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As filed with the Securities and Exchange Commission on December 3, 1997
Registration Statement No. 333-40549
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE LEARNING COMPANY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 94-2562108
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Address, including zip code, and
telephone number, including area code,
of registrant's principal
executive offices)
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NEAL S. WINNEG
VICE PRESIDENT AND GENERAL COUNSEL
THE LEARNING COMPANY, INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] 333-_______.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] 333-__________.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
SHALL DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 3, 1997
PROSPECTUS
THE LEARNING COMPANY, INC.
4,438,480 SHARES OF COMMON STOCK
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Each of the 4,438,480 shares (the "Shares") of common stock, par value
$0.01 per share (the "Common Stock"), of The Learning Company Inc., a Delaware
corporation (the "Company"), offered hereby is issuable upon exchange or
redemption of certain exchangeable non-voting shares (the "New Exchangeable
Shares") of SoftKey Software Products Inc., an Ontario corporation ("SoftKey").
SoftKey, the issuer of the New Exchangeable Shares, is a subsidiary of the
Company. The New Exchangeable Shares are issuable upon exercise of special
warrants (the "Warrants") to purchase non-voting exchangeable shares of SoftKey
offered and sold outside the United States pursuant to the requirements of
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus does not cover the exchange of the New Exchangeable
Shares by the initial purchasers of the Warrants. The Warrants will be
exercisable upon the later of (i) approval by the holders of the outstanding
exchangeable non-voting shares of SoftKey of the issuance of New Exchangeable
Shares, and (ii) the date that all other consents and approvals necessary to
ensure that the rights and benefits of the holders of the New Exchangeable
Shares are substantially equivalent to the rights and benefits of the holders
of the outstanding exchangeable non-voting shares of SoftKey (the exchangeable
non-voting shares of SoftKey, including the New Exchangeable Shares, are
collectively referred to herein as the "Exchangeable Shares"), provided that if
the conditions specified in (i) and (ii) are not met by March 6, 1998, the
Warrants will be redeemed by SoftKey. See "Plan of Distribution." The Company
has outstanding a single share of special voting stock, $1.00 par value per
share (the "Voting Share"), which has a number of votes equal to the number of
Exchangeable Shares outstanding from time to time not owned by the Company, or
an entity controlled by or under common control with the Company, for the
election of directors and on all other matters submitted to a vote of
stockholders of the Company. The holder of the Voting Share is not entitled to
dividends and shall vote with the holders of Common Stock of the Company as a
single class. The Exchangeable Shares may be exchanged for the Company's Common
Stock on a one-for-one basis until February 4, 2005, at which time any
outstanding Exchangeable Shares will be purchased or automatically redeemed for
shares of the Common Stock of the Company. Shares of Common Stock are being
offered on a continuous basis pursuant to Rule 415 under the Securities Act for
such period as the Registration Statement to which this Prospectus relates
remains effective.
The Company and SoftKey are offering shares of Common Stock to holders of
New Exchangeable Shares pursuant to the terms of the Exchangeable Shares, which
obligate the Company and SoftKey to effect such exchanges when, as and if
Exchangeable Shares are presented by the holders thereof for exchange. Upon such
exchange, holders of Exchangeable Shares will be entitled to receive for each
Exchangeable Share one share of Common Stock, plus an additional amount
equivalent to the full amount of all declared and unpaid dividends on such
Exchangeable Share. See
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"Plan of Distribution." All expenses of registration incurred in connection with
this offering are being paid by the Company.
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "TLC." On December 1, 1997, the closing sale price of
the Common Stock on the NYSE was $18.5625 per share.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is December ___, 1997.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Company is required to file electronic versions of these documents
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements, exhibits and schedules thereto,
the "Registration Statement") under the Securities Act, with respect to the
Shares offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, as certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company and the Shares, reference is made to such
Registration Statement. Statements contained in this Prospectus regarding the
contents of any agreement or other document are not necessarily complete, and in
each instance reference is made to the copy of such agreement or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement may be inspected
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) The Company's Annual Report on Form 10-K for the year ended
January 4, 1997, filed with the Commission on April 4, 1997;
(ii) Amendment No. 1 to the Company's Annual Report on Form 10-K/A
for the year ended January 4, 1997, filed with the Commission
on May 5, 1997;
(iii) The Company's Current Report on Form 8-K dated March 21, 1997,
filed with the Commission on March 21, 1997;
(iv) The Company's Current Report on Form 8-K dated April 30, 1997,
filed with the Commission on May 14, 1997;
(v) The Company's Quarterly Report on Form 10-Q for the quarter
ended April 5, 1997, filed with the Commission on May 19,
1997;
(vi) The Company's Quarterly Report on Form 10-Q for the quarter
ended July 5, 1997, filed with the Commission on August 19,
1997;
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(vii) The Company's Current Report on Form 8-K dated August 26,
1997, filed with the Commission on September 3, 1997;
(viii) The Company's Definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on December 4, 1997, filed
with the Commission on October 24, 1997;
(ix) The Company's Quarterly Report on Form 10-Q for the quarter
ended October 4, 1997, filed with the Commission on
November 18, 1997;
(x) The Company's Current Report on Form 8-K dated November 6,
1997, filed with the Commission on November 20, 1997; and
(xi) The Company's Registration Statement on Form 8-A, filed with
the Commission on October 29, 1996.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Shares registered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). All such requests shall be
directed to: The Learning Company, Inc., One Athenaeum Street, Cambridge,
Massachusetts 02142, Attention: Secretary, Telephone: (617) 494-1200.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents incorporated
herein constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 2B of the Exchange Act. For this purpose, any
statements contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "plans," "expects" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements. These
factors include those set forth in "Risk Factors" herein.
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THE COMPANY
The Learning Company, Inc. (the "Company") develops and publishes a broad
range of high quality consumer software for personal computers ("PCs") that
educate across every age category, from young children to adults. The Company's
primary emphasis is in education and reference software, but it also offers a
selection of lifestyle, productivity and, to a lesser extent, entertainment
products, both in North America and internationally.
The Company's families of educational products are principally sold under
The Learning Company and Minnesota Educational Computing Corporation ("MECC")
brands and include the "Reader Rabbit" family, "Trail" family, "Writing and
Creativity Tools" family, "College Prep" family, and the "Foreign Languages"
family. In addition to consumer versions, the Company also publishes school
editions of a number of these products. The Company's reference products include
a line of Compton's Home Library branded products (including Compton's
Interactive Encyclopedia) as well as the American Heritage Talking Dictionary,
Mosby's Medical Encyclopedia and BodyWorks. The Company's premium productivity
and lifestyle products are largely published under the SoftKey brand. The
Company also publishes lower priced boxed products under the "Key" brand and a
line of budget, jewel-case only products under the "Platinum" brand.
The Company distributes its products through retail channels, including
direct sales to computer electronics stores, office superstores, mass
merchandisers, discount warehouse stores and software specialty stores which
control over 23,000 North American storefronts. The Company also sells its
products directly to consumers through the mail, telemarketing and the Internet,
and directly to schools. The Company's international sales are conducted from
subsidiaries in Germany, France, Holland, Ireland, the United Kingdom, Australia
and Japan. The Company also derives revenue from licensing its products to
original equipment manufacturers ("OEMs") which bundle the Company's products
for sale with computer systems or components and through on-line offerings.
The Company's strategy is to develop and publish a broad range of high
quality software products with significant unit-volume potential and to
continuously introduce these new products through a wide variety of established
and emerging distribution channels worldwide. Other key elements of this
strategy include focusing on consumer software that is broadly sold at multiple
price points, building strong relationships with the retail channel, acquiring
complementary products, technologies and businesses and enhancing brand
awareness and customer loyalty.
The Company has a history of acquiring companies in order to broaden its
product lines and sales channels. In May 1996, the Company consummated the
acquisition of MECC. That acquisition, together with the acquisitions in
December 1995 of The Learning Company and Compton's NewMedia, Inc. ("Compton's
NewMedia"), marked the completion of a strategic initiative launched by the
Company in 1995 to expand its educational software franchise.
The Company was incorporated in California in October 1978 and
reincorporated in Delaware in October 1986. In February 1994, the Company, which
was then known as WordStar International Incorporated, completed a three-way
business combination with SoftKey Software Products Inc. and Spinnaker Software
Corporation in which the Company changed its name to SoftKey International Inc.
In October 1996, the Company changed its name to The Learning Company, Inc. to
reflect its expanded emphasis on educational software. The Company's executive
offices are located at One Athenaeum Street, Cambridge, Massachusetts 02142. Its
telephone number is (617) 494-1200, and its internet web site is located at
http:/www.learningco.com. "The Learning Company, Inc." and all of the Company's
logos and product names are trademarks of the Company.
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RISK FACTORS
The Shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information
included or incorporated by reference in this Prospectus.
TAXABILITY OF THE EXCHANGE
Based on the tax laws as of the date of this Prospectus, the exchange of
Exchangeable Shares for Shares is generally a taxable event in Canada and the
United States. A holder's tax consequences can vary depending on a number of
factors, including the residency of the holder and the method of the exchange
(redemption or exchange) (see "Income Tax Considerations").
DIFFERENCES IN CANADA AND U.S. TRADING MARKETS
The outstanding Exchangeable Shares of SoftKey are listed on The Toronto
Stock Exchange (the "TSE") and the Common Stock is listed on the NYSE. The TSE
has conditionally approved the listing of the New Exchangeable Shares. There is
no current intention to list the Exchangeable Shares or Common Stock on any
other stock exchange in Canada or the United States. As a result of the
foregoing, the price at which the Exchangeable Shares will trade will be based
upon the market for such shares on the TSE and the price at which the shares of
Common Stock will trade will be based upon the market for such shares on the
NYSE. Although the Company believes that the market price of the Exchangeable
Shares on the TSE and the market price of the Common Stock on the NYSE will
reflect essentially equivalent values, there can be no assurances that the
market price of the Common Stock will be identical, or even similar, to the
market price of the Exchangeable Shares.
INTENSE COMPETITIVE ENVIRONMENT
The PC consumer software industry is intensely competitive and is
characterized by rapid changes in technology and customer requirements. The
changing nature of the consumer software industry and rapidly changing demand
for products make it difficult to predict the future success of the Company in
the business of producing packaged software products for the retail market. The
Company competes for retail shelf space and general consumer awareness with a
number of companies that market software products. The Company encounters
competition from both established companies, including the largest companies in
the industry, and new companies that may develop comparable products. A number
of the Company's competitors and potential competitors possess significantly
greater capital, marketing resources and brand recognition than the Company.
Rapid changes in technology, product obsolescence and advances in computer
software and hardware require the Company to develop or acquire new products and
to enhance its existing products on a timely basis. The Company's marketplace
has recently experienced a higher emphasis on on-line and Internet related
services and content tailored for this new delivery vehicle. To the extent that
demand increases for on-line products and content, the demand for the Company's
existing products and future performance may change. Furthermore, competitive
pressures have resulted in price reductions throughout the industry with the
result that industry-wide operating margins are likely to be adversely affected.
Many large companies with sophisticated product marketing and technical
abilities and financial resources that do not presently compete with the Company
may enter the PC software market. For example, technology companies have begun
to acquire greater access to content, and content-oriented companies have begun
to acquire greater technological capabilities. Competitors in
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these areas include CUC Software, a division of CUC International Inc.,
Microsoft Corporation, Mattel, Sony, The Walt Disney Company, Viacom,
IBM/Eduquest, Fisher-Price, Jostens, Electronic Arts, Mindscape, GT Interactive
Software and Broderbund Software, Inc. To the extent that competitors achieve a
performance, price or distribution advantage, the Company could be adversely
affected. Increased consolidation in the consumer software industry creates new,
larger competitors and may impact future growth potential and performance.
There is no assurance that the Company will have the resources required to
respond to market or technological changes or to compete successfully in the
future.
INTENSE COMPETITION FOR DISTRIBUTION CHANNELS
The Company competes with other companies for access to retail shelf space
and inclusion in OEM sales programs. Competition in this aspect of the industry
is intense, and the type and number of distribution channels is increasing to
include non-traditional software retailers such as book, music, video, magazine,
toy, gift, convenience, drug and grocery store chains. Additionally, as
technology changes, the type and number of distribution channels will further
change and new types of competitors, such as cable or telephone companies, are
likely to emerge.
The traditional channels of distribution in the software industry have
experienced increasing concentration during the past several years, in
particular with respect to PC chain stores and software distributors. With
increasing concentration in the traditional channels of distribution, the
Company's customers have increased leverage in negotiating favorable terms of
sale, including price discounts and product return policies. There can be no
assurance that the Company will be able to continue to have access to sufficient
retail marketing distribution channels or obtain adequate distribution for all
of its products in the future. Accordingly, such concentration may have an
adverse effect in the future on the profitability of the Company's operations.
Regardless of the retail strategy chosen by the Company, the retail
channels of distribution available for products are expected to be subject to
rapid changes as retailers and distributors enter and exit the software market
segments or alter their product inventory preferences. Other types of retail
outlets and methods of product distribution may become important in the future.
These new methods may include delivery of software using on-line services or the
Internet, which will necessitate certain changes in the Company's business and
operations, including without limitation addressing operational challenges such
as improving download time for pictures, images and programs, ensuring proper
regulation of content quality and developing sophisticated security for
transmitting payments. Should on-line distribution channels increase, the
Company will be required to modify its existing technology bases in order for
its products to be compatible and remain competitive. It is critical to the
success of the Company that, as these changes occur, it maintain access to those
channels of distribution offering software in its market segments.
ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES
The Company has historically expanded its business through, among other
strategies, acquisitions, business combinations and strategic alliances.
Moreover, the consumer software industry as a whole has recently experienced
consolidation. The Company believes that its customers will in the future demand
that the Company offer increasing numbers of titles throughout the range of
product categories. The Company believes that in many cases the most efficient
means to acquire such titles or the ability to develop or license such titles is
to enter into acquisitions, business combinations or strategic alliances with
consumer software companies and others.
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The Company continuously evaluates and considers other businesses of
varying sizes as potential strategic partners and candidates for acquisition
(whether negotiated or non-negotiated) and continuously engages in discussions
with certain businesses in pursuit of possible transactions. Certain of these
businesses may be substantial in size as compared to the Company. There can be
no assurance that the Company will enter into any such transaction or, if the
Company does identify and consummate such a transaction, that the transaction
will enable the Company to achieve its goals.
Acquisitions or business combination transactions that would result in
further expansion of the Company's business in the entertainment and educational
product areas may result in a higher degree of product acceptance risk and
longer development cycles for the Company's products. In addition, companies
that develop entertainment software (for PC, Sega, Nintendo and 3DO platforms)
typically experience lower gross margins than the Company has experienced from
its current operations. Further, should purchase accounting be used by the
Company for future acquisitions or business combination transactions, such
accounting treatment may result in large, one-time expense charges for
in-process research and development costs and short amortization periods for
acquired technology and other intangible assets acquired in the transaction.
Competition for suitable acquisitions, business combinations and strategic
alliances and the cost of these transactions have recently been increasing. The
future availability of desirable prospects for these transactions in the
computer software industry is uncertain. In addition, assuming that the Company
is able to identify appropriate transaction prospects, the execution and
implementation of acquisitions, business combinations and strategic alliances
involves a significant time commitment from senior management and can result in
large restructuring costs. There can be no assurance that suitable opportunities
will be identified, that transactions can be consummated or that assets,
businesses or relationships acquired in such transactions can be integrated
successfully into the Company's operations.
LEVERAGE
As of November 15, 1997, the Company has outstanding $303,650,000 principal
amount of 5 1/2% Senior Convertible Notes due 2000 (the "Senior Convertible
Notes") and $150,000,000 principal amount of Convertible/Exchangeable notes due
2000 held by Tribune Company (the "Tribune Notes"; collectively with the Senior
Notes, the "Notes"). The Company has entered into an agreement to purchase for
750,000 shares of Series A Convertible Participating Preferred Stock, $.01 par
value per share, of the Company (the "Preferred Stock"), the Tribune Notes from
certain purchasers who have agreed to purchase the Tribune Notes from Tribune
Company. The repurchase of the Tribune Notes is subject to certain conditions,
including approval of the Company's stockholders of the sale and issuance of the
Preferred Stock, and there can be no assurance that such transaction will be
completed. The Senior Convertible Notes and, if they are not repurchased, the
Tribune Notes will be redeemable by the Company on or after November 2, 1998 at
declining redemption prices. If the holders of the Senior Convertible Notes and,
if not repurchased, the Tribune Notes do not convert the Notes held by them into
Common Stock, there can be no assurance that the Company's operating cash flow
will be sufficient to meet its debt service requirements, or that the Company
will be able to repay the Notes at maturity or in accordance with their
respective terms or to refinance the Notes on favorable terms or at all.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES; KEY EMPLOYEES
The Company is currently experiencing a period of rapid growth that is
placing and will likely continue to place a strain on the Company's financial,
management and other resources in the future. The Company's ability to continue
to manage its growth effectively will require it, among other things, to
continue to improve its operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
employees. If the Company's management becomes unable to manage growth
effectively, the Company's business, operating results and financial condition
could be adversely affected. For example, over the past two years, the Company
has acquired The Learning Company, Compton's NewMedia, Compton's Learning
Company, MECC, Learning Services, Inc., Skills Bank Corporation and Microsystems
Software, Inc., among other companies, and has signed an agreement to acquire
Creative Wonders LLC. Should certain key employees not be retained, future
operating results may be adversely affected.
Additionally, as a result of such acquisitions, the Company faces
challenges relating to integration of operations such as coordinating
geographically separate organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. The process of
combining organizations may cause an interruption of, or a loss of momentum in,
the activities of the Company's business, which could have an adverse effect on
the revenues and operating results of the Company, at least in the near term.
The ability of software companies with significant internal development and
marketing capabilities to continue to manage growth, develop competitive new
products and respond to rapid technological change depends on an ability to
attract, motivate, manage and retain talented developers, product marketers and
other employees with valuable technological and marketing expertise. The
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Company's educational software products require a substantially larger internal
development and marketing staff than its operations had previously required. If
the Company is unable to attract, motivate, manage and retain such employees,
the Company's results of operations will likely be adversely affected.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The Company operates in a highly competitive and technology driven
environment. The consumer software industry is undergoing substantial change and
is subject to a high level of uncertainty. Software companies must continue to
develop or acquire new products or upgrade existing products on a timely basis
to sustain revenues and profitable operations. Factors contributing to the short
life span of PC software have included rapid technological change and an
expanded demand for content-rich products. Software companies must continue to
create or acquire innovative new products reflecting technological changes in
hardware and software and translate current products into newly accepted
hardware and software formats, in order to gain and maintain a viable market for
their products. PC hardware, in particular, is steadily advancing in power and
function, expanding the market for increasingly complex and flexible software
products. This has also resulted in longer periods necessary for research and
development of new products and a greater degree of unpredictability in the time
necessary to develop products. Furthermore, the rapid changes in the market and
the increasing number of new products available to consumers have increased the
degree of consumer acceptance risk with respect to any specific title that the
Company may publish. It is expected that this trend will continue and may become
more pronounced in the future.
The Company's rights to license certain of its software products are
non-exclusive and, generally, of limited duration, and there is no assurance the
Company will be able to continue to obtain new products from developers or to
maintain or expand its market share in the event that a competitor offers the
same or similar software products. If the Company is unable to develop or
acquire new products in a timely manner as revenues decrease from products
reaching the end of their natural life cycle, the Company's results of
operations will be adversely affected.
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT
Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
high-quality educational software products for adequate levels of shelf space
and promotional support from retailers. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The amounts paid to retailers by software publishers for preferred shelf space
are customarily determined by arms-length negotiations on a case by case basis,
and there is no general formula or industry standard for determining such fees.
There can be no assurance that such retailers will continue to purchase the
Company's products, provide the Company's products with adequate levels and
quality of shelf space or continue to participate with the Company in
cooperative advertising, promotional or market development arrangements. In
addition, the Company has implemented new promotional programs, including coupon
rebates and other various programs through print and television media. These
programs may increase the Company's cost of marketing and reduce operating
margins.
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SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE
Recently, several major publishers of PC software, including the Company,
have significantly reduced the prices of their products with the goal of gaining
greater market share. The retail and wholesale prices of many of the Company's
products have declined and the Company has introduced new lines of lower-priced
software products. There can be no assurance that such price reductions or new
product lines will result in an increase in unit sales volume or that prices
will not continue to decline in the future. Such a decline would lead to a
decrease in the revenues from, and gross margin on, sales of such products in
the future and could result in lower cash flow or operating margins.
RISK OF INTERNATIONAL OPERATIONS
The Company derived approximately 15% of its revenues in the year ended
January 4, 1997 from sales occurring outside North America. These revenues are
subject to the risks normally associated with international operations,
including currency conversion risks, limitations (including taxes) on the
repatriation of earnings, slower and more difficult accounts receivable
collection, greater difficulty and expense in administering business abroad,
complications in complying with foreign laws and the necessity of obtaining
requisite export licenses, which on occasion may be delayed or difficult to
obtain. In addition, while U.S. copyright law, international conventions and
international treaties may provide meaningful protection against unauthorized
duplication of software, the laws of foreign jurisdictions may not protect the
Company's proprietary rights to the same extent as the laws of the United
States. Software piracy has been, and can be expected to be, a persistent
problem for participants in the "shrink-wrap" software industry, including the
Company. These problems are particularly acute in certain international markets
such as South America, the Middle East, the Pacific Rim and the Far East.
PROTECTION OF PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS
The Company relies on a combination of trade secret, copyright, trademark
and other proprietary rights laws and license agreements to protect its rights
to its software products and related documentation. The Company does not have
any patents. United States copyright law, international conventions and
international treaties, however, may not provide meaningful protection against
unauthorized duplication of the Company's software. The Company generally
licenses its externally developed products rather than transferring title and
has relied on contractual arrangements with recipients and users of its products
to establish certain proprietary rights and to maintain confidentiality of those
products protected by trade secret law. Consistent with standard industry
practice, the Company's products generally are licensed pursuant to
"shrink-wrap" licenses that are not signed by the licensee. The enforceability
of such licenses has not been conclusively determined. The Company's products do
not contain any mechanisms to prevent or inhibit unauthorized copying.
The Company has registered numerous trademarks in the United States and
Canada, and a smaller number in other countries, for titles or components of its
products and has trademark registrations pending in the United States and other
countries for various new products.
Policing unauthorized use of a broadly disseminated product such as PC
software is very difficult. Software piracy can be expected to be a persistent
problem for the "shrink-wrap" software industry. These problems are particularly
acute in certain international markets such as South America, the Middle East,
the Pacific Rim and the Far East.
The Company periodically receives communications alleging or suggesting
that its products may incorporate material covered by the copyrights, trademarks
or other proprietary rights of third parties. With the increased use of music
and animation in CD-ROM products and the increased
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number of software products on the market generally, the Company is likely to
experience an increase in the number of infringement claims asserted against it
in the future. With respect to licensed products, the Company is generally
indemnified against liability on these matters. The Company's policy is to
investigate the factual basis of such communications and to resolve such matters
promptly by enforcing its rights, negotiating licenses (if necessary) or taking
other appropriate actions.
In certain circumstances, litigation may be necessary to enforce the
Company's proprietary rights, to protect copyrights, trademarks and trade
secrets and other intellectual property rights owned by the Company or its
licensors, to defend the Company against claimed infringements of the rights of
others and to determine the scope and validity of the proprietary rights of the
Company and others. Any such litigation, whether with or without merit, could be
costly and a diversion of management's attention, which could have an adverse
effect on the Company's business, operating results or financial condition.
Adverse determinations in litigation relating to any of the Company's products
could result in the loss of the Company's proprietary rights, subject the
Company to liabilities, require the Company to seek licenses from third parties
or prevent the Company from selling that product.
DEPENDENCE ON MAJOR SUPPLIER
All duplication, assembly and fulfillment, with certain exceptions
(including CD-ROMs and products reproduced by OEMs), for all of the Company's
U.S. products are provided by one supplier, Bertelsmann AG ("BMG"). Any
interruption in BMG's manufacturing, assembly and fulfillment services caused by
such transition or otherwise could have a material adverse impact on the
Company's business. Although the Company believes that suitable alternative
suppliers exist, there can be no assurance that any termination or modification
of the agreement with BMG would not result in a short-term business interruption
for the Company.
HISTORY OF OPERATING LOSSES
A variety of factors may cause period-to-period fluctuations in the
Company's operating results, including integration of operations resulting from
acquisitions of companies, products or technologies, revenues and expenses
related to the introduction of new products or new versions of existing
products, changes in selling prices, customer delays in purchases in
anticipation of upgrades to existing products, currency fluctuations, dealer and
distributor order patterns, general economic trends or a slowdown of PC sales
and seasonality of customer buying patterns. Historical operating results of the
Company and its predecessors cannot be relied upon as indicative of the future
performance of the Company. On an historical basis, the Company incurred net
losses of $65,960,000 for the year ended January 6, 1996 (after amortization of
$18,229,000 of goodwill) and $405,461,000 for the year ended January 4, 1997
(after amortization of $501,330,000 of goodwill). The Company had net income of
$21,145,000 for the year ended December 31, 1994. There can be no assurance that
the Company will be profitable in the future.
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CAPITAL RESOURCES
The expansion of the Company's current business involves significant
financial risk and capital investment. There is no assurance that financing will
be available in the future to meet the needs of the Company for additional
investment.
DEPENDENCE ON CONTINUED PERSONAL COMPUTER SALES
The success of the Company is dependent upon the continuing use of PCs, and
especially multimedia PCs, in the consumer and school markets. A general
decrease in unit sales of PCs or shift to an alternative means of delivery could
adversely affect the Company's future results of operations.
VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the NYSE. The market price of the Common
Stock, like that for the shares of many other high technology companies, has
been and may continue to be volatile. Recently, the stock market in general and
the shares of personal computer software companies in particular have
experienced significant price fluctuations. These broad market fluctuations, as
well as general economic and political conditions and factors such as quarterly
fluctuations in results of operations, the announcement of technological
innovations, the introduction of new products by the Company or its competitors
and general conditions in the computer hardware and software industries may have
a significant impact on the market price of the Common Stock.
USE OF PROCEEDS
Because the Shares will be issued on exchange or redemption of the
New Exchangeable Shares, the Company will receive no net cash proceeds on such
issuance. The Company will bear all costs, fees and expenses incurred in
effecting the registration of the Shares covered by this Prospectus, including,
without limitation, all registration and filing fees, exchange listing fees,
fees and expenses of counsel for the Company, fees and expenses of accountants
for the Company, printing expenses and blue sky fees and expenses.
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PLAN OF DISTRIBUTION
NEW EXCHANGEABLE SHARES
The New Exchangeable Shares are issuable upon exercise of the Warrants
offered and sold pursuant to Regulation S under the Securities Act. The Warrants
will be exercisable upon the later of (i) approval by the holders of the
outstanding Exchangeable Shares of SoftKey of the issuance of the New
Exchangeable Shares, and (ii) the date that all other consents and approvals
necessary to ensure that the rights and benefits of the holders of the New
Exchangeable Shares are substantially equivalent to the rights and benefits of
the holders of the outstanding Exchangeable Shares. Notwithstanding the
foregoing, if the conditions specified in (i) and (ii) are not met by March 6,
1998 (or such later date that may be agreed upon by SoftKey and Griffiths
McBurney & Partners and First Marathon Securities Limited, the underwriters for
the sale of the Warrants), the Warrants will be redeemed by SoftKey. The
redemption price per Warrant shall be equal to the purchase price paid for the
Warrant plus interest through the redemption date in accordance with the terms
of the Warrants. The Company has outstanding one Voting Share which has a number
of votes equal to the number of Exchangeable Shares outstanding. The holder of
the Voting Share is not entitled to dividends and shall vote with the holders of
Common Stock as a single class. The Exchangeable Shares may be exchanged for the
Company's Common Stock on a one-for-one basis until February 4, 2005, at which
time all outstanding Exchangeable Shares of SoftKey shall be automatically
exchanged for shares of the Common Stock of the Company.
The following is a description of certain rights, privileges, restrictions
and conditions of the Exchangeable Shares as set forth in the articles of
arrangement and the plan of arrangement under Section 182 of the Business
Corporations Act (Ontario) dated February 4, 1994 (the "Plan of Arrangement")
providing for the combination of the Company (formerly known as Wordstar
International Incorporated ("Wordstar")), SoftKey and Spinnaker Software
Corporation ("Spinnaker"), and the Voting and Exchange Trust Agreement, dated
February 4, 1994 (the "Voting and Exchange Trust Agreement") among the Company,
SoftKey and R-M Trust Company, as trustee. The Plan of Arrangement and the
Voting and Exchange Trust Agreement were entered into in connection with the
three party combination (the "Three Party Combination") of Wordstar, the
Company, SoftKey and Spinnaker pursuant to the Amended and Restated Combination
Agreement dated as of August 17, 1993. The Plan of Arrangement and the Voting
and Exchange Trust Agreement are included as exhibits to the Registration
Statement of which this Prospectus is a part, and the following description is
qualified in its entirety by reference to the Plan of Arrangement and the Voting
and Exchange Trust Agreement.
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PROCEDURES FOR ISSUANCE OF COMMON STOCK
ELECTION BY HOLDERS TO EXCHANGE EXCHANGEABLE SHARES. Holders of
Exchangeable Shares are entitled at any time with certain limited exceptions to
retract (i.e., require SoftKey to redeem) any or all such Exchangeable Shares
owned by them and to receive for each retracted Exchangeable Share an amount
equal to the Current Market Price (as defined below) of the Company's Common
Stock on the business day prior to the Retraction Date (as defined below) (which
amount shall be satisfied in full by delivery of one share of Common Stock for
each Exchangeable Share), plus an additional amount equal to all declared and
unpaid dividends on such Exchangeable Share (the "Retraction Price"). Holders of
Exchangeable Shares may effect such retraction by presenting a certificate or
certificates to SoftKey or its transfer agent representing the number of
Exchangeable Shares the holder desires to retract, together with a written
statement (the "Retraction Request") specifying the number of Exchangeable
Shares the holder wishes to retract and the date the holder desires to have the
Company redeem the Common Stock, which must be between five and ten business
days after such request is received by SoftKey (the "Retraction Date"), and such
other documents as may be required to effect the retraction of the Exchangeable
Shares. "Current Market Price" means, in respect of a share of the Company's
Common Stock on any date, the Canadian dollar equivalent of the average of the
closing bid and asked prices of the Company's Common Stock during a period of 20
consecutive trading days ending not more than five trading days before such date
on the stock exchange or automated quotation system on which the Company's
Common Stock is listed or quoted.
SoftKey must immediately notify the Company of any Retraction Request. The
Company will have two business days in which to advise SoftKey as to whether the
Company shall exercise its overriding right (the "Retraction Call Right") to
purchase all of the Exchangeable Shares specified in the Retraction Request by
the delivery of the Retraction Price for each retracted share (a "Retracted
Share") to the transfer agent for payment to the holder on the Retraction Date.
A holder may revoke his or her Retraction Request at any time prior to the close
of business on the business day preceding the Retraction Date, in which case the
holder's Exchangeable Shares will neither be purchased by the Company nor
redeemed by SoftKey. If the holder does not revoke his or her Retraction
Request, on the Retraction Date each Exchangeable Share that the holder has
requested SoftKey to redeem will be acquired by the Company (assuming the
Company exercises its Retraction Call Right) or redeemed by SoftKey, as the case
may be, in each case for the purchase price per Retracted Share equal to the
Retraction Price.
SoftKey shall not be obligated to redeem Retracted Shares to the extent
that such redemption would be contrary to solvency requirements or other
provisions of applicable law. Retracted Shares not redeemed by SoftKey as a
result of solvency requirements or other provisions of applicable law will be
purchased by the Company on or about the Retraction Date in accordance with the
Voting and Exchange Trust Agreement for a purchase price per Retracted Share
equal to the Retraction Price.
REDEMPTION OF EXCHANGEABLE SHARES. Subject to applicable law and the
Redemption Call Right of the Company described below, on February 4, 2005 (the
eleventh anniversary of the effective date of the Three Party Combination) or
(i) such later date as specified by the SoftKey Board of Directors or (ii) such
earlier date as specified by the SoftKey Board of Directors, if at such date
there are less than 500,000 Exchangeable Shares outstanding (other than
Exchangeable Shares held by the Company and entities controlled by or under
common control with the Company and subject to necessary adjustments to such
number of shares to reflect permitted changes to Exchangeable Shares) (the
"Automatic Redemption Date"), SoftKey will redeem all but not less than all of
the then outstanding Exchangeable Shares for an amount per share equal to the
Retraction Price. SoftKey shall, at least 120 days prior to the Automatic
Redemption Date, provide the registered holders of the Exchangeable Shares with
written notice of the proposed redemption of the Exchangeable Shares.
Notwithstanding any proposed redemption of the Exchangeable Shares, the Company
has an overriding right to acquire
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on the Automatic Redemption Date all but not less than all of the Exchangeable
Shares then outstanding in exchange for an amount per share equal to the
Retraction Price.
LIQUIDATION OF SOFTKEY. Upon the liquidation, dissolution or winding up of
SoftKey or any other distribution of the assets of SoftKey among its
stockholders for purposes of winding up its affairs (a "SoftKey Liquidation
Event"), holders of the Exchangeable Shares have the right to receive from
SoftKey, before payment is made to any holder of any class of stock ranking on
liquidation junior to the Exchangeable Shares, for each Exchangeable Share an
amount equal to the Current Market Price of the Company's Common Stock on the
business day prior to the SoftKey Liquidation Event (which shall be satisfied in
full by delivery by the Company of one share of Common Stock for each
Exchangeable Share they hold), plus an additional amount equal to the full
amount of any declared and unpaid dividends on each such Exchangeable Share (the
"Liquidation Amount"). In the event of a proposed SoftKey Liquidation Event, the
Company has the right (the "Liquidation Call Right") to purchase all but not
less than all of the outstanding Exchangeable Shares from the holders thereof at
the effective time of any such SoftKey Liquidation Event in exchange for the
Liquidation Amount.
On or after the effective date of a SoftKey Liquidation Event, and subject
to the exercise by the Company of its Liquidation Call Right to purchase the
Exchangeable Shares in exchange for the Liquidation Amount, a holder of
Exchangeable Shares may surrender certificates representing such Exchangeable
Shares, together with such other documents as may be required, to SoftKey's
registered office or the office of the transfer agent. Upon receipt of the
certificates and other documents, SoftKey will deliver the Liquidation Amount to
such holder at the address recorded in the securities register or by holding the
Liquidation Amount for pick up by the holder at SoftKey's registered office or
the office of the transfer agent, as specified by SoftKey in a notice to such
holder.
In a SoftKey Insolvency Event (as defined below), a holder may instruct
CIBC Mellon Trust Company (the "Trustee") to exercise its exchange right by
requiring the Company to purchase the Exchangeable Shares in exchange for the
Liquidation Amount. A "SoftKey Insolvency Event" means the institution by
SoftKey of any proceeding to be adjudicated as bankrupt or insolvent or to be
dissolved or wound up, or the consent of SoftKey to the institution of
bankruptcy, insolvency, dissolution or winding up proceedings against it, or the
filing of a petition, answer or consent seeking dissolution or winding up under
any bankruptcy, insolvency or analogous laws, and the failure by SoftKey to
contest in good faith any such proceedings commenced in respect of SoftKey
within 15 days of becoming aware thereof, or the consent by SoftKey to the
filing of any such petition or to the appointment of a receiver, or the making
by SoftKey of a general assignment for the benefit of creditors, or the
admission in writing by SoftKey of its inability to pay its debts generally as
they become due, or SoftKey not being permitted, pursuant to solvency
requirements of applicable law, to redeem any Exchangeable Shares.
LIQUIDATION OF THE COMPANY. Upon the occurrence of a Company Liquidation
Event (as defined below), in order for the holders of the Exchangeable Shares
(other than the Company, its subsidiaries and those controlled by or under
common control with the Company) to participate on a pro rata basis with the
holders of Common Stock, each holder of Exchangeable Shares will automatically
receive the Liquidation Amount upon surrender of Exchangeable Shares and such
instruments of transfer as the Company may reasonably require. A "Company
Liquidation Event" means (i) any determination by the Company's Board of
Directors to institute voluntary liquidation, dissolution, or winding-up
proceedings with respect to the Company or to effect any other distribution of
assets of the Company among its stockholders for the purpose of winding up its
affairs; or (ii) immediately upon the earlier of (A) receipt by the Company of
notice of, and (B) the Company becoming aware of any threatened or instituted
claim, suit or proceedings with respect to the involuntary liquidation,
dissolution or winding-up of the Company or to effect any other distribution of
assets of the Company among its stockholders for the purpose of winding up its
affairs.
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To effect the automatic exchange of Exchangeable Shares for shares of
Common Stock, the Company will be deemed to have purchased each Exchangeable
Share outstanding on the fifth business day prior to the effective date of the
Company Liquidation Event for the Liquidation Amount.
INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davies, Ward & Beck, Canadian tax counsel for SoftKey,
the following is a summary of the principal Canadian federal income tax
considerations generally applicable to a holder who acquires New Exchangeable
Shares as described under the heading "Plan of Distribution" (a "Holder") who,
for purposes of the Canadian Tax Act, holds his or her New Exchangeable Shares
and will hold his or her shares of Common Stock as capital property and who
deals at arm's length with SoftKey and the Company. This summary does not apply
to a Holder with respect to whom the Company is a "foreign affiliate" within the
meaning of the Canadian Tax Act.
This summary is based on the current provisions of the Income Tax Act
(Canada) (the "Canadian Tax Act"), the regulations thereunder, all specific
proposals to amend the Canadian Tax Act or the regulations publicly announced by
the Minister of Finance (Canada) prior to the date hereof (the "Tax Proposals"),
and counsel's understanding of the current administrative practices of Revenue
Canada. The Canadian Tax Act contains certain provisions relating to securities
held by certain financial institutions (the "Mark-to-Market Rules"). This
summary does not take into account these Mark-to-Market Rules, and Holders that
are "financial institutions" for purposes of such rules should consult their own
tax advisors.
This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except for the Tax Proposals, does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the federal income tax considerations described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of shares of Common Stock, including
dividends, adjusted cost base and proceeds of disposition, must be converted
into Canadian dollars based on the prevailing United States dollar exchange rate
at the time such amounts arise.
HOLDERS RESIDENT IN CANADA
The following portion of the summary is applicable to Holders who, for
purposes of the Canadian Tax Act, are resident or deemed to be resident in
Canada.
Dividends - Exchangeable Shares
Dividends received or deemed to be received on the New Exchangeable Shares
by a Holder who is an individual will be included in computing the Holder's
income, and will be subject to the gross-up and dividend tax credit rules
normally applicable to taxable dividends received from taxable Canadian
corporations.
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The New Exchangeable Shares will be "taxable preferred shares" and
"short-term preferred shares" for purposes of the Canadian Tax Act. Accordingly,
SoftKey will be subject to a 66-2/3% tax under Part VI.1 of the Canadian Tax Act
on dividends paid or deemed to be paid on the New Exchangeable Shares. Dividends
received or deemed to be received by a Holder on New Exchangeable Shares will
not be subject to the 10% tax under Part IV.1 of the Canadian Tax Act applicable
to certain corporations.
Dividends received or deemed to be received on the New Exchangeable Shares
by a Holder that is a corporation, other than a "specified financial
institution" as defined in the Canadian Tax Act, will normally be deductible in
computing its taxable income if either:
(a) at and immediately before the time at which the dividend is paid or
deemed to be paid the Company is not a specified financial institution or a
specified person in relation to a specified financial institution for
purposes of the Canadian Tax Act; or
(b) at the time of receipt of the dividend, the Exchangeable Shares are
listed on a prescribed stock exchange in Canada (which currently includes
the TSE) and the Holder, either alone or together with specified persons in
relation to the Holder, does not receive (or is not deemed to receive)
dividends in respect of more than 10% of the issued and outstanding
Exchangeable Shares.
The Company has advised Canadian tax counsel that it is of the view that it
is a specified financial institution for purposes of the Canadian Tax Act at the
current time. This status may change in the future.
In the case of a Holder that is a specified financial institution, such a
dividend will normally be deductible in computing its taxable income if either:
(a) the specified financial institution did not acquire the Exchangeable
Shares in the ordinary course of the business carried on by the Holder; or
(b) at the time of receipt of the dividend by the specified financial
institution, the Exchangeable Shares are listed on a prescribed stock
exchange in Canada (which currently includes the TSE) and the specified
financial institution, either alone or together with persons with whom it
does not deal at arm's length, does not receive (or is not deemed to
receive) dividends in respect of more than 10% of the issued and
outstanding Exchangeable Shares.
A Holder that is a "private corporation" or a "subject corporation" (as
defined in the Canadian Tax Act) may be liable under Part IV of the Canadian Tax
Act to pay a refundable tax of 33-1/3% on dividends received or deemed to be
received on the New Exchangeable Shares to the extent that such dividends are
deductible in computing the Holder's taxable income.
Dividends - Common Stock
Dividends on Common Stock will be included in the recipient's income for
the purposes of the Canadian Tax Act. Such dividends received by a Holder who is
an individual will not be subject to the gross-up and dividend tax credit rules
in the Canadian Tax Act. A Holder that is a corporation will include such
dividends in computing its income and generally will not be entitled to deduct
the amount of such dividends in computing its taxable income. United States
non-resident withholding tax on such dividends will be eligible for foreign tax
credit or deduction treatment where applicable under the Canadian Tax Act.
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Redemption or Exchange of New Exchangeable Shares
On the redemption (including a retraction) of a New Exchangeable Share by
SoftKey for a share of Common Stock, the Holder will be deemed to have received
a dividend equal to the amount, if any, by which the redemption proceeds (the
fair market value at the time of the redemption of the share of Common Stock
received by the Holder from SoftKey on the redemption plus the amount, if any,
of all unpaid dividends on the New Exchangeable Share) exceeds the paid-up
capital at that time of the New Exchangeable Share so redeemed. The amount of
any such deemed dividend will be subject to the tax treatment accorded to the
dividends described above under " - Canadian Federal Income Tax Considerations -
Shareholders Resident in Canada - Dividends - Exchangeable Shares." On the
redemption, the Holder will also be considered to have disposed of the New
Exchangeable Share, but the amount of such deemed dividend will be excluded in
computing the Holder's proceeds of disposition for purposes of computing any
capital gain or capital loss arising on the disposition of the New Exchangeable
Share. In the case of a Holder that is a corporation, in some circumstances all
or a portion of the amount of any such deemed dividend may be treated as
proceeds of disposition and not as a dividend.
On the exchange of a New Exchangeable Share by a Holder with the Company
for a share of Common Stock, the Holder generally will realize a capital gain
(or a capital loss) equal to the amount by which the proceeds of disposition of
the New Exchangeable Share, net of any reasonable costs of disposition, exceed
(or are less than) the adjusted cost base of the New Exchangeable Share to the
Holder. For these purposes, the proceeds of disposition will be the value of the
share of Common Stock at the time of exchange plus the amount of all unpaid
dividends on the New Exchangeable Share.
The cost to a Holder of a share of Common Stock received on the retraction,
redemption or exchange of a New Exchangeable Share will be equal to the fair
market value of the share of Common Stock at the time of such event. Where the
share of Common Stock is capital property, its cost will be averaged with the
adjusted cost base of all such shares held by the Holder as capital property
immediately before the acquisition to determine the adjusted cost base of each
such share to the Holder.
BECAUSE OF THE EXISTENCE OF THE RETRACTION CALL RIGHT, A HOLDER EXERCISING
THE RIGHT OF RETRACTION IN RESPECT OF A NEW EXCHANGEABLE SHARE CANNOT CONTROL
WHETHER SUCH HOLDER WILL RECEIVE A SHARE OF COMMON STOCK BY WAY OF REDEMPTION OF
THE NEW EXCHANGEABLE SHARE BY SOFTKEY OR BY WAY OF PURCHASE OF THE NEW
EXCHANGEABLE SHARE BY THE COMPANY. AS DESCRIBED ABOVE, THE CANADIAN FEDERAL
INCOME TAX CONSEQUENCES OF A REDEMPTION DIFFER FROM THOSE OF A PURCHASE.
HOWEVER, A HOLDER WHO EXERCISES THE RIGHT OF RETRACTION WILL BE NOTIFIED IF THE
RETRACTION CALL RIGHT WILL NOT BE EXERCISED BY THE COMPANY, AND IF SUCH HOLDER
DOES NOT WISH TO PROCEED, SUCH HOLDER MAY CANCEL THE NOTICE OF RETRACTION AND
RETAIN SUCH HOLDER'S NEW EXCHANGEABLE SHARE (SEE "PROCEDURES FOR ISSUANCE OF
COMMON STOCK - ELECTION BY HOLDERS TO EXCHANGE EXCHANGEABLE SHARES").
Dispositions and Taxation of Capital Gains and Capital Losses
Upon a disposition (or a deemed disposition) of a New Exchangeable Share or
a share of Common Stock, including a sale, exchange or other disposition, a
Holder generally will realize a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition of the New Exchangeable Share or the
share of Common Stock, as applicable, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base of the New
Exchangeable Share or the share of Common Stock, as applicable, to the Holder.
Three-quarters of any such capital gain will be required to be included in
computing the Holder's income as a taxable capital gain. Three-quarters of any
such capital loss normally is deducted against taxable capital gains realized by
the Holder in the year of disposition and thereafter normally may be deducted by
the Holder against taxable capital gains realized in any
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of the three preceding taxation years or any subsequent taxation year, subject
to detailed rules contained in the Canadian Tax Act in this regard.
The amount of any capital loss realized on the disposition or deemed
disposition of a New Exchangeable Share by a Holder that is a corporation may be
reduced by the amount of dividends received or deemed to have been received by
it on such share to the extent and in the circumstances prescribed by the
Canadian Tax Act. Similar rules may apply where a Holder that is a corporation
is a member of a partnership or beneficiary of a trust that owns New
Exchangeable Shares or that is itself a member of a partnership or a beneficiary
of a trust that owns New Exchangeable Shares.
A Canadian-controlled private corporation (as defined in the Canadian Tax
Act) also may be liable to pay a 6-2/3% refundable tax on certain investment
income including taxable capital gains.
Foreign Property
The New Exchangeable Shares, if issued on the date hereof and listed on a
prescribed stock exchange in Canada (which currently includes the TSE), would
not, on the date hereof, be foreign property under the Canadian Tax Act for
trusts governed by registered pension plans, registered retirement savings
plans, registered retirement income funds and deferred profit sharing plans or
for certain other tax-exempt persons. The Holders rights with respect to the
Voting Share (the "voting rights") and the Holder's right to require the Company
to acquire New Exchangeable Shares upon the occurrence of a SoftKey Insolvency
Event (the "exchange rights") will be foreign property under the Canadian Tax
Act. SoftKey has advised Canadian tax counsel that Softkey is of the view that
the fair market value of the voting rights and the exchange rights is nominal.
Common Stock will be foreign property under the Canadian Tax Act.
Qualified Investments
The New Exchangeable Shares, if issued on the date hereof and listed on a
prescribed stock exchange in Canada (which currently includes the TSE), would
be, on the date hereof, a qualified investment under the Canadian Tax Act for
trusts governed by registered retirement savings plans, registered retirement
income funds and deferred profit sharing plans. Shares of Common Stock, if
issued on the date hereof and listed on a prescribed stock exchange (which
currently includes the NYSE) would be, on the date hereof, qualified investments
for such trusts. The voting rights and the exchange rights will not be qualified
investments under the Canadian Tax Act. As indicated above, SoftKey is of the
view that the fair market value of these rights is nominal.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following summary is applicable to Holders who, for purposes of the
Canadian Tax Act, have not been and will not be resident in Canada at any time
while they hold New Exchangeable Shares or will hold shares of Common Stock, who
do not use or hold and are not deemed to use or hold such shares in the course
of carrying on a business in Canada, and to whom such shares are not taxable
Canadian property. Additional considerations, which are not discussed below, may
be relevant to a non-resident that is an insurer which carries on business in
Canada and elsewhere. Generally, the New Exchangeable Shares and shares of
Common Stock will not be taxable Canadian property provided that the Holder does
not use or hold, and is not deemed to use or hold, the New Exchangeable Shares
or the shares of Common Stock, as applicable, in connection with carrying on a
business in Canada and, in the case of the New Exchangeable Shares, the Holder,
persons with whom such holder does not deal at arm's length, or the Holder and
such persons, has not owned (or had under option) 25% or more of the issued
shares of any class or series of the capital stock of SoftKey at any time within
five years preceding the date in question.
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Such a Holder of Exchangeable Shares will not be subject to tax under the
Canadian Tax Act on capital gains arising on the exchange of a New Exchangeable
Share by the Company for a share of Common Stock, or on the sale or other
disposition of a New Exchangeable Share or a share of Common Stock. Such a
Holder may be subject to withholding tax under the Canadian Tax Act on a
redemption of New Exchangeable Shares, as described below.
Dividends paid on the New Exchangeable Shares are subject to non-resident
withholding tax under the Canadian Tax Act at the rate of 25%, although such
rate may be reduced under the provisions of an applicable income tax treaty. For
example, under the Canada-United States Income Tax Convention, the rate is
generally reduced to 15%.
A HOLDER WHOSE NEW EXCHANGEABLE SHARES ARE REDEEMED (EITHER UNDER SOFTKEY'S
REDEMPTION RIGHT OR PURSUANT TO THE HOLDER'S RETRACTION RIGHTS) WILL BE DEEMED
TO RECEIVE A DIVIDEND AS DESCRIBED ABOVE UNDER " - CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS - SHAREHOLDERS RESIDENT IN CANADA - REDEMPTION OR EXCHANGE OF
EXCHANGEABLE SHARES," WHICH DEEMED DIVIDEND WILL BE SUBJECT TO WITHHOLDING TAX
AS DESCRIBED IN THE PRECEDING PARAGRAPH.
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of the material United States federal income and
estate tax considerations relating to the exchange of New Exchangeable Shares
for Common Stock and the purchase, ownership and disposition of Common Stock,
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations promulgated or proposed thereunder ("Treasury Regulations"),
judicial authority and current administrative rulings and practice, all of which
are subject to change, possibly on a retroactive basis. This summary deals only
with holders that will hold New Exchangeable Shares or Common Stock as "capital
assets" (within the meaning of Section 1221 of the Code) and does not address
tax considerations applicable to investors that may be subject to special tax
rules, such as banks, tax-exempt organizations, insurance companies, dealers in
securities or currencies, persons that will hold New Exchangeable Shares or
Common Stock as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes, or persons that have a "functional currency"
other than the U.S. dollar. The Company has not sought any ruling from the
Internal Revenue Service ("IRS") with respect to the statements made and the
conclusions reached in the following summary, and there can be no assurance that
the IRS will agree with such statements and conclusions. The summary represents
the opinion of Hale and Dorr LLP, United States counsel to the Company.
INVESTORS CONSIDERING THE EXCHANGE OF NEW EXCHANGEABLE SHARES FOR COMMON STOCK
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE
UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS
AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means a beneficial
owner of New Exchangeable Shares or Common Stock other than a beneficial owner
that for United States federal income tax purposes is (i) a citizen or resident
of the United States, (ii) treated as a domestic corporation or domestic
partnership, or (iii) an estate or trust that is subject to United States
federal income taxation on a net income basis in respect of Common Stock.
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Exchange of New Exchangeable Shares
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the exchange of New Exchangeable Shares
for shares of Common Stock unless (1) the gain is effectively connected with a
United States trade or business of the Non-United States Holder, (2) in the case
of a Non-United States Holder who is an individual, such Holder is present in
the United States for a period or periods aggregating 183 days or more during
the taxable year of the disposition or (3) the Holder is subject to tax pursuant
to the provisions of the Code applicable to certain United States expatriates.
Dividends
The amount of any distribution by the Company in respect of the Common
Stock will be equal to the amount of cash and the fair market value, on the date
of distribution, of any property distributed. Generally, distributions will be
treated as a dividend to the extent of the Company's current or accumulated
earnings and profits, then as a tax-free return of capital to the extent of the
Holder's tax basis in the Common Stock and thereafter as gain from the sale of
exchange of such stock. Distributions treated as dividends paid, excluding
dividends that are effectively connected with the conduct of a trade or business
in the United States by such Holder, will be subject to United States federal
withholding tax at a 30% rate (or lower rate provided under any applicable
income tax treaty). Except to the extent that an applicable tax treaty otherwise
provides, a Non-United States Holder will be taxed in the same manner as a
United States Holder on dividends paid that are effectively connected with the
conduct of a trade or business in the United States by the Non-United States
Holder. If such Non-United States Holder is a foreign corporation, it may also
be subject to a United States branch profits tax on such effectively connected
income at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty. Even though such effectively connected dividends are subject
to income tax, and may be subject to the branch profits tax, they will not be
subject to U.S. withholding tax if the Holder delivers IRS Form 4224 to the
payor.
Under current U.S. Treasury regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of U.S. Treasury
Regulations, for purposes of determining the applicability of a tax treaty rate.
Under recently issued U.S. Treasury Regulations, however, Non-U.S. Holders of
Common Stock who wish to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification requirements. The new U.S. Treasury
Regulations are effective for payments made after December 31, 1998.
SALE OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the sale or exchange of Common Stock
unless (1) the gain is effectively connected with a United States trade or
business of the Non-United States Holder, (2) in the case of a Non-United States
Holder who is an individual, such Holder is present in the United States for a
period or periods aggregating 183 days or more during the taxable year of the
disposition or (3) the Holder is subject to tax pursuant to the provisions of
the Code applicable to certain United States expatriates.
DEATH OF A NON-UNITED STATES HOLDER
Common Stock actually or beneficially held (other than through a foreign
corporation) by a Non-United States Holder at the time of his or her death (or
previously transferred subject to certain
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<PAGE> 24
retained rights or powers) will be subject to United States federal estate tax
unless otherwise provided by an applicable estate tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
will not apply to any exchange of New Exchangeable Shares or the payment of the
proceeds of the sale of Common Stock effected outside the United States by a
foreign office of a "broker" (as defined in applicable U.S. Treasury
Regulations); unless such broker (i) is a United States person, (ii) is a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (iii) is a
controlled foreign corporation for United States federal income tax purposes.
Payment of the proceeds of any such sale effected outside the United States by a
foreign office of any broker that is described in (i), (ii) or (iii) of the
preceding sentence will not be subject to backup withholding tax, but will be
subject to information reporting requirements unless such broker has documentary
evidence in its records that the beneficial owner is a Non-United States Holder
and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption. Payment of the proceeds of any such sale to or through
the United States office of a broker is subject to information reporting and
backup withholding requirements, unless the beneficial owner of Common Stock (a)
provides a Form W-8 (or a suitable substitute form) signed under penalties of
perjury that includes its name and address and certifies as to its non-United
States status, or (b) is a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business and provides a statement to the Company or its agent under
penalties of perjury in which it certifies that a Form W-8 (or a suitable
substitute) has been received by it from the Non-United States Holder or
qualifying intermediary and furnishes the Company or its agent with a copy
thereof.
If paid to an address outside the United States, dividends on Common Stock
held by a Non-United States Holder will generally not be subject to the
information reporting and backup withholding requirements described in this
section. However, under recently issued U.S. Treasury Regulations, dividend
payments will be subject to information reporting and backup withholding unless
applicable certification requirements are satisfied. The new U.S. Treasury
Regulations apply to dividend payments made after December 31, 1998.
UNITED STATES REAL PROPERTY HOLDING CORPORATIONS
The discussion of the United States taxation of Non-United States Holders
of Common Stock assumes that the Company is at no time a United States real
property holding corporation within the meaning of Section 897(c) of the Code.
Under present law, the Company would not be a United States real property
holding corporation so long as (a) the fair market value of its United Stated
real property interests is less than (b) 50% of the sum of the fair market value
of its United States real property interests, its interests in real property
located outside the United States, and its other assets which are used or held
or use in a trade or business. The Company believes that it is not a United
States real property holding corporation and does not expect to become such a
corporation.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means any beneficial owner
of Common Stock that is not a Non-United States Holder.
EXCHANGE OF NEW EXCHANGEABLE SHARES
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<PAGE> 25
A United States Holder will generally recognize capital gain or loss upon
the exchange of New Exchangeable Shares for shares of Common Stock equal to the
difference between the fair market value of shares of Common Stock received
(other than Common Stock received for declared but unpaid dividends) and such
Holder's basis in the New Exchangeable Shares surrendered.
Under certain limited circumstances, an exchange by a United States Holder
of New Exchangeable Shares for Common Stock may be characterized as a tax free
exchange (except to the extent of Common Stock received in exchange for
declared, but unpaid, dividends). It is not possible to predict whether or not
all of the requirements for a tax-free exchange will exist at the time of the
exchange, because such requirements are dependent upon future events. If the
exchange qualifies as a tax-free exchange, a United States Holder will not
recognize gain or loss upon the exchange, will have a basis in the Common Stock
received in the exchange equal to such Holder's basis in the New Exchangeable
Shares, and will have a holding period which includes the holding period in the
New Exchangeable Shares.
Whether the exchange of New Exchangeable Shares is taxable or tax-free, a
United States Holder will recognize ordinary income to the extent of Common
Stock received in the exchange for declared, but unpaid, dividends on the New
Exchangeable Shares. A United States Holder's holding period in all shares of
Common Stock received in the exchange will begin on the day after the exchange.
Canadian tax, if any, imposed on the exchange may be available as a credit
against a United States Holder's United States federal income taxes, subject to
applicable limitations. A United States Holder who is not eligible for a credit
may be able to deduct the Canadian taxes paid, if any, in computing United
States federal income subject to tax.
PASSIVE FOREIGN INVESTMENT COMPANY
SoftKey may be classified as a passive foreign investment company ("PFIC")
for United States federal income tax purposes for any taxable year if either (i)
75% or more of its gross income is passive income or (ii) on average for the
taxable year, 50% or more of its assets (by value) produce or are held for the
production of passive income. While there can be no assurance, the Company and
SoftKey expect, based on the manner in which SoftKey intends to manage its
business and the projections of SoftKey's investments, income and assets, that
it will not be a PFIC. SoftKey will monitor its status and will notify holders
of New Exchangeable Shares if it believes that it is properly classified as a
PFIC for any taxable year.
If SoftKey were to be classified as a PFIC, the consequences to a United
States Holder will depend in part on whether the United States Holder has made a
"Mark-to-Market Election" or a "QEF Election" with respect to SoftKey. If
SoftKey is a PFIC during a United States Holder's holding period and the United
States Holder does not make a Mark-to-Market Election or a QEF Election, the
United States Holder will generally be required to pay a special United States
tax, in lieu of the U.S. tax that would otherwise apply, if such United States
Holder (a) realizes a gain upon the sale or exchange of New Exchangeable Shares
(including an exchange for Common Stock) or (b) receives an "excess
distribution" from SoftKey on the New Exchangeable Shares. If a United States
Holder makes a QEF Election or Mark-to-Market Election, it will generally be
required to include amounts in income, based upon SoftKey's income or the value
of the New Exchangeable Shares, even if SoftKey does not make actual
distributions to holders of New Exchangeable Shares.
If for any year SoftKey determines that it is properly classified as a
PFIC, SoftKey will comply with all reporting requirements necessary for a United
States Holder to make a QEF Election and will, promptly following the end of
such year and each year thereafter for which it is properly classified as a
PFIC, provide to United States Holders the information required by the QEF
Election.
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<PAGE> 26
DIVIDENDS
The amount of any distribution by the Company in respect of the Common
Stock will be equal to the amount of cash and the fair market value, on the date
of distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of the
Company's current or accumulated earnings and profits, then as a tax-free return
of capital to the extent of the Holder's tax basis in the Common Stock and
thereafter as gain from the sale of exchange of such stock.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the sale
or exchange and (ii) such Holder's adjusted tax basis in the Common Stock.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to (i) payments
of dividends on Common Stock and (ii) the exchange of New Exchangeable Shares
for Common Stock or payments of the proceeds of the sale of Common Stock by or
to certain noncorporate United States Holders. The payor will be required to
withhold backup withholding tax at the rate of 31% if the payee fails to furnish
certain information to the payor or the IRS notifies the payor that backup
withholding is required. Any amounts withheld under the backup withholding rules
from a payment to a United States Holder will be allowed as a credit against
such Holder's United States federal income tax and may entitle the Holder to a
refund, provided that the required information is furnished to the IRS.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
are being passed upon for the Company by Neal S. Winneg, General Counsel of the
Company. Mr. Winneg owns options to purchase on aggregate of 98,750 shares of
Common Stock, which are to become exercisable in periodic installments through
January, 1999. Certain federal U.S. and Canadian tax consequences have been
passed upon by Hale and Dorr LLP, Boston, Massachusetts, and by Davies, Ward &
Beck, Toronto, Ontario, respectively, as set forth under "Income Tax
Considerations."
EXPERTS
The consolidated balance sheets as of January 4, 1997 and January 6, 1996,
and the consolidated statements of income, retained earnings, and cash flows for
each of the three years in the period ended January 4, 1997, incorporated by
reference in this prospectus, have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., Boston, Massachusetts, independent
accountants, given on the authority of the firm as experts in accounting and
auditing.
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<PAGE> 27
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy to any
person in any jurisdiction in which such offeror solicitation of an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
offer or sale hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or that the
information contained herein is correct as of any date hereof.
--------------------
TABLE OF CONTENTS
Page
----
Available Information ................................. 5
Incorporation of Certain Documents
by Reference ........................................ 5
Special Note Regarding Forward-
Looking Information ................................. 6
The Company ........................................... 7
Risk Factors .......................................... 8
Use of Proceeds ....................................... 14
Plan of Distribution .................................. 15
Income Tax Considerations ............................. 18
Legal Matters ......................................... 26
Experts ............................................... 26
--------------------
================================================================================
THE LEARNING COMPANY, INC.
4,438,480 SHARES
COMMON STOCK
--------------------
PROSPECTUS
--------------------
December __, 1997
================================================================================
<PAGE> 28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in
connection with the offering of the securities being registered hereby, all of
which will be borne by the Company. All amounts shown are estimates except the
Securities and Exchange Commission registration fee.
Filing Fee - Securities and Exchange Commission ................. $ 23,753
Legal fees and expenses of the Company .......................... $ 75,000
Accounting fees and expenses .................................... $ 10,000
Printing expenses ............................................... $ 2,500
Miscellaneous expenses .......................................... $ 8,747
Total Expenses ............................................. $120,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at its request in such capacity in another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 8 of the Company's Restated Certificate of Incorporation, as
amended, provides for elimination of directors' personal liability and
indemnification as follows:
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<PAGE> 29
"8. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
8.1 ELIMINATION OF CERTAIN LIABILITIES OF DIRECTORS. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the directors' duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after approval by the stockholders of this
Section to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of this Section by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
8.2 INDEMNIFICATION AND INSURANCE.
8.2.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee, or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to its fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability, and loss (including attorneys' fees,
judgments, fines, Employee Retirement Income Security Act of 1974, excise taxes
or penalties, and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith, and such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors, and
administrators; provided, however, that the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
8.2.2 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this
II-2
<PAGE> 30
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Restated Certificate,
Bylaw, agreement, vote of stockholders, or disinterested directors or otherwise.
8.2.3 INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee, or agent of the
Corporation or another corporation, partnership, joint venture, trust, or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability, or loss under the Delaware General Corporation Law."
The Company has purchased directors' and officers' liability insurance
which would indemnify the directors and officers of the Company against damages
arising out of certain kinds of claims which might be made against them based on
their negligent acts or omissions while acting in their capacity as such. In
addition, certain of the Company's directors may be entitled to indemnification
and advancement of expenses under the charter documents of Tribune Company and
may be covered by directors' and officers' liability insurance maintained by
Tribune Company.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Restated Certificate of Incorporation, as amended (Incorporated by
reference to exhibits filed with the Company's Quarterly Report on
Form 10-Q for the quarterly period ended July 6, 1996.)
4.2 Bylaws of the Company, as amended (Incorporated by reference to
exhibits filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended July 6, 1996.)
4.3* Voting and Exchange Trust Agreement, dated as of February 4, 1994,
between the Registrant, SoftKey Software Products Inc. and R-M Trust
Company, as Trustee.
4.4* Plan of Arrangement of SoftKey Software Products Inc. under Section
182 of the Business Corporations Act (Ontario).
5.1 Opinion of Neal S. Winneg, Esq.
8.1* Opinion of Hale and Dorr LLP regarding tax matters.
8.2* Opinion of Davies, Ward & Beck regarding tax matters.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Neal S. Winneg, Esq., included in Exhibit 5.1.
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<PAGE> 31
24.1 Power of Attorney.
- ---------
* Filed herewith; all other exhibits previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any derivation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as
amended (the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cambridge, Commonwealth of
Massachusetts, on this 2nd day of December, 1997.
THE LEARNING COMPANY, INC.
By: /s/ Neal S. Winneg
-----------------------
Neal S. Winneg,
Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Perik* Chairman of the Board ad Chief Executive December 2, 1997
- -------------------------------- Officer (Principal Executive Officer)
Michael J. Perik
/s/ R. Scott Murray* Chief Financial Officer (Principal December 2, 1997
- -------------------------------- Financial and Accounting Officer)
R. Scott Murray
/s/ Kevin O'Leary* President and Director December 2, 1997
- --------------------------------
Kevin O'Leary
</TABLE>
II-5
<PAGE> 33
<TABLE>
<S> <C> <C>
/s/ Lamar Alexander* Director December 2, 1997
- --------------------------------
Lamar Alexander
/s/ Michael A. Bell* Director December 2, 1997
- --------------------------------
Michael A. Bell
/s/ James O. Dowdle* Director December 2, 1997
- --------------------------------
James O. Dowdle
- -------------------------------- Director
Robert Gagnon
/s/ Charles L. Palmer* Director December 2, 1997
- --------------------------------
Charles L. Palmer
- -------------------------------- Director
Carolynn N. Reid-Wallace
/s/ Robert A. Rubinoff* Director December 2, 1997
- --------------------------------
Robert A. Rubinoff
/s/ Scott M. Sperling* Director December 2, 1997
- --------------------------------
Scott M. Sperling
* By: /s/ Neal S. Winneg
---------------------------
Neal S. Winneg,
Vice President and
General Counsel
</TABLE>
II-6
<PAGE> 34
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Restated Certificate of Incorporation, as amended (Incorporated by
reference to exhibits filed with the Company's Quarterly Report on
Form 10-Q for the quarterly period ended July 6, 1996.)
4.2 Bylaws of the Company, as amended (Incorporated by reference to
exhibits filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended July 6, 1996.)
4.3* Voting and Exchange Trust Agreement, dated as of February 4, 1994,
between the Registrant, SoftKey Software Products Inc. and R-M Trust
Company, as Trustee.
4.4* Plan of Arrangement of SoftKey Software Products Inc. under Section
182 of the Business Corporations Act (Ontario).
5.1 Opinion of Neal S. Winneg, Esq.
8.1* Opinion of Hale and Dorr LLP regarding tax matters.
8.2* Opinion of Davies, Ward & Beck regarding tax matters.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Neal S. Winneg, Esq.
24.1 Power of Attorney.
- ----------
* Filed herewith; all other exhibits previously filed.
<PAGE> 1
EXHIBIT 4.3
VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 4th day of February, 1994.
B E T W E E N:
SOFTKEY INTERNATIONAL INC.,
a corporation subsisting under the laws
of the State of Delaware,
(hereinafter referred to as the "Parent"),
OF THE FIRST PART,
- and -
SOFTKEY SOFTWARE PRODUCTS INC.,
a corporation subsisting under the laws
of the Province of Ontario,
(hereinafter referred to as the "Corporation"),
OF THE SECOND PART,
- and -
THE R-M TRUST COMPANY,
a trust company incorporated under the
laws of Canada,
(hereinafter referred to as the `Trustee"),
OF THE THIRD PART.
WHEREAS pursuant to a combination agreement dated as of August 17, 1993, as
amended and restated, by and among WordStar International Incorporated (the
former corporate name of the Parent), SoftKey Software Products Inc. (a
predecessor to the Corporation), Spinnaker Software Corporation and SSC
Acquisition Corporation, (such agreement as so amended and restated is
hereinafter referred to as the "Combination Agreement") the parties agreed that
as soon as practicable after the satisfaction or waiver, if permissible, of all
of the conditions set forth in the Combination Agreement to the
Spinnaker-WordStar-SoftKey Transaction, the SoftKey-WordStar Transaction or the
SoftKey-Spinnaker Transaction (as each such term is defined in the Combination
Agreement), as the case may be, but in no event later than the second business
day after the latest to occur of such conditions, the Parent and the Corporation
would execute and deliver a Voting and Exchange Trust Agreement containing the
terms and conditions set
<PAGE> 2
forth in Exhibit B to the Combination Agreement together with such other terms
and conditions as may be agreed to by the parties to the Combination Agreement
acting reasonably;
AND WHEREAS pursuant to an arrangement (the "Arrangement") effected by
articles of arrangement dated February 4, 1994 filed pursuant to the Business
Corporations Act (Ontario), SoftKey Software Products Inc. (a predecessor to the
Corporation) and 1056920 Ontario Inc. amalgamated to continue as the
Corporation;
AND WHEREAS pursuant to the Arrangement and immediately following the
above-mentioned amalgamation each issued and outstanding Class A voting common
share of the Corporation, other than those held by the Parent, was exchanged by
the holder thereof with the Parent for 3.6 issued and outstanding shares of
Common Stock of the Parent (the "Parent Common Shares") and each issued and
outstanding Class B non-voting common share of the Corporation was converted
into 3.6 issued and outstanding Exchangeable Non-Voting Shares of the
Corporation (the "Exchangeable Shares");
AND WHEREAS subsequent to the exchange of Class A voting common shares of
the Corporation for Parent Common Shares, the Parent Common Shares were
consolidated on a 1-for-10 basis;
AND WHEREAS pursuant to the Arrangement, the issued and outstanding
Exchangeable Shares were consolidated on a 1-for-10 basis;
AND WHEREAS the above-mentioned articles of arrangement set forth the
rights, privileges, restrictions and conditions (collectively the "Exchangeable
Share Provisions") attaching to the Exchangeable Shares;
AND WHEREAS the Parent is the registered and beneficial owner of all of the
issued and outstanding Class A voting common shares of the Corporation;
AND WHEREAS pursuant to the Arrangement the Parent is to provide voting
rights in the Parent to each holder (other than the Parent, its subsidiaries and
Affiliates) from time to time of Exchangeable Shares, such voting rights per
Exchangeable Share to be equivalent to the voting rights per Parent Common
Share;
AND WHEREAS pursuant to the Arrangement the Parent is to grant to and in
favour of the holders (other than the Parent, its subsidiaries and Affiliates)
from time to time of Exchangeable Shares the right, in the circumstances set
forth herein, to require the Parent to purchase from each such holder all or any
part of the Exchangeable Shares held by the holder;
AND WHEREAS the parties desire to make appropriate provision and to
-2-
<PAGE> 3
establish a procedure whereby voting rights in the Parent shall be exercisable
by holders (other than the Parent, its subsidiaries and Affiliates) from time to
time of Exchangeable Shares by and through the Trustee, which will hold legal
title to one share of Parent Special Voting Stock to which voting rights attach
for the benefit of such holders, and whereby the right to require the Parent to
purchase Exchangeable Shares from the holders thereof (other than the Parent,
its subsidiaries and Affiliates) shall be exercisable by such holders from time
to time of Exchangeable shares by and through the Trustee, which will hold legal
title to such right for the benefit of such holders;
AND WHEREAS these recitals and any statements of fact in this trust
agreement are made by the Parent and the Corporation and not by the Trustee;
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this trust agreement and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties
agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In this trust agreement, the following terms shall have the
following meanings:
"AFFILIATE" of any person means any other person directly or
indirectly controlled by, or under common control of, that person.
For the purposes of this definition, "control" (including,
correlative meanings, the terms "controlled by" and "under common
control of"), as applied to any person, means the possession by
another person, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that first
mentioned person, whether through the ownership of voting securities,
by contract or otherwise.
"AUTOMATIC EXCHANGE RIGHTS" means the benefit of the obligation of
the Parent to effect the automatic exchange of Parent Common Shares
for Exchangeable Shares pursuant to section 5.12.
"BENEFICIARIES" means the registered holders from time to time of
Exchangeable Shares, other than the Patent, its subsidiaries and
Affiliates.
"BENEFICIARY VOTES" has the meaning ascribed thereto in section 4.2.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
-3-
<PAGE> 4
"BUSINESS DAY" means a day other than a Saturday, a Sunday or a
statutory holiday in the City of Toronto, Ontario or the City of
Boston, Massachusetts.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed
in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (a) the Foreign Currency Amount by
(b) the noon spot exchange rate on such date for such foreign
currency expressed in Canadian dollars as reported by the Bank of
Canada or, in the event such spot exchange rate is not available,
such exchange rate on such date for such foreign currency expressed
in Canadian dollars as may he deemed by the Board of Directors to he
appropriate for such purpose.
"CURRENT MARKET PRICE" means, in respect of a Parent Common Share on
any date, the Canadian Dollar Equivalent of the average of the
closing bid and asked prices of Parent Common Shares during a period
of 20 consecutive trading days ending not more than five trading days
before such date on the National Market System of the National
Association of Securities Dealers Automated Quotation System, or, if
the Parent Common Shares are not then quoted on the National Market
System of the National Association of Securities Dealers Automated
Quotation System, on such other stock exchange or automated quotation
system on which the Parent Common Shares are listed or quoted, as the
case may be, as may be selected by the Board of Directors for such
purpose; provided, however, that if in the opinion of the Board of
Directors the public distribution or trading activity of Parent
Common Shares during such period does not create a market which
reflects the fair market value of a Parent Common Share, then the
Current Market Price of a Parent Common Share shall be determined by
the Board of Directors based upon the advice of such qualified
independent financial advisors as the Board of Directors of the
Parent may deem to be appropriate, and provided further that any such
selection, opinion or determination by the Board of Directors shall
be conclusive and binding.
"EXCHANGE RIGHT" has the meaning ascribed thereto in Section 5.1.
"INSOLVENCY EVENT" means the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be
dissolved or wound up, or the consent of the Corporation to the
institution of bankruptcy, insolvency, dissolution or winding up
proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding up under any bankruptcy,
insolvency or analogous laws, including without limitation the
Companies Creditors' Arrangement Act (Canada) and the Bankruptcy and
Insolvency Act (Canada), and the failure by the Corporation
-4-
<PAGE> 5
to contest in good faith any such proceedings commenced in respect of
the Corporation within 15 days of becoming aware thereof, or the
consent by the Corporation to the filing of any such petition or to
the appointment of a receiver, or the making by the Corporation of a
general assignment for the benefit of creditors, or the admission in
writing by the Corporation of its inability to pay its debts
generally as they become due, or the Corporation not being permitted,
pursuant to solvency requirements of applicable law, to redeem any
Retracted Shares pursuant to Section 6.6 of the Exchangeable Share
Provisions.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in the Plan
of Arrangement.
"LIQUIDATION EVENT" has the meaning ascribed thereto in
section 5.13(b).
"LIQUIDATION EVENT EFFECTIVE DATE" has the meaning ascribed thereto
in section 5.13(c).
"LIST" has the meaning ascribed thereto in section 4.6.
"OFFICER'S CERTIFICATE" means, with respect to the Parent or the
Corporation, as the case may be, a certificate signed by any one of
the Chairman of the Board, the Vice Chairman of the Board, the
President, any Vice-President or any other senior officer of the
Parent or the Corporation, as the case may be.
"CONSENT" has the meaning ascribed thereto in section 4.2.
"PARENT MEETING" has the meaning ascribed thereto in section 4.2.
"PARENT SUCCESSOR" has the meaning ascribed thereto in section
11.1(a).
"PERSON" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"PLAN OF ARRANGEMENT" means the plan of arrangement of SoftKey
Software Product Inc. (a predecessor to the Corporation) providing
for the arrangement.
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in the
Exchangeable Share Provisions.
"RETRACTED SHARES" has the meaning ascribed thereto in section 5.7.
-5-
<PAGE> 6
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in the
Exchangeable Share Provisions.
"SUPPORT AGREEMENT" means that certain support agreement made as of
even date hereof between the Corporation and the Parent.
"TRUST" means the trust created by this agreement.
"TRUST ESTATE" means the Voting Share, any other securities, the
Exchange Right, the Automatic Exchange Rights and any money or other
property which may be held by the Trustee from time to time pursuant
to this trust agreement.
"TRUSTEES" means The R-M Trust Company and, subject to the provisions
of Article 10, includes any successor trustee.
"VOTING RIGHTS" means the voting rights attached to the Voting Share.
"VOTING SHARE" means the one share of Parent Special Voting Stock,
U.S. $1.00 par value, issued by the Parent to and deposited with the
Trustee, which entitles the holder of record to a number of votes at
meetings of holders of Parent Common Shares equal to the number of
Exchangeable Shares outstanding from time to time other than
Exchangeable Shares held by the Parent, its subsidiaries and
Affiliates.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this trust
agreement into articles, sections and paragraphs and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this trust agreement.
1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any gender shall
include all genders.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to be
taken under this trust agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
-6-
<PAGE> 7
ARTICLE 2
PURPOSE OF AGREEMENT
2.1 ESTABLISHMENT OF TRUST. The purpose of this trust agreement is to create
the Trust for the benefit of the Beneficiaries, as herein provided. The Trustee
will hold the Voting Share in order to enable the Trustee to exercise the Voting
Rights and will hold the Exchange Right and the right to effect the automatic
exchange of Exchangeable Shares for Parent Common Shares pursuant to section
5.12 in order to enable the Trustee to exercise such rights, in each case as
trustee for and on behalf of the Beneficiaries as provided in this trust
agreement.
ARTICLE 3
VOTING SHARE
3.1 ISSUE AND OWNERSHIP OF THE VOTING SHARE. The Parent hereby issues to and
deposits with the Trustee the Voting Share to be hereafter held of record by the
Trustee as trustee for and on behalf of, and for the use and benefit of, the
Beneficiaries and in accordance with the provisions of this trust agreement. The
Parent hereby acknowledges receipt from the Trustee as trustee for and on behalf
of the Beneficiaries of good and valuable consideration (and the adequacy
thereof) for the issuance of the Voting Share by the Parent to the Trustee.
during the term of the Trust and subject to the terms and conditions of this
trust agreement, the Trustee shall posses and be vested with full legal
ownership of the Voting Share and shall be entitled to exercise all of the
rights and powers of an owner with respect to the Voting Share, provided that
the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely
for the use and benefit of the Beneficiaries in accordance with the
provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to sell, transfer, vote or otherwise deal in or
with the Voting Share and the Voting Share shall not be used or
disposed of by the Trustee for any purpose other than the purposes
for which this Trust is created pursuant to this trust agreement.
3.2 LEGENDED SHARE CERTIFICATES. The Corporation will cause each certificate
representing Exchangeable Shares to bear an appropriate legend notifying the
Beneficiaries of their right to instruct the Trustee with respect to the
exercise of the Voting Rights with respect to the Exchangeable Shares held by a
Beneficiary.
-7-
<PAGE> 8
3.3 SAFE KEEPING OF CERTIFICATE. The certificate representing the Voting
Share shall at all times be held in safe keeping by the Trustee.
ARTICLE 4
EXERCISE OF VOTING SHARE
4.1 VOTING SHARE. The Trustee, as the holder of record of the Voting Share,
shall be entitled to all of the Voting Rights, including the right to consent to
or to vote in person or by proxy the Voting Share, on any matter, question or
proposition whatsoever that may properly come before the shareholders of the
Parent at a Parent Meeting or in connection with a Parent Consent (in each case,
as hereinafter defined). The Voting Rights shall be and remain vested in and
exercised by the Trustee. Subject to section 7.15 hereof, the Trustee shall
exercise the Voting Rights only:
(a) on the basis of instructions received pursuant to this Article 4
from Beneficiaries entitled to instruct the Trustee as to the
voting thereof at the time at which the Parent Consent is effective
or the Parent Meeting is held; or
(b) to the extent that no instructions are received from a Beneficiary
with respect to the Voting Rights to which such Beneficiary is
entitled, the Trustee shall not exercise or permit the exercise of
such Voting Rights.
4.2 NUMBER OF VOTES. With respect to all meetings of shareholders of the
Parent at which holders of Parent Common Shares are entitled to vote (a "Parent
Meeting") and with respect to all written consents sought by the Parent from its
shareholders including the holders of Parent Common Shares (a "Parent Consent"),
each Beneficiary shall be entitled to instruct the Trustee to cast and exercise
one of the votes comprised in the Voting Rights for each Exchangeable Share
owned of record by such Beneficiary on the record date established by the Parent
or by applicable law for such Parent Meeting or Parent Consent, as the case may
be (the "Beneficiary Votes") in respect of each matter, question or proposition
to be voted on at such Parent Meeting or to be consented to in connection with
such Parent Consent.
4.3 MAILINGS TO SHAREHOLDERS. With respect to each Parent Meeting and Parent
Consent, the Trustee will mail or cause to be mailed (or otherwise communicate
in the same manner as the Parent utilizes in communications to holders of Parent
Common Shares) to each of the Beneficiaries named in the List referred to in
section 4.6 on the same day as the initial mailing or notice (or other
communication) with respect thereto is given by the Parent to its shareholders:
-8-
<PAGE> 9
(a) a copy of such notice, together with any related materials to be
provided to shareholders of the Parent;
(b) a statement that such Beneficiary is entitled to instruct the
Trustee as to the exercise of the Beneficiary Votes with respect to
such Parent Meeting or Parent Consent, as the case may be, or,
pursuant to section 4.7, to attend such Parent Meeting and to
exercise personally the Beneficiary Votes thereat;
(c) a statement as to the manner in which such instructions may be
given to the Trustee, including an express indication that
instructions may be given to the Trustee to give:
(i) a proxy to such Beneficiary or his designee to exercise
personally the Beneficiary Votes; or
(ii) a proxy to a designated agent or other representatives of the
management of the Parent to exercise such Beneficiary Votes;
(d) a statement that if no such instructions are received from the
Beneficiary, the Beneficiary Votes to which such Beneficiary is
entitled will not be exercised;
(e) a form of direction whereby the Beneficiary may so direct and
instruct the Trustee as contemplated herein; and
(f) a statement of the time and date by which such instructions must be
received by the Trustee in order to be binding upon it, which in
the case of a Parent Meeting shall not be earlier than the close of
business on the second Business Day prior to such meeting, and of
the method for revoking or amending such instructions.
For the purpose of determining Beneficiary Votes to which a Beneficiary is
entitled in respect of any such Parent Meeting or Parent Consent, the number of
Exchangeable Shares owned of record by the Beneficiary shall be determined at
the close of business on the record date established by the Parent or by
applicable law for purposes of determining shareholders entitled to vote at such
Parent Meeting or to give written consent in connection with such Parent
Consent. The Parent will notify the Trustee of any decision of the Board of
Directors of the Parent with respect to the calling of any such Parent Meeting
or the seeking of any such Parent Consent and shall provide all necessary
information and materials to the Trustee in each case promptly and in any event
in sufficient time to enable the Trustee to perform its obligations contemplated
by this section 4.3.
-9-
<PAGE> 10
4.4 COPIES OF SHAREHOLDER INFORMATION. The Parent will deliver to the Trustee
copies of all proxy materials, (including notices of Parent Meetings but
excluding proxies to vote Parent Common Shares), information statements, reports
(including without limitation all interim and annual financial statements) and
other written communications that are to be distributed from time to time to
holders of Parent Common Shares in sufficient quantities and in sufficient time
so as to enable the Trustee to send those materials to each Beneficiary at the
same time as such materials are first sent to holders of Parent Common Shares.
The Trustee will mail or otherwise send to each Beneficiary, at the expense of
Parent, copies of all such materials (and all materials specifically directed to
the Beneficiaries or to the Trustee for the benefit of the Beneficiaries by the
Parent) received by the Trustee from the Parent at the same time as such
materials are first sent to holders of Parent Common Shares. The Trustee will
also make available for inspection by any Beneficiary at the Trustee's principal
corporate trust office in the cities of Montreal, Toronto and Vancouver all
proxy materials, information statements, reports and other written
communications that are:
(a) received by the Trustee as the registered holder of the Voting
Share and made available by the Parent to the holders of Parent
Common Shares; or
(b) specifically directed to the Beneficiaries or to the Trustee for
the benefit of the Beneficiaries by the Parent.
4.5 OTHER MATERIALS. Immediately after receipt by the Parent or any
shareholder of the Parent of any material sent or given to the holders of Parent
Common Shares by or on behalf of a third party, including without limitation
dissident proxy and information circulars (and related information and material)
and tender and exchange offer circulars (and related information and material),
the Parent shall use its best efforts to obtain and deliver to the Trustee
copies thereof in sufficient quantities so as to enable the Trustee to forward
such material (unless the same has been provided directly to Beneficiaries by
such third party) to each Beneficiary as soon as possible thereafter. As soon as
practicable after receipt thereof, the Trustee will mail or otherwise send to
each Beneficiary, at the expense of the Parent, copies of all such materials
received by the Trustee from the Parent. The Trustee will also make available
for inspection by any Beneficiary at the Trustee's principal corporate trust
office in the cities of Montreal, Toronto and Vancouver copies of all such
materials.
4.6 LIST OF PERSONS ENTITLED TO VOTE. The Corporation shall, (a) prior to
each annual, general and special Parent Meeting or the seeking of any Parent
Consent and (b) forthwith upon each request made at any time by the Trustee in
writing, prepare or cause to be prepared a list (a "List") of the names and
addresses of the Beneficiaries arranged in alphabetical order and showing the
number of Exchangeable Shares held of record by each such Beneficiary, in each
case at the close of business on the date specified by the Trustee in such
request or, in the case of a List prepared in connection with a Parent Meeting
or a Parent Consent, at the close of business on the record date
-10-
<PAGE> 11
established by the Parent or pursuant to applicable law for determining the
holders of Parent Common Shares entitled to receive notice of and/or to vote at
such Parent Meeting or to give consent in connection with such Parent Consent.
Each such List shall be delivered to the Trustee promptly after receipt by the
Corporation of such request or the record date for such meeting or seeking of
consent, as the case may be, and in any event within sufficient time as to
enable the Trustee to perform its obligations under this Agreement. The Parent
agrees to give the Corporation notice (with a copy to the Trustee) of the
calling of any Parent Meeting or the seeking of any Parent Consent, together
with the record dates therefor, sufficiently prior to the date of the calling of
such meeting or seeking of such consent so as to enable the Corporation to
perform its obligations under this section 4.6.
4.7 ENTITLEMENT TO DIRECT VOTES. Any Beneficiary named in a List prepared in
connection with any Parent Meeting or any Parent Consent will be entitled (a) to
instruct the Trustee in the manner described in section 4.3 with resect to the
exercise of the Beneficiary Votes to which such Beneficiary is entitled or (b)
to attend such meeting and personally to exercise thereat (or to exercise with
respect to any written consent), as the proxy of the Trustee, the Beneficiary
Votes to which such Beneficiary is entitled except, in each case, to the extent
that such Beneficiary has transferred the ownership of any Exchangeable Shares
in respect of which such Beneficiary is entitled to Beneficiary Votes after the
close of business on the record date for such meeting or seeking of consent.
4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT MEETING.
(a) In connection with each Parent Meeting and Parent Consent, the
Trustee shall exercise, either in person or by proxy, in accordance
with the instructions received from a Beneficiary pursuant to
section 43, the Beneficiary Votes as to which such Beneficiary is
entitled to direct the vote (or any lesser number thereof as may be
set forth in the instructions); provided, however, that such
written instructions are received by the Trustee from the
Beneficiary prior to the time and date fixed by it for receipt of
such instructions in the notice given by the Trustee to the
Beneficiary pursuant to section 4.3.
(b) The Trustee shall cause such representatives as are empowered by it
to sign and deliver, on behalf of the Trustee, proxies for Voting
Rights to attend each Parent Meeting. Upon submission by a
Beneficiary (or its designee) of identification satisfactory to the
Trustee's representatives, and at the Beneficiary's request, such
representatives shall sign and deliver to such Beneficiary (or its
designee) a proxy to exercise personally the Beneficiary Votes as
to which such Beneficiary is otherwise entitled hereunder to direct
the vote, if such Beneficiary either (i) has not previously given
the Trustee instructions pursuant to section 4.3 in respect of such
meeting, or (ii) submits to the Trustee's representatives written
-11-
<PAGE> 12
revocation of any such previous instructions. At such meeting, the
Beneficiary exercising such Beneficiary Votes shall have the same
rights as the Trustee to speak at the meeting in respect of any
matter, question or proposition, to vote by way of ballot at the
meeting in respect of any matter, question or proposition and to
vote at such meeting by way of a show of hands in respect of any
matter, question or proposition.
4.9 DISTRIBUTION OF WRITTEN MATERIALS. Any written materials distributed by
the Trustee pursuant to this trust agreement shall be delivered or sent by mail
(or otherwise communicated in the same manner as the Parent utilizes in
communications to holders of Parent Common Shares) to each Beneficiary at its
address as shown on the books of the Corporation. The Corporation shall provide
or cause to be provided to the Trustee for this purpose, on a timely basis and
without charge or other expense:
(a) current lists of the Beneficiaries and the registered holders of
Exchangeable Shares; and
(b) upon the request of the Trustee, mailing labels to enable the
Trustee to carry out its duties under this trust agreement.
4.10 TERMINATION OF VOTING RIGHTS. All of the rights of a Beneficiary with
respect to the Beneficiary Votes exercisable in respect of the Exchangeable
Shares held by such Beneficiary, including the right to instruct the Trustee as
to the voting of or to vote personally such Beneficiary Votes, shall be deemed
to be surrendered by the Beneficiary to the Parent and such Beneficiary Votes
and the Voting Rights represented thereby shall cease immediately upon the
delivery by such holder to the Trustee of the certificates representing such
Exchangeable Shares in connection with the exercise by the Beneficiary of the
Exchange Right or the occurrence of the automatic exchange of Exchangeable
Shares for Parent Common Shares, as specified in Article 5 hereof (unless in
either case the Parent shall not have delivered the requisite Parent Common
Shares issuable in exchange therefor to the Trustee for delivery to the
Beneficiaries), or upon the redemption of Exchangeable Shares pursuant to
Article 6 or Article 7 of the Exchangeable Share Provisions, or upon the
effective date of the liquidation, dissolution or winding-up of the Corporation
pursuant to Article 5 of the Exchangeable Share Provisions, or upon the purchase
of Exchangeable Shares from the holder thereof by the Parent pursuant to the
exercise by the Parent of the Retraction Call Right, the Redemption Call Right
or the Liquidation Call Right.
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ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. The Parent hereby grants to
the Trustee as trustee for and on behalf of, and for the use and benefit of, the
Beneficiaries the right (the "Exchange Right"), upon the occurrence and during
the continuance of an Insolvency Event, to require the Parent to purchase from
each or any Beneficiary all or any part of the Exchangeable Shares held by the
Beneficiary and the Automatic Exchange Rights, all in accordance with the
provisions of this agreement. The Parent hereby acknowledges receipt from the
Trustee as trustee for and on behalf of the Beneficiaries of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Right and
the Automatic Exchange Rights by the Parent to the Trustee. During the term of
the Trust and subject to the terms and conditions of this trust agreement, the
Trustee shall possess and be vested with full legal ownership of the Exchange
Right and the Automatic Exchange Rights and shall be entitled to exercise all of
the rights and powers of an owner with respect to the Exchange Right and the
Automatic Exchange Rights, provided that the Trustee shall:
(a) hold the Exchange Right and the Automatic Exchange Rights and the
legal title thereto as trustee solely for the use and benefit of
the Beneficiaries in accordance with the provisions of this trust
agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to exercise or otherwise deal in or with the
Exchange Right or the Automatic Exchange Rights, and the Trustee
shall not exercise any such rights for any purpose other than the
purposes for which this Trust is created pursuant to this trust
agreement.
5.2 LEGENDED SHARE CERTIFICATES. The Corporation will cause each certificate
representing Exchangeable Shares to bear an appropriate legend notifying the
Beneficiaries of:
(a) their right to instruct the Trustee with respect to the exercise of
the Exchange Right in respect of the Exchangeable Shares held by a
Beneficiary; and
(b) the Automatic Exchange Rights.
5.3 GENERAL EXERCISE OF EXCHANGE RIGHT. The Exchange Right shall be and
remain vested in and exercised by the Trustee. Subject to section 7.15, the
Trustee shall exercise the Exchange Right only:
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(a) on the basis of instructions received pursuant to this Article 5
from Beneficiaries entitled to instruct the Trustee as to the
exercise thereof; or
(b) to the extent that no instructions are received from a Beneficiary
with respect to the Exchange Right, the Trustee shall not exercise
or permit the exercise of the Exchange Right.
5.4 PURCHASE PRICE The purchase price payable by the Parent for each
Exchangeable Share to be purchased by the Parent under the Exchange Right shall
be an amount per share equal to (a) the Current Market Price of a Parent Common
Share on the last Business Day prior to the day of closing of the purchase and
sale of such Exchangeable Share under the Exchange Right plus (b) an additional
amount equivalent to the full amount of all dividends declared and unpaid on
each such Exchangeable Share (provided that if the record date for any such
declared and unpaid dividends occurs on or after the day of closing of such
purchase and sale the purchase price shall not include such additional amount
equivalent to the declared and unpaid dividends). In connection with each
exercise of the Exchange Right, the Parent will provide to the Trustee an
Officer's Certificate setting forth the calculation of the purchase price for
each Exchangeable Share. The purchase price for each such Exchangeable Share so
purchased may be satisfied only by the Parent issuing and delivering or causing
to be delivered to the Trustee, on behalf of the relevant Beneficiary, one
Parent Common Share and a cheque for the balance, if any, of the purchase price.
5.5 EXERCISE INSTRUCTIONS. Subject to the terms and conditions herein set
forth, a Beneficiary shall be entitled, upon the occurrence and during the
continuance of an Insolvency Event, to instruct the Trustee to exercise the
Exchange Right with respect to all or any part of the Exchangeable Shares
registered in the name of such Beneficiary on the books of the Corporation. To
cause the exercise of the Exchange Right by the Trustee, the Beneficiary shall
deliver to the Trustee, in person or by certified or registered mail, at its
principal corporate trust office in Toronto, Ontario or at such other places in
Canada as the Trustee may from time to time designate by written notice to the
Beneficiaries, the certificates representing the Exchangeable Shares which such
Beneficiary desires the Parent to purchase, duly endorsed in blank, and
accompanied by such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Business Corporations Act (Ontario)
and the by-laws of the Corporation and such additional documents and instruments
as the Trustee may reasonably require together with (a) a duly completed form of
notice of exercise of the Exchange Right, contained on the reverse of or
attached to the Exchangeable Share certificates, stating (i) that the
Beneficiary thereby instructs the Trustee to exercise the Exchange Right so as
to require the Parent to purchase from the Beneficiary the number of
Exchangeable Shares specified therein, (ii) that such Beneficiary has good title
to and owns all such Exchangeable Shares to be acquired by the Parent free and
clear of all liens, claims and encumbrances, (iii) the names in which the
certificates representing the Parent Common Shares issuable in connection with
the exercise of the Exchange Right
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are to be issued and (iv) the names and addresses of the persons to whom such
new certificates should be delivered and (b) payment (or evidence satisfactory
to the Trustee, the Corporation and the Parent of payment) of the taxes (if any)
payable as contemplated by section 5.8 of this trust agreement. If only a part
of the Exchangeable Shares represented by any certificate or certificates
delivered to the Trustee are to be purchased by the Parent under the Exchange
Right, a new certificate for the balance of such Exchangeable Shares shall be
issued to the holder at the expense of the Corporation.
5.6 DELIVERY OF PARENT COMMON SHARES: EFFECT OF EXERCISE. Promptly after
receipt of the certificates representing the Exchangeable Shares which the
Beneficiary desires the Parent to purchase under the Exchange Right together
with such documents and instruments of transfer and a duly completed form of
notice of exercise of the Exchange Right (and payment of taxes, if any, or
evidence thereof), duly endorsed for transfer to the Parent, the Trustee shall
notify the Parent and the Corporation of its receipt of the same, which notice
to the Parent and the Corporation shall constitute exercise of the Exchange
Right by the Trustee on behalf of the holder of such Exchangeable Shares, and
the Parent shall immediately thereafter deliver or cause to be delivered to the
Trustee, for delivery to the Beneficiary of such Exchangeable Shares (or to such
other persons, if any, properly designated by such Beneficiary), the
certificates for the number of Parent Common Shares issuable in connection with
the exercise of the Exchange Right, which shares shall be duly issued as fully
paid and non-assessable and shall be free and clear of any lien, claim or
encumbrance, and cheques for the balance, if any, of the total purchase price
therefor; provided, however, that no such delivery shall be made unless and
until the Beneficiary requesting the same shall have paid (or provided evidence
satisfactory to the Trustee, the Corporation and the Parent of the payment of)
the taxes (if any) payable as contemplated by section 5.8 of this trust
agreement. Immediately upon the giving of notice by the Trustee to the Parent
and the Corporation of the exercise of the Exchange Right, as provided in this
section 5.6, the closing of the transaction of purchase and sale contemplated by
the Exchange Right shall be deemed to have occurred, and the Beneficiary of such
Exchangeable Shares shall be deemed to have transferred to the Parent all of its
right, title and interest in and to such Exchangeable Shares and in the related
interest in the Trust Estate and shall cease to be a holder of such Exchangeable
Shares and shall not be entitled to exercise any of the rights of a holder in
respect thereof, other than the right to receive his proportionate part of the
total purchase price therefor, unless the requisite number of Parent Common
Shares (together with a cheque for the balance, if any, of the total purchase
price therefor) is not allotted, issued and delivered by the Parent to the
Trustee, for delivery to such Beneficiary (or to such other persons, if any,
properly designated by such Beneficiary), within five Business Days of the date
of the giving of such notice by the Trustee, in which case the rights of the
Beneficiary shall remain unaffected until such Parent Common Shares are so
allotted, issued and delivered by the Parent and any such cheque is so delivered
and paid. Concurrently with such Beneficiary ceasing to be a holder of
Exchangeable Shares, the Beneficiary shall be considered and deemed for all
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purposes to be the holder of the Parent Common Shares delivered to it pursuant
to the Exchange Right.
5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION. In the event that a
Beneficiary has exercised its right under Article 6 of the Exchangeable Share
Provisions to require the Corporation to redeem any or all of the Exchangeable
Shares held by the Beneficiary (the "Retracted Shares") and is notified by the
Corporation pursuant to Section 6.6 of the Exchangeable Share Provisions that
the Corporation will not be permitted as a result of solvency requirements of
applicable law to redeem all such Retracted Shares, and provided that the Parent
shall not have exercised the Retraction Call Right with respect to the Retracted
Shares and that the Beneficiary has not revoked the retraction request delivered
by the Beneficiary to the Corporation pursuant to Section 6.1 of the
Exchangeable Share Provisions, the retraction request will constitute and will
be deemed to constitute notice from the Beneficiary to the Trustee instructing
the Trustee to exercise the Exchange Right with respect to those Retracted
Shares which the Corporation is unable to redeem. In any such event, the
Corporation hereby agrees with the Trustee and in favour of the Beneficiary
immediately to notify the Trustee of such prohibition against the Corporation
redeeming all of the Retracted Shares and immediately to forward or cause to be
forwarded to the Trustee all relevant materials delivered by the Beneficiary to
the Corporation or to the transfer agent of the Exchangeable Shares (including
without limitation a copy of the retraction request delivered pursuant to
Section 6.1 of the Exchangeable Share Provisions) in connection with such
proposed redemption of the Retracted Shares and the Trustee will thereupon
exercise the Exchange Right with respect to the Retracted Shares that the
Corporation is not permitted to redeem and will require the Parent to purchase
such shares in accordance with the provisions of this Article 5.
5.8 STAMP OR OTHER TRANSFER TAXES. Upon any sale of Exchangeable Shares to
the Parent pursuant to the Exchange Right or the Automatic Exchange Rights, the
share certificate or certificates representing the Parent Common Shares to be
delivered in connection with the payment of the total purchase price therefor
shall be issued in the name of the Beneficiary of the Exchangeable Shares so
sold or in such names as such Beneficiary may otherwise direct in writing
without charge to the holder of the Exchangeable Shares so sold, provided,
however, that such Beneficiary (a) shall pay (and neither the Parent, the
Corporation nor the Trustee shall be required to pay) any documentary, stamp,
transfer or other taxes that may be payable in respect of any transfer involved
in the issuance or delivery of such shares to a person other than such
Beneficiary or (b)shall have established to the satisfaction of the Trustee, the
Parent and the Corporation that such taxes, if any, have been paid.
5.9 NOTICE OF INSOLVENCY EVENT. Immediately upon the occurrence of an
Insolvency Event or any event which with the giving of notice or the passage of
time or both would be an Insolvency Event, the Corporation and the Parent shall
give written notice thereof to the Trustee. As soon as practicable after
receiving notice from the Corporation and
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the Parent or from any other person of the occurrence of an Insolvency Event,
the Trustee will mail to each Beneficiary, at the expense of the Parent, a
notice of such Insolvency Event, which notice shall contain a brief statement of
the right of the Beneficiaries with respect to the Exchange Right.
5.10 QUALIFICATION OF PARENT COMMON SHARES. The Parent covenants that if any
Parent Common Shares to be issued and delivered pursuant to the Exchange Right
or the Automatic Exchange Rights require registration or qualification with or
approval of or the filing of any document including any prospectus or similar
document or the taking of any proceeding with or the obtaining of any order,
mailing or consent from any governmental or regulatory authority under any
Canadian or United States federal, provincial or state law or regulation or
pursuant to the rules and regulations of any regulatory authority or the
fulfillment of any other legal requirement before such shares may be issued and
delivered by the Parent to the initial bolder thereof or in order that such
shares may be freely traded thereafter (other than any restrictions on transfer
by reason of a holder being a "control person of the Parent for purposes of
Canadian federal or provincial securities law or an "affiliate" of the Parent
for purposes of United States federal or state securities law), the Parent will
in good faith expeditiously take all such actions and do all such things as are
necessary or desirable to cause such Parent Common Shares to be and remain duly
registered, qualified or approved. The Parent will in good faith expeditiously
take all such actions and do all such things as are necessary or desirable to
cause all Parent Common Shares to be delivered pursuant to the Exchange Right or
the Automatic Exchange Rights to be listed, quoted or posted for trading on all
stock exchanges and quotation systems on which outstanding Parent Common Shares
are listed, quoted or posted for trading at such time.
5.11 RESERVATION OF PARENT COMMON SHARES.
The Parent hereby represents, warrants and covenants that it has
irrevocably reserved for issuance and will at all times keep available, free
from pre-emptive and other rights, out of its authorized and unissued capital
stock such number of Parent Common Shares (a) as is equal to the sum of (i) the
number of Exchangeable Shares issued and outstanding from time to time and (ii)
the number of Exchangeable Shares issuable upon the exercise of all rights to
acquire Exchangeable Shares outstanding from time to time and (b) as are now and
may hereafter be required to enable and permit the Corporation to meet its
obligations hereunder, under the Support Agreement, under the Exchangeable Share
Provisions and under any other security or commitment pursuant to which the
Parent may now or hereafter be required to issue Parent Common Shares.
5.12 AUTOMATIC EXCHANGE ON LIQUIDATION OF PARENT.
(a) The Parent will give the Trustee notice of each of the following
events at the time set forth below:
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(i) in the event of any determination by the Board of Directors
of the Parent to institute voluntary liquidation, dissolution
or winding-up proceedings with respect to the Parent or to
effect any other distribution of assets of the Parent among
its shareholders for the purpose of winding up its affairs,
at least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution;
and
(ii) immediately, upon the earlier of (A) receipt by the Parent of
notice of and (B) the Parent otherwise becoming aware of any
threatened or instituted claim suit, petition or other
proceedings with respect to the involuntary liquidation,
dissolution or winding up of the Parent or to effect any
other distribution of assets of the Parent among its
shareholders for the purpose of winding up its affairs.
(b) Immediately following receipt by the Trustee from the Parent of
notice of any event (a "Liquidation Event") contemplated by section
5.12(a)(i) or 5.12(a)(ii) above, the Trustee will give notice
thereof to the Beneficiaries. Such notice shall include a brief
description of the automatic exchange of Exchangeable Shares for
Parent Common Shares provided for in section 5.12(c).
(c) In order that the Beneficiaries will be able to participate on a
pro rata basis with the holders of Parent Common Shares in the
distribution of assets of the Parent in connection with a
Liquidation Event, on the fifth Business Day prior to the effective
date (the "Liquidation Event Effective Date") of a Liquidation
Event all of the then outstanding Exchangeable Shares shall be
automatically exchanged for Parent Common Share. To effect such
automatic exchange, the Parent shall purchase each Exchangeable
Share outstanding on the fifth Business Day prior to the
Liquidation Event Effective Date and held by Beneficiaries, and
each Beneficiary shall sell the Exchangeable Shares held by it at
such time, for a purchase price per share equal to (a) the Current
Market Price of a Parent Common Share on the fifth Business Day
prior to the Liquidation Event Effective Date, which shall be
satisfied in lull by the Parent issuing to the Beneficiary one
Parent Common Share, plus (b) an additional amount equivalent to
the full amount of all dividends declared and unpaid thereon. In
connection with such automatic exchange, the Parent will provide to
the Trustee an Officer's Certificate setting forth the calculation
of the purchase price for each Exchangeable Share.
(d) On the fifth Business Day prior to the Liquidation Event Effective
Date, the closing of the transaction of purchase and sale
contemplated by the automatic exchange of Exchangeable Shares for
Parent Common Shares
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shall be deemed to have occurred, and each Beneficiary of
Exchangeable Shares shall be deemed to have transferred to the
Parent all of the Beneficiary's right, title and interest in and to
such Exchangeable Shares and the related interest in the Trust
Estate and shall cease to be a holder of such Exchangeable Shares
and the Parent shall issue to the Beneficiary the Parent Common
Shares issuable upon the automatic exchange of Exchangeable Shares
for Parent Common Shares and shall deliver to the Trustee for
delivery to the Beneficiary a cheque for the balance, if any, of
the total purchase price for such Exchangeable Shares. Concurrently
with such Beneficiary ceasing to be a holder of Exchangeable
Shares, the Beneficiary shall be considered and deemed for all
purposes to be the holder of the Parent Common Shares issued to it
pursuant to the automatic exchange of Exchangeable Shares for
Parent Common Shares and the certificates held by the Beneficiary
previously representing the Exchangeable Shares exchanged by the
Beneficiary with the Parent pursuant to such automatic exchange
shall thereafter be deemed to represent the Parent Common Shares
issued to the Beneficiary by the Parent pursuant to such automatic
exchange. Upon the request of a Beneficiary and the surrender by
the Beneficiary of Exchangeable Share certificates deemed to
represent Parent Common Shares, duly endorsed in blank and
accompanied by such instruments of transfer as the Parent may
reasonably require, the Parent shall deliver or cause to be
delivered to the Beneficiary certificates representing the Parent
Common Shares of which the Beneficiary is the holder.
ARTICLE 6
RESTRICTIONS ON ISSUE OF PARENT SPECIAL VOTING STOCK
6.1 ISSUE OF ADDITIONAL SHARES. During the term of this trust agreement, the
Parent will not issue any shares of Parent Special Voting Stock in addition to
the Voting Share.
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ARTICLE 7
CONCERNING THE TRUSTEE
7.1 POWERS AND DUTIES OF THE TRUSTEE. The rights, powers and authorities of
the Trustee under this trust agreement, in its capacity as trustee of the Trust,
shall include:
(a) purchasing the Voting Share from the Parent as trustee for and on
behalf of the Beneficiaries in accordance with the provisions of
this agreement;
(b) granting proxies and distributing materials to Beneficiaries as
provided in this trust agreement;
(c) voting the Beneficiary Votes in accordance with the provisions of
this trust agreement;
(d) receiving the grant of the Exchange Right and the Automatic
Exchange Rights from the Parent as trustee for and on behalf of the
Beneficiaries in accordance with the provisions of this trust
agreement;
(e) exercising the Exchange Right and enforcing the benefit of the
Automatic Exchange Rights, in each case in accordance with the
provisions of this trust agreement, and in connection therewith
receiving from Beneficiaries Exchangeable Shares and other
requisite documents and distributing to such Beneficiaries the
Parent Common Shares and cheques, if any, to which such
Beneficiaries are entitled upon the exercise of the Exchange Right
or pursuant to the Automatic Exchange Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the
Trust Estate as provided in this trust agreement;
(h) taking action on its own initiative or at the direction of a
Beneficiary or Beneficiaries to enforce the obligations of the
Parent under this trust agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
In the exercise of such rights, powers and authorities the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this trust agreement as
the Trustee, acting in good faith and in the reasonable exercise of its
discretion, may deem necessary, appropriate or
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desirable to effect the purpose of the Trust. Any exercise of such discretionary
rights, powers and authorities by the Trustee shall be final, conclusive and
binding upon all persons. For greater certainty, the Trustee shall have only
those duties as are set out specifically in this trust agreement.
The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best interests
of the Beneficiaries and shall exercise the care, diligence and skill that a
reasonably prudent trustee would exercise in comparable circumstances.
7.2 NO CONFLICT OF INTEREST. The Trustee represents to the Corporation and
the Parent that at the date of execution and delivery of this trust agreement
there exists no material conflict of interest in the role of the Trustee as a
fiduciary hereunder and the role of the Trustee in any other capacity. The
Trustee shall, within 90 days after it becomes aware that such a material
conflict of interest exists, either eliminate such material conflict of interest
or resign in the manner and with the effect specified in Article 10. If,
notwithstanding the foregoing provisions of this section 7.2, the Trustee has
such a material conflict of interest, the validity and enforceability of this
trust agreement shall not be affected in any manner whatsoever by reason only of
the existence of such material conflict of interest. If the Trustee contravenes
the foregoing provisions of this section 7.2, any interested party may apply to
the Ontario Court of Justice (General Division) for an order that the Trustee be
replaced as trustee hereunder.
7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS. ETC. The Corporation and the
Parent irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent
registrar or transfer agent, of the Exchangeable Shares and the
Parent Common Shares; and
(b) requisition, from time to time, (i) from any such registrar or
transfer agent any information readily available from the records
maintained by it which the Trustee may reasonably require for the
discharge of its duties and responsibilities under this trust
agreement and (ii) from the transfer agent of the Parent Common
Shares, and any subsequent transfer agent of such shares, the share
certificates issuable upon the exercise from time to time of the
Exchange Right and pursuant to the automatic exchange of
Exchangeable Shares for Parent Common Shares in the manner
specified in Article 5 hereof.
The Corporation and the Parent irrevocably authorize their respective registrars
and transfer agents to comply with all such requests. The Parent covenants that
it will supply its transfer agent with duly executed share certificates for the
purpose of completing the exercise from time to time of the Exchange Right and
the automatic
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exchange of Exchangeable Shares for Parent Common Shares, in each case pursuant
to Article 5 hereof.
7.4 BOOKS AND RECORDS. The Trustee shall keep available for inspection by the
Parent and the Corporation, at the Trustee's principal corporate trust office in
Toronto, Ontario, correct and complete books and records of account relating to
the Trustee's actions under this trust agreement, including without limitation
all information relating to mailings and instructions to and from Beneficiaries
and all transactions pursuant to the Exchange Right and the Automatic Exchange
Rights. On or before March 31, 1994, and on or before March 31 in every year
thereafter, so long as the Voting Share is on deposit with the Trustee, the
Trustee shall transmit to the Parent and the Corporation a brief report, dated
as of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the Trustee on
behalf of Beneficiaries in consideration of the issue and delivery
by the Parent of Parent Common Shares in connection with the
Exchange Right, during the calendar year ended on such date; and
(c) all other actions taken by the Trustee in the performance of its
duties under this trust agreement which it had not previously
reported.
7.5 INCOME TAX RETURNS AND REPORTS. The Trustee shall, to the extent
necessary, prepare and file on behalf of the Trust appropriate United States and
Canadian income tax returns and any other returns or reports as may be required
by applicable law or pursuant to the rules and regulations of any securities
exchange or other trading system through which the Exchangeable Shares are
traded and, in connection therewith, may obtain the advice and assistance of
such experts as the Trustee may consider necessary or advisable.
7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested in it by
this trust agreement at the request, order or direction of any Beneficiary upon
such Beneficiary furnishing to the Trustee reasonable funding security and
indemnity against the costs, expenses and liabilities which may be incurred by
the Trustee therein or thereby, provided that no Beneficiary shall be obligated
to furnish to the Trustee any such funding, security or indemnity in connection
with the exercise by the Trustee of any of its rights, duties, powers and
authorities with respect to the Voting Share pursuant to Article 4 hereof,
subject to section 7.15, and with respect to the Exchange Right pursuant to
Article 5 hereof; subject to section 7.15, and with respect to the Automatic
Exchange Rights pursuant to Article 5 hereof.
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None of the provisions contained in this trust agreement shall require
the Trustee to expend or risk its own funds or otherwise incur financial
liability in the exercise of any of its rights, powers, duties or authorities
unless funded, given funds, security and indemnified as aforesaid.
7.7 ACTIONS BY BENEFICIARIES. No Beneficiary shall have the right to
institute any action, suit or proceeding or to exercise any other remedy
authorized by this trust agreement for the purpose of enforcing any of its
rights or for the execution of any trust or power hereunder unless the
Beneficiary has requested the Trustee to take or institute such action, suit or
proceeding and furnished the Trustee with the funding, security and indemnity
referred to in section 7.6 and the Trustee shall have failed to act within a
reasonable time thereafter. In such case, but not otherwise, the Beneficiary
shall be entitled to take proceedings in any court of competent jurisdiction
such as the Trustee might have taken; it being understood and intended that no
one or more Beneficiaries shall have any right in any manner whatsoever to
affect, disturb or prejudice the rights hereby created by any such action, or to
enforce any right hereunder or under the Voting Rights, the Exchange Rights or
the Automatic Exchange Rights except subject to the conditions and in the manner
herein provided, and that all powers and trusts hereunder shall be exercised and
all proceedings at law shall be instituted, had and maintained by the Trustee,
except only as herein provided, and in any event for the equal benefit of all
Beneficiaries.
7.8 RELIANCE UPON DECLARATIONS. The Trustee shall not be considered to be in
contravention of any of its rights, powers, duties and authorities hereunder if,
when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other papers
or documents furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder if such lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
comply with the provisions of section 7.9 hereof, if applicable, and with any
other applicable provisions of this trust agreement.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE. The Corporation and/or the Parent
shall furnish to the Trustee evidence of compliance with the conditions provided
for in this trust agreement relating to any action or step required or permitted
to be taken by the Corporation and/or the Parent or the Trustee under this trust
agreement or as a result of any obligation imposed under this trust agreement,
including, without limitation, in respect of the Voting Rights or the Exchange
Right or the Automatic Exchange Rights and the taking of any other action to be
taken by the Trustee at the request of or on the application of the Corporation
and/or the Parent forthwith if and when:
(a) such evidence is required by any other section of this trust
agreement to be furnished to the Trustee in accordance with the
terms of this section 7.9; or
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(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this trust agreement, gives the Corporation
and/or the Parent written notice requiring it to furnish such
evidence in relation to any particular action or obligation
specified in such notice.
Such evidence shall consist of an Officer's Certificate of the
Corporation and/or the Parent or a statutory declaration or a certificate made
by persons entitled to sign an Officer's Certificate stating that any such
condition has been complied with in accordance with the terms of this trust
agreement.
Whenever such evidence relates to a matter other than the Voting Rights
or the Exchange Right or the automatic exchange of Exchangeable Shares for
Parent Common Shares pursuant to section 5.12, and except as otherwise
specifically provided herein, such evidence may consist of a report or opinion
of any solicitor, auditor, accountant, appraiser, valuer, engineer or other
expert or any other person whose qualifications give authority to a statement
made by him, provided that if such report or opinion is furnished by a director,
officer or employee of the Corporation and/or the Parent it shall be in the form
of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to
the Trustee as evidence of compliance with a condition provided for in this
trust agreement shall include a statement by the person giving the evidence:
(a) declaring that he has read and understands the provisions of this
trust agreement relating to the condition in question;
(b) describing the nature and scope of the examination or investigation
upon which he based the statutory declaration, certificate,
statement or opinion; and
(c) declaring that he has made such examination or investigation as he
believes is necessary to enable him to make the statements or give
the opinions contained or expressed therein.
7.10 EXPERTS, ADVISERS AND AGENTS. The Trustee may:
(a) in relation to these presents act and rely on the opinion or advice
of or information obtained from any solicitor, auditor, accountant,
appraiser, valuer, engineer or other expert, whether retained by
the Trustee or by the Corporation and/or the Parent or otherwise,
and may employ such assistants as may be necessary to the proper
discharge of its powers and duties and determination of its rights
hereunder and may pay proper and reasonable compensation for all
such legal and other advice or assistance as aforesaid; and
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(b) employ such agents and other assistants as it may reasonably
require for the proper discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all
services performed for it (and shall be entitled to receive
reasonable remuneration for all services performed by it) in
the discharge of the trusts hereof and compensation for all
disbursements, costs and expenses made or incurred by it in
the discharge of its duties hereunder and in the management
of the Trust.
7.11 INVESTMENT OF MONEYS HELD BY TRUSTEE. Unless otherwise provided in this
trust agreement, any moneys held by or on behalf of the Trustee which under the
terms of this trust agreement may or ought to be invested or which may be on
deposit with the Trustee or which may be in the hands of the Trustee may be
invested and reinvested in the name or under the control of the Trustee in
securities in which, under the laws of the Province of Ontario, trustees are
authorized to invest trust moneys, provided that such securities are stated to
mature within two years after their purchase by the Trustee, and the Trustee
shall so invest such moneys on the written direction of the Corporation. Pending
the investment of any moneys as hereinbefore provided, such moneys may be
deposited in the name of the Trustee in any chartered bank in Canada or, with
the consent of the Corporation, in the deposit department of the Trustee or any
other loan or trust company authorized to accept deposits under the laws of
Canada or any province thereof at the rate of interest then current on similar
deposits.
7.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be required
to give any bond or security in respect of the execution of the trusts, rights,
duties, powers and authorities of this trust agreement or otherwise in respect
of the premises.
7.13 TRUSTEE NOT BOUND TO ACT ON CORPORATION'S REQUEST. Except as in this
trust agreement otherwise specifically provided, the Trustee shall not be bound
to act in accordance with any direction or request of the Corporation and/or the
Parent or of the directors thereof until a duly authenticated copy of the
instrument or resolution containing such direction or request shall have been
delivered to the Trustee, and the Trustee shall be empowered to act and rely
upon any such copy purporting to be authenticated and believed by the Trustee to
be genuine.
7.14 AUTHORITY TO CARRY ON BUSINESS. The Trustee represents to the Corporation
and the Parent that at the date of execution and delivery by it of this trust
agreement it is authorized to carry on the business of a trust company in the
Province of Ontario but if, notwithstanding the provisions of this section 7.14,
it ceases to be so authorized to carry on business, the validity and
enforceability of this trust agreement and the Voting Rights, the Exchange Right
and the Automatic Exchange Rights shall not be affected in any manner whatsoever
by reason only of such event but the Trustee shall, within 90 days after ceasing
to be authorized to carry on the business of a trust company in the Province of
Ontario, either become so authorized or resign in the manner and with the effect
specified in Article 10.
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7.15 CONFLICTING CLAIMS. If conflicting claims or demands are made or asserted
with respect to any interest of any Beneficiary in any Exchangeable Shares,
including any disagreement between the heirs, representatives, successors or
assigns succeeding to all or any part of the interest of any Beneficiary in any
Exchangeable Shares resulting in conflicting claims or demands being made in
connection with such interest, then the Trustee shall be entitled, at its sole
discretion, to refuse to recognize or to comply with any such claim or demand.
In so refusing, the Trustee may elect not to exercise any Voting Rights,
Exchange Right or Automatic Exchange Rights subject to such conflicting claims
or demands and, in so doing, the Trustee shall not be or become liable to any
person on account of such election or its failure or refusal to comply with any
such conflicting claims or demands. The Trustee shall be entitled to continue to
refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Right or Automatic Exchange Rights subject to such
conflicting claims or demands have been adjudicated by a final
judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right
or Automatic Exchange Rights subject to such conflicting claims or
demands have been conclusively settled by a valid written agreement
binding on all such adverse claimants, and the Trustee shall have
been furnished with an executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by
any such adverse claimant, it may in its discretion require such claimant to
furnish such surety bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
7.16 ACCEPTANCE OF TRUST. The Trustee hereby accepts the Trust created and
provided for by and in this trust agreement and agrees to perform the same upon
the terms and conditions herein set forth and to hold all rights, privileges and
benefits conferred hereby and by law in trust for the various persons who shall
from time to time be Beneficiaries, subject to all the terms and conditions
herein set forth.
ARTICLE 8
COMPENSATION
8.1 FEES AND EXPENSES OF THE TRUSTEE. The Parent and the Corporation jointly
and severally agree to pay to the Trustee reasonable compensation for all of the
services rendered by it under this trust agreement and will reimburse the
Trustee for all reasonable expenses (including taxes) and disbursements,
including the cost and expense
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of any suit or litigation of any character and any proceeds before any
governmental agency reasonably incurred by the Trustee in connection with its
rights and duties under this trust agreement; provided that the Parent and the
Corporation shall have no obligation to reimburse the Trustee for any expenses
or disbursements paid, incurred or suffered by the Trustee in any suit or
litigation in which the Trustee is determined to have acted in bad faith or with
negligence or willful misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 INDEMNIFICATION OF THE TRUSTEE. The Parent and the Corporation jointly
and severally agree to indemnify and hold harmless the Trustee and each of its
directors, officers, employees and agents appointed and acting in accordance
with this trust agreement (collectively, the "Indemnified Parties") against all
claims, losses, damages, costs, penalties, fines and reasonable expenses
(including reasonable expenses of the Trustee's legal counsel) which, without
fraud, negligence, willful misconduct or bad faith on the part of such
Indemnified Party, may be paid, incurred or suffered by the Indemnified Party by
reason of or as a result of the Trustee's acceptance or administration of the
Trust, its compliance with its duties set forth in this trust agreement, or any
written or oral instructions delivered to the Trustee by the Parent or the
Corporation pursuant hereto. In no case shall the Parent or the Corporation be
liable under this indemnity for any claim against any of the Indemnified Parties
unless the Parent and the Corporation shall be notified by the Trustee of the
written assertion of a claim or of any action commenced against the Indemnified
Parties, promptly after any of the Indemnified Parties shall have received any
such written assertion of a claim or shall have been served with a summons or
other first legal process giving information as to the nature and basis of the
claim. Subject to (ii), below, the Parent and the Corporation shall be entitled
to participate at their own expense in the defence and, if the Parent or the
Corporation so elect at any time after receipt of such notice, either of them
may assume the defence of any suit brought to enforce any such claim. The
Trustee shall have the right to employ separate counsel in any such suit and
participate in the defence thereof but the fees and expenses of such counsel
shall be at the expense of the Trustee unless: (i) the employment of such
counsel has been authorized by the Parent or the Corporation; or (ii) the named
parties to any such suit include both the Trustee and the Parent or the
Corporation and the Trustee shall have been advised by counsel acceptable to the
Parent or the Corporation that there may be one or more legal defences available
to the Trustee which are different from or in addition to those available to the
Parent or the Corporation (in which case the Parent and the Corporation shall
not have the right to assume the defence of such suit on behalf of the Trustee
but shall be liable to pay the reasonable fees and expenses of counsel for the
Trustee).
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9.2 LIMITATION OF LIABILITY. The Trustee shall not be held liable for any
loss which may occur by reason of depreciation of the value of any part of the
Trust Estate or any loss incurred on any investment of funds pursuant to this
trust agreement, except to the extent that such loss is attributable to the
fraud, negligence, wilful misconduct or bad faith on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 RESIGNATION. The Trustee, or any trustee hereafter appointed, may at any
time resign by giving written notice of such resignation to the Parent and the
Corporation specifying the date on which it desires to resign, provided that
such notice shall never be given less than 30 days before such desired
resignation date unless the Parent and the Corporation otherwise agree and
provided further that such resignation shall not take effect until the date of
the appointment of a successor trustee and the acceptance of such appointment by
the successor trustee. Upon receiving such notice of resignation, the Parent and
the Corporation shall promptly appoint a successor trustee by written instrument
in duplicate, one copy of which shall be delivered to the resigning trustee and
one copy to the successor trustee.
10.2 REMOVAL. The Trustee, or any trustee hereafter appointed, may be removed
at any time on 30 days' prior notice by written instrument executed by the
Parent and the Corporation, in duplicate, one copy of which shall be delivered
to the trustee so removed and one copy to the successor trustee.
10.3 SUCCESSOR TRUSTEE. Any successor trustee appointed as provided under this
trust agreement shall execute, acknowledge and deliver to the Parent and the
Corporation and to its predecessor trustee an instrument accepting such
appointment. Thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor under this trust agreement, with like effect as
if originally named as trustee in this trust agreement However, on the written
request of the Parent and the Corporation or of the successor trustee, the
trustee ceasing to act shall, upon payment of any amounts then due it pursuant
to the provisions of this trust agreement, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act. Upon the request of any such successor trustee, the Parent,
the Corporation and such predecessor trustee shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers.
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<PAGE> 29
10.4 NOTICE OF SUCCESSOR TRUSTEE. Upon acceptance of appointment by a
successor trustee as provided herein, the Parent and the Corporation shall cause
to be mailed notice of the succession of such trustee hereunder to each
Beneficiary specified in a List. If the Parent or the Corporation shall fail to
cause such notice to be mailed within 10 days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such notice to be
mailed at the expense of the Parent and the Corporation.
ARTICLE 11
PARENT SUCCESSORS
11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. The Parent shall not
enter into any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or
substantially all of its undertaking, property and assets would become the
property of any other person or, in the case of a merger, of the continuing
corporation resulting therefrom unless, but may do so if:
(a) such other person or continuing corporation is a corporation
(herein called the "Parent Successor") incorporated under the laws
of any state of the United States or the laws of Canada or any
province thereof;
(b) the Parent Successor, by operation of law, becomes, without more,
bound by the terms and provisions of this trust agreement or, if
not so bound, executes, prior to or contemporaneously with the
consummation of such transaction a trust agreement supplemental
hereto and such other instruments (if any) as are satisfactory to
the Trustee and in the opinion of legal counsel to the Trustee are
necessary or advisable to evidence the assumption by the Parent
Successor of liability for all moneys payable and property
deliverable hereunder and the covenant of such Parent Successor to
pay and deliver or cause to be delivered the same and its agreement
to observe and perform all the covenants and obligations of the
Parent under this trust agreement; and
(c) such transaction shall, to the satisfaction of the Trustee and in
the opinion of legal counsel to the Trustee, be upon such terms as
substantially to preserve and not to impair in any material respect
any of the rights, duties, powers and authorities of the Trustee or
of the Beneficiaries hereunder.
11.2 VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of section 11.1
hereof have been duly observed and performed, the Trustee, if required, by
section 11.1 hereof, the Parent Successor and the Corporation shall execute and
deliver the supplemental trust agreement provided for in Article 12 and
thereupon the Parent Successor shall
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<PAGE> 30
possess and from time to time may exercise each and every right and power of the
Parent under this trust agreement in the name of the Parent or otherwise and any
act or proceeding by any provision of this trust agreement required to be done
or performed by the Board of Directors of the Parent or any officers of the
Parent may be done and performed with like force and effect by the directors or
officers of such Parent Successor.
11.3 WHOLLY-OWNED SUBSIDIARIES. Nothing herein shall be construed as
preventing the amalgamation or merger of any wholly-owned subsidiary of the
Parent with or into the Parent or the winding-up, liquidation or dissolution of
any wholly-owned subsidiary of the Parent provided that all of the assets of
such subsidiary are transferred to the Parent or another wholly-owned subsidiary
of the Parent and any such transactions are expressly permitted by this Article
11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
12.1 AMENDMENTS, MODIFICATIONS. ETC. This trust agreement may not be amended
or modified except by an agreement in writing executed by the Corporation, the
Parent and the Trustee and approved by the Beneficiaries in accordance with
Section 10.2 of the Exchangeable Share Provisions.
12.2 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of section 12.1
hereof, the parties to this trust agreement may in writing, at any time and from
time to time, without the approval of the Beneficiaries, amend or modify this
trust agreement for it the purposes of:
(a) adding to the covenants of either or both parties hereto for the
protection of the Beneficiaries hereunder;
(b) making such amendments or modifications not inconsistent with this
trust agreement as may be necessary or desirable with respect to
matters or questions which, in the opinion of the Board of
Directors of each of the Parent and Corporation and in the opinion
of the Trustee and its counsel, having in mind the best interests
of the Beneficiaries as a whole, it may be expedient to make,
provided that such boards of directors and the Trustee and its
counsel shall be of the opinion that such amendments and
modifications will not be prejudicial to the interests of the
Beneficiaries as a whole; or
(c) making such changes or corrections which, on the advice of counsel
to the Corporation, the Parent and the Trustee, are required for
the purpose of curing or correcting any ambiguity or defect or
inconsistent provision or
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clerical omission or mistake or manifest error, provided that the
Trustee and its counsel and the Board of Directors of each of the
Corporation and the Parent shall be of the opinion that such
changes or corrections will not be prejudicial to the interests of
the Beneficiaries as a whole.
12.3 MEETING TO CONSIDER AMENDMENTS. The Corporation, at the request of the
Parent, shall call a meeting or meetings of the Beneficiaries for the purpose of
considering any proposed amendment or modification requiring approval pursuant
hereto. Any such meeting or meetings shall be called and held in accordance with
the by-laws of the Corporation, the Exchangeable Share Provisions and all
applicable laws.
12.4 CHANGES IN CAPITAL OF PARENT AND THE CORPORATION. At all times after the
occurrence of any event effected pursuant to section 2.7 or section 2.8 of the
Support Agreement, as a result of which either the Parent Common Shares or the
Exchangeable Shares or both are in any way changed, this trust agreement shall
forthwith be amended and modified as necessary in order that it shall apply with
full force and effect, mutatis mutandis, to all new securities into which the
Parent Common Shares or the Exchangeable Shares or both are so changed and the
parties hereto shall execute and deliver a supplemental trust agreement giving
effect to and evidencing such necessary amendments and modifications.
12.5 EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS. No amendment to or
modification or waiver of any of the provisions of this trust agreement
otherwise permitted hereunder shall be effective unless made in writing and
signed by all of the parties hereto. From time to time the Corporation (when
authorized by a resolution of the Board of Directors), the Parent (when
authorized by a resolution of its Board of Directors) and the Trustee may,
subject to the provisions of these presents, and they shall, when so directed by
these presents, execute and deliver by their proper officers, trust agreements
or other instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more of the following purposes:
(a) evidencing the succession of Parent Successors to the Parent and
covenants of and obligations assumed by each such Parent Successor
in accordance with the provisions of Article 11 and the successor
of any successor trustee in accordance with the provisions of
Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this trust agreement or the Voting Rights, the
Exchange Right or the Automatic Exchange Rights which, in the
opinion of the Trustee and its counsel, will not be prejudicial to
the interests of the Beneficiaries as a whole or are in the opinion
of counsel to the Trustee necessary or advisable in order to
incorporate, reflect or comply with any legislation the provisions
of which apply to the Parent, the Corporation, the Trustee or this
trust agreement; and
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(c) for any other purposes not inconsistent with the provisions of this
trust agreement, including without limitation to make or evidence
any amendment or modification to this agreement as contemplated
hereby, provided that, in the opinion of the Trustee and its
counsel, the rights of the Trustee and the Beneficiaries as a whole
will not be prejudiced thereby.
ARTICLE 13
TERMINATION
13.1 TERM. The Trust created by this trust agreement shall continue until the
earliest to occur of the following events:
(a) no outstanding Exchangeable Shares are held by a Beneficiary;
(b) each of the Corporation and the Parent elects in writing to
terminate the Trust and such termination is approved by the
Beneficiaries of the Exchangeable Shares in accordance with
Section 10.2 of the Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of
His Majesty King George VI of the United Kingdom of Great Britain
and Northern Ireland living on the date of the creation of the
Trust.
13.2 SURVIVAL OF AGREEMENT. This trust agreement shall survive any termination
of the Trust and shall continue until there are no Exchangeable Shares
outstanding held by a Beneficiary; provided, however, that the provisions of
Articles 8 and 9 shall survive any such termination of this trust agreement.
ARTICLE 14
GENERAL
14.1 SEVERABILITY. If any provision of this trust agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this trust agreement shall not in any way be affected or
impaired thereby and the agreement shall be carried out as nearly as possible in
accordance with its original terms and conditions.
14.2 ENUREMENT. This trust agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and permitted
assigns and to the benefit of the Beneficiaries.
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14.3 NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in like
notice):
(a) if to the Parent at:
201 Broadway
Cambridge, Massachusetts
U.S.A. 02139
ATTENTION: PRESIDENT
Telecopy: (617) 225-0318
(b) if to the Corporation at:
2700 Matheson Blvd. East
8th Floor
West Tower
Mississauga, Ontario
L4W 4V9
ATTENTION: PRESIDENT
Telecopy: (905) 602-0239
(c) if to the Trustee at:
if by mail:
The R-M Trust Company
P.O. Box 7010
Adelaide Street Postal Station
Toronto, Ontario
IMSC 2W9
ATTENTION: VICE-PRESIDENT
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<PAGE> 34
if delivered:
The R-M Trust Company
393 University Avenue
5th Floor
Toronto, Ontario
MSG 1E6
ATTENTION: VICE-PRESIDENT
Telecopy: (416) 813-4555
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
14.4 NOTICE OF BENEFICIARIES. Any and all notices to be given and any
documents to be sent to any Beneficiaries may be given or sent to the address of
such holder shown on the register of holders of Exchangeable Shares in any
manner permitted by the by-laws of the Corporation from time to time in force in
respect of notices to shareholders and shall be deemed to be received (if given
or sent in such manner) at the time specified in such by-laws, the provisions of
which by-laws shall apply mutatis mutandis to notices or documents as aforesaid
sent to such holders.
14.5 RISK OF PAYMENTS BY POST. Whenever payments are to be made or documents
are to be sent to any Beneficiary by the Trustee or by the Corporation, or by
such Beneficiary to the Trustee or to the Parent or the Corporation, the making
of such payment or sending of such document sent through the post shall be at
the risk of the Corporation, in the case of payments made or documents sent by
the Trustee or the Corporation, and the Beneficiary, in the case of payments
made or documents sent by the Beneficiary.
14.6 COUNTERPARTS. This trust agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
14.7 JURISDICTION. This trust agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
14.8 ATTORNMENT. The Parent agrees that any action or proceeding arising out
of or relating to this trust agreement may be instituted in the courts of
Ontario, waives any objection which it may have now or hereafter to the venue of
any such action or proceeding, irrevocably submits to the jurisdiction of the
said courts in any such action
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or proceeding, agrees to be bound by any judgment of the said courts and not to
seek, and hereby waives, any review of the merits of any such judgment by the
courts of any other jurisdiction and hereby appoints the Corporation at its
registered office in the Province of Ontario as the Parent's attorney for
service of process.
IN WITNESS WHEREOF, the parties hereto have caused this trust agreement
to be duly executed as of the date first above written.
SOFTKEY INTERNATIONAL INC.
By /s/ Michael Perik
---------------------------
/s/ Kevin O'Leary
---------------------------
SOFTKEY SOFTWARE PRODUCTS INC.
By /s/ Authorized signatory
---------------------------
---------------------------
THE R-M TRUST COMPANY
By /s/ Linda Whitfield
---------------------------
/s/ Authorized signatory
---------------------------
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<PAGE> 1
EXHIBIT 4.4
PLAN OF ARRANGEMENT
UNDER SECTION 182
OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS
In this Plan of Arrangement unless there is something in the subject
matter or context inconsistent therewith, the following terms shall have the
respective meanings set out below and grammatical variations of such terms shall
have corresponding meanings:
(a) "Amalgamation" means the amalgamation of WordStar Ontario and
SoftKey pursuant to subsection 2.1(a);
(b) "Arrangement" means the arrangement under section 182 of the OBCA
on the terms and subject to the conditions set out in this Plan of Arrangement,
subject to any amendments thereto made in accordance with section 11.5 of the
Combination Agreement or made at the direction of the Court in the Final Order;
(c) "Arrangement Resolution" means the special resolution passed by the
holders SoftKey Common Shares at the Meeting;
(d) "Automatic Redemption Date" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
(e) "Business Day" means any day other than a Saturday, Sunday or a day
when banks are not open for business in either or both of New York City, New
York and Toronto, Ontario;
(f) "Class A Shares" has the meaning ascribed thereto in clause
2.1(a)(iv)(A);
(g) "Class B Shares" has the meaning ascribed thereto in clause
2.1(a)(iv)(B);
(h) "Combination Agreement" means the agreement by and among WordStar
International Incorporated, SoftKey, Spinnaker Software Corporation and SSC
Acquisition Corporation dated as of August 17, 1993, as amended and restated,
providing for, among other things, the Arrangement;
(i) "Corporation" means the corporation continuing from the
Amalgamation;
(j) "Court" means the Ontario Court of Justice (General Division);
<PAGE> 2
(k) "Depositary" means The R-M Trust Company at its principal offices
in Toronto, Ontario and The First National Bank of Boston at its principal
office in Boston, Massachusetts;
(l) "Dissent Procedures" has the meaning set out in section 3.1;
(m) "Dissenting Shareholder" means a holder of SoftKey Common Shares
who dissents in respect of the Arrangement in strict compliance with the Dissent
Procedures;
(n) "Effective Date" means the date shown on the certificate of
arrangement issued by the Director under the OBCA giving effect to the
Arrangement;
(o) "Effective Time" means 12:01 a.m. on the Effective Date;
(p) "Elected SoftKey Common Share" means any SoftKey Common Share which
the holder shall have indicated, in a duly completed Letter of Transmittal and
Election Form received by SoftKey no later than 5:00 p.m. (local time) on the
second business day immediately preceding the day of the Meeting, is to be
exchanged on the Amalgamation for Class A Shares and thereafter exchanged for
SoftKey International Common Shares;
(q) "Exchangeable Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares;
(r) "Exchangeable Shares" has the meaning ascribed thereto in clause
2.1(a)(iv)(C);
(s) "Final Order" means the final order of the Court approving the
Arrangement;
(t) "Letter of Transmittal and Election Form" means a Letter of
Transmittal and Election Form in the form accompanying the Proxy Statement;
(u) "Liquidation Call Right" has the meaning ascribed thereto in
section 5.1;
(v) "Liquidation Date" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
(w) "Meeting" means the Special Meeting of the shareholders of SoftKey
to be held to consider the Arrangement;
(x) "NASDAQ" means the National Market System of the National
Association of Securities Dealers Automated Quotation System;
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<PAGE> 3
(y) "OBCA" means the Business Corporations Act (Ontario), as amended;
(z) "Proxy Statement" means the Joint Management Information Circular
and Proxy Statement of SoftKey, WordStar International Incorporated and
Spinnaker Software Corporation dated December 27, 1993;
(aa) "Redemption Call Right" has the meaning ascribed thereto in
section 5.2;
(ab) "SoftKey" means SoftKey Software Products Inc., a corporation
existing under the OBCA.
(ac) "Soft Key Common Shares" means the common shares in the capital of
SoftKey;
(ad) "Soft Key International" means SoftKey International Inc.
(formerly known as "WordStar International Incorporated"), a body corporate
existing under the laws of the State of Delaware;
(ae) "Soft Key International Common Shares" means the common shares in
the capital of SoftKey International;
(af) "Soft Key International Consolidation" means the consolidation, or
"reverse split", of the outstanding SoftKey International Common Shares to
become effective, after the issuance of SoftKey International Common Shares
pursuant to subsection 2.1(h) hereof, under the General Corporation Law of the
State of Delaware by an amendment to SoftKey International's Restated
Certificate of Incorporation approval for which is being sought from WordStar
International Incorporated's shareholders pursuant to the Proxy Statement; and
(ag) "Word Star Ontario" means 1056920 Ontario Inc., a corporation
incorporated under the OBCA.
1.2 SECTIONS AND HEADINGS
The division of this Plan of Arrangement into sections and the insertion
of headings are for reference purposes only and shall not affect the
interpretation of this Plan of Arrangement. Unless otherwise indicated, any
reference in this Plan of Arrangement to a section or an Appendix refers to the
specified section of or Appendix to this Plan of Arrangement.
1.3 NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and vice versa, words importing
any
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<PAGE> 4
gender include all genders and words importing persons include individuals,
corporations, partnerships, associations, trusts, unincorporated organizations,
governmental bodies and other legal or business entities of any kind.
ARTICLE 2 - ARRANGEMENT
2.1 ARRANGEMENT
At the Effective Time on the Effective Date, the following shall occur
and shall be deemed to occur in the following order without any further act or
formality:
(a) WordStar Ontario and SoftKey shall amalgamate to form the
Corporation and shall continue as one corporation under the OBCA and, unless and
until otherwise determined in the manner required by law, by the Corporation,
its directors or shareholders, the following provisions shall apply to the
Corporation:
(i) Name. The name of the Corporation shall be SoftKey Software
Products Inc.;
(ii) Registered Office. The registered office of the Corporation
shall be located in the City of Mississauga in the Province
of Ontario. The address of the registered office of the
Corporation shall be 2700 Matheson Boulevard East, 8th
Floor, West Tower, Mississauga, Ontario, L4W 4V9;
(iii) Business and Powers. There shall be no restrictions on the
business the Corporation may carry on or on the powers it
may exercise;
(iv) Authorized Share Capital. The Corporation shall be
authorized to issue:
(A) an unlimited number of Class A voting common shares
(the "Class A Shares");
(B) an unlimited number of Class B non-voting common shares
(the "Class B Shares"); and
(C) an unlimited number of Exchangeable Non-Voting Shares
(the "Exchangeable Shares");
(v) Share Provisions. The Class A Shares, the Class B Shares and
the Exchangeable Shares shall have attached thereto the
rights, privileges, restrictions and conditions respectively
set out in Appendix A hereto;
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(vi) Share Restrictions. There shall be no restrictions on the
issue, transfer or ownership of shares of the Corporation;
(vii) Number of Directors. The number of directors of the
Corporation shall be such number not less than three and not
more than 10 as the shareholders of the Corporation may from
time to time determine by special resolution or, if
empowered to do so by special resolution, as the directors
of the Corporation may from time to time determine;
(viii) Initial Directors. The directors of the Corporation shall
be:
<TABLE>
<CAPTION>
Canadian
Name Residence Address Resident
---- ----------------- --------
<S> <C> <C>
Thomas Axworthy 241 Stanstead Yes
Town of Mont Royal, Quebec
H3R 1X4
Robert Gagnon 6111 Du Boise Yes
Apartment 16
Montreal, Quebec
H3S 2V8
Michael J. Nobrega 130 Roxborough Drive Yes
Toronto, Ontario
M4Y 1X4
Michael Perik 295 Glen Road Yes
Toronto, Ontario
M4W 2X4
Robert Rubinoff 166 Warren Road Yes
Toronto, Ontario
M4V 2S5
</TABLE>
(ix) By-laws. The by-laws of the Corporation shall be the by-laws
of WordStar Ontario.
(b) Upon the Amalgamation, each common share of Word Star Ontario
outstanding immediately prior to the Amalgamation shall he converted into one
Class A Share.
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(c) Upon the Amalgamation, each Elected SoftKey Common Share
outstanding immediately prior to the Amalgamation, other than those held by
Dissenting Shareholders, shall be converted into one Class A Share and the name
of each holder thereof shall be added to the register of holders of Class A
Shares accordingly.
(d) Upon the Amalgamation, each SoftKey Common Share outstanding
immediately prior to the Amalgamation, other than shares held by Dissenting
Shareholders and Elected SoftKey Common Shares, shall he converted into one
Class B Share and the name of each holder thereof shall be added to the register
of holders of Class B Shares accordingly.
(e) Each issued and outstanding Class B Share shall be converted into
3.6 fully paid and non-assessable Exchangeable Shares.
(f) Upon the conversion referred to in subsection 2.1(e), each holder
of Class B Shares shall cease to be such a holder, shall have his name removed
from the register of holders of Class B Shares and shall become a holder of the
number of fully paid and non-assessable Exchangeable Shares to which he is
entitled as a result of the conversion referred to in subsection 2.1(e) and such
holder's name shall be added to the register of holders of Exchangeable Shares
accordingly.
(g) Each issued and outstanding Class A Share, other than those held by
SoftKey International, shall be exchanged by the holder thereof with SoftKey
International for 3.6 SoftKey International Common Shares.
(h) In connection with the exchange referred to in subsection 2.1(g),
each holder of Class A Shares, other than SoftKey International, shall be deemed
to have transferred each issued and outstanding Class A Share held by him to
SoftKey International and SoftKey International shall issue to each such holder
3.6 fully paid and non-assessable SoftKey International Common Shares in
exchange for each Class A Share so transferred.
(i) Upon the exchange referred to in paragraph 2.1(g), each holder of
Class A Shares, other than SoftKey International, shall cease to be such a
holder, shall have his name removed from the register of holders of Class A
Shares and shall become a holder of the number of SoftKey International Common
Shares to which he is entitled as a result of the exchange referred to in
subsection 2.1(g) and such holder's name shall be added to the register of
holders of SoftKey International Common Shares accordingly.
(j) Upon the exchange referred to in paragraph 2.1(g), SoftKey
International shall become the holder of all the issued and outstanding Class A
Shares, and
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<PAGE> 7
SoftKey International's name shall be added to the register of holders of Class
A Shares accordingly.
(k) In the event that the SoftKey International Consolidation becomes
effective, then the outstanding Exchangeable Shares shall be consolidated by
changing each of the issued and outstanding Exchangeable Shares into one-tenth
of an Exchangeable Share.
2.2 STATED CAPITAL
For purposes of the OBCA:
(a) the stated capital attributable to the Class A Shares will be the
lesser of (i) the fair market value of the Class A Shares as
determined by the Board of Directors of the Corporation and (ii)
the paid-up capital of all of the outstanding SoftKey Common Shares
for the purposes of the Income Tax Act (Canada) determined
immediately before the Amalgamation;
(b) the stated capital attributable to the Class B Shares will be equal
to the balance, if any, of the paid-up capital of all of the
outstanding SoftKey Common Shares for the purpose of the Income Tax
Act (Canada) determined immediately before the Amalgamation after
the application of subsection 2.2(a); and
(c) the aggregate stated capital of all Exchangeable Shares issued on
the conversion described in subsection 2.1(e) will be the aggregate
stated capital immediately after the Amalgamation attributable to
the Class B Shares converted into Exchangeable Shares.
ARTICLE 3 - RIGHTS OF DISSENT
3.1 RIGHTS OF DISSENT
Holders of SoftKey Common Shares may exercise rights of dissent with
respect to such shares pursuant to and in the manner set forth in section 185 of
the OBCA and this Section 3.1 (the "Dissent Procedures") in connection with the
Arrangement and holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for their SoftKey
Common Shares shall be deemed to have transferred such SoftKey
Common Shares to SoftKey for cancellation on the Effective Date; or
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<PAGE> 8
(b) are ultimately not entitled, for any reason, to be paid fair value
for their SoftKey Common Shares shall be deemed to have
participated in the Arrangement on the same basis as any
non-dissenting holder of SoftKey Common Shares other than a holder
of Elected SoftKey Common Shares, and shall receive Class B Shares
on the basis determined in accordance with subsection 2.1(d) and
thereafter Exchangeable Shares on the basis determined in
accordance with subsection 2.1(e) of this Plan of Arrangement,
but in no case shall SoftKey be required to recognize such holders as holders of
SoftKey Common Shares on and after the Effective Date, and the names of such
holders of SoftKey Common Shares shall be deleted from the registers of holders
of SoftKey Common Shares on the Effective Date.
ARTICLE 4 - CERTIFICATES AND FRACTIONAL SHARES
4.1 ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES
At or promptly after the Effective Time, the Corporation shall deposit
with the Depositary, for the benefit of the holders of Class B Shares converted
pursuant to subsection 2.1(e), certificates representing the Exchangeable Shares
issued pursuant to subsection 2.1(e) upon the conversion of outstanding Class B
Shares and consolidated pursuant to subsection 2.1(k), if so consolidated. Upon
surrender to the Depositary for cancellation of a certificate which immediately
prior to the Effective Time represented outstanding SoftKey Common Shares that
were converted into Class B Shares on the Amalgamation and thereafter converted
into Exchangeable Shares, together with such other documents and instruments as
would have been required to effect the transfer of the shares formerly
represented by such certificate under the OBCA and the by-laws of SoftKey and
such additional documents and instruments as the Depositary may reasonably
require, the holder of such surrendered certificate shall be entitled to receive
in exchange therefor, and the Depositary shall deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of Exchangeable Shares which such holder has the right to receive (together with
any dividends or distributions with respect thereto pursuant to section 4.3 and
any cash in lieu of fractional Exchangeable Shares pursuant to section 4.4), and
the certificate so surrendered shall forthwith be cancelled. Certificates
representing Class B Shares shall not be issued. In the event of a transfer of
ownership of SoftKey Common Shares which is not registered in the transfer
records of SoftKey, a certificate representing the proper number of Exchangeable
Shares may be issued to a transferee if the certificate representing such
SoftKey Common Shares is presented to the Depositary, accompanied by all
documents required to evidence and effect such transfer. Until surrendered as
contemplated by this section 4.1, each certificate which immediately prior to
the Effective Time represented outstanding SoftKey Common Shares that were
converted into Class B Shares and thereafter into
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<PAGE> 9
Exchangeable Shares shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender (i) the certificate
representing Exchangeable Shares as contemplated by this section 4.1, (ii) a
cash payment in lieu of any fractional Exchangeable Shares as contemplated by
section 4.4 and (iii) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to Exchangeable
Shares as contemplated by section 4.3
4.2 EXCHANGE OF CERTIFICATES FOR HOLDERS OF ELECTED SOFTKEY COMMON SHARES
At or promptly after the Effective Time, SoftKey International shall
deposit with the Depositary, for the benefit of the holders of Elected SoftKey
Common Shares convened into Class A Shares pursuant to Section 2.1(c) and
thereafter exchanged for SoftKey International Common Shares pursuant to
subsection 2.1(g), certificates representing the SoftKey International Common
Shares issued pursuant to subsection 2.1(g) and consolidated pursuant to
subsection 2.1(k), if so consolidated, in exchange for outstanding Class A
Shares. Upon surrender to the Depositary for cancellation of a certificate which
immediately prior to the Effective Time represented outstanding Elected SoftKey
Common Shares that were converted into Class A Shares and thereafter exchanged
for SoftKey International Common Shares, together with such other documents and
instruments as would have been required to effect the transfer of the shares
formerly represented by such certificate under the OBCA and the by-laws of
SoftKey and such additional documents and instruments as the Depositary may
reasonably require, the holder of such surrendered certificate shall be entitled
to receive in exchange therefor, and the Depositary shall deliver to such
holder, a certificate representing that number (rounded down to the nearest
whole number) of SoftKey International Common Shares which such holder has the
right to receive (together with any dividends or distributions with respect
thereto pursuant to section 4.3 and any cash in lieu of fractional SoftKey
International Common Shares pursuant to section 4.4), and the certificate so
surrendered shall forthwith be cancelled. No certificates representing Class A
Shares shall be issued to the holders of Elected SoftKey Common Shares which are
converted into Class A Shares. In the event of a transfer of ownership of
Elected SoftKey Common Shares which is not registered in the transfer records of
SoftKey, a certificate representing the proper number of SoftKey International
Common Shares may be issued to a transferee if the certificate representing such
Elected SoftKey Common Shares is presented to the Depositary, accompanied by all
documents required to evidence and effect such transfer. Until surrendered as
contemplated by this section 4.2 each certificate which immediately prior to the
Effective Time represented outstanding Elected SoftKey Common Shares that were
converted into Class A Shares and thereafter exchanged for SoftKey International
Common Shares shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender (i) the certificate representing
SoftKey International Common Shares as contemplated by this section 4.2, (ii) a
cash payment in lieu of any fractional SoftKey International Common Shares as
contemplated by section 4.4 and (iii) any dividends or distributions with a
record
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<PAGE> 10
date after the Effective Time theretofore paid or payable with respect to
SoftKey International Common Shares as contemplated by section 4.3.
4.3 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES
No dividends or other distributions declared or made after the Effective
Time with respect to Exchangeable Shares or SoftKey International Common Shares
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered certificate which immediately prior to the Effective Time
represented outstanding SoftKey Common Shares that were converted or exchanged
pursuant to section 2.1, and no cash payment in lieu of fractional shares shall
be paid to any such holder pursuant to section 4.4, unless and until the holder
of record of such certificate shall surrender such certificate in accordance
with section 4.1 or section 4. Subject to applicable law, at the time of such
surrender of any such certificate, there shall be paid to the record holder of
the certificates representing whole Exchangeable Shares or SoftKey International
Common Shares, as the case may be, without interest (i) the amount of any cash
payable in lieu of a fractional Exchangeable Share or SoftKey International
Common Share to which such holder is entitled pursuant to section 4.4, (ii) the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole Exchangeable Share or
SoftKey International Common Share, as the case may be, and (iii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Exchangeable Share or
SoftKey International Common Share, as the case may be.
4.4 NO FRACTIONAL SHARES
No certificates or scrip representing fractional Exchangeable Shares or
SoftKey International Common Shares shall be issued upon the surrender for
exchange of certificates pursuant to section 4.1 or section 4.2 and, subject to
the last sentence of this section 4.4, no dividend, stock split or other change
in the capital structure of the Corporation or SoftKey International shall
relate to any such fractional security and such fractional interests shall not
entitle the owner thereof to vote or to exercise any rights as a security holder
of the Corporation or SoftKey International. In lieu of any such fractional
securities:
(a) each person entitled to a fractional interest in an Exchangeable
Share will receive a cash payment equal to such person's pro rata
portion of the net proceeds after expenses received by the
Depositary upon the sale of whole shares representing an
accumulation of all fractional interests in Exchangeable Shares to
which all such persons would otherwise be entitled. The Depositary
will sell the Exchangeable Shares involved on The Toronto Stock
Exchange as soon as practicable following the
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<PAGE> 11
Effective Date. The aggregate net proceeds after expenses of such
sale will be distributed by the Depositary, pro rata in relation to
the respective fractions, among the persons otherwise entitled to
receive fractional interests in Exchangeable Shares; and
(b) each person entitled to a fractional interest in a SoftKey
International Common Share will receive a cash payment equal to
such person's pro rata portion of the net proceeds after expenses
received by the Depositary upon the sale of whole shares
representing an accumulation of all fractional interests in SoftKey
International Common Shares to which all such persons would
otherwise be entitled. The Depositary will sell the SoftKey
International Common Shares involved on NASDAQ as soon as
practicable following the Effective Date. The aggregate net
proceeds after expenses of such sale will be distributed by the
Depositary, pro rata in relation to the respective fractions, among
the persons otherwise entitled to receive fractional interests in
SoftKey International Common Shares.
The determination as to whether any former holder of Class A Shares would, apart
from this section 4.4, be entitled to receive a fractional interest in a SoftKey
International Common Share shall be made once only, after taking into account
the SoftKey International Consolidation ff the SoftKey International
Consolidation shall become effective, and the determination as to whether any
former holder of Class B Shares would, apart from this section 4.4, be entitled
to receive a fractional interest in an Exchangeable Share shall be made once
only, after taking into account the SoftKey International Consolidation if the
SoftKey International Consolidation shall become effective.
4.5 LOST CERTIFICATES
In the event any certificate which immediately prior to the Effective
Time represented outstanding SoftKey Common Shares that were converted or
exchanged pursuant to section 2.1 shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
certificate to be lost, stolen or destroyed, the Depositary will issue in
exchange for such lost, stolen or destroyed certificate, certificates
representing Exchangeable Shares or SoftKey International Common Shares (and any
dividends or distributions with respect thereto and any cash pursuant to section
4.4) deliverable in respect thereof as determined in accordance with section
2.1. When authorizing such payment in exchange for any lost, stolen or destroyed
certificate, the person to whom certificates representing Exchangeable Shares or
SoftKey International Common Shares are to be issued shall, as a condition
precedent to the issuance thereof, give a bond satisfactory to the Corporation
or SoftKey International, as the case may be, in such sum as the Corporation or
SoftKey International may direct or otherwise indemnify the
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<PAGE> 12
Corporation or SoftKey International in a manner satisfactory to the Corporation
or SoftKey International against any claim that may be made against the
Corporation or SoftKey International with respect to the certificate alleged to
have been lost, stolen or destroyed.
4.6 EXTINGUISHMENT OF RIGHTS
Any certificate which immediately prior to the Effective Time represented
outstanding SoftKey Common Shares that were converted or exchanged pursuant to
section 2.1 and not deposited, with all other instruments required by section
4.1 or section 42, on or prior to the tenth anniversary of the Effective Date
shall cease to represent a claim or interest of any kind or nature as a
shareholder of SoftKey, the Corporation or SoftKey International. On such date,
the Exchangeable Shares or SoftKey International Common Shares to which the
former registered holder of the certificate referred to in the preceding
sentence was ultimately entitled shall be deemed to have been surrendered to the
Corporation or SoftKey International, as the case may be, together with all
entitlements to dividends, distributions and interests thereon held for such
former registered holder.
ARTICLE 5 - CERTAIN RIGHTS OF
SOFTKEY INTERNATIONAL TO ACQUIRE EXCHANGEABLE SHARES
5.1 SOFTKEY INTERNATIONAL LIQUIDATION CALL RIGHT
(a) SoftKey International shall have the overriding right (the
"Liquidation Call Right"), in the event of and notwithstanding the proposed
liquidation, dissolution or winding-up of the Corporation pursuant to Article 5
of the Exchangeable Share Provisions, to purchase from all but not less than all
of the holders of Exchangeable Shares on the Liquidation Date all but not less
than all of the Exchangeable Shares held by each such holder on payment by
SoftKey International of an amount per share equal to (a) the Current Market
Price (as defined in the Exchangeable Share Provisions) of a SoftKey
International Common Share on the last Business Day prior to the Liquidation
Date, which shall be satisfied in full by causing to be delivered to such holder
one SoftKey International Common Share, plus (b) an additional amount equivalent
to the full amount of all dividends declared and unpaid on such Exchangeable
Share (collectively the "Liquidation Call Purchase Price"). In the event of the
exercise of the Liquidation Call Right by SoftKey International, each holder
shall be obligated to sell all the Exchangeable Shares held by the holder to
SoftKey International on the Liquidation Date on payment by SoftKey
International to the holder of the Liquidation Call Purchase Price for each such
share.
(b) To exercise the Liquidation Call Right, SoftKey International must
notify the Corporation's transfer agent (the "Transfer Agent"), as agent for the
holders of Exchangeable Shares, and the Corporation of SoftKey International's
intention to
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<PAGE> 13
exercise such right at least 55 days before the Liquidation Date in the case of
a voluntary liquidation, dissolution or winding up of the Corporation and at
least five Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding up of the Corporation. The
Transfer Agent will notify the holders of Exchangeable Shares as to whether or
not SoftKey International has exercised the Liquidation Call Right forthwith
after the expiry of the period during which the same may be exercised by SoftKey
International. If SoftKey International exercises the Liquidation Call Right, on
the Liquidation Date SoftKey International will purchase and the holders will
sell all of the Exchangeable Shares then outstanding for a price per share equal
to the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Liquidation Call Right, SoftKey International shall
deposit with the Transfer Agent, on or before the Liquidation Date, certificates
representing the aggregate number of SoftKey International Common Shares
deliverable by SoftKey International in payment of the total Liquidation Call
Purchase Price and a cheque or cheques in the amount of the remaining portion,
if any, of the total Liquidation Call Purchase Price. Provided that the total
Liquidation Call Purchase Price has been so deposited with the Transfer Agent,
on and after the Liquidation Date the rights of each holder of Exchangeable
Shares will be limited to receiving such holder's proportionate part of the
total Liquidation Call Purchase Price payable by SoftKey International upon
presentation and surrender by the holder of certificates representing the
Exchangeable Shares held by such holder and the holder shall on and after the
Liquidation Date be considered and deemed for all purposes to be the holder of
the SoftKey International Common Shares delivered to it. Upon surrender to the
Transfer Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under the OBCA and the by-laws of the
Corporation and such additional documents and instruments as the Transfer Agent
may reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the Transfer
Agent on behalf of SoftKey International shall deliver to such holder,
certificates representing the SoftKey International Common Shares to which the
holder is entitled and a cheque or cheques of SoftKey International payable at
par and in Canadian dollars at any branch of the bankers of SoftKey
International or of the Corporation in Canada in payment of the remaining
portion, if any, of the total Liquidation Call Purchase Price. If SoftKey
International does not exercise the Liquidation Call Right in the manner
described above, on the Liquidation Date the holders of the Exchangeable Shares
will be entitled to receive in exchange therefor the liquidation price otherwise
payable by the Corporation in connection with the liquidation, dissolution or
winding-up of the Corporation pursuant to Article 5 of the Exchangeable Share
Provisions.
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<PAGE> 14
5.2 SOFTKEY INTERNATIONAL REDEMPTION CALL RIGHT
(a) SoftKey International shall have the overriding right (the
"Redemption Call Right"), notwithstanding the proposed redemption of the
Exchangeable Shares by the Corporation pursuant to Article 7 of the Exchangeable
Share Provisions, to purchase from all but not less than all of the holders of
Exchangeable Shares on the Automatic Redemption Date all but not less than all
of the Exchangeable Shares held by each such holder on payment by SoftKey
International to the holder of an amount per share equal to (a) the Current
Market Price (as defined in the Exchangeable Share Provisions) of a SoftKey
International Common Share on the last Business Day prior to the Automatic
Redemption Date which shall be satisfied in full by causing to be delivered to
such holder one SoftKey International Common Share plus (b) an additional amount
equivalent to the full amount of all dividends declared and unpaid on such
Exchangeable Share (collectively the "Redemption Call Purchase Price"). In the
event of the exercise of the Redemption Call Right by SoftKey International,
each holder shall be obligated to sell all the Exchangeable Shares held by the
holder to SoftKey International on the Automatic Redemption Date on payment by
SoftKey International to the holder of the Redemption Call Purchase Price for
each such share.
(b) To exercise the Redemption Call Right, SoftKey International must
notify the Transfer Agent, as agent for the holders of Exchangeable Shares, and
the Corporation of SoftKey International's intention to exercise such right at
least 125 days before the Automatic Redemption Date. The Transfer Agent will
notify the holders of the Exchangeable Shares as to whether or not SoftKey
International has exercised the Redemption Call Right forthwith after the expiry
of the period during which the same may be exercised by SoftKey International.
If SoftKey International exercises the Redemption Call Right, on the Automatic
Redemption Date SoftKey International will purchase and the holders will sell
all of the Exchangeable Shares then outstanding for a price per share equal to
the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Redemption Call Right, SoftKey International shall
deposit with the Transfer Agent, on or before the Automatic Redemption Date,
certificates representing the aggregate number of SoftKey International Common
Shares deliverable by SoftKey International in payment of the total Redemption
Call Purchase Price and a cheque or cheques in the amount of the remaining
portion, if any, of the total Redemption Call Purchase Price. Provided that the
total Redemption Call Purchase Price has been so deposited with the Transfer
Agent, on and after the Automatic Redemption Date the rights of each holder of
Exchangeable Shares will be limited to receiving such holder's proportionate
part of the total Redemption Call Purchase Price payable by SoftKey
International upon presentation and surrender by the holder of certificates
representing the Exchangeable Shares held by such holder and the holder shall on
and after the Liquidation Date be considered and deemed for all purposes to be
the holder of the SoftKey International Common Shares delivered
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<PAGE> 15
to such holder. Upon surrender to the Transfer Agent of a certificate or
certificates representing Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent on behalf of
SoftKey International shall deliver to such holder, certificates representing
the SoftKey International Common Shares to which the holder is entitled and a
cheque or cheques of SoftKey International payable at par and in Canadian
dollars at any branch of the bankers of SoftKey International or of the
Corporation in Canada in payment of the remaining portion, if any, of the total
Redemption Call Purchase Price. If SoftKey International does not exercise the
Redemption Call Right in the manner described above, on the Automatic Redemption
Date the holders of the Exchangeable Shares will be entitled to receive in
exchange therefor for the redemption price otherwise payable by the Corporation
in connection with the redemption of the Exchangeable Shares pursuant to
Article 7 of the Exchangeable Share Provisions.
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<PAGE> 16
APPENDIX A TO PLAN OF ARRANGEMENT
OF SOFTKEY SOFTWARE PRODUCTS INC.
PROVISIONS ATTACHING TO CLASS A SHARES
The Class A common shares in the capital of the Corporation shall have
attached thereto the following rights, privileges, restrictions and conditions:
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking senior
to the Class A common shares with respect to priority in the payment of
dividends, the holders of Class A common shares shall be entitled to receive
dividends and the Corporation shall pay dividends thereon, as and when declared
by the board of directors of the Corporation out of moneys properly applicable
to the payment of dividends, in such amount and in such form as the board of
directors may from time to time determine and all dividends which the directors
may declare on the Class A common shares shall be declared and paid in equal
amounts per share on all Class A common shares at the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, subject to the prior rights of the holders of the Exchangeable
Non-Voting Shares and to any other shares ranking senior to the Class A common
shares with respect to priority in the distribution of assets upon dissolution,
liquidation or winding-up, the holders of the Class A common shares shall be
entitled to receive the remaining property and assets of the Corporation
rateably with the holders of the Class B common shares.
VOTING RIGHTS
The holders of the Class A common shares shall be entitled to receive
notice of and to attend all meetings of the shareholders of the Corporation and
shall have one vote for each common share held at all meetings of the
shareholders of the Corporation, except for meetings at which only holders of
another specified class or series of shares of the Corporation are entitled to
vote separately as a class or series.
PROVISIONS ATTACHING TO CLASS B SHARES
The Class B common shares in the capital of the Corporation shall have
attached thereto the following rights, privileges, restrictions and conditions:
<PAGE> 17
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking senior
to the Class B common shares with respect to priority in the payment of
dividends, the holders of Class B common shares shall be entitled to receive
dividends and the Corporation shall pay dividends thereon, as and when declared
by the board of directors of the Corporation out of moneys properly applicable
to the payment of dividends, in such amount and in such form as the board of
directors may from time to time determine and all dividends which the directors
may declare on the Class B common shares shall be declared and paid in equal
amounts per share on all Class B common shares at the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, subject to the prior rights of the holders of the Exchangeable
Non-Voting Shares and to any other shares ranking senior to the Class B common
shares with respect to priority in the distribution of assets upon dissolution,
liquidation or winding-up, the holders of the Class B common shares shall be
entitled to receive the remaining property and assets of the Corporation
rateably with the holders of the Class A common shares.
VOTING RIGHTS
Except where specifically provided by the Business Corporations Act
(Ontario), the holders of the Class B common shares shall not be entitled to
receive notice of or to attend meetings of the shareholders of the Corporation
and shall not be entitled to vote at any meeting of shareholders of the
Corporation.
PROVISIONS ATTACHING TO EXCHANGEABLE SHARES
The Exchangeable Non-Voting Shares in the capital of the Corporation
shall have the following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
For the purposes of these share provisions:
1.1 "Affiliate" of any person means any other person directly or indirectly
controlled by, or under common control of, that person. For the purposes
of this definition, "control" (including, with correlative meanings, the
terms
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<PAGE> 18
"controlled by" and "under common control of"), as applied to any person,
means the possession by another person, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
that first mentioned person, whether through the ownership of voting
securities, by contract or otherwise.
"Automatic Redemption Date" means the date for the automatic redemption
by the Corporation of Exchangeable Shares pursuant to Article 7 of these
share provisions, which date shall be February 4, 2005, unless (a) such
date shall be extended at any time or from time to time to a specified
later date by the Board of Directors or (b) such date shall be
accelerated at any time to a specified earlier date by the Board of
Directors if at such time there are less than 500,000 Exchangeable Shares
outstanding (other than Exchangeable Shares held by SoftKey International
and its Affiliates and as such number of shares may be adjusted as deemed
appropriate by the Board of Directors to give effect to any subdivision
or consolidation of or stock dividend on the Exchangeable Shares, any
issue or distribution of rights to acquire Exchangeable Shares or
securities exchangeable for or convertible into Exchangeable Shares, any
issue or distribution of other securities or rights or evidences of
indebtedness or assets, or any other capital reorganization or other
transaction affecting the Exchangeable Shares), in each case upon at
least 60 days' prior written notice of any such extension or
acceleration, as the case may be, to the registered holders of the
Exchangeable Shares, in which case the Automatic Redemption Date shall be
such later or earlier date; provided, however, that the accidental
failure or omission to give any such notice of extension or acceleration,
as the case may be, to less than 10% of such holders of Exchangeable
Shares shall not affect the validity of such extension or acceleration.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a day
when banks are not open for business in either or both of New York, New
York and Toronto, Ontario.
"Canadian Dollar Equivalent" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the noon
spot exchange rate on such date for such foreign currency expressed in
Canadian dollars as reported by the Bank of Canada or, in the event such
spot exchange rate is not available, such exchange rate on such date for
such foreign currency expressed in Canadian dollars as may be deemed by
the Board of Directors to be appropriate for such purpose.
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"Class A Shares" mean the Class A voting common shares of the
Corporation.
"Class B Shares" means the Class B non-voting common shares of the
Corporation.
"Corporation" means SoftKey Software Products Inc., a corporation
amalgamated under the laws of the Province of Ontario.
"Current Market Price" means, in respect of a SoftKey International
Common Share on any date, the Canadian Dollar Equivalent of the average
of the closing bid and asked prices of SoftKey International Common
Shares during a period of 20 consecutive trading days ending not more
than five trading days before such date on the National Market System of
the National Association of Securities Dealers Automated Quotation
System, or, if the SoftKey International Common Shares are not then
quoted on the National Market System of the National Association of
Securities Dealers Automated Quotation System, on such other stock
exchange or automated quotation system on which the SoftKey International
Common Shares are listed or quoted, as the case may be, as may be
selected by the Board of Directors for such purpose; provided, however,
that if in the opinion of the Board of Directors the public distribution
or trading activity of SoftKey International Common Shares during such
period does not create a market which reflects the fair market value of a
SoftKey International Common Share, then the Current Market Price of a
SoftKey International Common Share shall be determined by the Board of
Directors based upon the advice of such qualified independent financial
advisors as the Board of Directors may deem to be appropriate, and
provided further that any such selection, opinion or determination by the
Board of Directors shall be conclusive and binding.
"Exchangeable Shares" mean the Exchangeable Non-Voting Shares of the
Corporation having the rights, privileges, restrictions and conditions
set forth herein.
"Liquidation Amount" has the meaning ascribed thereto in Section 5.1 of
these share provisions.
"Liquidation Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Liquidation Date" has the meaning ascribed thereto in Section 5.1 of
these share provisions.
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"Plan of Arrangement" means the plan of arrangement relating to the
arrangement of the Corporation under section 182 of the Business
Corporations Act (Ontario), to which plan these share provisions are
attached.
"Purchase Price" has the meaning ascribed thereto in Section 6.3 of these
share provisions.
"Redemption Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Redemption Price" has the meaning ascribed thereto in Section 7.1 of
these share provisions.
"Retracted Shares" has the meaning ascribed thereto in Section 6.1 of
these share provisions.
"Retraction Call Right" has the meaning ascribed thereto in Section 6.1
of these share provisions.
"Retraction Date" has the meaning ascribed thereto in Section 6.1(b) of
these share provisions.
"Retraction Price" has the meaning ascribed thereto in Section 6.1 of
these share provisions.
"Retraction Request" has the meaning ascribed thereto in Section 6.1 of
these share provisions.
"SoftKey International" means SoftKey International Inc. (formerly
"WordStar International Incorporated"), a corporation organized and
existing under the laws of the State of Delaware, and any successor
corporation.
"SoftKey International Call Notice" has the meaning ascribed thereto in
Section 6.3 of these share provisions.
"SoftKey International Common Shares" mean the shares of common stock of
SoftKey International, with a par value of U.S. $0.01 per share, having
voting rights of one vote per share, and any other securities into which
such shares may be changed.
"SoftKey International Dividend Declaration Date" means the date on which
the Board of Directors of SoftKey International declares any dividend on
the SoftKey International Common Shares.
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<PAGE> 21
"SoftKey International Special Share" means the one share of Special
Voting Stock of SoftKey International with a par value of U.S. $1.00 and
having voting rights at meetings of holders of SoftKey International
Common Shares equal to the number of Exchangeable Shares outstanding from
time to time (other than Exchangeable Shares held by SoftKey
International and its Affiliates) to be issued to, and voted by, the
Trustee pursuant to the Voting and Exchange Trust Agreement.
"Support Agreement" means the Support Agreement between SoftKey
International and the Corporation, made as of February 4, 1994.
"Transfer Agent" means The R-M Trust Company or such other person as may
from time to time be the registrar and transfer agent for the
Exchangeable Shares.
"Trustee" means The R-M Trust Company, a corporation organized and
existing under the laws of Canada and any successor trustee appointed
under the Voting and Exchange Trust Agreement.
"Voting and Exchange Trust Agreement" means the Voting and Exchange Trust
Agreement between the Corporation, SoftKey International and the Trustee,
made as of February 4, 1994.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall be entitled to a preference over the
Class A Shares, the Class B Shares and any other shares ranking junior to the
Exchangeable Shares with respect to the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each SoftKey
International Dividend Declaration Date, declare a dividend on each Exchangeable
Share (a) in the case of a cash dividend declared on the SoftKey International
Common Shares, in an amount in cash for each Exchangeable Share equal to the
Canadian Dollar Equivalent on the SoftKey International Dividend Declaration
Date of the cash dividend declared on each SoftKey International Common Share or
(b) in the case of a stock dividend declared on the SoftKey International Common
Shares to be paid in SoftKey International Common
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Shares, in such number of Exchangeable Shares for each Exchangeable Share as is
equal to the number of SoftKey International Common Shares to be paid on each
SoftKey International Common Share or (c) in the case of a dividend declared on
the SoftKey International Common Shares in property other than cash or SoftKey
International Common Shares, in such type and amount of property for each
Exchangeable Share as is the same as or economically equivalent to (to be
determined by the Board of Directors as contemplated by Section 2.7 of the
Support Agreement) the type and amount of property declared as a dividend on
each SoftKey International Common Share. Such dividends shall be paid out of
money, assets or property of the Corporation properly applicable to the payment
of dividends, or out of authorized but unissued shares of the Corporation.
3.2 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
Section 3.1(a) hereof and the sending of such a cheque to each holder of an
Exchangeable Share shall satisfy the cash dividend represented thereby unless
the cheque is not paid on presentation. Certificates registered in the name of
the registered holder of Exchangeable Shares shall be issued or transferred in
respect of any stock dividends contemplated by Section 3.1(b) hereof and the
sending of such a certificate to each holder of an Exchangeable Share shall
satisfy the stock dividend represented thereby. Such other type and amount of
property in respect of any dividends contemplated by Section 3.1(c) hereof shall
be issued, distributed or transferred by the Corporation in such manner as it
shall determine and the issuance, distribution or transfer thereof by the
Corporation to each holder of an Exchangeable Share shall satisfy the dividend
represented thereby. No holder of an Exchangeable Share shall be entitled to
recover by action or other legal process against the Corporation any dividend
that is represented by a cheque that has not been duly presented to the
Corporation's bankers for payment or that otherwise remains unclaimed for a
period of six years from the date on which such dividend was payable.
3.3 The record date for the determination of the holders of Exchangeable
Shares entitled to receive payment of, and the payment date for, any dividend
declared on the Exchangeable Shares under Section 3.1 hereof shall be the same
dates as the record date and payment date, respectively, for the corresponding
dividend declared on the SoftKey International Common Shares.
3.4 If on any payment date for any dividends declared on the Exchangeable
Shares under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends.
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ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Exchangeable Shares are outstanding, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Exchangeable Shares given as specified in Section
10.2 of these share provisions:
(a) pay any dividends on the Class A Shares, the Class B Shares or any
other shares ranking junior to the Exchangeable Shares, other than
stock dividends payable in Class A Shares, Class B Shares or any
such other shares ranking junior to the Exchangeable Shares, as the
case may be;
(b) redeem or purchase or make any capital distribution in respect of
Class A Shares, Class B Shares or any other shares ranking junior
to the Exchangeable Shares;
(c) redeem or purchase any other shares of the Corporation ranking
equally with the Exchangeable Shares with respect to the payment of
dividends or on any liquidation distribution; or
(d) issue any Exchangeable Shares or any other shares of the
Corporation ranking equally with, or superior to, the Exchangeable
Shares other than by way of stock dividends to the holders of such
Exchangeable Shares or upon the conversion of outstanding 9%
Convertible Debentures of the Corporation or as contemplated by the
Support Agreement.
The restrictions in Sections 4.1(a), 4.1(b) and 4.1(c) above shall not apply if
all dividends on the outstanding Exchangeable Shares corresponding to dividends
declared to date on the SoftKey International Common Shares shall have been
declared on the Exchangeable Shares and paid in full.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Exchangeable Share held by such holder on
the effective date (the "Liquidation Date") of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of the Corporation
among the holders of the Class A Shares, the Class B Shares or any other shares
ranking junior to the Exchangeable Shares, an amount per share equal to (a) the
Current Market Price of a SoftKey International Common Share on the last
Business Day prior to the Liquidation Date, which shall be satisfied in full by
the
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<PAGE> 24
Corporation causing to be delivered to such holder one SoftKey International
Common Share, plus (b) an additional amount equivalent to the full amount of all
declared and unpaid dividends on each such Exchangeable Share (collectively the
"Liquidation Amount").
5.2 On or promptly after the Liquidation Date, and subject to the exercise by
SoftKey International of the Liquidation Call Right, the Corporation shall cause
to be delivered to the holders of the Exchangeable Shares the Liquidation Amount
for each such Exchangeable Share upon presentation and surrender of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the Business Corporations Act (Ontario) and the
by-laws of the Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require, at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of the Exchangeable Shares. Payment of the
total Liquidation Amount for such Exchangeable Shares shall be made by delivery
to each holder, at the address of the holder recorded in the securities register
of the Corporation for the Exchangeable Shares or by holding for pick up by the
holder at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of Exchangeable Shares, on behalf of the Corporation of certificates
representing SoftKey International Common Shares (which shares shall be duly
issued as fully paid and non-assessable and shall be free and clear of any lien,
claim or encumbrance) and a cheque of the Corporation payable at par at any
branch of the bankers of the Corporation in respect of the amount equivalent to
the full amount of all declared and unpaid dividends comprising part of the
total Liquidation Amount (less any tax required to be deducted and withheld
therefrom by the Corporation). On and after the Liquidation Date, the holders of
the Exchangeable Shares shall cease to be holders of such Exchangeable Shares
and shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive their proportionate part of the total
Liquidation Amount, unless payment of the total Liquidation Amount for such
Exchangeable Shares shall not be made upon presentation and surrender of share
certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total Liquidation Amount
has been paid in the manner hereinbefore provided. The Corporation shall have
the right at any time after the Liquidation Date to deposit or cause to be
deposited the total Liquidation Amount in respect of the Exchangeable Shares
represented by certificates that have not at the Liquidation Date been
surrendered by the holders thereof in a custodial account with any chartered
bank or trust company in Canada. Upon such deposit being made, the rights of the
holders of Exchangeable Shares after such deposit shall be limited to receiving
their proportionate part of the total Liquidation Amount (less any tax required
to be deducted and withheld therefrom) for such Exchangeable Shares so
deposited, against presentation and surrender of the said certificates held by
them, respectively, in accordance with the foregoing provisions. Upon such
payment or deposit of the total Liquidation Amount, the holders of the
Exchangeable Shares shall
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<PAGE> 25
thereafter be considered and deemed for all purposes to be the holders of the
SoftKey International Common Shares delivered to them.
5.3 After the Corporation has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share pursuant
to Section 5.1 of these share provisions, such holders shall not be entitled to
share in any further distribution of the assets of the Corporation.
ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time, subject to
the exercise by SoftKey International of the Retraction Call Right and otherwise
upon compliance with the provisions of this Article 6, to require the
Corporation to redeem any or all of the Exchangeable Shares registered in the
name of such holder for an amount per share equal to (a) the Current Market
Price of a SoftKey International Common Share on the last Business Day prior to
the Retraction Date, which shall be satisfied in full by the Corporation causing
to be delivered to such holder one SoftKey International Common Share for each
Exchangeable Share presented and surrendered by the holder, plus (b) an
additional amount equivalent to the full amount of all dividends declared and
unpaid thereon (collectively the "Retraction Price," provided that if the record
date for any such declared and unpaid dividends occurs on or after the
Retraction Date the Retraction Price shall not include such additional amount
equivalent to the declared and unpaid dividends). To effect such redemption, the
holder shall present and surrender at the registered office of the Corporation
or at any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Exchangeable Shares the certificate or certificates
representing the Exchangeable Shares which the holder desires to have the
Corporation redeem, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the Business
Corporations Act (Ontario) and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, and together with a duly executed statement (the "Retraction Request")
in the form of Schedule A hereto or in such other form as may be acceptable to
the Corporation:
(a) specifying that the holder desires to have all or any number
specified therein of the Exchangeable Shares represented by such
certificate or certificates (the "Retracted Shares") redeemed by
the Corporation;
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Shares (the "Retraction Date"),
provided that the Retraction Date shall be not less than five
Business Days nor more than ten Business Days after the date on
which the Retraction Request is received by the Corporation and
further provided that, in the event that no
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<PAGE> 26
such Business Day is specified by the holder in the Retraction
Request, the Retraction Date shall be deemed to be the tenth
Business Day after the date on which the Retraction Request is
received by the Corporation; and
(c) acknowledging the overriding right (the "Retraction Call Right") of
SoftKey International to purchase all but not less than all the
Retracted Shares directly from the holder and that the Retraction
Request shall be deemed to be a revocable offer by the holder to
sell the Retracted Shares to SoftKey International in accordance
with the Retraction Call Right on the terms and conditions set out
in Section 6.3 below.
6.2 Subject to the exercise by SoftKey International of the Retraction Call
Right, upon receipt by the Corporation or the Transfer Agent in the manner
specified in Section 6.1 hereof of a certificate or certificates representing
the number of Exchangeable Shares which the holder desires to have the
Corporation redeem, together with a Retraction Request, and provided that the
Retraction Request is not revoked by the holder in the manner specified in
Section 6.7, the Corporation shall redeem the Retracted Shares effective at the
close of business on the Retraction Date and shall cause to be delivered to such
holder the total Retraction Price with respect to such shares. If only a part of
the Exchangeable Shares represented by any certificate are redeemed (or
purchased by SoftKey International pursuant to the Retraction Call Right), a new
certificate for the balance of such Exchangeable Shares shall be issued to the
holder at the expense of the Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify SoftKey International thereof. In order to exercise the
Retraction Call Right, SoftKey International must notify the Corporation in
writing of its determination to do so (the "SoftKey International Call Notice")
within two Business Days of notification to SoftKey International by the
Corporation of the receipt by the Corporation of the Retraction Request. If
SoftKey International does not so notify the Corporation within such two
Business Day period, the Corporation will notify the holder as soon as possible
thereafter that SoftKey International will not exercise the Retraction Call
Right. If SoftKey International delivers the SoftKey International Call Notice
within such two Business Day time period, and provided that the Retraction
Request is not revoked by the holder in the manner specified in Section 6.7, the
Retraction Request shall thereupon be considered only to be an offer by the
holder to sell the Retracted Shares to SoftKey International in accordance with
the Retraction Call Right. In such event, the Corporation shall not redeem the
Retracted Shares and SoftKey International shall purchase from such holder and
such holder shall sell to SoftKey International on the Retraction Date the
Retracted Shares for a purchase price (the "Purchase Price") per share equal to
the Retraction Price per share. For the purposes of completing a purchase
pursuant to the Retraction Call Right, SoftKey International shall deposit with
the Transfer Agent, on or before the Retraction Date, certificates representing
SoftKey International Common Shares and a cheque in the amount of the remaining
portion, if
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<PAGE> 27
any, of the total Purchase Price. Provided that the total Purchase Price has
been so deposited with the Transfer Agent, the closing of the purchase and sale
of the Retracted Shares pursuant to the Retraction Call Right shall be deemed to
have occurred as at the close of business on the Retraction Date and, for
greater certainty, no redemption by the Corporation of such Retracted Shares
shall take place on the Retraction Date. In the event that SoftKey International
does not deliver a SoftKey International Call Notice within such two Business
Day period, and provided that Retraction Request is not revoked by the holder in
the manner specified in Section 6.7, the Corporation shall redeem the Retracted
Shares on the Retraction Date and in the manner otherwise contemplated in this
Article 6.
6.4 The Corporation or SoftKey International, as the case may be, shall
deliver or cause the Transfer Agent to deliver to the relevant holder, at the
address of the holder recorded in the securities register of the Corporation for
the Exchangeable Shares or at the address specified in the holder's Retraction
Request or by holding for pick up by the holder at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of Exchangeable Shares, certificates
representing the SoftKey International Common Shares (which shares shall be duly
issued as fully paid and non-assessable and shall be free and clear of any lien,
claim or encumbrance) registered in the name of the holder or in such other name
as the holder may request in payment of the total Retraction Price or the total
Purchase Price, as the case may be, and a cheque of the Corporation payable at
par at any branch of the bankers of the Corporation in payment of the remaining
portion, if any, of the total Retraction Price (less any tax required to be
deducted and withheld therefrom by the Corporation) or a cheque of SoftKey
International payable at par and in Canadian dollars at any branch of the
bankers of SoftKey International or of the Corporation in Canada in payment of
the remaining portion, if any, of the total Purchase Price, as the case may be,
and such delivery of such certificates and cheque on behalf of the Corporation
or by SoftKey International, as the case may be, or by the Transfer Agent shall
be deemed to be payment of and shall satisfy and discharge all liability for the
total Retraction Price or total Purchase Price, as the case may be, to the
extent that the same is represented by such share certificates and cheque (plus
any tax required and in fact deducted and withheld therefrom and remitted to the
proper tax authority), unless such cheque is not paid on due presentation.
6.5 On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the total
Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made, in which case the rights of such holder
shall remain unaffected until the total Retraction Price or the total Purchase
Price, as the case may be, has been paid in the manner hereinbefore provided. On
and after the close of
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business on the Retraction Date, provided that presentation and surrender of
certificates and payment of the total Retraction Price or the total Purchase
Price, as the case may be, has been made in accordance with the foregoing
provisions, the holder of the Retracted Shares so redeemed by the Corporation or
purchased by SoftKey International shall thereafter be considered and deemed for
all purposes to be a holder of the SoftKey International Common Shares delivered
to it.
6.6 Notwithstanding any other provision of this Article 6, the Corporation
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to solvency requirements or other provisions of applicable law. If
the Corporation believes that on any Retraction Date it would not be permitted
by any of such provisions to redeem the Retracted Shares tendered for redemption
on such date, and provided that SoftKey International shall not have exercised
the Retraction Call Right with respect to the Retracted Shares, the Corporation
shall only be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent of the maximum number that may be so redeemed
(rounded down to a whole number of shares) as would not be contrary to such
provisions and shall notify the holder at least two Business Days prior to the
Retraction Date as to the number of Retracted Shares which will not be redeemed
by the Corporation. In any case in which the redemption by the Corporation of
Retracted Shares would be contrary to solvency requirements or other provisions
of applicable law, the Corporation shall redeem Retracted Shares in accordance
with Section 6.2 of these share provisions on a pro rata basis and shall issue
to each holder of Retracted Shares a new certificate, at the expense of the
Corporation, representing the Retracted Shares not redeemed by the Corporation
pursuant to Section 6.2 hereof. Provided that the Retraction Request is not
revoked by the holder in the manner specified in Section 6.7, the holder of any
such Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 of
these share provisions as a result of solvency requirements of applicable law
shall be deemed by giving the Retraction Request to require SoftKey
International to purchase such Retracted Shares from such holder on the
Retraction Date or as soon as practicable thereafter on payment by SoftKey
International to such holder of the Purchase Price for each such Retracted
Share, all as more specifically provided in the Voting and Exchange Trust
Agreement.
6.7 A holder of Retracted Shares may, by notice in writing given by the
holder to the Corporation before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request in
which event such Retraction Request shall be null and void and, for greater
certainty, the revocable offer constituted by the Retraction Request to sell the
Retracted Shares to SoftKey International shall be deemed to have been revoked.
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ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and subject to he exercise by SoftKey
International of the Redemption Call Right, the Corporation shall on the
Automatic Redemption Date redeem the whole of the then outstanding Exchangeable
Shares for an amount per share equal to (a) the Current Market Price of a
SoftKey International Common Share on the last Business Day prior to the
Automatic Redemption Date, which shall be satisfied in full by the Corporation
causing to be delivered to each holder of Exchangeable Shares one SoftKey
International Common Share for each Exchangeable Share held by such holder, plus
(b) an additional amount equivalent to the full amount of all declared and
unpaid dividends thereon (collectively the "Redemption Price").
7.2 In any case of a redemption of Exchangeable Shares under this Article 7,
the Corporation shall, at least 120 days before the Automatic Redemption Date,
send or cause to be sent to each holder of Exchangeable Shares a notice in
writing of the redemption by the Corporation or the purchase by SoftKey
International under the Redemption Call Right, as the case may be, of the
Exchangeable Shares held by such holder. Such notice shall set out the formula
for determining the Redemption Price or the Redemption Call Purchase Price, as
the case may be, the Automatic Redemption Date and, if applicable, particulars
of the Redemption Call Right. On or after the Automatic Redemption Date and
subject to the exercise by SoftKey International of the Redemption Call Right,
the Corporation shall cause to be delivered to the holders of the Exchangeable
Shares to be redeemed the Redemption Price for each such Exchangeable Share upon
presentation and surrender at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the Corporation in such
notice of the certificates representing such Exchangeable Shares, together with
such other documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the Business Corporations Act (Ontario) and the
by-laws of the Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require. Payment of the total Redemption Price for
such Exchangeable Shares shall be made by delivery to each holder, at the
address of the holder recorded in the securities register of the Corporation or
by holding for pick up by the holder at the registered office of the Corporation
or at any office of the Transfer Agent as may be specified by the Corporation in
such notice, on behalf of the Corporation of certificates representing SoftKey
International Common Shares (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim or encumbrance)
and a cheque of the Corporation payable at par at any branch of the bankers of
the Corporation in respect of the additional amount equivalent to the full
amount of all declared and unpaid dividends comprising part of the total
Redemption Price. On and after the Automatic Redemption Date, the holders of the
Exchangeable Shares called for redemption shall cease to be holders of such
Exchangeable Shares and shall not be entitled to exercise any of the rights of
holders in respect thereof, other than the right to receive their proportionate
part of the total Redemption Price, unless payment of the
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total Redemption Price for such Exchangeable Shares shall not be made upon
presentation and surrender of certificates in accordance with the foregoing
provisions, in which case the rights of the holders shall remain unaffected
until the total Redemption Price has been paid in the manner hereinbefore
provided. The Corporation shall have the right at any time after the sending of
notice of its intention to redeem the Exchangeable Shares as aforesaid to
deposit or cause to be deposited the total Redemption Price of the Exchangeable
Shares so called for redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such deposit been
surrendered by the holders thereof in connection with such redemption, in a
custodial account with any chartered bank or trust company in Canada named in
such notice. Upon the later of such deposit being made and the Automatic
Redemption Date, the Exchangeable Shares in respect whereof such deposit shall
have been made shall be redeemed and the rights of the holders thereof after
such deposit or Automatic Redemption Date, as the case may be, shall be limited
to receiving their proportionate part of the total Redemption Price for such
Exchangeable Shares so deposited, against presentation and surrender of the said
certificates held by them, respectively, in accordance with the foregoing
provisions. Upon such payment or deposit of the total Redemption Price, the
holders of the Exchangeable Shares shall thereafter be considered and deemed for
all purposes to be holders of the SoftKey International Common Shares delivered
to them.
ARTICLE 8
PURCHASE FOR CANCELLATION
8.1 Subject to applicable law and the articles of the Corporation, the
Corporation may at any time and from time to time purchase for cancellation all
or any part of the outstanding Exchangeable Shares at any price by tender to all
the holders of record of Exchangeable Shares then outstanding or through the
facilities of any stock exchange on which the Exchangeable Shares are listed or
quoted at any price per share together with an amount equal to all declared and
unpaid dividends thereon. If in response to an invitation for tenders under the
provisions of this Section 8.1, more Exchangeable Shares are tendered at a price
or prices acceptable to the Corporation than the Corporation is prepared to
purchase, the Exchangeable Shares to be purchased by the Corporation shall be
purchased as nearly as may be pro rata according to the number of shares
tendered by each holder who submits a tender to the Corporation, provided that
when shares are tendered at different prices, the pro rating shall be effected
(disregarding fractions) only with respect to the shares tendered at the price
at which more shares were tendered than the Corporation is prepared to purchase
after the Corporation has purchased all the shares tendered at lower prices. If
only part of the Exchangeable Shares represented by any certificate shall be
purchased, a new certificate for the balance of such shares shall be issued at
the expense of the Corporation.
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ARTICLE 9
VOTING RIGHTS
9.1 Except as required by applicable law, the holders of the Exchangeable
Shares shall not be entitled as such to receive notice of or to attend any
meeting of the shareholders of the Corporation or to vote at any such meeting.
ARTICLE 10
AMENDMENT AND APPROVAL
10.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Exchangeable Shares given as hereinafter
specified.
10.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 50% of the outstanding Exchangeable Shares at that time are present or
represented by proxy; provided that if at any such meeting the holders of at
least 50% of the outstanding Exchangeable Shares at that time are not present or
represented by proxy within one-half hour after the time appointed for such
meeting then the meeting shall be adjourned to such date not less than 10 days
thereafter and to such time and place as may be designated by the Chairman of
such meeting. At such adjourned meeting the holders of the Exchangeable Shares
present or represented by proxy thereat may transact the business for which the
meeting was originally called and a resolution passed thereat by the affirmative
vote of not less than two-thirds of the votes cast on such resolution at such
meeting shall constitute the approval or consent of the holders of the
Exchangeable Shares.
ARTICLE 11
RECIPROCAL CHANGES, ETC., IN RESPECT OF SOFTKEY INTERNATIONAL
COMMON SHARES
11.1 (a) Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that SoftKey International will not
without the prior approval of the Corporation and the prior
approval of the holders of the Exchangeable Shares given in
accordance with Section 10.2 of these share provisions:
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<PAGE> 32
(i) issue or distribute SoftKey International Common Shares (or
securities exchangeable for or convertible into or carrying
rights to acquire SoftKey International Common Shares) to
the holders of all or substantially all of the then
outstanding SoftKey International Common Shares by way of
stock dividend or other distribution, other than an issue of
SoftKey International Common Shares (or securities
exchangeable for or convertible into or carrying rights to
acquire SoftKey International Common Shares) to holders of
SoftKey International Common Shares who exercise an option
to receive dividends in SoftKey International Common Shares
(or securities exchangeable for or convertible into or
carrying rights to acquire SoftKey International Common
Shares) in lieu of receiving cash dividends; or
(ii) issue or distribute rights, options or warrants to the
holders of all or substantially all of the then outstanding
SoftKey International Common Shares entitling them to
subscribe for or to purchase SoftKey International Common
Shares (or securities exchangeable for or convertible into
or carrying rights to acquire SoftKey International Common
Shares); or
(iii) issue or distribute to the holders of all or substantially
all of the then outstanding SoftKey International Common
Shares (A) shares or securities of SoftKey International of
any class other than SoftKey International Common Shares
(other than shares convertible into or exchangeable for or
carrying rights to acquire SoftKey International Common
Shares), (B) rights, options or warrants other than those
referred to in Section 11.1(a)(ii) above, (C) evidences of
indebtedness of SoftKey International or (D) assets of
SoftKey International;
unless the economic equivalent on a per share basis of such rights,
options, securities, shares, evidences of indebtedness or other
assets is issued or distributed simultaneously to holders of the
Exchangeable Shares.
(b) Each holder of an Exchangeable Share acknowledges that the Support
Agreement further provides, in part, that SoftKey International
will not without the prior approval of the Corporation and the
prior approval of the holders of the Exchangeable Shares given in
accordance with Section 10.2 of these share provisions:
(i) subdivide, redivide or change the then outstanding SoftKey
International Common Shares into a greater number of SoftKey
International Common Shares; or
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<PAGE> 33
(ii) reduce, combine or consolidate or change the then
outstanding SoftKey International Common Shares into a
lesser number of SoftKey International Common Shares; or
(iii) reclassify or otherwise change the SoftKey International
Common Shares or effect an amalgamation, merger,
reorganization or other transaction affecting the SoftKey
International Common Shares;
unless the same or an economically equivalent change shall
simultaneously be made to, or in the rights of the holders of, the
Exchangeable Shares.
The Support Agreement further provides, in part, that the aforesaid provisions
of the Support Agreement shall not be changed without the approval of the
holders of the Exchangeable Shares given in accordance with Section 10.2 of
these share provisions.
ARTICLE 12
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
12.1 The Corporation will take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by SoftKey International with all provisions of the
Support Agreement applicable to the Corporation and SoftKey International,
respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall be
necessary or advisable to enforce to the fullest extent possible for the direct
benefit of the Corporation all rights and benefits in favour of the Corporation
under or pursuant to such agreement.
12.2 The Corporation shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or obligations under,
the Support Agreement without the approval of the holders of the Exchangeable
Shares given in accordance with Section 10.2 of these share provisions other
than such amendments, waivers and/or forgiveness as may be necessary or
advisable for the purpose of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Exchangeable Shares thereunder; or
(b) making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters
or questions arising thereunder which, in the opinion of the Board
of Directors, it may be expedient to make, provided that the Board
of Directors shall be of the opinion, after consultation with
counsel, that such provisions and modifications will not be
prejudicial to the interests of the holders of the Exchangeable
Shares; or
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<PAGE> 34
(c) making such changes in or corrections to such agreement which, on
the advice of counsel to the Corporation, are required for the
purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or manifest
error contained therein, provided that the Board of Directors shall
be of the opinion, after consultation with counsel, that such
changes or corrections will not be prejudicial to the interests of
the holders of the Exchangeable Shares.
ARTICLE 13
LEGEND
13.1 The certificates evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the provisions of the Plan of
Arrangement relating to the Liquidation Call Right and the Redemption Call
Right, and the Voting and Exchange Trust Agreement (including the provisions
with respect to the voting rights, exchange right and automatic exchange
thereunder).
ARTICLE 14
NOTICES
14.1 Any notice, request or other communication to be given to the Corporation
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or by delivery to
the registered office of the Corporation and addressed to the attention of the
President. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Corporation.
14.2 Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding up of the
Corporation or the retraction or redemption of Exchangeable Shares shall be made
by registered mail (postage prepaid) or by delivery to the registered office of
the Corporation or to such office of the Transfer Agent as may be specified by
the Corporation, in each case addressed to the attention of the President of the
Corporation. Any such presentation and surrender of certificates shall only be
deemed to have been made and to be effective upon actual receipt thereof by the
Corporation or the Transfer Agent, as the case may be. Any such presentation and
surrender of certificates made by registered mail shall be at the sole risk of
the holder mailing the same.
14.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the
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<PAGE> 35
address of any such holder not being so recorded, then at the last known address
of such holder. Any such notice, request or other communication, if given by
mail, shall be deemed to have been given and received on the third Business Day
following the date of mailing and, if given by delivery, shall be deemed to have
been given and received on the date of delivery. Accidental failure or omission
to give any notice, request or other communication to one or more holders of
Exchangeable Shares shall not invalidate or otherwise alter or affect any action
or proceeding to be taken by the Corporation pursuant thereto.
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<PAGE> 36
SCHEDULE A
NOTICE OF RETRACTION
To the Corporation and SoftKey International Inc.
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the share(s) represented by this certificate and all
capitalized words and expressions used in this notice which are defined in the
Share Provisions have the meanings ascribed to such words and expressions in
such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned desires to have the
Corporation redeem in accordance with Article 6 of the Share Provisions:
[ ] all share(s) represented by this certificate; or
[ ] ______________ share(s) only.
The undersigned hereby notifies the Corporation that the Retraction Date
shall be _______________________.
NOTE: The Retraction Date must be a Business Day and must not be less than five
Business Days nor more than 10 Business Days after the date upon which
this notice is received by the Corporation. In the event that no such
Business Day is specified above, the Retraction Date shall be deemed to be
the tenth Business Day after the date on which this notice is received by
the Corporation.
The undersigned acknowledges the Retraction Call Right of SoftKey
International to purchase all but not less than all the Retracted Shares from
the undersigned and that this notice shall be deemed to be a revocable offer by
the undersigned to sell the Retracted Shares to SoftKey International in
accordance with the Retraction Call Right on the Retraction Date for the
Retraction Price and on the other terms and conditions set out in Section 6.3 of
the Share Provisions. If SoftKey International determines not to exercise the
Retraction Call Right, the Corporation will notify the undersigned of such fact
as soon as possible. This notice of retraction, and offer to sell the Retracted
Shares to SoftKey International, may be revoked and withdrawn by the undersigned
by notice in writing given to the Corporation at any time before the close of
business on the Business Day immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law, the Corporation is unable to redeem all Retracted Shares, the
undersigned will be deemed to have exercised the Exchange Right (as defined in
the Voting and Exchange Trust Agreement) so as to require SoftKey International
to purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation and
SoftKey International that the undersigned has good title to, and owns, the
share(s) represented by this certificate to be acquired by the Corporation or
SoftKey International, as the case may be, free and clear of all liens, claims
and encumbrances.
_______________________ __________________________ ________________________
(Date) (Signature of Shareholder) (Guarantee of Signature)
[ ] Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for pick-up
by the shareholder at the principal transfer office of The R-M Trust
Company (the "Transfer Agent') in Toronto, failing which the securities and
any cheque(s) will be mailed to the last address of the shareholder as it
appears on the register.
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Transfer Agent may require, must be deposited
with the Transfer Agent at its principal transfer office in Toronto. The
securities and any cheque(s) resulting from the retraction or purchase of
the Retracted Shares will be issued and registered in, and made payable
to, respectively, the name of the shareholder as it appears on the
register of the Corporation and the securities and cheque(s) resulting
from such restriction or purchase will be delivered to such shareholder as
indicated above, unless the form appearing immediately below is duly
completed.
<TABLE>
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Name of Person in Whose Name Securities or Cheque(s) are to be Registered, Issued or Delivered | Date
(please print) |
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Street Address or P.O. Box | Signature of Shareholder
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City - Province | Signature Guaranteed by
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NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the remaining
shares of the Corporation will be issued and registered in the name of the
shareholder as it appears on the register of the Corporation, unless the
Share Transfer Power on the share certificate is duly completed in respect
of such shares.
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Exhibit 8.1
HALE AND DORR LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 * fax 617-526-5000
December 2, 1997
The Learning Company, Inc.
One Athenaeum Street
Cambridge, MA 02142
Re: New Exchangeable Shares
-----------------------
Ladies and Gentlemen:
We have acted as counsel to The Learning Company, Inc. (the "Company") in
connection with the Registration Statement on Form S-3, as amended (the
"Registration Statement"), relating to the shares of Common Stock issuable to
the holders of New Exchangeable Shares pursuant to the terms of the New
Exchangeable Shares. Unless otherwise indicated, capitalized terms used herein
shall have the meaning ascribed to them in the prospectus included in the
Registration Statement (the "Prospectus"). We hereby confirm that, assuming that
shares of Common Stock are issued to holders of New Exchangeable Shares pursuant
to the terms of the New Exchangeable Shares as described in the Prospectus, the
discussion under the caption "INCOME TAX CONSEQUENCES - United States Federal
Tax Consequences" in the Prospectus expresses our opinion regarding the material
United States Federal tax consequences to holders of New Exchangeable Shares
that receive Common Stock in exchange for such New Exchangeable Shares pursuant
to their terms, and the ownership and disposition of Common Stock acquired in
the exchange.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "INCOME TAX
CONSEQUENCES - United States Federal Tax Consequences" in the Prospectus. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
<TABLE>
<CAPTION>
<S> <C> <C>
WASHINGTON, DC Boston, MA London, UK*
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HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
</TABLE>
<PAGE> 1
Exhibit 8.2
December 2, 1997
The Learning Company, Inc.
1 Athenaeum Street
Cambridge, Massachusetts
U.S.A. 02142
Ladies and Gentlemen:
REGISTRATION STATEMENT ON FORM S-3
We have acted as counsel to SoftKey Software Products Inc. in connection
with the Registration Statement (the "Registration Statement") on Form S-3 filed
with the Securities and Exchange Commission (the "Commission") on November 19,
1997, as amended, for the purpose of registering 4,438,480 shares of common
stock, par value U.S.$0.01 per share, of The Learning Company, Inc.
We have aided in the preparation of the Registration Statement, including,
in particular the discussion under the heading "INCOME TAX CONSIDERATIONS --
Canadian Federal Income Tax Considerations" (the "Tax Summary").
We hereby confirm that, as of the date hereof, the Tax Summary is a fair
and accurate summary, in all material respects, of the matters addressed
therein, based upon the assumptions stated or referred to therein. It is
possible that contrary positions may be taken by Revenue Canada, Customs, Excise
& Taxation and that a court may agree with such contrary positions.
This opinion is furnished to you solely for your benefit in connection with
the filing of the Registration Statement and, except as set forth below, is not
to be used, circulated, quoted or otherwise referred to for any other purpose or
relied upon by any other person for any purpose without our prior written
consent. We also consent to the use of our name in the Tax Summary and to the
filing of this opinion with the Commission as an exhibit to the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
SECURITIES ACT OF 1933, as amended, or the rules and regulations of the
Commission promulgated thereunder.
Yours very truly,
/s/ Davies, Ward & Beck
Davies, Ward & Beck
