<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
THE LEARNING COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
April 2, 1998
Dear Stockholder:
I am delighted to invite you to attend the Annual Meeting of Stockholders of
The Learning Company, Inc. to be held on Thursday, May 21, 1998, at 9:00 a.m. at
The Royal Sonesta Hotel, located at 5 Cambridge Parkway, Cambridge,
Massachusetts.
In addition to the election of directors and approval of the selection of
accountants, the principal items of business to be considered and acted upon
will be an amendment to the Company's Long Term Equity Incentive Plan and an
amendment to the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of the Company's common stock from 120,000,000 to
200,000,000. Detailed information concerning these matters is contained in the
accompanying Notice of Annual Meeting and Proxy Statement.
Whether or not you plan to attend the Annual Meeting, it is important that
your shares be represented. I urge you to register your vote now by completing
and returning the enclosed proxy card promptly. Should you attend the Annual
Meeting, you may, of course, vote your shares even though you have sent in your
proxy.
I look forward to seeing you on May 21, 1998.
Sincerely,
[SIG]
Michael J. Perik
Chairman of the Board and
Chief Executive Officer
<PAGE>
THE LEARNING COMPANY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of The
Learning Company, Inc., a Delaware corporation (the "Company"), will be held at
The Royal Sonesta Hotel, located at 5 Cambridge Parkway, Cambridge,
Massachusetts at 9:00 a.m. on Thursday, May 21, 1998 for the following purposes:
1. To elect twelve directors of the Company;
2. To ratify the appointment of Coopers & Lybrand L.L.P. as the independent
public accountants for the Company for the fiscal year ending January 2,
1999;
3. To approve an amendment to the Company's Long Term Equity Incentive
Plan;
4. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company's Common Stock from 120,000,000 to 200,000,000; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Holders of record of the Company's Common Stock and Series A Convertible
Participating Preferred Stock at the close of business on March 26, 1998 (the
"Record Date") will be entitled to notice of and to vote at the Annual Meeting.
In addition, holders of record of Exchangeable Shares of the Company's Canadian
subsidiary, SoftKey Software Products Inc., at the close of business on the
Record Date will be entitled to notice of the Annual Meeting and to direct the
vote of CIBC Mellon Trust Company, the holder as trustee for such persons, of
the one outstanding share of the Company's Special Voting Stock. A list of
persons entitled to vote at the Annual Meeting will be available for examination
by any stockholder of the Company for any purpose germane to the Annual Meeting
during normal business hours for ten days prior to the Annual Meeting at the
offices of the Company at One Athenaeum Street, Cambridge, Massachusetts.
A copy of the Company's Annual Report to Stockholders for the year ended
January 3, 1998 accompanies this Notice of Annual Meeting and the enclosed Proxy
Statement.
BY ORDER OF THE BOARD OF DIRECTORS
[SIG]
NEAL S. WINNEG
Secretary
April 2, 1998
Cambridge, Massachusetts
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED
STATES.
<PAGE>
THE LEARNING COMPANY, INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSSETTS 02142
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Learning Company, Inc., a Delaware
corporation (the "Company"), for use at the 1998 Annual Meeting of Stockholders
(the "Annual Meeting") to be held on Thursday, May 21, 1998, at 9:00 a.m. (local
time) at The Royal Sonesta Hotel, located at 5 Cambridge Parkway, Cambridge,
Massachusetts.
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Annual Meeting. Any proxy
may be revoked by a stockholder at any time before its exercise by delivery of a
written revocation to the Secretary of the Company. Attendance at the Annual
Meeting will not itself be deemed to revoke a proxy unless the stockholder gives
affirmative notice at the Annual Meeting that the stockholder intends to revoke
the proxy and vote in person.
The representation in person or by proxy of at least a majority of the
outstanding shares of common stock of the Company, $.01 par value per share (the
"Common Stock"), entitled to vote at the Annual Meeting is necessary to
establish a quorum for the transaction of business. The affirmative vote of the
holders of a plurality of the votes represented by the shares of Common Stock,
the Special Voting Share (defined below) and the shares of Common Stock into
which the shares of the Company's Series A Convertible Participating Preferred
Stock, $.01 par value per share (the "Series A Preferred Stock"), outstanding as
of the Record Date are convertible (the "Series A Conversion Shares"), voting
together as one class, present in person or represented by proxy at the Annual
Meeting, is required for the election of directors. For all other matters to be
considered and acted upon at the Annual Meeting, the affirmative vote of a
majority of the votes represented by the shares of Common Stock, the Special
Voting Share and the Series A Conversion Shares, voting together as one class,
present in person or represented by proxy at the Annual Meeting is required,
except that the proposal to amend the Company's Restated Certificate of
Incorporation requires the affirmative vote of a majority of the votes
represented by the shares of Common Stock, the Special Voting Share and the
Series A Conversion Shares outstanding as of the Record Date, voting together as
one class. (See "Voting Securities" below.)
Shares that abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees, who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a matter
that requires the affirmative vote of a certain percentage of the votes cast or
shares voting on a matter, such as each of the items being considered by the
stockholders at the Annual Meeting other than the proposal to amend the
Company's Restated Certificate of Incorporation. With respect to the proposal to
amend the Company's Restated Certificate of Incorporation, abstentions and
"broker non-votes" will have the effect of votes against such proposal.
The Company will pay the cost of soliciting proxies for the Annual Meeting.
Proxies may be solicited by officers or employees of the Company in person or by
mail, courier, telephone or facsimile.
IT IS ANTICIPATED THAT THE NOTICE OF ANNUAL MEETING, THIS PROXY STATEMENT,
THE ENCLOSED PROXY AND THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR
ENDED JANUARY 3, 1998 WILL BE FIRST MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 2,
1998. THE COMPANY WILL, UPON WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT
CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 3,
1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), WITHOUT
EXHIBITS. PLEASE ADDRESS ALL SUCH REQUESTS TO THE LEARNING COMPANY, INC., ONE
ATHENAEUM STREET, CAMBRIDGE, MASSACHUSETTS 02142, ATTENTION: INVESTOR RELATIONS.
TELEPHONE REQUESTS MAY BE DIRECTED TO INVESTOR RELATIONS AT (617) 494-5816.
EXHIBITS WILL BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE
PROCESSING FEE.
<PAGE>
VOTING SECURITIES
Stockholders of record at the close of business on March 26, 1998 (the
"Record Date") are entitled to vote at the Annual Meeting. On the Record Date,
the Company had outstanding 51,314,898 shares of Common Stock. In addition, on
the Record Date, there were outstanding one share of special voting stock of the
Company, $1.00 par value per share (the "Special Voting Share"), and 750,000
shares of Series A Preferred Stock, which were convertible as of the Record Date
into 15,000,000 Series A Conversion Shares.
At the Annual Meeting, CIBC Mellon Trust Company, as the holder of record of
the Special Voting Share, will be entitled to cast 4,961,749 votes. These votes
represent the number of Exchangeable Shares (the "Exchangeable Shares") of
SoftKey Software Products Inc. ("SoftKey Software") that were outstanding on the
Record Date (other than Exchangeable Shares held by the Company, its
subsidiaries or any entity controlled by or under common control of the Company,
if any). The Exchangeable Shares are exchangeable on a one-for-one basis for
Common Stock.
The Special Voting Share was issued to CIBC Mellon Trust Company, as Trustee
(the "Trustee"), under a Voting and Exchange Trust Agreement pursuant to which
each holder of an Exchangeable Share (other than the Company, its subsidiaries,
or any entity controlled by the Company) is entitled to instruct the Trustee to
exercise one of the votes attached to the Special Voting Share for each
Exchangeable Share held by such holder. Enclosed with this Proxy Statement are
materials informing holders of Exchangeable Shares of their rights with respect
to voting at the Annual Meeting and instructing such holders as to how to
exercise such rights.
The Common Stock, the Special Voting Share and the Series A Preferred Stock
vote as a single class and, except as set forth above, are identical in all
respects with respect to matters subject to the vote of stockholders of the
Company.
2
<PAGE>
SECURITY OWNERSHIP OF THE COMPANY
The following table sets forth information with respect to the beneficial
ownership of the shares of Common Stock as of March 2, 1998 held by (i) the
Company's Chief Executive Officer and the other executive officers listed in the
Summary Compensation Table below (collectively, the "Named Executive Officers"),
(ii) each current director of the Company, (iii) all current directors and
executive officers as a group and (iv) each person known to the Company to own
beneficially more than 5% of the shares outstanding.
<TABLE>
<CAPTION>
NUMBER OF
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
NAME OWNED (1) OWNED
- -------------------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Lamar Alexander(2).................................................................... 87,500 *
Michael A. Bell(2).................................................................... 151,663 *
Anthony J. DiNovi(3).................................................................. 9,146,340 15.7%
James C. Dowdle(4).................................................................... 5,234,796 10.7%
Robert Gagnon(5)...................................................................... 269,789 *
R. Scott Murray(6).................................................................... 182,522 *
Mark E. Nunnelly(7)................................................................... 3,414,640 6.5%
Kevin O'Leary(8)...................................................................... 1,212,657 2.4%
Charles L. Palmer(9).................................................................. 1,725,231 3.5%
David E. Patrick(2)................................................................... 204,336 *
Michael J. Perik(10).................................................................. 1,403,581 2.8%
Kathryn M. Quinby-Johnson(2).......................................................... 96,829 *
Carolynn Reid-Wallace(2).............................................................. 18,750 *
Robert A. Rubinoff(11)................................................................ 206,663 *
Scott M. Sperling(3)(12).............................................................. 9,307,378 15.9%
Paul J. Zepf(13)...................................................................... 2,440,020 4.7%
All current directors and executive officers as a group
(19 persons)(14).................................................................... 26,205,295 38.8%
Affiliates of Bain Capital, Inc.(7)................................................... 3,414,640 6.5%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Mellon Bank Corporation(15)........................................................... 2,721,501 5.6%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Affiliates of Thomas H. Lee........................................................... 9,146,340 15.7%
Company(3)
c/o Thomas H. Lee Company
75 State Street
Boston, Massachusetts 02109
Tribune Company(16)................................................................... 5,210,796 10.6%
435 North Michigan Avenue
Chicago, Illinois 60611
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding shares of Common Stock.
3
<PAGE>
(1) Unless otherwise indicated, each person or entity named in the table has
sole voting and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity, based upon information provided to the Company by
directors (and nominees), officers and principal stockholders.
(2) Consists of shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after March 2, 1998.
(3) Certain affiliates of Thomas H. Lee Company, including Thomas H. Lee Equity
Fund III, L.P., Thomas H. Lee Foreign Fund III, L.P., THL-CCI Limited
Partnership, Anthony J. DiNovi and Scott M. Sperling, own 457,317 shares of
Series A Preferred Stock, which were convertible as of March 2, 1998 into
9,146,340 shares of Common Stock. Each of Messrs. DiNovi and Sperling,
directors of the Company, is the direct owner of 1,628 shares of Series A
Preferred Stock, which were convertible as of March 2, 1998 into 32,560
shares of Common Stock. Messrs. DiNovi and Sperling are also Managing
Directors of Thomas H. Lee Company and therefore may be deemed to have
shared voting and investment power with respect to the shares of Series A
Preferred Stock owned by the affiliates of Thomas H. Lee Company. Each of
Messrs. DiNovi and Sperling disclaims beneficial ownership of all shares of
Series A Preferred Stock other than those shares he owns directly. Based
upon information contained in a Schedule 13D dated December 12, 1997 filed
with the SEC.
(4) Consists of 3,000 shares of Common Stock owned directly by Mr. Dowdle,
20,000 shares of Common Stock issuable to Mr. Dowdle pursuant to stock
options exercisable within 60 days after March 2, 1998, 1,000 shares of
Common Stock owned by the James C. and Sally Dowdle Trust UAD November 11,
1995 and 5,210,796 shares of Common Stock owned by Tribune Company. Mr.
Dowdle, a director of the Company, is the Executive Vice President and a
director of Tribune Company and therefore may be deemed to have shared
voting and investment power with respect to the 5,210,796 shares of Common
Stock owned by Tribune Company. Mr. Dowdle disclaims beneficial ownership of
the 5,210,796 shares owned by Tribune Company.
(5) Consists of 29,304 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after March 2, 1998 and 240,485 shares of Common
Stock issuable upon exchange of Exchangeable Shares owned by a corporation
wholly-owned by Mr. Gagnon.
(6) Consists of 181,662 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after March 2, 1998 and 860 shares of
Common Stock issuable upon exchange of Exchangeable Shares owned by Mr.
Murray.
(7) Certain affiliates of Bain Capital, Inc., including Bain Capital Fund V,
L.P., Bain Capital Fund V-B, L.P., BCIP Associates, L.P., BCIP Trust
Associates, L.P. and Brookside Capital Partners Fund, L.P., own 170,732
shares of Series A Preferred Stock, which were convertible as of March 2,
1998 into 3,414,640 shares of Common Stock. Mr. Nunnelly, a director of the
Company, is a Managing Director of Bain Capital, Inc. and therefore may be
deemed to have shared voting and investment power with respect to the shares
of Series A Preferred Stock owned by the affiliates of Bain Capital, Inc.
Mr. Nunnelly disclaims beneficial ownership of all shares of Series A
Preferred Stock. Based upon information contained in a Schedule 13D dated
December 12, 1997 filed with the SEC.
(8) Consists of 350,000 shares of Common Stock owned directly by Mr. O'Leary,
650,449 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after March 2, 1998 and 212,158 shares of Common
Stock issuable upon exchange of Exchangeable Shares owned by a corporation
wholly-owned by Mr. O'Leary. The 350,000 shares of Common Stock owned
directly by Mr. O'Leary constitute Restricted Stock, as defined below in
"Proposal 3. Approval of an Amendment to the Company's Long Term Equity
Incentive Plan."
(9) Consists of 17,412 shares of Common Stock owned directly by Mr. Palmer,
37,500 shares of Common Stock issuable pursuant to stock options exercisable
within 60 days after March 2, 1998 and 1,670,319 shares of Common Stock
owned by North American Fund II, L.P. Mr. Palmer is President and Principal
of North American Business Development Company, L.L.C., which is the general
partner of North American Fund II, L.P. Mr. Palmer is also the managing
general partner of North American Company Ltd., which is a member of North
American Business Development Company, L.L.C., and
4
<PAGE>
which is a limited partner of North American Fund II, L.P. As a result of
the foregoing, Mr. Palmer may be deemed to have shared voting and investment
power with respect to the 1,670,319 shares of Common Stock owned by North
American Fund II, L.P.
(10) Consists of 407,960 shares of Common Stock owned directly by Mr. Perik,
992,500 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after March 2, 1998 and 3,121 shares of Common
Stock issuable upon exchange of Exchangeable Shares owned by Mr. Perik.
350,000 of the shares of Common Stock owned directly by Mr. Perik constitute
Restricted Stock, as defined below in "Proposal 3. Approval of an Amendment
to the Company's Long Term Equity Incentive Plan."
(11) Consists of 151,663 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after March 2, 1998 and 55,000 shares of
Common Stock issuable upon exchange of Exchangeable Shares owned by a
corporation over which Mr. Rubinoff exercises investment and voting power.
(12) Consists of 161,038 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after March 2, 1998 and shares of Common
Stock issuable pursuant to the conversion of Series A Preferred Stock held
directly and beneficially by Mr. Sperling. See note (3) above.
(13) Consists of 1,000 shares of Common Stock owned directly by Mr. Zepf and
2,439,020 shares of Common Stock issuable upon the conversion of Series A
Preferred Stock owned by certain affiliates of Centre Partners Management
LLC. Certain affiliates of Centre Partners Management LLC, including Centre
Capital Investors II, L.P., Centre Capital Tax-Exempt Investors II, L.P.,
Centre Capital Offshore Investors II, L.P., State Board of Administration of
Florida, Centre Parallel Management Partners, L.P. and Centre Partners
Coinvestment, L.P., own 121,951 shares of Series A Preferred Stock, which
were convertible as of March 2, 1998 into 2,439,020 shares of Common Stock.
Mr. Zepf, a director of the Company, is a Managing Director of Centre
Partners Management LLC and therefore may be deemed to have shared voting
and investment power with respect to the shares of Series A Preferred Stock
owned by the affiliates of Centre Partners Management LLC. Mr. Zepf
disclaims beneficial ownership of all shares of Series A Preferred Stock.
Based upon information contained in a Schedule 13D dated December 12, 1997
filed with the SEC.
(14) Includes (i) 3,028,184 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after March 2, 1998, (ii) 511,624 shares
of Common Stock issuable upon exchange of Exchangeable Shares and (iii)
15,000,000 shares of Common Stock issuable upon conversion of 750,000 shares
of Series A Preferred Stock.
(15) Based upon information contained in a Schedule 13G dated January 20, 1998
filed with the SEC.
(16) Based upon information contained in Amendment No. 2 to a Schedule 13D dated
April 16, 1996 filed with the SEC.
5
<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS
Twelve directors will be elected at the Annual Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
twelve nominees of the Board of Directors named below. All of the nominees are
presently directors of the Company. It is not expected that any nominee will be
unable or will decline to serve as a director, but if any nominee should be
unable to serve, the shares represented by the proxies may be voted for a
substitute nominee designated by the Board of Directors.
NOMINEES
Set forth below are the names of the twelve nominees, their ages, the year
in which each first became a director of the Company, their principal
occupations and employment during the past five years and the names of other
public companies of which they are a director as of March 2, 1998.
The Board of Directors recommends a vote FOR the nominees listed below:
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Lamar Alexander...................................... 57 Mr. Alexander became a director of the Company in
October 1996. He was a co-founder and has been Vice
Chairman of Corporate Family Solutions, a manager of
worksite childcare centers, schools and family
centers, since May 1996. From January 1993 until
March 1995, he was counsel to the law firm of Baker
Donelson. Mr. Alexander served as U.S. Secretary of
Education from 1991 until 1993, was President of the
University of Tennessee from 1988 until 1991 and
served as Governor of Tennessee from 1979 until 1987.
He chaired President Reagan's Commission on American
Outdoors from 1985 until 1987 and was awarded the
James Conant Award by the Education Commission of the
States in 1988. In 1986 he chaired the National
Governors' Association and its 50-state education
survey, Time for Results. During 1996, Mr. Alexander
was a candidate for the President of the United
States. He is a member of the Audit, Compensation and
Executive Committees and the Special Subcommittee of
the Compensation Committee.
Michael A. Bell...................................... 42 Mr. Bell became a director of the Company in February
1994. He has been a director of Monitor Company,
Inc., a management consulting firm, since 1983. He is
a member of the Audit and Compensation Committees and
the Special Subcommittee of the Compensation
Committee.
Anthony J. DiNovi.................................... 35 Mr. DiNovi became a director of the Company in
December 1997. He has been employed by Thomas H. Lee
Company, a private investment
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
company, since 1988 and currently serves as a
Managing Director. Mr. DiNovi is also an officer,
trustee or member of a number of investment
partnerships affiliated with Thomas H. Lee Company.
Mr. DiNovi serves as a director of First Alert, Inc.,
Safelite Glass Corporation, Fisher Scientific
International, Inc. and several private corporations.
He is a member of the Compensation Committee.
James C. Dowdle...................................... 64 Mr. Dowdle became a director of the Company in
December 1995. He is Executive Vice President of
Tribune Company, a media entertainment company, and
has been a director of Tribune Company since 1985. He
is a member of the Executive Committee.
Robert Gagnon........................................ 60 Mr. Gagnon became a director of the Company in
February 1994 and has been a director and Executive
Vice President of SoftKey Software since February
1994. Prior thereto, he had been a director of a
predecessor corporation to SoftKey Software, which
was also called SoftKey Software Products Inc.
("Former SoftKey"), from 1991 to 1994 and Vice
President, Finance, of Informatrix 2000, Inc., a
Canadian predecessor of Former SoftKey, from 1987 to
1994.
Mark E. Nunnelly..................................... 38 Mr. Nunnelly became a director of the Company in
December 1997. He has been a Managing Director of
Bain Capital, Inc., an investment company, since May
1993, and a general partner of Bain Venture Capital,
an investment company, since 1990. Prior to joining
Bain Venture Capital, Mr. Nunnelly was a partner at
Bain & Company where he managed several relationships
in the manufacturing sector, and he was also employed
by Procter & Gamble Company Inc. in product
management. He is a director of several companies,
including Dade International Inc., Stream
International, Inc., SR Research and Doubleclick Inc.
He is a member of the Audit (Chairman) and Executive
Committees.
Kevin O'Leary........................................ 43 Mr. O'Leary became President and a director of the
Company in February 1994. He is a founder of SoftKey
Software and, prior to February 1994, had been
President and a director of Former SoftKey and its
predecessors since 1984.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael J. Perik..................................... 40 Mr. Perik became a director, Chairman of the Board
and Chief Executive Officer of the Company in
February 1994. He is also President and a director of
SoftKey Software. Prior to February 1994, Mr. Perik
had been Chief Executive Officer and a director of
Former SoftKey since 1991. From 1988 until 1991, he
was Vice President of Investments of Denbridge
Capital Corporation, a Canadian investment company.
He is the Chairman of the Executive Committee.
Carolynn Reid-Wallace................................ 55 Dr. Reid-Wallace became a director of the Company in
September 1997. Dr. Reid-Wallace became Senior Vice
President for Education and Programming at the
Corporation for Public Broadcasting, a broadcasting
company, in October 1995, after having served as
Senior Vice President for Education from April 1993
to September 1995. Prior thereto, from September 1991
to January 1993, she served as Assistant Secretary
for Postsecondary Education at the United States
Department of Education. From August 1987 to August
1991, Dr. Reid-Wallace served as Vice Chancellor for
Academic Affairs at the City University of New York.
From May 1982 to June 1987, Dr. Reid-Wallace served
as Director of Precollegiate Education and Assistant
Director in the Division of Educational Programs at
the National Endowment for the Humanities.
Robert A. Rubinoff................................... 59 Mr. Rubinoff became a director of the Company in
February 1994. Mr. Rubinoff is also a director of
SoftKey Software. Prior to February 1994, he had been
a director of Former SoftKey and its predecessors
from 1987. Since 1986, he has been the President of
Inglewood Holdings Inc., a private Canadian
investment firm. Mr. Rubinoff is a director of Place
Resources Ltd., a Canadian oil and gas company, and
is also a director of several private corporations.
He is a member of the Audit and Compensation
(Chairman) Committees and the Special Subcommittee of
the Compensation Committee.
Scott M. Sperling.................................... 40 Mr. Sperling became a director of the Company in
February 1994. He had been a director of Spinnaker
Software Corporation from 1987 to February 1994. Mr.
Sperling has been Managing Director of the Thomas H.
Lee Company, a
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
private investment company, since September 1994.
Prior thereto, he was Managing Partner of Aeneas
Group, Inc., an investment company and a wholly owned
subsidiary of Harvard Management Company, Inc., where
he was an officer from 1984 to September 1994. Mr.
Sperling is also a director of Beacon Properties
Corporation, a real estate company, General Chemical
Group Inc., a chemical manufacturing company, Object
Design Inc., a data management systems company,
Livent, Inc., a theater production company, and
Safelite Glass Corporation, an auto glass replacement
corporation, and is a director of several private
corporations. He is a member of the Compensation and
Executive Committees.
Paul J. Zepf......................................... 33 Mr. Zepf became a director of the Company in December
1997. He is a Managing Director of Centre Partners
Management LLC and a Managing Director of Corporate
Advisors, L.P. Mr. Zepf served as a Principal of
Centre Partners Management LLC and a Principal of
Corporate Advisors, L.P. from 1995 to 1998, as a Vice
President of Corporate Advisors, L.P. from 1993 to
1995 and as an Associate of such partnership from
1989 to 1993. He is also a director of LaSalle
Holdings Limited, a property catastrophe reinsurance
company, and Firearms Training Systems, Inc., a
training and simulation company. He is a member of
the Audit Committee.
</TABLE>
The Securities Purchase Agreements dated August 26, 1997 among the Company
and the purchasers of 750,000 shares of Series A Preferred Stock required, as a
condition to the sale of such shares, that (i) the representative of Thomas H.
Lee Company then serving on the Board of Directors (Scott M. Sperling), or any
successor nominee of Thomas H. Lee Company, be renominated and reelected and
(ii) a representative of each of the three investor groups acquiring shares of
Series A Preferred Stock be appointed to the Board of Directors of the Company.
In addition, the Company agreed to use its best efforts to cause the election of
two nominees from such representatives to each of the Executive, Compensation
and Audit Committees of the Board of Directors. Accordingly, Messrs. Anthony J.
DiNovi, Mark E. Nunnelly and Paul J. Zepf were appointed to the Board of
Directors in December 1997, Mr. Sperling was reelected as a director in December
1997 and at least one of the representatives is a member of each committee of
the Board of Directors.
Mr. Dowdle was appointed to the Board of Directors of the Company in
accordance with the Standstill Agreement dated November 30, 1995 between the
Company and Tribune Company, which requires that a representative of Tribune
Company serve on the Board of Directors of the Company. The Standstill Agreement
also provides that if the Company's Board of Directors at any time consists of
11 or more members, the Company shall appoint a second representative of Tribune
Company to the Board. Tribune Company waived its right to have a second
representative appointed to the Board in connection
9
<PAGE>
with the appointment of Messrs. DiNovi, Nunnelly and Zepf pursuant to the
Securities Purchase Agreements described in the immediately preceding paragraph.
ADDITIONAL CURRENT DIRECTOR
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Charles L. Palmer.................................... 56 Mr. Palmer became a director of the Company in July
1996. Prior thereto he had served as Chairman of the
Board and a director of Minnesota Educational
Computing Corporation ("MECC"), an educational
software company, from January 1991 until its
acquisition by the Company in May 1996. Mr. Palmer
has been President and Principal of North American
Business Development Company, III, L.L.C., which is
the general partner of North American Fund III L.P.,
a business development company, since 1996. Mr.
Palmer has been President and Principal of North
American Business Development Company, L.L.C., or its
predecessor, which is the general partner of North
American Fund II, L.P., a business development
company, since 1989, and has been Managing General
Partner of North American Company Ltd. since 1972.
North American Company Ltd., a private investment
company, is an affiliate of North American Fund II,
L.P., North American Business Development Company,
L.L.C., North American Fund III and North American
Business Development Company III, L.L.C. Prior to
joining North American Company Ltd., Mr. Palmer was a
founder, Vice President and subsequently a director
of Heizer Corporation, a business development
company. Mr. Palmer serves on the boards of directors
of Allied Capital Commercial Corporation and SunBank
of South Florida, N.A.
</TABLE>
OTHER EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Gregory L. Bestick................................... 46 Mr. Bestick became the Executive Vice President,
Product Development of the Company in February 1998
in connection with the Company's acquisition of
Creative Wonders,
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Inc., an educational software company. From December
1994 until the Company's acquisition of Creative
Wonders, he served as President of Creative Wonders.
Prior to founding Creative Wonders, Mr. Bestick was a
Vice President and General Manager of the EA Kids
division of Electronic Arts, Inc. From 1991 to 1993
Mr. Bestick was Chief Executive Officer of MediaShare
Corp., and from 1986 to 1991 he served as a Group
Vice President for Jostens Learning Corp. and its
predecessor corporation, Education Systems Corp.
Anthony J. Bordon.................................... 39 Mr. Bordon joined Former SoftKey in December 1991 as
Vice President, Retail Sales and in June 1994 he
became Senior Vice President, Retail Sales of the
Company. In January 1996, he became Senior Vice
President, North American Sales. Mr. Bordon became
President, International in January 1997.
R. Scott Murray...................................... 34 Mr. Murray became Executive Vice President and Chief
Financial Officer in May 1994 after having joined the
Company in February 1994 as Vice President, Corporate
Acquisitions. Prior thereto, Mr. Murray was a manager
with Arthur Andersen & Co., a public accounting firm,
from September 1985 until February 1994.
David E. Patrick..................................... 41 Mr. Patrick joined the Company in October 1990 as
Vice President of Marketing, Development and
Strategic Planning. In May 1992, he became Executive
Vice President and in August 1993 he became Chief
Operating Officer of the Company. In February 1994,
he became Executive Vice President, Worldwide Sales
and Marketing of the Company. In August 1994, his
office was renamed Executive Vice President,
Worldwide Sales. From February 1996 to January 1997
Mr. Patrick served as President, International. Mr.
Patrick became Executive Vice President, Worldwide
Sales in January 1997.
Kathryn M. Quinby-Johnson............................ 39 Ms. Quinby-Johnson became an officer of the Company
in connection with the acquisition of Minneapolis
Educational Computing Corporation ("MECC") in May
1996. Prior to joining MECC in December 1993, Ms.
Quinby-Johnson served as Vice President, Account
Supervisor of Rapp Collins Communications, an
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
integrated marketing agency, where she had been
employed since December 1989. From December 1993
until December 1994, Ms. Quinby-Johnson served as
Director of Product Marketing of MECC. From December
1994 until May 1996, Ms. Quinby-Johnson served as
Vice President of Marketing of MECC. Ms. Quinby-
Johnson served as Senior Vice President, Channel
Marketing of the Company from May 1996 until May
1997. Ms. Quinby-Johnson became Executive Vice
President, Marketing of the Company in May 1997.
Neal S. Winneg....................................... 37 Mr. Winneg joined the Company in April 1994 as Vice
President, General Counsel and Secretary, and became
Senior Vice President in February 1998. From 1986 to
1989 and again from 1990 to 1993, Mr. Winneg was
associated with the law firm of Skadden, Arps, Slate,
Meagher & Flom. From 1989 to 1990, Mr. Winneg was
Vice President and a director of Dimensional Foods
Corporation, a food technology company.
</TABLE>
DIRECTORS' COMPENSATION
Directors receive no fees for their service as directors of the Company.
Under the Company's 1996 Non-Employee Director Stock Option Plan, each
Eligible Person who becomes a director after May 16, 1996 receives, at the time
he or she first becomes a director, an option to purchase 50,000 shares of
Common Stock, and at the time he or she is elected or appointed to a committee
of the Board of Directors, an option to purchase an additional 25,000 shares of
Common Stock. An "Eligible Person" is a director who is not an employee of the
Company or any of the Company's affiliates and is not designated for nomination,
election or appointment to the Board of Directors by, or by any agreement or
arrangement with, any person or entity (other than the Company). These options
vest quarterly over a two-year period, and have an exercise price equal to the
fair market value of the Common Stock on the date of grant.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held 13 meetings during the fiscal year ended January
3, 1998. Each director attended 75% or more of all meetings of the Board and the
committees on which he or she served, except for Mr. Alexander, Mr. Bell, Mr.
Dowdle, Ms. Reid-Wallace and Mr. Sperling. The Board of Directors requested that
Mr. Sperling not attend, and Mr. Sperling did not attend, five meetings of the
Board of Directors at which the proposed sale of shares of Series A Preferred
Stock to certain investors, including affiliates of Thomas H. Lee Company, was
discussed. Mr. Sperling is a Managing Director of Thomas H. Lee Company (see
"Certain Relationships and Related Transactions").
The standing committees of the Board of Directors are the Executive
Committee, the Compensation Committee and the Audit Committee.
12
<PAGE>
EXECUTIVE COMMITTEE. The Executive Committee meets in place of the full
Board of Directors when scheduling makes it difficult to convene all of the
directors or when issues arise requiring immediate attention. The Committee's
current members are Messrs. Alexander, Dowdle, Nunnelly, Perik (Chairman) and
Sperling. The Committee acted by written consent one time and did not meet
during the fiscal year ended January 3, 1998.
COMPENSATION COMMITTEE. The Compensation Committee determines the
compensation of the President and the Chief Executive Officer of the Company and
approves the compensation of directors and certain executive officers of the
Company. The Committee also administers the Company's Long Term Equity Incentive
Plan, 1996 Stock Option Plan and 1997 Employee Stock Purchase Plan. The
Committee's current members are Messrs. Alexander, Bell, DiNovi, Rubinoff
(Chairman) and Sperling. The Compensation Committee held three meetings and
acted by written consent eight times during the fiscal year ended January 3,
1998.
In January 1998, the Compensation Committee created a Special Subcommittee
of the Compensation Committee to ensure that matters with respect to executive
compensation would, to the extent required, be considered by "outside directors"
for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and "disinterested persons" for purposes of Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Special Subcommittee has all of the powers and authority of
the Compensation Committee (including the power and authority of the
Compensation Committee to authorize the issuance of stock) except for those
powers reserved for the Board of Directors under Section 141 of the Delaware
General Corporation Law. The Special Subcommittee's current members are Messrs.
Alexander, Bell and Rubinoff (Chairman). Because the Special Subcommittee was
created in January 1998, it did not meet during the fiscal year ended January 3,
1998.
AUDIT COMMITTEE. The Audit Committee recommends to the Board of Directors
the appointment of the Company's independent public accountants, and reviews and
approves the results, findings and recommendations of audits performed by the
independent public accountants. The Committee also reviews the Company's system
of internal accounting controls, the significant accounting policies of the
Company as they apply to the consolidated financial statements, the audit fees
to be paid to the independent public accountants and the nature of non-audit
services performed by the independent public accountants. The Committee's
current members are Messrs. Alexander, Bell, Rubinoff, Nunnelly (Chairman) and
Zepf. The Audit Committee met twice during the fiscal year ended January 3,
1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Alexander, Bell,
DiNovi, Rubinoff and Sperling (Chairman), none of whom is an employee of the
Company. Messrs. Alexander, Bell and Rubinoff have no direct or indirect
material interest in or relationship to the Company, other than their receipt of
stock options described above in Compensation of Directors or, in the case of
Mr. Rubinoff, options granted prior to 1994 under a stock option plan of a
predecessor corporation to SoftKey Software, which was also called SoftKey
Software Products Inc. ("Former SoftKey"). Messrs. DiNovi and Sperling are
Managing Directors of Thomas H. Lee Company, which, together with its
affiliates, purchased 457,317 shares of Series A Preferred Stock in December
1997 in exchange for the surrender of the Company's 5 1/2%
Convertible/Exchangeable Notes due 2000 in an aggregate principal amount of
$91,463,400 (see "Certain Relationships and Related Transactions"). Mr. Sperling
has also received stock options described above in Compensation of Directors.
None of the executive officers of the Company has served on the Board of
Directors or compensation committee of any other entity, any of whose officers
served either on the Company's Board of Directors or the Compensation Committee.
13
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation of the Named Executive Officers for each of
the last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- --------------------------------------------------- --------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Michael J. Perik................................... 1997 400,000 300,000 517,500 --
Chairman of the Board 1996 400,000 312,125 1,000,000 --
and Chief Executive Officer 1995 300,000 -- 475,000 33,847(1)
R. Scott Murray.................................... 1997 250,000 179,374 230,000(2) --
Executive Vice President 1996 250,000 125,000 100,000 --
and Chief Financial Officer 1995 230,000 30,000 100,000 37,260(3)
Kevin O'Leary...................................... 1997 400,000 300,000 475,499 --
President 1996 400,000 312,125 1,000,000 --
1995 300,000 -- 475,000 4,574(4)
David E. Patrick................................... 1997 240,000 220,000 230,000(2) --
Executive Vice President, 1996 240,000 -- 150,000 21,615(5)
Worldwide Sales 1995 181,008 -- 80,000 109,237(5)
Kathryn M. Quinby-Johnson.......................... 1997 179,049 52,813 150,714(6) --
Executive Vice President, Marketing 1996 67,642 -- 75,714 --
</TABLE>
- ------------------------
(1) Represents amounts paid to reimburse Mr. Perik for income taxes incurred
from payments he received from the Company for rent and moving expenses.
(2) Consists of options that were repriced during the fiscal year ended January
3, 1998, replacing options granted at an earlier date. See "Repricing of
Options."
(3) Represents amounts paid to reimburse Mr. Murray for income taxes incurred
from payments he received from the Company for rent and moving expenses.
(4) Represents amounts paid to reimburse Mr. O'Leary for income taxes incurred
from payments he received from the Company for rent and moving expenses.
(5) Represents commissions.
(6) Includes options to purchase 75,714 shares that were repriced during the
fiscal year ended January 3, 1998, replacing options granted at an earlier
date. See "Repricing of Options."
EMPLOYMENT ARRANGEMENTS
On April 9, 1997, Messrs. Perik and O'Leary each entered into a three-year
employment agreement with the Company providing for their continued employment
by the Company in their present capacities. Each of the agreements provides for,
among other things, an annual base salary of not less than $400,000 and
eligibility for a target cash bonus of up to $300,000 per year payable on a
quarterly basis based upon performance objectives approved by the Compensation
Committee. Each of the agreements also provides that if the executive's
employment with the Company is terminated by the Company other than for just
cause or by the executive for good reason, the Company will make severance
payments to the executive
14
<PAGE>
over a three-year period (the "Continuation Period") in an aggregate amount
equal to three times the then-current annual base salary plus three times the
amount of all bonuses paid or accrued under the agreement with respect to the
twelve month period immediately preceding such termination. Each of the
agreements also provides that the Company will provide the executive, during the
Continuation Period, with life, disability, accident and health insurance
benefits and a monthly automobile allowance identical or substantially similar
to that which the executive received immediately prior to such termination. In
addition, each of the agreements provides that, during the Continuation Period,
all of the executive's then outstanding options for the purchase of capital
stock of the Company will continue to vest and remain exercisable in accordance
with the terms of the applicable stock option agreement as if the employment of
the executive were not terminated until the last day of the Continuation Period.
Also, under each of the agreements, the Company agreed that if any of the
severance payments provided for by the agreements become subject to tax (the
"Excise Tax") under Section 4999 of the Code, the Company will pay the executive
an additional payment (a "Gross-up Payment") such that the net amount retained
by the executive, after deduction of any Excise Tax and any other tax on such
payments and the Gross-up Payment, will be equal to the original severance
payments. The Gross-up Payments will only apply to severance payments if the
event that causes the severance payments to be subject to the Excise Tax occurs
during the three-year term of the agreement. The Company has also agreed to
enter into a security arrangement reasonably acceptable to each of Messrs. Perik
and O'Leary to secure the severance payments under each of the agreements.
On May 22, 1997, Mr. Murray entered into a three-year employment agreement
with the Company providing for his continued employment by the Company in his
present capacity. The agreement provides for, among other things, an annual base
salary of not less than $250,000 and eligibility for a target cash bonus of up
to $150,000 per year payable on a quarterly basis based upon performance
objectives approved by the Compensation Committee. The agreement also provides
that if Mr. Murray's employment with the Company is terminated by the Company
other than for just cause or by the executive for good reason, the Company will
make severance payments to Mr. Murray over a three-year period in an aggregate
amount equal to three times the then-current annual base salary plus three times
the amount of all bonuses paid or accrued under this agreement with respect to
the twelve month period immediately preceding such termination. The agreement
contains benefit continuation and tax provisions similar to those set forth in
the employment agreements of Messrs. Perik and O'Leary.
On March 19, 1998, Ms. Quinby-Johnson entered into a two-year employment
agreement with the Company as Executive Vice President, Marketing. The agreement
provides for, among other things, an annual base salary of not less than
$225,000 and eligibility to participate in the Company's Management Committee
bonus program, or any similar program that may replace such program, approved by
the Company's Compensation Committee for each employment year. The agreement
also provides that if Ms. Quinby-Johnson's employment with the Company is
terminated by the Company other than for just cause or by Ms. Quinby-Johnson for
good reason, the Company will make severance payments to Ms. Quinby-Johnson over
a one-year period in an aggregate amount equal to the then-current annual base
salary plus the amount of all bonuses paid or accrued under the agreement with
respect to the twelve month period immediately preceding such termination.
In October 1993, Mr. Patrick entered into a three-year employment agreement
with the Company as an Executive Vice President, which provides for, among other
things, an annual base salary of not less than $175,000, the grant to Mr.
Patrick of an option to purchase 50,000 shares of Common Stock at $9.375 per
share (the fair market value of the Common Stock on October 13, 1993, the day of
the grant, as adjusted for a subsequent 1-for-10 reverse stock split), a bonus
of $75,000 paid when the agreement became effective and eligibility for a target
bonus of $85,000 per year payable on a quarterly basis on such terms as the
Board of Directors determines. The agreement also provides that if the Company
terminates Mr. Patrick's employment with the Company other than for just cause,
Mr. Patrick will be entitled severance payments (in addition to accrued and
unpaid salary) in an aggregate amount equal to his annual
15
<PAGE>
base salary then in effect. The agreement is automatically extended from year to
year unless one party gives a specified notice to the other party of his or its
intention not to extend the agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Helen Wright, former Director of Investment Relations for the Company and
Mr. Perik's sister, is indebted to the Company under a loan agreement entered
into on June 30, 1991 between Former SoftKey and Ms. Wright pursuant to which
Former SoftKey loaned Ms. Wright 267,000 Canadian dollars ("CDN $") to assist
Ms. Wright in paying the exercise price of certain employee stock options. As of
March 2, 1998, the aggregate principal amount of the loan outstanding was CDN
$203,000. In addition, as of March 2, 1998, Ms. Wright was also indebted to the
Company in the principal amount of CDN $77,500 pursuant to a loan by Former
SoftKey to Ms. Wright for the purchase of common shares of Former SoftKey. Both
loans are interest-free and payable on demand.
On December 5, 1997, the Company issued an aggregate of 750,000 shares of
Series A Preferred Stock to affiliates of Thomas H. Lee Company, Bain Capital,
Inc. and Centre Partners Management LLC (collectively, the "Investor Group") in
exchange for the surrender of the Company's 5 1/2% Convertible/ Exchangeable
Notes due 2000 (the Private Notes") pursuant to Securities Purchase Agreements
dated as of August 26, 1997. The Investor Group had purchased the Private Notes
in a private transaction from Tribune Company, a stockholder of the Company. In
connection with this transaction, the Company paid transaction fees in the
amount of (i) $1,125,000 to an affiliate of Thomas H. Lee Company, (ii) $420,000
to an affiliate of Bain Capital, Inc. and (iii) $300,000 to an affiliate of
Centre Partners Management LLC. Messrs. Sperling and DiNovi, directors of the
Company, are Managing Directors of Thomas H. Lee Company. Mr. Nunnelly, a
director of the Company, is a Managing Director of Bain Capital, Inc. Mr. Zepf,
a director of the Company, is a Managing Director of Centre Partners Management
LLC. Mr. Dowdle, a director of the Company, is Executive Vice President and a
director of Tribune Company.
Mr. Perik, the Chief Executive Officer of the Company, is indebted to the
Company under a promissory note dated October 15, 1997 between the Company and
Mr. Perik, pursuant to which the Company loaned Mr. Perik $500,000, at an
interest rate of 5.76% per annum, to assist Mr. Perik in paying the exercise
price of certain employee stock options. The promissory note is due and payable
on the earlier of December 31, 1998 or the date on which Mr. Perik's employment
with the Company is terminated for any reason. As of March 2, 1998, the
aggregate principal amount of the loan outstanding was $500,000.
16
<PAGE>
STOCK OPTION GRANTS
The following table summarizes certain information concerning stock options
granted during fiscal year 1997 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION --------------------
(# OF SHARES) (1) YEAR (%) ($/SH) DATE 5%($) 10%($)
----------------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael Perik............ 67,500(2) 0.95 14.50 1/14/07 615,530 1,559,875
450,000 6.31 9.25 3/5/07 2,617,772 6,633,952
R. Scott Murray.......... 11,785(2)(3) 0.17 10.40 8/15/04 49,896 116,279
100,000(3)(4) 1.40 10.40 6/2/05 496,553 1,189,332
100,000(3)(5) 1.40 10.40 2/5/06 573,381 1,412,266
18,215(2)(3) 0.26 10.40 8/15/04 77,119 179,721
Kevin O'Leary............ 25,499(2) 0.36 14.50 1/14/07 232,524 589,263
450,000 6.31 9.25 3/5/07 2,617,772 6,633,952
David E. Patrick......... 80,000(3)(4) 1.12 10.40 6/2/05 397,243 951,466
45,000(3)(6) 0.63 10.40 2/5/06 258,021 635,519
105,000(3)(7) 1.47 10.40 2/5/06 602,050 1,482,879
Kathryn M. Quinby-
Johnson................ 50,000 0.70 9.25 3/5/07 290,864 737,106
25,714(3)(8) 0.36 10.40 4/25/05 127,684 305,825
50,000(3)(9) 0.70 10.40 9/17/06 286,691 706,133
25,000 0.35 8.00 6/18/07 125,779 318,748
</TABLE>
- ------------------------
(1) All options granted under the Company's Long Term Equity Incentive Plan and
1996 Stock Option Plan are granted at a price equal to the fair market value
of the Common Stock on the date of grant. Unless otherwise noted, options
become exercisable in quarterly increments over a three-year period,
beginning three months after the date on which the options are granted.
(2) Exercisable in full on the date of grant.
(3) Consists of options that were repriced during the fiscal year ended January
3, 1998, replacing options granted at an earlier date. See "Repricing of
Options."
(4) Exercisable in quarterly increments over a three-year period, beginning on
September 2, 1995.
(5) In March 1997, options to purchase an aggregate of 100,000 shares, which had
originally been granted in February 1996, were canceled and replaced as part
of the option repricing. See "Repricing of Options." The repriced options
were exercisable in full on February 5, 2002, subject to acceleration upon
the attainment of certain performance goals. In July 1997, the repriced
options were canceled and replaced with an option to purchase 100,000 shares
that is exercisable in quarterly increments over a three-year period,
beginning on April 29, 1996.
(6) Exercisable in quarterly increments over a three-year period, beginning on
April 29, 1996.
17
<PAGE>
(7) In March 1997, an option to purchase an aggregate of 105,000 shares, which
had originally been granted in February 1996, was canceled and replaced as
part of the option repricing. See "Repricing of Options." The repriced
option was exercisable (i) as to 5,000 of the shares subject thereto in
quarterly increments over a three-year period, beginning on April 29, 1996,
and (ii) as to 100,000 of the shares subject thereto in full on February 5,
2002, subject to acceleration upon the attainment of certain performance
goals. In July 1997, the repriced option was canceled and replaced with an
option to purchase 105,000 shares that is exercisable in quarterly
increments over a three-year period, beginning on April 29, 1996.
(8) Exercisable in annual increments over a three-year period, beginning on
April 25, 1996.
(9) Exercisable in quarterly increments over a three-year period, beginning on
December 17, 1996.
OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table provides information regarding the exercise of stock
options during fiscal year 1997 and stock options held as of the end of fiscal
year 1997 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR END (#) FISCAL YEAR END ($)
ACQUIRED REALIZED -------------------------- ---------------------------
NAME ON EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- -------------------------------- --------------- -------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Perik................ 57,960 166,055 955,000 1,337,500 2,368,125 2,151,563
R. Scott Murray................. 15,000 120,563 156,662 58,338 818,559 304,816
Kevin O'Leary................... -- -- 612,999 1,337,500 745,873 2,151,563
David E. Patrick................ 19,000 176,375 172,669 75,831 1,786,795 788,642
Kathryn M. Quinby-Johnson....... -- -- 77,840 96,073 474,196 595,106
</TABLE>
- ------------------------
(1) Represents the difference between the exercise price and the fair market
value of Common Stock on the date of exercise.
(2) Based on the fair market value of the Common Stock on January 2, 1998
($15.625 per share) less the option exercise price.
18
<PAGE>
REPRICING OF OPTIONS
The following table sets forth certain information concerning all repricings
of options to purchase the Company's Common Stock held by any executive officer
of the Company during the last 10 completed fiscal years.
TEN-YEAR OPTION/REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL OPTION
NUMBER OF TERM
SECURITIES MARKET PRICE REMAINING AT
UNDERLYING OF STOCK AT EXERCISE PRICE DATE OF
OPTIONS TIME OF AT TIME OF NEW REPRICING OR
REPRICED OR REPRICING OR REPRICING OR EXERCISE AMENDMENT
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE($) (IN MONTHS)
- ----------------------------------- --------- ------------ -------------- ---------------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Bordon.................. 2/5/96 50,000 16.0625 22.7500 16.0625 111
President, International 3/13/97 65,000 8.75 16.0625 10.4000 106
3/13/97 50,000 8.75 16.0625 10.4000 98
R. Scott Murray.................... 3/13/97 11,785 8.75 12.3750 10.4000 89
Executive Vice President and 3/13/97 100,000 8.75 22.7500 10.4000 98
Chief Financial Officer 3/13/97 100,000 8.75 16.0625 10.4000 106
3/13/97 18,215 8.75 12.3750 10.4000 89
David E. Patrick................... 3/13/97 80,000 8.75 22.7500 10.4000 98
Executive Vice President, 3/13/97 45,000 8.75 16.0625 10.4000 106
Worldwide Sales 3/13/97 105,000 8.75 16.0625 10.4000 106
Kathryn M. Quinby-Johnson.......... 3/13/97 25,714 8.75 13.5700 10.4000 98
Executive Vice President, 3/13/97 50,000 8.75 16.7500 10.4000 114
Marketing
David P. Rubin..................... 3/13/97 50,000 8.75 16.0625 10.4000 106
Senior Vice President, Research
and Development
Neal S. Winneg..................... 3/13/97 18,750 8.75 12.3750 10.4000 89
Senior Vice President and General 3/13/97 35,000 8.75 22.7500 10.4000 98
Counsel 3/13/97 45,000 8.75 16.0625 10.4000 106
Diana James-Cairns................. 3/13/97 100,000 8.75 16.0625 10.4000 106
Former Vice President, Marketing
Martin Rice........................ 3/13/97 50,000 8.75 16.0625 10.4000 106
Former Executive Vice President, 3/13/97 25,000 8.75 24.0000 10.4000 110
Research and Development 3/13/97 25,000 8.75 18.3750 10.4000 111
</TABLE>
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
In March 1997, the Compensation Committee approved the repricing of certain
options granted to employees pursuant to the Company's stock option plans.
Because of the decline in the market price of the Common Stock, certain
outstanding options in March 1997 were exercisable at prices that exceeded the
market price of Common Stock thereby substantially impairing the effectiveness
of such options as performance incentives. In view of this decline and in
keeping with the Company's philosophy of utilizing equity incentives to motivate
and retain qualified employees, the Compensation Committee felt that it was
19
<PAGE>
important to restore for the Company's employees the performance incentives
intended to be provided by options through the repricing of options with
exercise prices in excess of the market price at the time of repricing. No
options issued to directors of the Company were repriced.
Pursuant to the terms of the repricing, employee options having an exercise
price per share greater than $10.40 were canceled, and the Company issued new
options (the "New Options") having an exercise price of $10.40 per share, which
was the average closing price of the Company's Common Stock on the New York
Stock Exchange for the eight trading days immediately preceding March 13, 1997,
the date on which the Board approved the option repricing, plus 15%. The
exercise price of the New Options is approximately eighteen percent above the
$8.75 closing price of the Common Stock on the New York Stock Exchange on the
date of the repricing. The New Options modify the exercise price of the existing
options (the "Existing Options") and are governed by the Company's 1996 Stock
Option Plan or Long Term Equity Incentive Plan. The option agreements for the
New Options contain substantially the same terms as the option agreements for
the Existing Options, including the expiration date, the number of shares
issuable pursuant to the option and the vesting schedule. Each employee who
elected to have his or her options repriced agreed not to exercise his or her
New Options for a nine-month period, unless such employee's employment with the
Company was terminated during such period by the Company without cause.
COMPENSATION COMMITTEE
Lamar Alexander
Michael A. Bell
Robert Rubinoff
Scott M. Sperling
20
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is furnishing the
following report on the compensation policies applicable to the Company's
executive officers with respect to compensation reported for the fiscal year
ended January 3, 1998.
EXECUTIVE OFFICER COMPENSATION
The objective of the Company's executive compensation program is to attract
and retain key executives critical to the success of the Company. To closely
align the interests of such executives with those of the Company's stockholders,
the Company relies on the use of stock-based compensation plans to comprise a
high proportion of executive officers' total compensation. In addition, the
Company uses a performance-based bonus plan to ensure that an individual's
compensation is directly related to the Company's financial and other goals.
BASE SALARY. Salaries paid to executive officers, other than the President
and Chief Executive Officer, are reviewed by the Chief Executive Officer and the
Vice President, Human Resources based upon their assessments of the nature of
the position, and the contribution, experience and tenure of the executive
officer. At the request of the Chief Executive Officer, the Compensation
Committee reviews any recommendations resulting from such review. The
Compensation Committee is responsible for determining the salaries of the
President and Chief Executive Officer. Messrs. Perik and O'Leary, the Chief
Executive Officer and President of the Company, respectively, are compensated
pursuant to employment agreements. The terms of such agreements were approved by
the Compensation Committee. The base salaries and annual bonus targets under
those agreements are subject to review by the Compensation Committee annually
and were not increased in 1997 from 1996 levels.
PERFORMANCE BONUS. The Chief Executive Officer, President and Chief
Financial Officer, as well as those executive officers who are not compensated
through sales commissions, are eligible to earn bonuses based on overall Company
performance targets set at the beginning of the fiscal year by the Compensation
Committee. In March 1997 the Compensation Committee established these targets
based on the attainment of specified levels of after-tax cash flow per share.
The amounts paid to the Named Executive Officers in 1997 are set forth in the
Summary Compensation Table above.
STOCK OPTIONS. The Company believes that the most effective way to align
the interests of executives with those of the Company's stockholders is to
ensure that executive officers hold equity stakes in the Company. Accordingly,
the Compensation Committee and management have determined that continued use of
stock options is an important mechanism for long-term incentive compensation of
executive officers. The Compensation Committee administers the Long Term Equity
Incentive Plan, under which options are granted to executive officers as well as
other employees of the Company. Generally, option grants are approved by the
Compensation Committee upon the recommendation of the Chief Executive Officer
and Vice President, Human Resources, who determine the amount of such grants
based upon factors similar to those used to determine salary and any bonus.
Options are granted at fair market value on the date of grant, have ten year
terms and generally have vesting periods of three years. In March 1997, the
Compensation Committee granted to each of Mr. Perik and Mr. O'Leary options
under the Company's stock option plans to purchase 450,000 shares of Common
Stock at a price of $9.25 per share. In addition, in January 1997, the
Compensation Committee granted options under its stock option plans to Mr. Perik
to purchase 67,500 shares and to Mr. O'Leary to purchase 25,699 shares, vesting
in full on the date of grant, at price of $14.50 per share. These options were
granted to replace options that were expiring. All options were granted at fair
market value on the date of grant.
21
<PAGE>
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee did not change Mr. Perik's salary or bonus target
for the fiscal year ended January 3, 1998, as compared to fiscal 1996. In order
to more effectively align Mr. Perik's interests with those of the Company's
stockholders, the Compensation Committee granted him an option to purchase
450,000 shares of Common Stock at a price of $9.25 per share, the fair market
value of the Common Stock on the date of grant. The option will vest quarterly
over a three-year period.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to the
Company's Chief Executive Officer and four other most highly compensated
executive officers. The Committee believes that it is in the best interests of
the Company's stockholders to comply with the new tax law while still
maintaining the goals of the Company's executive compensation program, thereby
maximizing the deductibility of the Company's executive compensation payments.
The Company currently intends to structure grants under future stock option
plans in a manner that complies with this section of the Code.
COMPENSATION COMMITTEE
Lamar Alexander
Michael A. Bell
Robert Rubinoff
Scott M. Sperling
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<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of a registered class of equity
securities of the Company to file initial reports of ownership and reports of
changes in ownership of equity securities with the SEC and to furnish the
Company with copies of all such forms filed. Based solely on its review of
copies of such forms received by it or written representations from certain
reporting persons, the Company believes that during the year ended January 3,
1998 all directors, executive officers and holders of more than 10% of the
Company's equity securities complied with all applicable Section 16(a) filing
requirements, except that, due to an administrative error, each of Messrs.
Murray and Patrick filed one late Form 4 relating to the exercise of stock
options and the sale of the underlying shares, and Mr. Perik failed to timely
report the exercise of two stock options, which he reported on Form 5.
COMPARATIVE STOCK PERFORMANCE
The graph below compares the five-year cumulative total returns for the
Company's Common Stock, Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index") and an industry index (the "Industry Index"). The graph assumes
a $100 investment on June 30, 1992 in the Company's Common Stock and in each of
the two indices, and assumes the reinvestment of all dividends paid by companies
represented in the two indices. The Industry Index includes all companies listed
on the Nasdaq National Market with the standard industry code 7372 (Computer and
Data Processing Services). The graph is in this Proxy Statement in accordance
with the rules of the SEC and is not necessarily indicative of future
performance.
IN THIS AREA APPEARS A LINE GRAPH COMPARING THE COMPANY'S CUMULATIVE RETURN WITH
THAT OF THE S&P 500 INDEX AND THE INDUSTRY INDEX. DATA POINTS USED IN PRINTED
GRAPHIC ARE BELOW.
<TABLE>
<CAPTION>
THE LEARNING INDUSTRY S&P 500
COMPANY INC. INDEX INDEX
6/30/92 $100.00 $100.00 $100.00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/93 $54.55 $132.26 $113.65
1/7/94 $48.87 $132.86 $119.29
1/6/95 $87.75 $174.02 $120.87
1/5/96 $84.11 $261.65 $166.29
1/3/97 $57.27 $347.77 $204.48
1/2/98 $56.84 $442.66 $272.69
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------
INDEX 6/30/92 6/30/93 1/7/94 1/6/95 1/5/96 1/3/97 1/2/98
- ------------------------------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
The Learning Company, Inc........... 100.00 54.55 48.87 87.75 84.11 57.27 56.84
S&P 500 Index....................... 100.00 113.65 119.29 120.87 166.29 204.48 272.69
Industry Index...................... 100.00 132.26 132.86 174.02 261.65 347.77 442.66
</TABLE>
23
<PAGE>
PROPOSAL 2. RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand L.L.P. as the
Company's independent public accountants for the fiscal year ending January 2,
1999. The Board of Directors recommends that the stockholders vote FOR
ratification of that appointment. If the stockholders do not ratify the
selection of Coopers & Lybrand L.L.P., the Board of Directors will reconsider
this matter. Representatives of Coopers & Lybrand L.L.P. are expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if they so desire and will be available to respond to appropriate questions from
stockholders.
PROPOSAL 3. APPROVAL OF AN AMENDMENT TO THE COMPANY'S
LONG TERM EQUITY INCENTIVE PLAN
The Company's Long Term Equity Incentive Plan (the "Equity Incentive Plan"),
which was initially approved by the stockholders of the Company on October 10,
1990, had been amended through December 1997 to cover 9,000,000 shares of Common
Stock.
On January 30, 1998 the Company's Board approved an amendment to the Equity
Incentive Plan, subject to stockholder approval, (i) to eliminate the
restriction on the number of shares of Restricted Stock (as defined below) that
the Company may grant to any named executive officer in any year and (ii) to
expand the types of performance goals that may be used for performance-based
awards made to named executive officers. "Restricted Stock" is defined in the
Equity Incentive Plan to mean shares of Common Stock that the Compensation
Committee may award to an employee subject to certain restrictions, including
the forfeiture by the employee of all or a portion of the Restricted Stock upon
termination of employment or in the event that performance goals are not
achieved. The Plan currently provides that the Company may not grant to named
executive officers Restricted Stock in any fiscal year with a fair market value
as of the date of grant that exceeds the lesser of (i) 100% of such employee's
annual base salary and (ii) $500,000. The Plan also currently provides that the
vesting of Restricted Stock granted to named executive officers must include
achievement of performance goals based on the Company's attainment of a level of
net profit before income tax during a tax year. The amendment to the Plan would
eliminate the restriction in the Plan on the value of the Restricted Stock that
may be granted to named executive officers in any fiscal year and would provide
the Compensation Committee more flexibility in establishing performance goals
with respect to such executive officers. Under the proposed amendment, the
Compensation Committee would have the ability under the Equity Incentive Plan to
establish performance goals based on earnings, earnings growth, revenues, gross
margin, expenses, market share, improvement of financial ratings or achievements
of balance sheet or income statement objectives and may be absolute in their
terms or measured against or in relationship to other companies comparably or
similarly situated. The Board of Directors believes that the proposed amendment
is necessary to establish meaningful performance-based equity incentives for
named executives and other participants under the Equity Incentive Plan.
In order to comply with Section 162(m) of the Code, the Equity Incentive
Plan limits the number of shares of Common Stock that may be issued to any
person in any calendar year to a number equal to 20% of the total number of
shares of Common Stock authorized under the Plan. This limitation will not be
modified by the proposed amendment.
The Company entered into letter agreements, dated as of January 31, 1998,
with each of Messrs. Perik and O'Leary pursuant to which the Company issued and
sold 350,000 shares of Restricted Stock to each of Messrs. O'Leary and Perik at
a price of $.01 per share. Under the terms of the letter agreements, the
Restricted Stock will vest in quarterly installments over a ten-year period,
provided that none of the Restricted Stock will vest unless (a) the Company's
stockholders approve the proposed amendment to the Equity Incentive Plan, and
(b) the Company achieves certain revenue goals for a specified period. As of the
date of this Proxy Statement, the Company believes that such performance goals
will be achieved prior to the date of the Annual Meeting. If the Company's
stockholders approve the proposed amendment to
24
<PAGE>
the Plan, each Restricted Stock award will vest quarterly over ten years for so
long as the executive is employed by the Company, provided that the Restricted
Stock will fully vest and will no longer by subject to any repurchase option of
the Company in the event of a "Change in Control" of the Company (as defined in
the Equity Incentive Plan). If the stockholders do not approve the proposed
amendment to the Equity Incentive Plan, (i) the Restricted Stock issued to each
of Messrs. Perik and O'Leary will be repurchased by the Company, and (ii) in the
event of a Change in Control of the Company, each of Messrs. Perik and O'Leary
would be entitled to receive cash payments equal to 350,000 multiplied by the
fair market value of the Company's Common Stock on the date of the Change in
Control.
The closing price of the Common Stock on the New York Stock Exchange on
March 2, 1998 was $17.375 per share.
In order to comply with Section 162(m) of the Code, the amendment to the
Equity Incentive Plan and the continuance of the Plan must be approved by
stockholders. A vote in favor of the proposed amendment will constitute approval
of the continuance of the Equity Incentive Plan.
SUMMARY OF THE EQUITY INCENTIVE PLAN
A summary of the terms and provisions of the Equity Incentive Plan and the
proposed amendment thereto is set forth below and is qualified in its entirety
by reference to the full text of the Equity Incentive Plan, as proposed to be
amended. Capitalized terms used and not otherwise defined in this summary have
the meanings ascribed to them in the Equity Incentive Plan.
GENERAL. The purpose of the Equity Incentive Plan is to provide selected
eligible employees of and consultants to the Company, its subsidiaries and its
affiliates an opportunity to participate in the Company's future by offering
them long-term performance-based and other incentives and equity interests in
the Company so as to retain, attract and motivate management personnel. As of
March 2, 1998, approximately 1,500 persons were eligible to participate in the
Equity Incentive Plan.
The Equity Incentive Plan provides for grants to eligible employees and
consultants of awards including (a) options to purchase shares of Common Stock
("Options") at the fair market value of such shares at the time such Options are
granted, consisting of (i) Incentive Stock Options ("ISOs"), (ii) Non-Qualified
Stock Options ("NQSOs") and (iii) any other type of Option (in each case with or
without SARs); (b) SARs, which are rights to receive an amount equal to the
increase, between the date of grant and the date of exercise, in the fair market
value of the number of shares of Common Stock subject to the SAR; (c) Restricted
Stock awards; (d) Stock Purchase Rights, similar in certain respects to Options;
and (e) Performance Shares which are equivalent in value to shares of Common
Stock and may be awarded based on the extent to which a participant achieves
selected performance objectives over a specified period of time.
The Equity Incentive Plan is administered by the Compensation Committee. The
Compensation Committee has the authority, except to the extent that it violates
Section 162(m) of the Code, (x) to select the eligible participants to whom
awards under the Equity Incentive Plan shall be granted, (y) to determine the
nature and extent of such awards granted and (z) to determine the terms and
conditions applicable to such awards. In administering the Equity Incentive
Plan, the Compensation Committee may, except to the extent it violates Section
162(m) of the Code, (a) adopt, alter or repeal administrative rules, guidelines
and practices governing the Equity Incentive Plan as it deems advisable, (b)
interpret the terms and provisions of the Equity Incentive Plan and (c) adjust
performance goals and measurements applicable to awards to account for (i)
continued compliance with applicable laws, tax regulations and accounting rules,
(ii) unusual or extraordinary items, events or occurrences (including Changes in
Control as defined in the Equity Incentive Plan) in order to avoid windfall or
hardship, (iii) material changes in business conditions and (iv) such other
changes as it deems appropriate in the exercise of its discretion.
25
<PAGE>
The Compensation Committee may also amend, alter or discontinue the Equity
Incentive Plan as it deems advisable, provided that any such action which would
impair the rights of a participant under an outstanding award requires such
participant's consent. In addition, to the extent necessary to comply with
certain federal securities and income tax laws including without limitation
Section 162(m) of the Code, stockholder approval is required for any amendment,
alteration or discontinuance of the Equity Incentive Plan where such action
would (i) increase the number of shares of Common Stock reserved for issuance
pursuant to awards under the Equity Incentive Plan, (ii) change certain minimum
price terms for Options or Stock Purchase Rights, (iii) change the class of
employees and consultants eligible to participate in the Equity Incentive Plan,
(iv) extend the maximum term of an Option or a Stock Purchase Right exercise
period or (v) materially increase the Equity Incentive Plan benefits accruing to
Equity Incentive Plan participants.
The Compensation Committee may also, at any time without stockholder
approval, amend the Equity Incentive Plan and the terms of any outstanding award
(a) to maximize certain federal income tax benefits accorded to awards or (b) to
comply with federal securities laws; provided that any such amendment with
respect to outstanding awards requires the consent of the participants whose
awards are affected thereby.
Unless earlier terminated by the Board, the Equity Incentive Plan will
terminate on July 1, 2000, but any award granted pursuant to the Equity
Incentive Plan prior to July 1, 2000 may extend beyond such date, in accordance
with its terms.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
Equity Incentive Plan and with respect to the sale of Common Stock acquired
under the Equity Incentive Plan.
INCENTIVE STOCK OPTIONS
In general, an optionee will not recognize taxable income upon the grant or
exercise of an incentive stock option. Instead, an optionee will generally
recognize taxable income with respect to an incentive stock option only upon the
sale of Common Stock acquired through the exercise of the option ("ISO Stock").
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that an optionee has owned the ISO Stock at the time it is sold.
If the optionee sells ISO Stock after having owned it for at least two years
from the date the option was granted (the "Grant Date") and one year from the
date the option was exercised (the "Exercise Date"), then the optionee will
recognize long-term capital gain in an amount equal to the excess of the sale
price of the ISO Stock over the exercise price.
If the optionee sells ISO Stock prior to having owned it for at least two
years from the Grant Date and one year from the Exercise Date (a "Disqualifying
Disposition"), then generally all or a portion of the gain recognized will be
ordinary compensation income and the remaining gain will be a capital gain,
long-term if the optionee has held the ISO Stock for more than one year prior to
the date of the sale.
If an optionee sells ISO Stock for less than the exercise price, then the
optionee will recognize capital loss equal to the excess of the exercise price
over the sale price of the ISO Stock. This capital loss will be a long-term
capital loss if the optionee has held the ISO Stock for more than one year prior
to the date of the sale.
NON-STATUTORY OPTIONS
As in the case of an incentive stock option, an optionee will not recognize
taxable income upon the grant of a non-statutory option. Unlike the case of an
incentive stock option, however, an optionee who exercises a non-statutory
option generally will recognize ordinary compensation income in an amount
26
<PAGE>
equal to the excess of the fair market value of the Common Stock acquired
through the exercise of the option (the "NSO Stock") on the Exercise Date over
the exercise price.
With respect to any NSO Stock, an optionee will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, an optionee generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the optionee's tax basis in the NSO Stock. This capital gain or loss will be a
long-term capital gain or loss if the participant has held the NSO Stock for
more than one year prior to the date of the sale.
TAX CONSEQUENCES TO THE COMPANY
The grant of a stock option under the Equity Incentive Plan will have no tax
consequences to the Company. Moreover, in general, neither the exercise of an
incentive stock option acquired under the Equity Incentive Plan nor the sale of
any Common Stock acquired under the Equity Incentive Plan will have any tax
consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by an optionee under the Equity Incentive Plan. Any such
deduction will be subject to the limitations of Section 162(m) of the Code.
BOARD RECOMMENDATION
The Board of Directors believes the amendment to the Equity Incentive Plan
is in the best interests of the Company and its stockholders and therefore
recommends that the stockholders vote FOR this proposal.
PROPOSAL 4. AMENDMENT TO THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION
By resolution adopted on February 26, 1998, the Company's Board of Directors
proposed the adoption of an amendment to the Company's Restated Certificate of
Incorporation (the "Charter") pursuant to which the number of authorized shares
of Common Stock would be increased from 120,000,000 to 200,000,000, and the
Board directed that the proposed amendment be submitted for approval by the
stockholders at the Annual Meeting.
If the Company's stockholders approval the amendment, the Charter will be
amended to increase the authorized shares of Common Stock to 200,000,000.
Of the 120,000,000 currently authorized shares of Common Stock, as of March
2, 1998, 49,062,341 were issued and outstanding. In addition, the Company had
reserved 15,000,000 shares for issuance upon conversion of the Series A
Preferred Stock, 5,550,749 shares of Common Stock for issuance upon exchange of
the Exchangeable Shares and approximately 20,367,500 shares of Common Stock for
issuance under the Company's stock option plans and stock purchase plans, upon
conversion of the Company's 5 1/2% Convertible Notes Due 2000 and upon exercise
of certain warrants issued by the Company. The Company has also reserved
8,687,500 shares of Common Stock upon issuance upon exchange of Exchangeable
Shares for which SoftKey Software has issued 8,687,500 special warrants. On
March 5, 1998, the Company entered into a Stock Purchase Agreement among the
Company, Mindscape Holding Company, Pearson Overseas Holdings Ltd. and Pearson
Netherlands, BV pursuant to which the Company agreed to purchase all of the
stock of Mindscape, Inc. and certain of Mindscape's affiliates for a purchase
price of $150,000,000, payable primarily in cash and the remainder through the
issuance of shares of Common Stock. Other than the reservations of Common Stock
and transactions described above, the Company does not now have any present
understanding or agreement to issue additional shares of Common Stock.
Although currently authorized shares are sufficient to meet all known
present requirements, the Board believes that it is desirable that the Company
have the flexibility to issue additional shares of
27
<PAGE>
Common Stock without further stockholder action. In particular, the Company
continuously evaluates products and technologies for acquisition, including
acquisitions payable in whole or in part in Common Stock. In addition, the
availability of additional shares of Common Stock will enhance the Company's
flexibility in connection with possible future actions such as stock dividends,
stock splits, financings, employee benefit programs, acquisitions of property,
corporate mergers, the possible funding of new product programs or businesses or
other corporate purposes.
Authorized shares of Common Stock in excess of those shares outstanding also
could be used to make more difficult a change in control of the Company. For
example, such shares could be sold to purchasers who might side with the Board
of Directors in opposing a takeover bid that the Board determines not to be in
the best interests of the Company and its stockholders. Such a sale could have
the effect of discouraging an attempt by another person or entity, through the
acquisition of a substantial number of shares of the Company's Common Stock, to
acquire control of the Company, since the issuance of new shares could be used
to dilute the stock ownership of the acquirer. Neither the Charter nor the
Company's By-Laws now contains any provisions that are generally considered to
have an anti-takeover effect, and the Board of Directors does not now plan to
propose any anti-takeover measures in future proxy solicitations. The Company is
not aware of any pending or threatened efforts to obtain control of the Company,
and the Board of Directors has no current intention to use the additional shares
of Common Stock to impede a takeover attempt. The Board will determine whether,
when and on what terms the issuance of shares of Common Stock may be warranted
in connection with any of the foregoing purposes.
If the proposed amendment to the Charter is adopted, all or any of the
authorized shares of Common Stock may be issued in the future for such corporate
purposes and such consideration as the Board deems advisable from time to time,
without further action by the stockholders of the Company and without first
offering such shares to the stockholders for subscription. The issuance of
shares otherwise than on a pro rata basis to all current stockholders would
reduce the current stockholders' proportionate interests in the Company and
could therefore be dilutive to the financial and voting interests of current
stockholders. However, in any such event, stockholders wishing to maintain their
interests may be able to do so through normal market purchases. The Company does
not believe that the issuance of authorized, unissued Common Stock will have any
other effect on the rights of holders of the Common Stock.
ADOPTION OF AMENDMENT TO THE CHARTER BY STOCKHOLDERS
The affirmative vote of a majority of the votes represented by the shares of
Common Stock, the Special Voting Share and the Series A Conversion Shares,
voting together as one class, that are entitled to vote at the Annual Meeting is
required for adoption of the proposed amendment to the Charter. If the proposed
amendment is adopted by the stockholders, it will become effective upon filing
and recording a Certificate of Amendment as required by the Delaware General
Corporation Law.
BOARD RECOMMENDATION
The Board of Directors believes the amendment to the Charter is in the best
interests of the Company and its stockholders and therefore recommends that the
stockholders vote FOR this proposal.
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<PAGE>
PROPOSAL 5. OTHER BUSINESS
The Company does not know of any matters that may come before the Annual
Meeting other than the matters described in the attached Notice. However, if any
other matters properly come before the Annual Meeting, the persons named as
proxies on the enclosed proxy card intend to vote the proxies in accordance with
their judgment. If any nominee has become unavailable at the date of the Annual
Meeting, which there is no reason to expect, your proxy, in the enclosed or any
other form that so provides, may be voted for a new nominee of the management,
unless the Board reduces the number of directors.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
It is currently anticipated that the 1999 Annual Meeting of Stockholders of
the Company will be held on or about May 21, 1999. Stockholder proposals
intended to be presented at such Annual Meeting must be received by the Company
not later than December 3, 1998 for inclusion in the proxy materials for such
Annual Meeting.
By Order of the Board of Directors
[SIG]
NEAL S. WINNEG
Secretary
29
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THE LEARNING COMPANY, INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
PROXY CARD FOR THE MAY 21, 1998
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having read the Notice of Annual Meeting of Stockholders
and the Proxy Statement dated April 2, 1998, receipt of which is hereby
acknowledged, does hereby appoint Neal S. Winneg, R. Scott Murray and Mark G.
Borden, and each of them, the lawful attorneys and proxies of the undersigned,
each with several powers of substitution, to vote and act at the Annual Meeting
of Stockholders of The Learning Company, Inc. (the "Company") to be held at The
Royal Sonesta Hotel, located at 5 Cambridge Parkway, Cambridge, Massachusetts,
on May 21, 1998, at 9:00 a.m. local time, and any adjournment thereof, with
respect to all shares of common stock, par value $.01 per share (the "Common
Stock"), held of record by the undersigned on March 26, 1998, with all the
powers that the undersigned would possess if personally present and acting, as
follows:
THIS PROXY WILL BE VOTED AS DIRECTED BUT IN THE ABSENCE OF SUCH DIRECTION,
IT WILL BE VOTED FOR ITEMS 1-4 BELOW. AS TO ANY OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE ANNUAL MEETING, PROXIES WILL BE VOTED IN THE DISCRETION OF THE
PROXY HOLDERS.
1. To elect Lamar Alexander, Michael A. Bell, Anthony J. DiNovi, James C.
Dowdle, Robert Gagnon, Mark E. Nunnelly, Kevin O'Leary, Michael J. Perik,
Carolynn Reid-Wallace, Robert A. Rubinoff, Scott M. Sperling and Paul J.
Zepf as Directors for a one year term. If any of such nominees should be
unavailable, the proxies and each or any of them may vote for substitute
nominees at their discretion.
/ / FOR / / WITHHELD
/ /
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FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
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2. TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR ENDING JANUARY 2,
1999.
/ / FOR / / AGAINST / / ABSTAIN
3. TO APPROVE AN AMENDMENT TO THE COMPANY'S LONG TERM EQUITY INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
4. TO APPROVE AN AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S
COMMON STOCK FROM 120,000,000 TO 200,000,000.
/ / FOR / / AGAINST / / ABSTAIN
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT THEREOF.
/ / MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
PLEASE DATE AND SIGN EXACTLY AS
NAME(S) APPEAR(S) ON THIS
PROXY. WHEN SIGNING AS
ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUST, GUARDIAN,
ETC., GIVE TITLE AS SUCH. IF
JOINT ACCOUNT, EACH JOINT OWNER
SHOULD SIGN.
Signature:___________ Date:___
Signature:___________ Date:___
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APRIL 2, 1998
INFORMATION STATEMENT WITH RESPECT TO
THE EXCHANGEABLE NON-VOTING SHARES OF
SOFTKEY SOFTWARE PRODUCTS INC.
TO: HOLDERS OF EXCHANGEABLE NON-VOTING SHARES OF
SOFTKEY SOFTWARE PRODUCTS INC.
Enclosed with this Notice are proxy materials relating to The Learning
Company, Inc. ("TLC"), the parent company of SoftKey Software Products Inc.
("SSPI"), in connection with TLC's upcoming annual meeting of stockholders (the
"Meeting") to be held at The Royal Sonesta Hotel, located at 5 Cambridge
Parkway, Cambridge, Massachusetts on Thursday, May 21, 1998, at 9:00 a.m. local
time. Proxy materials relating to TLC are being provided to you because, as a
holder of SSPI's exchangeable non-voting shares ("Exchangeable Shares"), you
have voting rights at stockholders' meetings of TLC. Pursuant to certain orders
or rulings issued by the securities commissions in the Provinces of Ontario,
British Columbia, Quebec and Nova Scotia, TLC is required to provide holders of
Exchangeable Shares with all disclosure material furnished to holders of TLC's
common stock ("TLC Common Shares") residing in the United States.
ECONOMIC EQUIVALENCY OF EXCHANGEABLE SHARES AND TLC COMMON SHARES
The Exchangeable Shares provide holders thereof with a security of SSPI
having economic and voting rights which are, as nearly as practicable,
equivalent to those of a TLC Common Share. In particular, Exchangeable Shares
are: (a) entitled to dividends from SSPI payable at the same time as, and in the
Canadian dollar equivalent of, dividends paid by TLC on TLC Common Shares; (b)
retractable at the option of the holder at any time for TLC Common Shares; (c)
entitled on the liquidation, dissolution or winding-up of SSPI to be exchanged
for TLC Common Shares; (d) entitled on the dissolution of TLC to be
automatically exchanged for TLC Common Shares; and (e) entitled to direct voting
rights at stockholders' meetings of TLC.
As a result of the economic equivalency of the Exchangeable Shares and the
TLC Common Shares, holders of Exchangeable Shares effectively have a
participating interest in TLC, rather than SSPI. Accordingly, information
respecting the financial condition of SSPI would not be relevant to holders of
Exchangeable Shares because the value of Exchangeable Shares is dependent on the
consolidated financial condition of TLC and the value of the TLC Common Shares.
To ensure that you receive meaningful disclosure respecting the nature of your
investment, you are being provided with the same disclosure material that TLC
provides to holders of TLC Common Shares.
RIGHT TO DIRECT VOTING AT MEETINGS OF TLC STOCKHOLDERS
As you are aware, CIBC Mellon Trust Company, which was formerly known as The
R-M Trust Company (the "Trustee"), is entitled at the Meeting to cast a number
of votes attaching to the single outstanding share of Special Voting Stock of
TLC equal to the number of outstanding Exchangeable Shares on the record date of
the Meeting. These votes to be cast by the Trustee may only be exercised in
accordance with the instructions of the holders of the Exchangeable Shares of
SSPI. This information statement outlines the nature and extent of your right as
a holder to instruct the Trustee and describes the process by which your
instructions will be carried out.
A form of direction (the "Direction") is enclosed with this information
statement that will serve as your instructions to the Trustee. The Direction
should be completed as soon as possible and returned to CIBC Mellon Trust
Company either in the enclosed envelope or by mail to CIBC Mellon Trust Company,
Proxy Department, 200 Queens Quay East, Unit 6, Toronto, Ontario M5A 4K9. Please
note that unless the Direction has been received by 5:00 p.m. (Toronto time) on
Tuesday, May 19, 1998 (the "Filing Time"), your instructions will not be binding
upon the Trustee and your voting rights will not be exercised.
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Each of you is entitled to attend the Meeting and to vote in person, or to
designate a person who will attend the Meeting and vote on your behalf. These
alternatives appear as items (B) and (C), respectively, on the Direction. If you
decide to choose one of these alternatives, you can instruct the Trustee to
provide you (or the person designated by you) with a proxy card which will be
delivered to you (or the person designated by you) at the Meeting by the
Trustee's representatives upon the presentation of satisfactory identification.
At the Meeting, you (or the person designated by you) will be entitled to cast
one vote for each Exchangeable Share of SSPI held by you on the record date for
the Meeting (and not subsequently disposed of) (the "Beneficiary Votes") in
respect of each matter to be voted on at the Meeting.
Alternatively, you are entitled to instruct the Trustee to give a proxy card
to a representative of the Company who will exercise the Beneficiary Votes at
the Meeting in accordance with your instructions. This alternative appears as
item (A) on the Direction. If you decide to proceed in this manner, you should
complete items 1 through 4 on the Direction which represent the items of
business to be considered and voted on at the Meeting.
In addition to revocation in any manner permitted by law, you may revoke or
amend your instructions by filing an instrument in writing executed by you, or
by your attorney authorized in writing, and delivered to the office of the
Trustee shown above at any time up to and including the Filing Time. Your
instructions may also be revoked in person at the Meeting prior to 8:00 a.m. on
May 21, 1998 by submitting written revocation of your instructions and
satisfactory identification to the Trustee's representatives. In the event that
the Meeting is adjourned, your instructions may be revoked or amended at any
time up to and including 5:00 p.m. (Toronto time) on the second business day
prior to the day of any adjournment of the Meeting by delivering an instrument
in writing to the office of the Trustee (in the manner described above), or your
instructions may be revoked in person at any adjournment of the Meeting not less
than one hour prior to the time of such adjourned meeting.
Failure to comply with the foregoing will not affect your right to attend
the Meeting, or any adjournment thereof, and to vote in person so long as
satisfactory identification is presented to the Trustee's representatives.
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THE LEARNING COMPANY, INC.
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DIRECTION TO BE GIVEN BY HOLDERS OF EXCHANGEABLE
NON-VOTING SHARES OF SOFTKEY SOFTWARE PRODUCTS INC.
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DIRECTION FOR THE MAY 21, 1998 ANNUAL MEETING
OF STOCKHOLDERS OF THE LEARNING COMPANY, INC.
The undersigned, having read the Notice of Annual Meeting (the "Annual
Meeting") of Stockholders of The Learning Company, Inc. (the "Company") to be
held at The Royal Sonesta Hotel, located at 5 Cambridge Parkway, Cambridge,
Massachusetts on Thursday, May 21, 1998, at 9:00 a.m. local time, the Proxy
Statement and the Information Statement dated April 2, 1998, receipt of which
are hereby acknowledged, DOES HEREBY INSTRUCT AND DIRECT CIBC MELLON TRUST
COMPANY (THE "TRUSTEE"), pursuant to the provisions of the Voting and Exchange
Trust Agreement (the "Agreement") dated February 4, 1994 among the Company,
SoftKey Software Products Inc. and the Trustee, as follows:
(PLEASE SELECT ONE OF A, B OR C.)
A. / / Exercise or cause to be exercised, whether by proxy given by the
Trustee to a representative of the Company or otherwise, the
Beneficiary Votes (as defined in the Agreement) at the Annual Meeting,
or any postponement or adjournment thereof as follows:
(PLEASE COMPLETE THE FOLLOWING ONLY IF YOU HAVE SELECTED ALTERNATIVE A.)
1. To elect Lamar Alexander, Michael A. Bell, Anthony J. DiNovi, James C.
Dowdle, Robert Gagnon, Mark E. Nunnelly, Kevin O'Leary, Michael J. Perik,
Carolynn Reid-Wallace, Robert A. Rubinoff, Scott M. Sperling and Paul J.
Zepf as Directors for a one-year term. If any of such nominees should be
unavailable, the proxies and each or any of them may vote for substitute
nominees at their discretion.
<TABLE>
<S> <C>
/ / FOR all nominees listed above / / WITHHOLD authority to vote for all nominees
listed above
</TABLE>
WITHHOLD AUTHORITY for the following nominee(s) only: (Write name(s) in the
space provided below.)
........................................
2. To ratify the appointment of Coopers & Lybrand L.L.P. as the independent
public accountants for the Company for the fiscal year ending January 2,
1999.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the Company's Long Term Equity Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. To approve an amendment to the Company's
Restated Certificate of Incorporation to
increase the number of authorized shares of the
Company's Common Stock from 120,000,000 to
200,000,000.
/ / FOR / / AGAINST / / ABSTAIN
5. To transact such other business as may properly
come before the Annual Meeting or any
adjournment thereof.
(PLEASE NOTE: THE TRUSTEE WILL VOTE AS DIRECTED
BUT IN THE ABSENCE OF ANY SUCH DIRECTION, THE
TRUSTEE IS HEREBY AUTHORIZED AND DIRECTED TO VOTE
FOR ITEMS 1-4 ABOVE AND AS TO ANY OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING
TO VOTE IN ITS DISCRETION.)
(PLEASE GO DIRECTLY TO THE SIGNATURE LINE AT THE
BOTTOM OF THIS PAGE.)
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B. / / Deliver a proxy card to the undersigned at
the Annual Meeting, with respect to all
Exchangeable Non-Voting Shares of SoftKey
Software Products Inc. held of record by
the undersigned on the record date for the
Annual Meeting (and not subsequently
disposed of) (the "Exchangeable Shares") so
that the undersigned may exercise
personally the Beneficiary Votes (as
defined in the Agreement) at the Annual
Meeting, or any postponement or adjournment
thereof.
(IF YOU HAVE SELECTED ALTERNATIVE B, GO
DIRECTLY TO THE SIGNATURE LINE AT THE BOTTOM
OF THIS PAGE.)
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C. / / Deliver a proxy card to ...................
as the designee of the undersigned to attend
and act for and on behalf of the undersigned
at the Annual Meeting, with respect to the
Exchangeable Shares with all the powers that
the undersigned would possess if personally
present and acting thereat including the
power to exercise the Beneficiary Votes (as
defined in the Agreement) at the Annual
Meeting, or any postponement or adjournment
thereof.
(IF YOU HAVE SELECTED ALTERNATIVE C, GO
DIRECTLY TO THE SIGNATURE LINE AT THE BOTTOM
OF THIS PAGE.)
...................................................
...................................................
(Name of Holder of Exchangeable Shares)
Date: ....................................... , 1998
PLEASE DATE AND SIGN ABOVE. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUST, GUARDIAN,
ETC., GIVE TITLE AS SUCH. IF JOINT ACCOUNT, EACH
JOINT OWNER SHOULD SIGN.
