGENCIES
On February 24, 1997, the Company terminated its business relationship with
Stream International, Inc. ("Stream") which had been providing duplication,
assembly and fulfillment services for certain of the Company's products. The
Company terminated the relationship due to Stream's inability to perform its
obligations under its contract after it relocated the facility responsible for
the manufacture of the Company's product. The Company filed suit against Stream
and currently estimates that in litigation it will be seeking direct and
consequential damages from Stream in an amount in excess of $38 million. Stream
has asserted counterclaims for certain outstanding invoices and other matters in
the amount of approximately $26 million. Management believes that the outcome of
these claims will not have a material adverse effect on the financial position
or results of operations of the Company.
7
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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 4, 1997. 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. Certain of the information contained in this Quarterly Report
on Form 10-Q which are not historical facts may include "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company's actual results may differ
materially from those set forth in such forward-looking statements. Certain
risks and uncertainties including, but not limited to, those discussed below in
"Factors Affecting Future Operating Results," as well as in the Company's Annual
Report on Form 10-K for the 1996 fiscal year as filed with the Securities and
Exchange Commission (the "SEC"), as well as other factors, may also cause actual
results to differ materially from those projected. The Company assumes no
obligation to update these forward-looking statements to reflect actual results
or changes in factors or assumptions affecting such forward-looking statements.
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 SEC and is not intended to serve as a basis for projections
of future events.
INTRODUCTION
The Learning Company, Inc. ("TLC" or 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 MECC brands and include the "Reader Rabbit" family, "Trail"
family, "Treasure" family, "Super Solvers" 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" and "Classic" brands
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.
RESULTS OF OPERATIONS
NET LOSS. The Company incurred a net loss of $106,701 ($2.32 per share) on
revenues of $81,027 in the First Quarter 1997 as compared to a net loss of
$76,321 ($2.32 per share) on revenues of $71,133 in the First Quarter 1996. The
increase in revenue is primarily a result of the acquisition of MECC in May 1996
and
8
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smaller acquisitions in Europe. The net loss in the First Quarter 1997 and
in the First Quarter 1996 is a result of the amortization of goodwill and other
merger related costs of $124,721 and $90,512, respectively.
REVENUES. Revenues by distribution channel for the First Quarter 1997 as
compared to the First Quarter 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
1997 % of 1996 % of
total total
revenue revenue
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retail $36,313 45 $34,159 48
OEM 5,169 6 6,335 9
School 5,574 7 2,422 3
Direct response 10,975 14 6,529 9
International 16,634 21 11,254 16
Tax software and services 6,362 7 10,434 15
------- --- ------- ---
$81,027 100 $71,133 100
======= === ======= ===
</TABLE>
Total revenues increased 14% in the First Quarter 1997 as compared to the First
Quarter 1996 due to several factors, including the effect of revenues from the
acquisition of MECC. Retail revenues increased primarily as a result of the
acquisition of MECC, lowering of the retail price on a selection of core
educational products which increased the volume of revenues and the introduction
of the Classics line of budget educational products. During the first quarter of
1997, the Company experienced lower dollar and unit market share in the retail
consumer software market in the United States as compared to the prior year on a
pro forma basis. The Company believes that this combined company loss of retail
market share in the United States is due primarily to the entrance of large
competitors with well known brands such as Disney and Mattel and due to the
success of a certain number of its competitors' strategies to introduce lower
priced offerings and reduce current pricing. International sales increased
primarily as a result of an increase in translated foreign language versions of
the Company's products available for sale and the increased sales from the
acquisition of Edusoft S.A. in France and Domus Software B.V. in Holland, which
were both acquired in the fall of 1996. OEM revenues decreased due to the
cyclical nature of the OEM business being tied to evolving technologies. Direct
response revenues increased due to increased revenues from TLC's outbound
telephone sales program and new relationships for the direct selling of the
Company's products. School sales increased as a result of the acquisition of
MECC in May 1996. Revenues from the Tax Division declined for the First Quarter
1997 as compared to the First Quarter 1996 as a result of product introductions
being shipped earlier in the income tax season in order to meet customer
delivery dates.
9
<PAGE> 10
COSTS AND EXPENSES. The Company's costs and expenses and the respective
percentages of revenues for the First Quarter 1997 as compared to the First
Quarter 1996 are as follows:
<TABLE>
<CAPTION>
Three Months ended March 31,
-----------------------------------------
% of % of
1997 Revenues 1996 Revenues
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Costs of production $21,484 27 $20,455 29
Sales and marketing 18,726 23 15,380 22
Research and development 10,091 12 7,897 11
General and administrative 7,178 9 6,862 9
------- -- ------- --
$57,479 71 $50,594 71
======= == ======= ==
</TABLE>
Total costs and expenses remained constant as a percentage of revenues at 71% in
the First Quarter 1997 as compared to the First Quarter 1996. The total costs
and expenses remaining consistent as a percentage of revenues reflects an
increase in the amount spent on research and development and sales and marketing
offset by an improvement in gross margins as cost reduction measures implemented
in 1996 have begun to be realized.
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
First Quarter 1997 to 27% of revenues, as compared to 29% for the First Quarter
1996. 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 MECC
having historically products with lower costs of production in the school
channel than the Company prior to this acquisition and an increase in sales in
the school and direct response channels, all of which typically have lower costs
of production than the Company's traditional retail box product.
Sales and marketing expenses increased to 23% of revenues in the First Quarter
1997 as compared to 22% of revenues in the First Quarter 1996. The percentage
increase was a result of the Company's increased marketing efforts to enhance
retail market share by increasing spending on channel promotions and new product
launches.
Research and development expenses increased to 12% of revenues in the First
Quarter 1997 as compared to 11% of revenues in the First Quarter 1996. The
increase is a result of the Company's continued commitment to the next
generation of high quality internally developed software.
General and administrative expenses remained constant at 9% of revenues for both
the First Quarter 1997 and the First Quarter 1996.
During the First Quarter 1997 and the First Quarter 1996, charges of $124,721
and $90,512, respectively, resulting from the acquisitions of The Former
Learning Company, Compton's New Media, Inc. and Compton's Learning Company
(collectively "Compton's") and MECC were incurred. These amounts relate to the
amortization of goodwill and acquired technology related assets plus the costs
incurred to close the Company's Israeli research and development site.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $110,120 at December 31, 1996 to
$100,029 at March 31, 1997. This decrease was attributable to the cash payment
of approximately $19,000 of long-term debt, merger related liabilities and
purchases of equipment offset by cash generated from operations of approximately
$10,000.
As of May 5, 1997 the Company has outstanding $321,650 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
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. Should the Senior Convertible Notes and the Tribune
Notes not convert under their terms into common stock, there can be no
assurances that the Company will have sufficient cash flows from future
operations to meet payment requirements under the debt or be able to re-finance
the notes under favorable terms or at all.
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 $50,000
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. During the First
Quarter 1997 Senior Convertible Notes declined by $10,000.
In March 1997, the Company announced that its Board of Directors authorized the
repurchase by the Company of up to 3 million shares of its common stock from
time to time in open market and privately negotiated transactions. Any purchases
would depend on price, market conditions and other factors. During the First
Quarter 1997 the Company repurchased 20,000 shares at a cost of $121.
The Company 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, 1998 and bear interest at the prime rate (8.25% at March 31, 1997). The Line
is subject to certain financial covenants, is secured by a general security
interest in certain operating 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 March 31, 1997.
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.
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 and software markets. In addition,
the Company's Senior Convertible Notes and Tribune Notes mature in the year
2000. If not converted to common stock, the Company may be required to secure
alternative financing sources. There can be no assurance that alternative
financing sources will be available on terms acceptable to the Company in the
future or at all. The Company continuously evaluates 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.
11
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FUTURE OPERATING RESULTS
The Company operates in a rapidly changing environment that is subject to many
risks and uncertainties. Some of the important risks and uncertainties which may
cause the Company's operating results to differ materially or adversely are
discussed below and in the Company's Annual Report on Form 10-K for the 1996
fiscal year on file with the SEC.
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
competes for retail shelf space and general consumer awareness with a number of
companies that market consumer software, including competitors and potential
competitors that possess significantly greater capital, marketing resources and
brand recognition than the Company. Furthermore, the rapid changes in the market
and the increasing number of new products available to consumers have increased,
and are expected to continue to increase, the degree of consumer acceptance risk
with respect to any specific title that the Company may publish.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 24, 1997, the Company terminated its business relationship with
Stream International, Inc. ("Stream"). Stream had been providing the Company
with duplication, assembly and fulfillment services for certain of the Company's
products. In September 1996, Stream relocated the operations to a new facility.
The Company terminated the relationship due to Stream's inability to perform its
contractual obligations at the new location. On February 26, 1997, the Company
filed suit against Stream in Massachusetts Superior Court for Middlesex County,
seeking injunctive relief and damages resulting from Stream's delayed and
defective performance of its manufacturing and distribution obligations.
Specifically, the Complaint asserts that the Company has been harmed by Stream's
misrepresentations, breaches of guarantee, breaches of duty and conversion.
While the Company continues to assess the full nature and amount of its damages,
the Company currently estimates that in litigation it will be seeking direct and
consequential damages from Stream in an amount in excess of $38 million. The
Company sought a pretrial determination of the status of certain proprietary
materials in the possession of Stream, which are used in the manufacture of the
Company's products. On March 10, 1997, the Court ordered that Stream place such
materials in escrow with an independent third-party pending resolution of the
action. The Court did not place restrictions on the sale of certain inventory in
Stream's possession. Stream has responded to the complaint by denying the
Company's claims and asserting counterclaims for certain outstanding invoices
and other matters in the amount of approximately $26 million.
The Company is subject to various other pending claims. Management, after review
and consultation with counsel, considers that any liability from the disposition
of such lawsuits in the aggregate would not have a material adverse effect upon
the consolidated financial position or results of operations of the Company.
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)
3.1 Restated Certificate of Incorporation, as amended(2)
3.2 Bylaws of the Company, as amended(2)
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)
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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(6)
10.1 Employment Agreement dated as of April 9, 1997 by and between the
Company and Michael J. Perik(*)
10.2 Employment Agreement dated as of April 9, 1997 by and between the
Company and Kevin O'Leary(*)
10.3 Employment Agreement dated as of April 7, 1997 by and between the
Company and Martin Rice(*)
- -------------
(*) Denotes management contract or compensatory plan or arrangement.
(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 Quarterly
Report on Form 10-Q for the quarterly period ended July 6, 1996.
(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 the Agreement and Plan of Merger dated November 30,
1995 by and among the Company, Cubsco I, Inc., Cubsco II, Inc., Tribune
Company, Compton's NewMedia, Inc. and Compton's Learning Company,
incorporated by reference to exhibits filed with the Company's Current
Report on Form 8-K dated December 11, 1995.
(6) Incorporated by reference to exhibits filed with the Company's Current
Report on Form 8-K dated December 11, 1995.
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated March 21, 1997
reporting the termination of its business relationship with Stream on
February 24, 1997 and the subsequent filing by the Company of a lawsuit
against Stream. See Item 1 - Legal Proceedings.
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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.
THE LEARNING COMPANY, INC.
/s/ R. Scott Murray
-------------------------------
R. Scott Murray
Executive Vice President and Chief
Financial Officer
(principal financial and accounting officer)
May 15, 1997
15
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EXHIBIT INDEX
-------------
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ------
2.1 Amended and Restated Combination Agreement by and among
WordStar International Incorporated, SoftKey Software
Products Inc., Spinnaker Software Corporation and SSC
Acquisition Corporation dated as of August 17, 1993,
as amended(1)
3.1 Restated Certificate of Incorporation, as amended(2)
3.2 Bylaws of the Company, as amended(2)
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(6)
10.1 Employment Agreement dated as of April 9, 1997 by and between
the Company and Michael J. Perik(*)
10.2 Employment Agreement dated as of April 9, 1997 by and between
the Company and Kevin O'Leary(*)
10.3 Employment Agreement dated as of April 7, 1997 by and between
the Company and Martin Rice(*)
- -----------
(*) Denotes management contract or compensatory plan or arrangement.
(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 Quarterly
Report on Form 10-Q for the quarterly period ended July 6, 1996.
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(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 the Agreement and Plan of Merger dated November 30,
1995 by and among the Company, Cubsco I, Inc., Cubsco II, Inc., Tribune
Company, Compton's NewMedia, Inc. and Compton's Learning Company,
incorporated by reference to exhibits filed with the Company's Current
Report on Form 8-K dated December 11, 1995.
(6) Incorporated by reference to exhibits filed with the Company's Current
Report on Form 8-K dated December 11, 1995.
17
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Exhibit 10.1
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT made effective as of this 9 day of April, 1997 by and
between THE LEARNING COMPANY, INC., a Delaware corporation (the "Corporation"),
and Michael J. Perik (the "Executive").
WHEREAS the Corporation desires to employ the Executive in the position of
Chairman and Chief Executive Officer or a position with similar
responsibilities, and the Executive wishes to be so employed by the Corporation.
NOW, THEREFORE, in consideration of the foregoing and 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 Executive
in the capacity of Chairman and Chief Executive Officer, and the Executive
hereby accepts such employment, all on and pursuant to the terms and conditions
set out herein.
1.2 DUTIES AND RESPONSIBILITIES. The Executive shall have such powers and
duties as are customarily associated with the office of Chief Executive Officer
and as may from time to time be prescribed by the Board of Directors of the
Corporation (the "Board").
1.3 FULL TIME AND ATTENTION. The Executive shall well and faithfully serve
the Corporation and its subsidiaries and shall devote his full working 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 Executive may participate in other business ventures and
activities from time to time which do not interfere with his duties and
responsibilities hereunder.
1.4 PROHIBITED INTERESTS. Neither the Executive 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 a two percent or lesser interest in
publicly traded stock or such other interests to which the Corporation has given
its prior written consent.
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<PAGE> 2
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 Executive an annual base salary (the "Annual Base Salary") of not less than
$400,000. The Annual Base Salary shall be payable twice monthly in equal
installments or in such other regular installments as the Corporation may pay
its employees from time to time. The Annual Base Salary may be increased from
time to time and shall not be decreased at any time during the Term.
2.2 BENEFITS. The Corporation shall provide to the Executive 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. In addition, the Corporation shall pay to the
Executive a monthly automobile allowance of $750.00.
2.3 VACATION. The Executive 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 Executive shall be entitled to at least
four weeks of paid vacation per year.
2.4 BONUS. In addition to the Annual Base Salary, the Executive shall be
eligible to receive a targeted annual cash bonus of $300,000 (the "Bonus"),
payable in quarterly installments, based upon performance objectives approved by
the Corporation's Compensation Committee (the "Compensation Committee") for each
Employment Year. To the extent that the Bonus is based on annual performance
objectives not readily quantified at the end of each quarter, in the discretion
of the Compensation Committee the Corporation may pay the Bonus to the Executive
in estimated quarterly installments. If, at the end of the Employment Year, the
estimated payments exceed the amount of Bonus actually earned, the Executive
shall reimburse such excess to the Corporation. The Bonus may be increased from
time to time and shall not be decreased at any time during the Term.
2.5 EXPENSES. During the Term the Corporation will reimburse the Executive
for all normal and customary expenses incurred by the Executive in carrying out
his duties under this Agreement, provided that the Executive 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 three 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
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<PAGE> 3
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 Executive in writing four 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 Executive
hereunder at any time for Just Cause, such termination to be communicated by the
Corporation to the Executive 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 Executive a reasonable opportunity to be
heard, that any of the following has occurred:
(i) the willful and continued failure by the Executive to
perform his duties and responsibilities with the Corporation under this
Agreement (other than any such failure resulting from incapacity due to
physical or mental illness or disability) which is not cured within 30
days of receiving written notice from the Corporation specifying in
reasonable detail the duties and responsibilities which the Corporation
believes are not being adequately performed;
(ii) the willful engaging by the Executive in any act which is
demonstrably and materially injurious to the Corporation unless such act
is cured (if susceptible to being cured) within 30 days of receiving
written notice of such act;
(iii) the conviction of the Executive of a criminal offense
involving fraud, dishonesty or other moral turpitude;
(iv) any material breach by the Executive of the terms of this
Agreement or any other written agreement between the Executive and the
Corporation relating to proprietary information, confidentiality,
non-competition or non-solicitation which is not cured within 30 days of
receiving written notice from the Corporation specifying in reasonable
detail such breach; or
(v) the engaging by the Executive in any intentional act of
dishonesty resulting or intended to result, directly or indirectly, in
personal gain to the Executive at the Corporation's expense.
(b) Upon the termination of the Executive's employment for Just Cause,
the Executive shall not be entitled to any severance, termination or other
compensation payment other than unpaid Annual Base Salary earned by the
Executive up to the date of termination and any unpaid Bonus earned with respect
to any year prior to the termination,
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<PAGE> 4
together with any amount to which the Executive may be entitled under the
provisions of applicable employment legislation in force at the date of
termination of the Executive's employment (less any deductions required by law).
3.3 TERMINATION WITHOUT JUST CAUSE OR FOR GOOD REASON.
--------------------------------------------------
(a) The Corporation may terminate the employment of the Executive
hereunder at any time without Just Cause, such termination to be communicated by
the Corporation to the Executive by at least 30 days prior written notice. In
addition, the Executive may terminate his employment for Good Reason, such
termination to be communicated by the Executive to the Corporation by at least
30 days prior written notice. For purposes of this Agreement, "Good Reason"
shall mean (i) a substantial diminution in or adverse alteration to the
Executive's position, duties, responsibilities or authority with the
Corporation, (ii) any purported termination of the Executive'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 4.10 hereof, (iv) any material breach by
the Corporation of this Agreement which is not cured within 30 days of receiving
written notice from the Executive specifying in reasonable detail such breach or
(v) the receipt by the Executive of written notice under Section 3.1 hereof that
the Corporation does not wish to further extend this Agreement. The Executive'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 Executive'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 Executive'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 Executive within 10 days after the date of termination
of the Executive's employment hereunder any unpaid Annual Base Salary
earned by the Executive up to the date of termination (less any
deductions required by law);
(ii) the Corporation shall pay to or to the order of the
Executive, in equal bi-monthly installments in accordance with its normal
payroll practices over a three-year period (the "Continuation Period"),
as compensation for the Executive's loss of employment, an amount equal
to three times the Annual Base Salary plus three times the amount of all
bonuses pursuant to Section 2.4 hereof paid to or accrued by the
Executive with respect to the twelve month period immediately preceding
such termination (less any deductions required by law);
(iii) during the Continuation Period all of the Executive's then
4
<PAGE> 5
outstanding options for the purchase of capital stock of the Corporation
shall continue to vest and remain exerciseable in accordance with the
terms of the applicable stock option agreements as if the employment of
the Executive were not terminated. The last day of the Continuation
Period shall be deemed to be the date of termination of the Executive's
employment with respect to any such options, and the Executive shall be
entitled to exercise such options after the Continuation Period for the
applicable period after termination of employment as may be specified in
the applicable stock option agreement;
(iv) the Corporation shall provide the Executive with life,
disability, accident and health insurance benefits and a monthly
automobile allowance identical or substantially similar to those which
the Executive is receiving immediately prior to the written notice of
termination referenced in section 3.3(a) hereof (without giving effect to
any reduction in such benefits which constitutes Good Reason) during the
Continuation Period.
(c) The terms and provisions of section 3.3(b)(iii) herein shall be
deemed to form a part of any and all agreements between the Corporation and the
Executive embodying the terms and provisions of options for the purchase of
capital stock of the Corporation granted to the Executive.
(d) (i) Subject to Section 3.3(d)(iv) below, in the event that
any of the payments provided for herein, together with any other payments
or benefits received or to be received by the Executive in connection
with the termination of employment of the Executive or otherwise (the
"Severance Payments"), will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), the Corporation shall immediately pay to or to the order of
the Executive an additional amount (the "Gross-up Payment") such that the
net amount retained by the Executive, after deduction of any Excise Tax
on the Severance Payments and any federal, state and local income tax and
Excise Tax on the payment provided for by this section 3.3(d), shall be
equal to the Severance Payments, placing the Executive in the same
after-tax financial position in which he would have been if he had not
incurred any tax liability under Section 4999 of the Code. For purposes
of determining the amount of the Gross-up Payment, the Executive shall be
deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's
residence on the date of termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state
and local taxes.
5
<PAGE> 6
(ii) In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the time of
termination of the Executive's employment, the Executive shall repay to
the Corporation at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-up Payment being repaid by the Executive, if such
repayment results in a reduction in Excise Tax or in federal, state and
local income tax deductions) plus interest on the amount of such
repayment at the rate provided in Section 1274(d) of the Code.
(iii) In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time of the termination of
the Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time the
Gross-up Payment is made), the Corporation shall make an additional
Gross-up Payment in respect to such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess
if finally determined.
(iv) This Section 3.3(d) will only apply to Severance Payments
if the event that causes the Severance Payments to be subject to the
Excise Tax occurs during the Term. For purposes of clarity, if, on the
date of termination, the Severance Payments would not be subject to
Excise Tax, the Corporation will have no obligation to make any Gross up
Payment if an event occurring after the date of termination subjects any
Severance Payment to Excise Tax.
(e) As promptly as reasonably practicable the Corporation shall enter
into a security arrangement reasonably acceptable to the Executive to secure the
performance by the Corporation of its obligations pursuant to Section 3.3(b)
hereof.
3.4 TERMINATION UPON DEATH OR DISABILITY OR BY EXECUTIVE FOR OTHER THAN GOOD
------------------------------------------------------------------------
REASON.
------
(a) The Corporation may terminate the employment of the Executive
hereunder at any time forthwith upon the death or permanent disability of the
Executive, such termination to be communicated by written notice given by the
Corporation to the Executive or, in the event of the death of the Executive, to
his personal representative or his estate. The Executive 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 Executive, the Executive has been or is
reasonably likely to be continuously unable or unwilling or has failed to
perform his duties and responsibilities hereunder for 180 consecutive days, or
if, during any period of 12 consecutive months during the Term, the Executive
has been unable or unwilling or
6
<PAGE> 7
has failed to perform his duties and responsibilities hereunder for a total of
240 days, consecutive or not.
(b) The Executive may, upon three months' prior written notice to the
Corporation, voluntarily terminate his employment hereunder for other than Good
Reason.
(c) On termination of the Executive's employment as a result of the
Executive's death or as a result of the Executive having become permanently
disabled, or upon the termination by the Executive of his employment for other
than Good Reason, the Corporation shall pay to the Executive or his personal
representative on behalf of the estate of the Executive, within 10 days after
date of termination of the Executive's employment, any unpaid Annual Base Salary
earned by the Executive up to the date of termination and any unpaid Bonus
earned with respect to any year prior to the termination, together with any
amount to which the Executive may be entitled under the provisions of applicable
employment legislation in force at the date of termination of the Executive's
employment (less any deductions required by law).
(d) The several payments and other obligations of the Corporation
described in this Section 3.4 are the only severance, compensation or
termination payments or benefits that the Executive will receive in the event of
any termination of employment set forth in this Section 3.4.
3.5 RETURN OF PROPERTY. Upon the termination of the employment of the
Executive hereunder, regardless of the reason therefor, the Executive 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 Executive. The Executive 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. Notwithstanding
the foregoing, the Executive shall be entitled to retain, as his own personal
property, all personal computer equipment and cellular telephone (including both
hardware and, if and only to the extent permitted by applicable licenses, all
software written onto non-removable media therein) used by the Executive as of
the date of his termination hereunder.
ARTICLE IV
GENERAL
4.1 CONFIDENTIAL INFORMATION. The Executive 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 Executive
during the Executive's employment by the Corporation and which shall not be or
become public knowledge (other than by acts of the Executive or
7
<PAGE> 8
representatives of the Executive in violation of this Agreement). If the
employment of the Executive hereunder is terminated for any reason, the
Executive 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 the Corporation and
those persons designated by it.
4.2 NON-COMPETITION. During the Term and the Continuation Period, the
Executive shall not compete with any business then conducted by the Company or
any of its subsidiaries without the prior written consent of the Board. For
purposes of this Agreement, the term "compete" shall mean directly or indirectly
engaging or participating, or conducting as an owner, officer, director,
manager, employee or consultant of, or having a financial interest in, or aiding
or assisting anyone else in the conduct of, any business of the same type and
character as any business of the Corporation or any subsidiary thereof, as
conducted during the time the Executive rendered services hereunder, within any
geographical area in which the Corporation or its subsidiaries transacts its
business at the time of the termination of the Executive's employment hereunder;
PROVIDED, HOWEVER, that the Executive's ownership of not more than one percent
(2%) of the securities of any corporation or other entity which are traded on
any national securities exchange or market shall not constitute a violation of
this Section 4.2.
4.3 NON-INTERFERENCE WITH PERSONNEL RELATIONS. During the Term and the
Continuation Period the Executive will not, directly or indirectly, solicit,
entice or persuade any employee of the Corporation or any of its subsidiaries to
leave the services of the Corporation for any reason.
4.4 EQUITABLE RELIEF. The Executive acknowledges that a breach of the
restrictions contained in Sections 4.1 through 4.3 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 Executive and the Corporation agree that if the Executive
breaches or attempts to breach any of the restrictions contained in Sections 4.1
through 4.3 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.
4.5 LEGAL FEES. Except as set forth in Section 4.15 hereof, the Corporation
shall pay the Executive all reasonable, documented legal and professional fees
and expenses incurred by the Executive in seeking to obtain or enforce any
rights provided for under this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section 4999 of the
Code to any payment or benefit provided hereunder upon receipt by the
Corporation of notification setting forth in reasonable detail the rights to
which the Executive believes he is entitled and the provision of the Agreement
under which he believes such rights are afforded.
4.6 FULL SATISFACTION. The terms set out in this Agreement, provided that
such terms
8
<PAGE> 9
are satisfied by the Corporation, are in lieu of (and not in addition to) and in
full satisfaction of any and all other claims or entitlement which the Executive
has or may have against the Corporation relating to the Executive's employment
by the Corporation as a result of the termination of his employment by the
Corporation in the circumstances contemplated in this Agreement and the
compliance by the Corporation with these terms will effect a full and complete
release of the Corporation from any and all claims which the Executive may then
have for whatever reason or cause in connection with the Executive's employment
by the Corporation and the termination of it, other than those obligations
specifically set out in the Agreement. In agreeing to the terms set out in this
Agreement the Executive specifically agrees to execute a formal release document
to that effect and will deliver upon request appropriate resignations from all
offices and positions with the Corporations and any associated resignations from
all offices and positions with the Corporation and any associated or affiliated
companies if, as, and when requested by the Board of Directors upon the
termination of employment within the circumstances contemplated by this
Agreement.
4.7 MITIGATION. The Executive 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 Executive as the result of employment
by another employer after the date of termination of the Executive's employment
with the Corporation, or otherwise.
4.8 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:
(a) in the case of the Corporation, to:
The Learning Company, Inc.
One Athenaeum Street
Cambridge, Massachusetts 02142
Attention: General Counsel
(b) in the case of the Executive, to:
Michael J. Perik
22 Boylston Street
Boston, MA 02116
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.
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<PAGE> 10
4.9 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.
4.10 SUCCESSORS AND ASSIGNS. Neither the Executive 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.
4.11 ENUREMENT. This Agreement shall enure to the benefit of and be binding
upon the Executive and his personal representatives and upon the Corporation and
its successors and permitted assigns.
4.12 FURTHER ASSURANCES. Each of the Corporation and the Executive 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 carry out or implement in full the provisions and
intent of this Agreement.
4.13 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts 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 Commonwealth of Massachusetts
to hear any action, suit or proceeding arising in connection with this
Agreement.
4.14 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.
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<PAGE> 11
4.15 MANDATORY ARBITRATION. Except as expressly stated below, any dispute,
controversy or claim arising out of or relating to the Executive's employment by
the Corporation or its termination, including but not limited to claims of
unlawful discrimination or harassment (collectively, the "Arbitrable Claims"),
will be settled by binding arbitration in Boston or Cambridge, Massachusetts in
accordance with the then current rules of the American Arbitration Association
(the "AAA"), before an experienced employment arbitrator licensed to practice
law in the Commonwealth of Massachusetts and selected in accordance with the
Model Employment Arbitration Procedures of the AAA. The Corporation and the
Executive each knowingly waive the right to a jury trial in a court of law with
respect to the Arbitrable Claims. For purposes of any arbitration under this
Section 4.15, the Corporation and the Executive hereby incorporate by reference,
and adopt all of the discovery rights and procedures referenced in, the
Massachusetts Code of Civil Procedure, and agree that each of the Corporation
and the Executive shall pay the fees of its, his own attorneys, the expenses of
its, his own witnesses and any other expenses connected with presenting its, his
own claims. The fees of the arbitrator will be paid half by the Executive and
half by the Corporation, provided that the Corporation will pay 100% of any
portion of the arbitrator's fee that exceeds $1000. The Arbitrator shall have
the power to summarily adjudicate claims and/or enter summary judgment in
appropriate cases. Notwithstanding any of the foregoing, any claim or
counterclaim brought for infringement or misappropriation of any patent,
copyright, trade secret, trademark or other proprietary right shall not be
subject to arbitration, and neither the Executive nor the Corporation waive any
right to submit any such claim, or any factual or legal issues relating to such
a claim, to a court of competent jurisdiction.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date and year first above written.
/s/ Michael J. Perik
-----------------------------------
Michael J. Perik
THE LEARNING COMPANY, INC.
By: /s/ Robert Rubinoff
-------------------------------
Robert Rubinoff
Chairman of the Compensation
Committee of the Board
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Exhibit 10.2
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT made effective as of this 9 day of April, 1997 by and
between THE LEARNING COMPANY, INC., a Delaware corporation (the "Corporation"),
and Kevin O'Leary (the "Executive").
WHEREAS the Corporation desires to employ the Executive in the position of
President or a position with similar responsibilities, and the Executive wishes
to be so employed by the Corporation.
NOW, THEREFORE, in consideration of the foregoing and 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 Executive
in the capacity of President, and the Executive hereby accepts such employment,
all on and pursuant to the terms and conditions set out herein.
1.2 DUTIES AND RESPONSIBILITIES. The Executive shall have such powers and
duties as are customarily associated with the office of President and as may
from time to time be prescribed by the Board of Directors of the Corporation
(the "Board").
1.3 FULL TIME AND ATTENTION. The Executive shall well and faithfully serve
the Corporation and its subsidiaries and shall devote his full working 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 Executive may participate in other business ventures and
activities from time to time which do not interfere with his duties and
responsibilities hereunder.
1.4 PROHIBITED INTERESTS. Neither the Executive 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 a two percent or lesser interest in
publicly traded stock or such other interests to which the Corporation has given
its prior written consent.
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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 Executive an annual base salary (the "Annual Base Salary") of not less than
$400,000. The Annual Base Salary shall be payable twice monthly in equal
installments or in such other regular installments as the Corporation may pay
its employees from time to time. The Annual Base Salary may be increased from
time to time and shall not be decreased at any time during the Term.
2.2 BENEFITS. The Corporation shall provide to the Executive 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. In addition, the Corporation shall pay to the
Executive a monthly automobile allowance of $750.00.
2.3 VACATION. The Executive 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 Executive shall be entitled to at least
four weeks of paid vacation per year.
2.4 BONUS. In addition to the Annual Base Salary, the Executive shall be
eligible to receive a targeted annual cash bonus of $300,000 (the "Bonus"),
payable in quarterly installments, based upon performance objectives approved by
the Corporation's Compensation Committee (the "Compensation Committee") for each
Employment Year. To the extent that the Bonus is based on annual performance
objectives not readily quantified at the end of each quarter, in the discretion
of the Compensation Committee the Corporation may pay the Bonus to the Executive
in estimated quarterly installments. If, at the end of the Employment Year, the
estimated payments exceed the amount of Bonus actually earned, the Executive
shall reimburse such excess to the Corporation. The Bonus may be increased from
time to time and shall not be decreased at any time during the Term.
2.5 EXPENSES. During the Term the Corporation will reimburse the Executive
for all normal and customary expenses incurred by the Executive in carrying out
his duties under this Agreement, provided that the Executive 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 three 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
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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 Executive in writing four 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 Executive
hereunder at any time for Just Cause, such termination to be communicated by the
Corporation to the Executive 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 Executive a reasonable opportunity to be
heard, that any of the following has occurred:
(i) the willful and continued failure by the Executive to
perform his duties and responsibilities with the Corporation under this
Agreement (other than any such failure resulting from incapacity due to
physical or mental illness or disability) which is not cured within 30
days of receiving written notice from the Corporation specifying in
reasonable detail the duties and responsibilities which the Corporation
believes are not being adequately performed;
(ii) the willful engaging by the Executive in any act which is
demonstrably and materially injurious to the Corporation unless such act
is cured (if susceptible to being cured) within 30 days of receiving
written notice of such act;
(iii) the conviction of the Executive of a criminal offense
involving fraud, dishonesty or other moral turpitude;
(iv) any material breach by the Executive of the terms of this
Agreement or any other written agreement between the Executive and the
Corporation relating to proprietary information, confidentiality,
non-competition or non-solicitation which is not cured within 30 days of
receiving written notice from the Corporation specifying in reasonable
detail such breach; or
(v) the engaging by the Executive in any intentional act of
dishonesty resulting or intended to result, directly or indirectly, in
personal gain to the Executive at the Corporation's expense.
(b) Upon the termination of the Executive's employment for Just Cause,
the Executive shall not be entitled to any severance, termination or other
compensation payment other than unpaid Annual Base Salary earned by the
Executive up to the date of termination and any unpaid Bonus earned with respect
to any year prior to the termination,
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together with any amount to which the Executive may be entitled under the
provisions of applicable employment legislation in force at the date of
termination of the Executive's employment (less any deductions required by law).
3.3 TERMINATION WITHOUT JUST CAUSE OR FOR GOOD REASON.
-------------------------------------------------
(a) The Corporation may terminate the employment of the Executive
hereunder at any time without Just Cause, such termination to be communicated by
the Corporation to the Executive by at least 30 days prior written notice. In
addition, the Executive may terminate his employment for Good Reason, such
termination to be communicated by the Executive to the Corporation by at least
30 days prior written notice. For purposes of this Agreement, "Good Reason"
shall mean (i) a substantial diminution in or adverse alteration to the
Executive's position, duties, responsibilities or authority with the
Corporation, including the removal of marketing and research and development
from the Executive's responsibility (ii) any purported termination of the
Executive'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 4.10 hereof, (iv)
any material breach by the Corporation of this Agreement which is not cured
within 30 days of receiving written notice from the Executive specifying in
reasonable detail such breach or (v) the receipt by the Executive of written
notice under Section 3.1 hereof that the Corporation does not wish to further
extend this Agreement. The Executive'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 Executive'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 Executive'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 Executive within 10 days after the date of termination
of the Executive's employment hereunder any unpaid Annual Base Salary
earned by the Executive up to the date of termination (less any
deductions required by law);
(ii) the Corporation shall pay to or to the order of the
Executive, in equal bi-monthly installments in accordance with its normal
payroll practices over a three-year period (the "Continuation Period"),
as compensation for the Executive's loss of employment, an amount equal
to three times the Annual Base Salary plus three times the amount of all
bonuses pursuant to Section 2.4 hereof paid to or accrued by the
Executive with respect to the twelve month period immediately preceding
such termination (less any deductions required by law);
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(iii) during the Continuation Period all of the Executive's then
outstanding options for the purchase of capital stock of the Corporation
shall continue to vest and remain exerciseable in accordance with the
terms of the applicable stock option agreements as if the employment of
the Executive were not terminated. The last day of the Continuation
Period shall be deemed to be the date of termination of the Executive's
employment with respect to any such options, and the Executive shall be
entitled to exercise such options after the Continuation Period for the
applicable period after termination of employment as may be specified in
the applicable stock option agreement;
(iv) the Corporation shall provide the Executive with life,
disability, accident and health insurance benefits and a monthly
automobile allowance identical or substantially similar to those which
the Executive is receiving immediately prior to the written notice of
termination referenced in section 3.3(a) hereof (without giving effect to
any reduction in such benefits which constitutes Good Reason) during the
Continuation Period.
(c) The terms and provisions of section 3.3(b)(iii) herein shall be
deemed to form a part of any and all agreements between the Corporation and the
Executive embodying the terms and provisions of options for the purchase of
capital stock of the Corporation granted to the Executive.
(d) (i) Subject to Section 3.3(d)(iv) below, in the event that
any of the payments provided for herein, together with any other payments
or benefits received or to be received by the Executive in connection
with the termination of employment of the Executive or otherwise (the
"Severance Payments"), will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), the Corporation shall immediately pay to or to the order of
the Executive an additional amount (the "Gross-up Payment") such that the
net amount retained by the Executive, after deduction of any Excise Tax
on the Severance Payments and any federal, state and local income tax and
Excise Tax on the payment provided for by this section 3.3(d), shall be
equal to the Severance Payments, placing the Executive in the same
after-tax financial position in which he would have been if he had not
incurred any tax liability under Section 4999 of the Code. For purposes
of determining the amount of the Gross-up Payment, the Executive shall be
deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's
residence on the date of termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state
and local taxes.
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(ii) In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the time of
termination of the Executive's employment, the Executive shall repay to
the Corporation at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-up Payment being repaid by the Executive, if such
repayment results in a reduction in Excise Tax or in federal, state and
local income tax deductions) plus interest on the amount of such
repayment at the rate provided in Section 1274(d) of the Code.
(iii) In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time of the termination of
the Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time the
Gross-up Payment is made), the Corporation shall make an additional
Gross-up Payment in respect to such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess
if finally determined.
(iv) This Section 3.3(d) will only apply to Severance Payments
if the event that causes the Severance Payments to be subject to the
Excise Tax occurs during the Term. For purposes of clarity, if, on the
date of termination, the Severance Payments would not be subject to
Excise Tax, the Corporation will have no obligation to make any Gross up
Payment if an event occurring after the date of termination subjects any
Severance Payment to Excise Tax.
(e) As promptly as reasonably practicable the Corporation shall enter
into a security arrangement reasonably acceptable to the Executive to secure the
performance by the Corporation of its obligations pursuant to Section 3.3(b)
hereof.
3.4 TERMINATION UPON DEATH OR DISABILITY OR BY EXECUTIVE FOR OTHER THAN GOOD
------------------------------------------------------------------------
REASON.
------
(a) The Corporation may terminate the employment of the Executive
hereunder at any time forthwith upon the death or permanent disability of the
Executive, such termination to be communicated by written notice given by the
Corporation to the Executive or, in the event of the death of the Executive, to
his personal representative or his estate. The Executive 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 Executive, the Executive has been or is
reasonably likely to be continuously unable or unwilling or has failed to
perform his duties and responsibilities hereunder for 180 consecutive days, or
if, during any period of 12 consecutive months during the Term, the Executive
has been unable or unwilling or
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has failed to perform his duties and responsibilities hereunder for a total of
240 days, consecutive or not.
(b) The Executive may, upon three months' prior written notice to the
Corporation, voluntarily terminate his employment hereunder for other than Good
Reason.
(c) On termination of the Executive's employment as a result of the
Executive's death or as a result of the Executive having become permanently
disabled, or upon the termination by the Executive of his employment for other
than Good Reason, the Corporation shall pay to the Executive or his personal
representative on behalf of the estate of the Executive, within 10 days after
date of termination of the Executive's employment, any unpaid Annual Base Salary
earned by the Executive up to the date of termination and any unpaid Bonus
earned with respect to any year prior to the termination, together with any
amount to which the Executive may be entitled under the provisions of applicable
employment legislation in force at the date of termination of the Executive's
employment (less any deductions required by law).
(d) The several payments and other obligations of the Corporation
described in this Section 3.4 are the only severance, compensation or
termination payments or benefits that the Executive will receive in the event of
any termination of employment set forth in this Section 3.4.
3.5 RETURN OF PROPERTY. Upon the termination of the employment of the
Executive hereunder, regardless of the reason therefor, the Executive 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 Executive. The Executive 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. Notwithstanding
the foregoing, the Executive shall be entitled to retain, as his own personal
property, all personal computer equipment and cellular telephone (including both
hardware and, if and only to the extent permitted by applicable licenses, all
software written onto non-removable media therein) used by the Executive as of
the date of his termination hereunder.
ARTICLE IV
GENERAL
4.1 CONFIDENTIAL INFORMATION. The Executive 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 Executive
during the Executive's employment by the Corporation and which shall not be or
become public knowledge (other than by acts of the Executive or
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representatives of the Executive in violation of this Agreement). If the
employment of the Executive hereunder is terminated for any reason, the
Executive 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 the Corporation and
those persons designated by it.
4.2 NON-COMPETITION. During the Term and the Continuation Period, the
Executive shall not compete with any business then conducted by the Company or
any of its subsidiaries without the prior written consent of the Board. For
purposes of this Agreement, the term "compete" shall mean directly or indirectly
engaging or participating, or conducting as an owner, officer, director,
manager, employee or consultant of, or having a financial interest in, or aiding
or assisting anyone else in the conduct of, any business of the same type and
character as any business of the Corporation or any subsidiary thereof, as
conducted during the time the Executive rendered services hereunder, within any
geographical area in which the Corporation or its subsidiaries transacts its
business at the time of the termination of the Executive's employment hereunder;
PROVIDED, HOWEVER, that the Executive's ownership of not more than one percent
(2%) of the securities of any corporation or other entity which are traded on
any national securities exchange or market shall not constitute a violation of
this Section 4.2.
4.3 NON-INTERFERENCE WITH PERSONNEL RELATIONS. During the Term and the
Continuation Period the Executive will not, directly or indirectly, solicit,
entice or persuade any employee of the Corporation or any of its subsidiaries to
leave the services of the Corporation for any reason.
4.4 EQUITABLE RELIEF. The Executive acknowledges that a breach of the
restrictions contained in Sections 4.1 through 4.3 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 Executive and the Corporation agree that if the Executive
breaches or attempts to breach any of the restrictions contained in Sections 4.1
through 4.3 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.
4.5 LEGAL FEES. Except as set forth in Section 4.15 hereof, the Corporation
shall pay the Executive all reasonable, documented legal and professional fees
and expenses incurred by the Executive in seeking to obtain or enforce any
rights provided for under this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section 4999 of the
Code to any payment or benefit provided hereunder upon receipt by the
Corporation of notification setting forth in reasonable detail the rights to
which the Executive believes he is entitled and the provision of the Agreement
under which he believes such rights are afforded.
4.6 FULL SATISFACTION. The terms set out in this Agreement, provided that
such terms
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are satisfied by the Corporation, are in lieu of (and not in addition
to) and in full satisfaction of any and all other claims or entitlement which
the Executive has or may have against the Corporation relating to the
Executive's employment by the Corporation as a result of the termination of his
employment by the Corporation in the circumstances contemplated in this
Agreement and the compliance by the Corporation with these terms will effect a
full and complete release of the Corporation from any and all claims which the
Executive may then have for whatever reason or cause in connection with the
Executive's employment by the Corporation and the termination of it, other than
those obligations specifically set out in the Agreement. In agreeing to the
terms set out in this Agreement the Executive specifically agrees to execute a
formal release document to that effect and will deliver upon request appropriate
resignations from all offices and positions with the Corporations and any
associated resignations from all offices and positions with the Corporation and
any associated or affiliated companies if, as, and when requested by the Board
of Directors upon the termination of employment within the circumstances
contemplated by this Agreement.
4.7 MITIGATION. The Executive 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 Executive as the result of employment
by another employer after the date of termination of the Executive's employment
with the Corporation, or otherwise.
4.8 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:
(a) in the case of the Corporation, to:
The Learning Company, Inc.
One Athenaeum Street
Cambridge, Massachusetts 02142
Attention: General Counsel
(b) in the case of the Executive, to:
Kevin O'Leary
55 Devon Street
Boston, MA 02167
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.
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4.9 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.
4.10 SUCCESSORS AND ASSIGNS. Neither the Executive 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.
4.11 ENUREMENT. This Agreement shall enure to the benefit of and be binding
upon the Executive and his personal representatives and upon the Corporation and
its successors and permitted assigns.
4.12 FURTHER ASSURANCES. Each of the Corporation and the Executive 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 carry out or implement in full the provisions and
intent of this Agreement.
4.13 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts 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 Commonwealth of Massachusetts
to hear any action, suit or proceeding arising in connection with this
Agreement.
4.14 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.
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4.15 MANDATORY ARBITRATION. Except as expressly stated below, any dispute,
controversy or claim arising out of or relating to the Executive's employment by
the Corporation or its termination, including but not limited to claims of
unlawful discrimination or harassment (collectively, the "Arbitrable Claims"),
will be settled by binding arbitration in Boston or Cambridge, Massachusetts in
accordance with the then current rules of the American Arbitration Association
(the "AAA"), before an experienced employment arbitrator licensed to practice
law in the Commonwealth of Massachusetts and selected in accordance with the
Model Employment Arbitration Procedures of the AAA. The Corporation and the
Executive each knowingly waive the right to a jury trial in a court of law with
respect to the Arbitrable Claims. For purposes of any arbitration under this
Section 4.15, the Corporation and the Executive hereby incorporate by reference,
and adopt all of the discovery rights and procedures referenced in, the
Massachusetts Code of Civil Procedure, and agree that each of the Corporation
and the Executive shall pay the fees of its, his own attorneys, the expenses of
its, his own witnesses and any other expenses connected with presenting its, his
own claims. The fees of the arbitrator will be paid half by the Executive and
half by the Corporation, provided that the Corporation will pay 100% of any
portion of the arbitrator's fee that exceeds $1000. The Arbitrator shall have
the power to summarily adjudicate claims and/or enter summary judgment in
appropriate cases. Notwithstanding any of the foregoing, any claim or
counterclaim brought for infringement or misappropriation of any patent,
copyright, trade secret, trademark or other proprietary right shall not be
subject to arbitration, and neither the Executive nor the Corporation waive any
right to submit any such claim, or any factual or legal issues relating to such
a claim, to a court of competent jurisdiction.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date and year first above written.
/s/ Kevin O'Leary
------------------------------------
Kevin O'Leary
THE LEARNING COMPANY, INC.
By: /s/ Robert Rubinoff
--------------------------------
Robert Rubinoff
Chairman of the Compensation
Committee of the Board
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Exhibit 10.3
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT made effective as of this 7 day of April, 1997 by and
between THE LEARNING COMPANY, INC., a Delaware corporation (the "Corporation"),
and Martin Rice (the "Executive").
WHEREAS the Corporation desires to employ the Executive in the position of
Senior Vice President, Development or a position with similar responsibilities,
and the Executive wishes to be so employed by the Corporation.
NOW, THEREFORE, in consideration of the foregoing and 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 Executive
in the capacity of Senior Vice President, Development, and the Executive hereby
accepts such employment, all on and pursuant to the terms and conditions set out
herein.
1.2 DUTIES AND RESPONSIBILITIES. The Executive shall have such powers and
duties as are customarily associated with the office or offices of the
Corporation held by the Executive and as may from time to time be prescribed by
the Board of Directors of the Corporation (the "Board") or the Chief Executive
Officer or such other officer to whom the Executive 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 Executive if, in the reasonable judgment of the Board such a change
is advisable under the circumstances.
1.3 FULL TIME AND ATTENTION. The Executive shall well and faithfully serve
the Corporation and its subsidiaries and shall devote his or her full working
time and attention to the business and affairs of the Corporation and its
subsidiaries and the performance of his or her duties and responsibilities
hereunder; PROVIDED, HOWEVER, that the Executive may participate in other
business ventures and activities from time to time which do not interfere with
his or her duties hereunder.
1.4 PROHIBITED INTERESTS. Neither the Executive nor any member of his or her
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 a two percent or lesser interest in
publicly traded stock or such other interests to which the Corporation has given
its prior written consent.
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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 Executive an annual base salary (the "Annual Base Salary") of not less than
$150,000. The Annual Base Salary shall be payable twice monthly in equal
installments or in such other regular installments as the Corporation may pay
its employees from time to time.
2.2 BENEFITS. The Corporation shall provide to the Executive 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.
2.3 VACATION. The Executive 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 Executive shall be entitled to at least four
weeks of paid vacation per year.
2.4 BONUS. In addition to the Annual Base Salary, the Executive shall be
eligible to receive a targeted annual cash bonus of up to 75% of the Annual Base
Salary (the "Bonus") based upon a plan agreed upon by the Executive and the
Chief Executive Officer of the Corporation for each Employment Year. To the
extent that the Bonus is based on annual performance objectives not readily
quantified at the end of each quarter, in the discretion of the Chief Executive
Officer the Corporation may pay the Bonus to the Executive in estimated
quarterly installments.
2.5 EXPENSES. During the Term the Corporation will reimburse the Executive
for all normal and customary expenses incurred by the Executive in carrying out
his or her duties under this Agreement, provided that the Executive 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
Executive in writing three 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 Executive
hereunder
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at any time for Just Cause, such termination to be communicated by the
Corporation to the Executive 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 Executive a reasonable opportunity to be
heard, that any of the following has occurred:
(i) the willful and continued failure by the Executive to
perform his or her duties and responsibilities with the Corporation under
this Agreement (other than any such failure resulting from incapacity due
to physical or mental illness or disability) which is not cured within 30
days of receiving written notice from the Corporation specifying in
reasonable detail the duties and responsibilities which the Corporation
believes are not being adequately performed;
(ii) the willful engaging by the Executive in any act which is
demonstrably and materially injurious to the Corporation;
(iii) the conviction of the Executive of a criminal offense
involving fraud, dishonesty or other moral turpitude;
(iv) any material breach by the Executive of the terms of this
Agreement or any other written agreement between the Executive and the
Corporation relating to proprietary information, confidentiality,
non-competition or non-solicitation which is not cured within 30 days of
receiving written notice from the Corporation specifying in reasonable
detail such breach; or
(v) the engaging by the Executive in any intentional act of
dishonesty resulting or intended to result, directly or indirectly, in
personal gain to the Executive at the Corporation's expense.
(b) Upon the termination of the Executive's employment for Just Cause,
the Executive shall not be entitled to any severance, termination or
other compensation payment other than unpaid base salary earned by the
Executive up to the date of termination, together with any amount to
which the Executive may be entitled under the provisions of applicable
employment legislation in force at the date of termination of the
Executive's employment (less any deductions required by law).
3.3 TERMINATION WITHOUT JUST CAUSE OR FOR GOOD REASON.
-------------------------------------------------
(a) The Corporation may terminate the employment of the Executive
hereunder at any time without Just Cause, such termination to be communicated by
the Corporation to the Executive by at least 30 days prior written notice. In
addition, the Executive may terminate his or her employment for Good Reason,
such termination to be communicated by the Executive to the Corporation by at
least 30 days prior written notice. For purposes of this Agreement, "Good
Reason" shall mean (i) a substantial diminution in the Executive's position,
duties, responsibilities or authority with the Corporation, (ii) any purported
ter-
3
<PAGE> 4
mination of the Executive'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 4.8
hereof or (iv) any material breach by the Corporation of this Agreement which
is not cured within 30 days of receiving written notice from the Executive
specifying in reasonable detail such breach. The Executive's right to terminate
his or her employment for Good Reason shall not be affected by his or her
incapacity due to physical or mental illness or disability. The Executive'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 Executive'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 Executive within 10 days after the date of termination
of the Executive's employment hereunder any unpaid base salary earned by
the Executive up to the date of termination (less any deductions required
by law); and
(ii) the Corporation shall pay to or to the order of the
Executive, in equal installments in accordance with its normal payroll
practices over a one-year period, as compensation for the Executive's
loss of employment, an amount equal to the Annual Base Salary plus the
amount of all bonuses pursuant to Section 2.4 hereof paid to or accrued
by the Executive with respect to the twelve month period immediately
preceding such termination (less any deductions required by law).
3.4 TERMINATION UPON DEATH OR DISABILITY OR BY EXECUTIVE FOR OTHER THAN GOOD
------------------------------------------------------------------------
REASON.
------
(a) The Corporation may terminate the employment of the Executive
hereunder at any time forthwith upon the death or permanent disability of the
Executive, such termination to be communicated by written notice given by the
Corporation to the Executive or, in the event of the death of the Executive, to
his or her personal representative or his or her estate. The Executive 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 Executive, the
Executive has been or is reasonably likely to be continuously unable or
unwilling or has failed to perform his or her duties and responsibilities
hereunder for 120 consecutive days, or if, during any period of 12 consecutive
months during the Term, the Executive has been unable or unwilling or has failed
to perform his or her duties and responsibilities hereunder for a total of 180
days, consecutive or not.
(b) The Executive may, upon three months' prior written notice to the
Corporation, voluntarily terminate his or her employment hereunder for other
than Good
4
<PAGE> 5
Reason.
(c) On termination of the Executive's employment as a result of the
Executive's death or as a result of the Executive having become permanently
disabled, or upon the termination by the Executive of his or her or her
employment for other than Good Reason, the Corporation shall pay to the
Executive or his or her personal representative on behalf of the estate of the
Executive, within 10 days after date of termination of the Executive's
employment, any unpaid base salary earned by the Executive up to the date of
termination, together with any amount to which the Executive may be entitled
under the provisions of applicable employment legislation in force at the date
of termination of the Executive's employment (less any deductions required by
law).
(d) The several payments and other obligations of the Corporation
described in this Section 3.4 are the only severance, compensation or
termination payments or benefits that the Executive will receive in the event of
any termination of employment set forth in this Section 3.4.
3.5 RETURN OF PROPERTY. Upon the termination of the employment of the
Executive hereunder, regardless of the reason therefor, the Executive 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 Executive. The Executive 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 Executive 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 Executive
during the Executive's employment by the Corporation and which shall not be or
become public knowledge (other than by acts of the Executive or representatives
of the Executive in violation of this Agreement). If the employment of the
Executive hereunder is terminated for any reason, the Executive 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 the Corporation and those persons
designated by it.
4.2 NON-INTERFERENCE WITH PERSONNEL RELATIONS. During the Executive's
employment with the Corporation and for a period of twelve months thereafter,
the Executive will not, directly or indirectly, solicit, entice or persuade any
employee of the Corporation or any of its subsidiaries to leave the services of
the Corporation for any reason.
5
<PAGE> 6
4.3 EQUITABLE RELIEF. The Executive acknowledges that a breach of the
restrictions contained in Sections 4.1 and 4.2 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 Executive and the Corporation agree that if the Executive
breaches or attempts to breach any of the restrictions contained in Sections 4.1
and 4.2 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.
4.4 RESIGNATIONS. If the employment of the Executive hereunder is terminated
in accordance with the terms of this Agreement, the Executive shall tender his
or her resignation from all positions he may hold as an officer or director of
the Corporation or any of its subsidiaries.
4.5 MITIGATION. The Executive 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 Executive as the result of employment
by another employer after the date of termination of the Employee's employment
with the Corporation, or otherwise.
4.6 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:
(a) in the case of the Corporation, to:
The Learning Company, Inc.
One Athenaeum Street
Cambridge, Massachusetts 02142
Attention: General Counsel
(b) in the case of the Executive, to:
Martin Rice
810 Lemon Street
Menlo Park, CA 94025
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.
6
<PAGE> 7
4.7 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.
4.8 SUCCESSORS AND ASSIGNS. Neither the Executive 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.
4.9 ENUREMENT. This Agreement shall enure to the benefit of and be binding
upon the Executive and his or her personal representatives and upon the
Corporation and its successors and permitted assigns.
4.10 FURTHER ASSURANCES. Each of the Corporation and the Executive 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 carry out or implement in full the provisions and
intent of this Agreement.
4.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts 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 Commonwealth of Massachusetts
to hear any action, suit or proceeding arising in connection with this
Agreement.
4.12 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.
4.13 MANDATORY ARBITRATION. Except as expressly stated below, any dispute,
controversy or claim arising out of or relating to my employment by the
Corporation or its
7
<PAGE> 8
termination, including but not limited to claims of unlawful discrimination or
harassment (collectively, the "Arbitrable Claims"), will be settled by binding
arbitration in (a) Boston or Cambridge, Massachusetts (if the Executive's
primary place of work is in Massachusetts), or (b) Fremont or San Francisco,
California (if the Executive's primary place of work is in California) or (c) in
such city as is located the office of the Corporation in which constitutes the
Executive's primary place of work (if the Executive's primary place of work is
not in Massachusetts or California), in accordance with the then current rules
of the American Arbitration Association (the "AAA"), before an experienced
employment arbitrator licensed to practice law in the state in which the
arbitration is conducted (the "Arbitration Site") and selected in accordance
with the Model Employment Arbitration Procedures of the AAA. Notwithstanding the
foregoing, and for purposes of clarity, each of the Corporation and the
Executive acknowledges and agrees that any Arbitrable Claim shall be governed by
the internal laws of the Commonwealth of Massachusetts (regardless of the
Arbitration Site) without regard to the laws that might otherwise apply under
applicable principles of conflicts of laws. The Corporation and the Executive
each knowingly waive the right to a jury trial in a court of law with respect to
the Arbitrable Claims. For purposes of any arbitration under this Section 4.13,
the Corporation and the Executive hereby incorporate by reference, and adopt all
of the discovery rights and procedures referenced in, the Massachusetts Code of
Civil Procedure, and agree that each of the Corporation and the Executive shall
pay the fees of its, his or her own attorneys, the expenses of its, his or her
own witnesses and any other expenses connected with presenting its, his or her
own claims. The fees of the arbitrator will be paid half by the Executive and
half by the Corporation, provided that the Corporation will pay 100% of any
portion of the arbitrator's fee that exceeds $1000. The Arbitrator shall have
the power to summarily adjudicate claims and/or enter summary judgment in
appropriate cases. Notwithstanding any of the foregoing, any claim or
counterclaim brought for infringement or misappropriation of any patent,
copyright, trade secret, trademark or other proprietary right shall not be
subject to arbitration, and neither the Executive nor the Corporation waive any
right to submit any such claim, or any factual or legal issues relating to such
a claim, to a court of competent jurisdiction.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date and year first above written.
/s/ Martin Rice
-----------------------------------
MARTIN RICE
THE LEARNING COMPANY, INC.
By: /s/ Michael J. Perik
-------------------------------
Michael J. Perik
Chief Executive Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF THE LEARNING COMPANY, INC. AS OF APRIL
5, 1997 AND THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 5, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> JAN-05-1997
<PERIOD-END> APR-05-1997
<EXCHANGE-RATE> 1
<CASH> 100,029
<SECURITIES> 0
<RECEIVABLES> 68,826
<ALLOWANCES> 12,724
<INVENTORY> 16,887
<CURRENT-ASSETS> 209,192
<PP&E> 23,043
<DEPRECIATION> 1,380
<TOTAL-ASSETS> 655,462
<CURRENT-LIABILITIES> 100,760
<BONDS> 471,650
0
0
<COMMON> 491
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 655,462
<SALES> 81,027
<TOTAL-REVENUES> 81,027
<CGS> 21,484
<TOTAL-COSTS> 21,484
<OTHER-EXPENSES> 160,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,528
<INCOME-PRETAX> 106,701
<INCOME-TAX> 0
<INCOME-CONTINUING> 106,701
<DISCONTINUED> 0
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<EPS-PRIMARY> (2.32)
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