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As filed with the Securities and Exchange Commission on June 26, 1998
Registration Statement No. 333-57397
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE LEARNING COMPANY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 94-2562108
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Address, including zip code, and
telephone number, including area code,
of registrant's principal
executive offices)
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NEAL S. WINNEG
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
THE LEARNING COMPANY, INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] 333-_______.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] 333-__________.
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
SHALL DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JUNE 26, 1998
PROSPECTUS
THE LEARNING COMPANY, INC.
521,021 SHARES OF COMMON STOCK
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This prospectus covers the offer and sale (the "Offering") of 521,021
shares (the "Shares") of common stock, $.01 par value per share (the "Common
Stock"), of The Learning Company, Inc. (the "Company"). The Shares may be
offered and sold from time to time for the account of certain stockholders of
the Company (the "Selling Stockholders"). See "The Selling Stockholders." The
Shares were issued to the Selling Stockholders in connection with the
acquisition by the Company of PF.Magic, Inc. ("PF.Magic") on May 14, 1998 though
the merger of PF.Magic with and into a wholly-owned subsidiary of the Company.
See "The Acquisition."
The Company will not receive any of the proceeds from the sale of the
Shares covered by this Prospectus. The Company will bear all costs (excluding
(i) any brokerage fees, selling commissions or underwriting discounts incurred
by the Selling Stockholders in connection with sales hereunder and (ii) the fees
and expenses of any counsel retained by the Selling Stockholders), fees and
expenses incurred in effecting the registration of the Shares covered by this
Prospectus, including, without limitation, all registration and filing fees,
exchange listing fees, fees and expenses of counsel for the Company, fees and
expenses of accountants for the Company, printing expenses and blue sky fees and
expenses.
The Shares covered by this Prospectus may be sold from time to time by
the Selling Stockholders, or by their pledgees, donees, transferees or other
successors in interest, in the over-the-counter market, through the writing of
options on the Shares, in ordinary brokerage transactions, in negotiated
transactions, or otherwise, at market prices prevailing at the time of sale or
at negotiated prices. See "Plan of Distribution."
The Selling Stockholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Shares offered
hereby, and any profits realized or commissions received may be deemed
underwriting compensation. See "Plan of Distribution."
The Company's Common Stock is traded on the New York Stock Exchange
(the "NYSE") under the symbol "TLC." On June 18, 1998, the closing sale price
of the Common Stock on the NYSE was $24.8125 per share.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is June ___, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Company is required to file electronic versions of these documents
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments, supplements, exhibits and schedules
thereto, the "Registration Statement") under the Securities Act, with respect to
the Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, as certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the Shares, reference is made
to such Registration Statement. Statements contained in this Prospectus
regarding the contents of any agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such agreement
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement may be inspected without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) The Company's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998, filed with the
Commission on March 13, 1998;
(ii) The Company's Amendment No. 1 to Annual Report on
Form 10-K for the fiscal year ended January 3, 1998,
filed with the Commission on May 28, 1998;
(iii) The Company's Amendment No. 2 to Annual Report on
Form 10-K for the fiscal year ended January 3, 1998,
filed with the Commission on June 19, 1998;
(iv) The Company's Current Report on Form 8-K, dated March
12, 1998, and filed with the Commission on March 17,
1998;
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(v) The Company's Definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 21,
1998, filed with the Commission on April 2, 1998;
(vi) The Company's Current Report on Form 8-K, dated March
27, 1998, and filed with the Commission on April 13,
1998;
(vii) The Company's Amendment No. 1 to Current Report on
Form 8-K/A, dated March 27, 1998, and filed with the
Commission on April 29, 1998;
(viii) The Company's Amendment No. 2 to Current Report on
Form 8-K/A, dated March 27, 1998, and filed with the
Commission on May 8, 1998;
(ix) The Company's Amendment No. 3 to Current Report on
Form 8-K/A, dated March 27, 1998, and filed with the
Commission on May 20, 1998;
(x) The Company's Amendment No. 4 to Current Report on
Form 8-K/A, dated March 27, 1998, and filed with the
Commission on May 29, 1998;
(xi) The Company's Quarterly Report on Form 10-Q for the
quarter ended April 4, 1998, filed with the
Commission on May 13, 1998;
(xii) The Company's Registration Statement on Form 8-A,
filed with the Commission on October 29, 1996; and
(xiii) The Company's Current Report on Form 8-K, dated
June 21, 1998, and filed with the Commission on
June 24, 1998.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Shares registered
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). All such requests shall be
directed to: The Learning Company, Inc., One Athenaeum Street, Cambridge,
Massachusetts 02142, Attention: Secretary, Telephone: (617) 494-1200.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents incorporated
herein constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 2B of the Exchange Act. For this purpose, any
statements contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "plans," "expects" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements. These
factors include those set forth in "Risk Factors" herein.
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THE COMPANY
The Learning Company, Inc. (the "Company") develops and publishes a
broad range of high quality branded consumer software for personal computers
("PCs") that educate across every age category, from young children to adults.
The Company's primary emphasis is in education and reference software, but it
also offers a selection of lifestyle, productivity and, to a lesser extent,
entertainment products, both in North America and internationally.
The Company's educational products are principally sold under a number
of well known brands, including The Learning Company, MECC and Creative Wonders
brands. The Company develops and markets educational products for children ages
18 months to 7 years in the popular "Reader Rabbit" family, which includes both
single-subject and multi-subject titles such as Reader Rabbit's Reading 1 and
Reader Rabbit's Math 1, and Reader Rabbit's Toddler, Reader Rabbit's Pre-School,
Reader Rabbit's Kindergarten and Reader Rabbit's 1st Grade. The Company also
publishes educational products for this age group based on the popular Sesame
Street and Madeline characters, among others. For children seven years and
older, the Company develops and markets engaging educational products such as
the long-running "Trail" series, which includes Oregon Trail 3rd Edition, as
well as products based on the popular Baby-Sitter's Club books. During 1997, the
Company launched its American Girls Premiere title, which is marketed towards
girls in this age group.
The Company develops and markets several different lines of software
designed to teach children and adults such foreign languages as French, German,
Spanish and Japanese. These lines include, among others, the Learn to Speak and
Berlitz lines of products.
The Company's reference products include the "Compton's Home Library"
line which includes, among others, Compton's Interactive Encyclopedia and
Compton's World Atlas. In addition, the Company offers a line of medical
reference products that includes BodyWorks, Home Medical Reference Library and
Mosby's Medical Encyclopedia. The Company's productivity line is marketed under
the SoftKey and the Creative Office brands. The Company also publishes a
lower-priced line of products in box version under the Key and Classics brands
and a jewel-case only version under the SoftKey brand.
During 1997, the Company began offering an Internet filtering product
with the introduction of the popular Cyber Patrol, which allows parents and
teachers to choose what content on the Internet is appropriate for children.
Adults can choose to block material organized into many different categories
such as violence, nudity, and explicit sexual material and hate speech. In
addition to marketing the product to homes and schools, the Company is also
marketing to corporations a version of Cyber Patrol that can block sites with
content such as sports, leisure and shopping to improve productivity in the
office.
The Company distributes its products through retail channels, including
direct sales to computer electronics stores, office superstores, mass
merchandisers, discount warehouse stores and software specialty stores which
control over 23,000 North American storefronts. The Company also sells its
products directly to consumers through the mail, telemarketing and the Internet,
and directly to schools. The Company's international sales are conducted from
subsidiaries in Germany, France, Holland, Ireland, the United Kingdom, Australia
and Japan. The Company also derives revenue from licensing its products to
original equipment manufacturers ("OEMs") which bundle the Company's products
for sale with computer systems or components and through on-line offerings.
The Company has a history of acquiring companies in order to broaden
its product lines and sales channels. In May 1998, the Company completed the
acquisition of PF.Magic, a publisher of virtual life software for children. In
March 1998, the Company and certain of its affiliates completed
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the acquisition of Mindscape, Inc. and certain related companies (collectively,
"Mindscape"), a publisher of educational, productivity and entertainment
software. During 1997, the Company completed a number of small complementary
acquisitions in the educational software segment. During the third quarter of
1997, the Company acquired Learning Services Inc. ("Learning Services") (a
national school software catalog for teachers), Skills Bank Corporation ("Skills
Bank") (a developer of older age and remedial educational software for schools)
and Microsystems Software, Inc. ("Microsystems") (an Internet filtering
publisher and creator of Cyber Patrol). During the fourth quarter of 1997, the
Company and certain of its affiliates acquired control of Creative Wonders,
L.L.C. ("Creative Wonders") (a developer of branded children's educational
software) and acquired TEC Direct (the publisher of an educational consumer
software catalog). The Company has also entered into an agreement dated June 2,
1998 to acquired SofSource, Inc., a leading publisher of educational and test
software for high school and college students. The closing of the transaction
is subject to certain conditions, including expiration of waiting periods under
pre-merger notification regulations.
In May 1996, the Company consummated the acquisition of MECC, an
educational software publisher. That acquisition, together with the acquisitions
in December 1995 of The Learning Company ("The Former Learning Company") and
Compton's NewMedia, Inc. ("Compton's"), marked the completion of the Company's
strategic initiative to expand its educational software franchise.
The Company was incorporated in California in October 1978 and
reincorporated in Delaware in October 1986. In February 1994, the Company, which
was then known as WordStar International Incorporated, completed a three-way
business combination with SoftKey Software Products Inc. and Spinnaker Software
Corporation in which the Company changed its name to SoftKey International Inc.
In October 1996, the Company changed its name from SoftKey International Inc. to
The Learning Company, Inc. to reflect its expanded emphasis on educational
software. The Company's executive offices are located at One Athenaeum Street,
Cambridge, Massachusetts 02142. Its telephone number is (617) 494-1200, and its
internet web site is located at http:/www.learningco.com. "The Learning Company,
Inc." and all of the Company's logos and product names are trademarks of the
Company.
RECENT DEVELOPMENTS
On June 22, 1998, the Company and Broderbund Software, Inc.
("Broderbund") announced that they had reached a definitive agreement for the
Company to acquire Broderbund in a merger pursuant to which the Company will
issue 0.80 shares of the Company's Common Stock in exchange for each outstanding
share of Broderbund's Common Stock.
The closing of the merger is subject to customary closing conditions,
including expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
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RISK FACTORS
The Shares offered hereby involve a high degree of risk. The following
risk factors should be considered carefully in addition to the other information
included or incorporated by reference in this Prospectus before purchasing the
Shares offered hereby.
INTENSE COMPETITIVE ENVIRONMENT
The consumer software industry is intensely and increasingly
competitive and is characterized by rapid changes in technology and customer
requirements. The Company competes for retail shelf space and general consumer
awareness with a number of companies that market consumer software. The Company
encounters competition from both established companies, including the largest
companies in the industry, and new companies that may develop comparable or
superior products. A number of the Company's competitors and potential
competitors possess significantly greater capital, marketing resources and brand
recognition than the Company. Rapid changes in technology, product obsolescence
and advances in computer software and hardware require the Company to develop or
acquire new products and to enhance its existing products on a timely basis. The
Company's marketplace has recently experienced a higher emphasis on online and
Internet related services and content tailored for this new delivery vehicle. To
the extent that demand increases for online products and content, the demand for
the Company's existing products may change. There can be no assurance that the
Company will be able to successfully maintain market share and otherwise compete
successfully in the future.
Competitive pressures in the software industry have resulted, and the
Company believes may continue to result, in pressure to reduce the prices of its
products or risk loss of market share. In response to such competitive pressures
during early 1997 the Company reduced the retail selling price of certain of its
educational products. There can be no assurance that the Company's product
selling prices will not continue to decline in the future or that the Company
will not respond to such declines with additional price reductions. Such price
reductions may reduce the Company's revenues and operating margins in the
future. During 1997, the Company and many of its competitors began using rebate
coupons in order to induce consumers to purchase their products. In addition,
the Company uses various forms of prints and television advertising to enhance
brand and product awareness. The use of these methods of channel marketing and
advertising is becoming more prevalent among the larger consumer software
publishers. To the extent that the Company fails to match competitor's future
channel marketing and advertising programs, it could risk loss of market share
and corresponding revenues and operating profits.
Large companies with substantial bases of intellectual property content
in the motion picture and media industries, sophisticated product marketing and
technical abilities and/or financial resources that may not need to realize an
immediate profit or return on investment have increasingly entered or announced
their intention to enter the consumer software market. These competitors include
Microsoft Corporation, The Walt Disney Company, Mattel, Inc., Hasbro, Inc. and
Cendant Corporation (formerly CUC International Inc.). For example, technology
companies have begun to acquire greater access to content, and content-oriented
companies have begun to acquire greater technological capabilities. To the
extent that competitors achieve a performance, price or distribution advantage,
the Company could be adversely affected. Furthermore, increased consolidation of
the consumer software market may impact future growth potential and performance.
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INTENSE COMPETITION FOR DISTRIBUTION CHANNELS
In the retail distribution channel resellers typically have available a
limited amount of shelf space and promotional resources. There is intense
competition for high quality and adequate levels of shelf space and promotional
support from retailers. To the extent that the number of consumer computer
platforms and products increases, this competition for shelf space may also
increase. The Company also competes for shelf space against non-educational and
reference category publishers such as games. To the extent that these vendors
acquire greater shelf space, the Company's position may be reduced. Mass
merchants such as Wal-Mart and Kmart are increasingly becoming a larger portion
of the Company's sales. As these retailers achieve greater market share from the
traditional software retailers, the Company may experience higher marketing
costs and increased competition for shelf space, which could impact future sales
and operating margins. Additionally, as technology changes, the type and number
of distribution channels will further change and new types of competitors, such
as cable or telephone companies, are likely to emerge. There can be no assurance
that the Company will compete effectively in these channels in the future.
The retail channels of distribution available for products are subject
to rapid changes as retailers and distributors enter and exit the consumer
software market or alter their product inventory preferences. Other types of
retail outlets and methods of product distribution may become important in the
future. These new methods may include delivery of software using online services
or the Internet, which will necessitate certain changes in the Company's
business and operations including addressing operational challenges such as
improving download time for pictures, images and programs, ensuring proper
regulation of content quality and developing sophisticated security for
transmitting payments. Should on-line distribution channels increase, the
Company will be required to modify its existing technology platforms in order
for its products to be compatible and remain competitive. It is critical to the
success of the Company that, as these changes occur, it maintain access to those
channels of distribution offering software in its market segments.
ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES
The Company has historically expanded its business through, among other
strategies, acquisitions, business combinations and strategic alliances.
Moreover, the consumer software industry as a whole has recently experienced
consolidation. The Company believes that its customers will in the future demand
that the Company offer increasing numbers of titles throughout the range of
product categories. The Company believes that in many cases the most efficient
means to acquire such titles or the ability to develop or license such titles is
to enter into acquisitions, business combinations or strategic alliances with
consumer software companies and others.
The Company continuously evaluates and considers other businesses of
varying sizes as potential strategic partners and candidates for acquisition
(whether negotiated or non-negotiated) and continuously engages in discussions
with certain businesses in pursuit of possible transactions. Certain of these
businesses may be substantial in size as compared to the Company. There can be
no assurance that the Company will enter into any such transaction or, if the
Company does identify and consummate such a transaction, that the transaction
will enable the Company to achieve its goals.
Acquisitions or business combination transactions that would result in
further expansion of the Company's business in the entertainment and educational
product areas may result in a higher degree of product acceptance risk and
longer development cycles for the Company's products. In addition, companies
that develop entertainment software (for PC, Sega, Nintendo and 3DO platforms)
typically experience lower gross margins than the Company has experienced from
its current operations. Further, should purchase accounting be used by the
Company for future acquisitions or business combination transactions, such
accounting treatment may result in large, one-time expense charges for
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in-process research and development costs and short amortization periods for
acquired technology and other intangible assets acquired in the transaction.
Competition for suitable acquisitions, business combinations and
strategic alliances and the cost of these transactions have recently been
increasing. The future availability of desirable prospects for these
transactions in the computer software industry is uncertain. In addition,
assuming that the Company is able to identify appropriate transaction prospects,
the execution and implementation of acquisitions, business combinations and
strategic alliances involves a significant time commitment from senior
management and can result in large restructuring costs. There can be no
assurance that suitable opportunities will be identified, that transactions can
be consummated or that assets, businesses or relationships acquired in such
transactions can be integrated successfully into the Company's operations.
LEVERAGE
As of June 15, 1998, the Company had outstanding $190,995,000 principal
amount of 5 1/2% Senior Convertible Notes due 2000 (the "Notes"). The Notes will
be redeemable by the Company on or after November 2, 1998 at declining
redemption prices. If the holders of the Notes do not convert the Notes held by
them into Common Stock, there can be no assurance that the Company's operating
cash flow will be sufficient to meet its debt service requirements, or that the
Company will be able to repay the Notes at maturity or in accordance with their
respective terms or to refinance the Notes on favorable terms or at all.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES; KEY EMPLOYEES
The Company is currently experiencing a period of rapid growth that is
placing and will likely continue to place a strain on the Company's financial,
management and other resources in the future. The Company's ability to continue
to manage its growth effectively will require it, among other things, to
continue to improve its operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
employees. If the Company's management becomes unable to manage growth
effectively, the Company's business, operating results and financial condition
could be adversely affected. For example, over the past two years, the Company
has acquired The Former Learning Company, Compton's, Compton's Learning Company,
MECC, Learning Services, Skills Bank, Microsystems, TEC Direct and Mindscape,
among other companies. Should certain key employees not be retained, future
operating results may be adversely affected.
Additionally, as a result of such acquisitions, the Company faces
challenges relating to integration of operations such as coordinating
geographically separate organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. The process of
combining organizations may cause an interruption of, or a loss of momentum in,
the activities of the Company's business, which could have an adverse effect on
the revenues and operating results of the Company, at least in the near term.
The ability of software companies with significant internal development
and marketing capabilities to continue to manage growth, develop competitive new
products and respond to rapid technological change depends on an ability to
attract, motivate, manage and retain talented developers, product marketers and
other employees with valuable technological and marketing expertise. The
Company's educational software products require a substantially larger internal
development and marketing staff than its operations had previously required. If
the Company is unable to attract, motivate, manage and retain such employees,
the Company's results of operations will likely be adversely affected.
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NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The Company operates in a highly competitive and technology driven
environment. The consumer software industry is undergoing substantial change and
is subject to a high level of uncertainty. Software companies must continue to
develop or acquire new products or upgrade existing products on a timely basis
to sustain revenues and profitable operations. Factors contributing to the short
life span of PC software have included rapid technological change and an
expanded demand for content-rich products. Software companies must continue to
create or acquire innovative new products reflecting technological changes in
hardware and software and translate current products into newly accepted
hardware and software formats, in order to gain and maintain a viable market for
their products. PC hardware, in particular, is steadily advancing in power and
function, expanding the market for increasingly complex and flexible software
products. This has also resulted in longer periods necessary for research and
development of new products and a greater degree of unpredictability in the time
necessary to develop products. Furthermore, the rapid changes in the market and
the increasing number of new products available to consumers have increased the
degree of consumer acceptance risk with respect to any specific title that the
Company may publish. It is expected that this trend will continue and may become
more pronounced in the future.
Similarly, the Company's product-content focus and enhanced presence in
the educational and reference software market have required and will continue to
require the Company to evaluate and adopt appropriate development and marketing
strategies and methods, which may differ from those historically employed by the
Company and may subject the Company to the risks and competitive pressures
associated with those new strategies.
The Company's rights to license many of its software products are
non-exclusive and, generally, of limited duration, and there is no assurance the
Company will be able to continue to obtain new products from developers or to
maintain or expand its market share in the event that a competitor offers the
same or similar software products. If the Company is unable to develop or
acquire new products in a timely manner as revenues decrease from products
reaching the end of their natural life cycle, the Company's results of
operations will be adversely affected.
Certain of the Company's products, such as The American Girls Premiere
and the Sesame Street line of products, among others, include branded content
licensed from third parties. This content is licensed pursuant to agreements
with terms of finite duration and which may contain restrictions on the
Company's ability to develop future products without the consent of the
applicable licensor. If the Company is not able to develop future products under
these agreements or enter into alternative arrangements with the same or
additional licensors, the Company's operating results could be adversely
affected.
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT
Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
high-quality educational software products for adequate levels of shelf space
and promotional support from retailers. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The amounts paid to retailers by software publishers for preferred shelf space
are customarily determined by arms-length negotiations on a case by case basis,
and there is no general formula or industry standard for determining such fees.
There can be no assurance that such retailers will continue to purchase the
-11-
<PAGE> 14
Company's products, provide the Company's products with adequate levels and
quality of shelf space or continue to participate with the Company in
cooperative advertising, promotional or market development arrangements. In
addition, the Company has implemented new promotional programs, including coupon
rebates and other various programs through print and television media. These
programs may increase the Company's cost of marketing and reduce operating
margins.
SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE
Recently, several major publishers of PC software, including the
Company, have significantly reduced the prices of their products with the goal
of gaining greater market share. The retail and wholesale prices of many of the
Company's products have declined and the Company has introduced new lines of
lower-priced software products. There can be no assurance that such price
reductions or new product lines will result in an increase in unit sales volume
or that prices will not continue to decline in the future. Such a decline would
lead to a decrease in the revenues from, and gross margin on, sales of such
products in the future and could result in lower cash flow or operating margins.
RISK OF INTERNATIONAL OPERATIONS
The Company derived approximately 19% of its revenues in the year ended
January 3, 1998 from sales occurring outside North America. These revenues are
subject to the risks normally associated with international operations,
including currency conversion risks, limitations (including taxes) on the
repatriation of earnings, slower and more difficult accounts receivable
collection, greater difficulty and expense in administering business abroad,
complications in complying with foreign laws and the necessity of obtaining
requisite export licenses, which on occasion may be delayed or difficult to
obtain. In addition, while United States copyright law, international
conventions and international treaties may provide meaningful protection against
unauthorized duplication of software, the laws of foreign jurisdictions may not
protect the Company's proprietary rights to the same extent as the laws of the
United States. Software piracy has been, and can be expected to be, a persistent
problem for participants in the "shrink-wrap" software industry, including the
Company. These problems are particularly acute in certain international markets
such as South America, the Middle East, the Pacific Rim and the Far East.
PROTECTION OF PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS
The Company relies on a combination of trade secret, copyright,
trademark and other proprietary rights laws and license agreements to protect
its rights to its software products and related documentation. The Company does
not have any patents. United States copyright law, international conventions and
international treaties, however, may not provide meaningful protection against
unauthorized duplication of the Company's software. The Company generally
licenses its externally developed products rather than transferring title and
has relied on contractual arrangements with recipients and users of its products
to establish certain proprietary rights and to maintain confidentiality of those
products protected by trade secret law. Consistent with standard industry
practice, the Company's products generally are licensed pursuant to
"shrink-wrap" licenses that are not signed by the licensee. The enforceability
of such licenses has not been conclusively determined. The Company's products do
not contain any mechanisms to prevent or inhibit unauthorized copying.
The Company has registered numerous trademarks in the United States and
Canada, and a smaller number in other countries, for titles or components of its
products and has trademark registrations pending in the United States and other
countries for various new products.
-12-
<PAGE> 15
Policing unauthorized use of a broadly disseminated product such as PC software
is very difficult. Software piracy can be expected to be a persistent problem
for the "shrink-wrap" software industry. These problems are particularly acute
in certain international markets such as South America, the Middle East, the
Pacific Rim and the Far East.
The Company periodically receives communications alleging or suggesting
that its products may incorporate material covered by the copyrights, trademarks
or other proprietary rights of third parties. With the increased use of music
and animation in CD-ROM products and the increased number of software products
on the market generally, the Company is likely to experience an increase in the
number of infringement claims asserted against it in the future. With respect to
licensed products, the Company is generally indemnified against liability on
these matters. The Company's policy is to investigate the factual basis of such
communications and to resolve such matters promptly by enforcing its rights,
negotiating licenses (if necessary) or taking other appropriate actions.
In certain circumstances, litigation may be necessary to enforce the
Company's proprietary rights, to protect copyrights, trademarks and trade
secrets and other intellectual property rights owned by the Company or its
licensors, to defend the Company against claimed infringements of the rights of
others and to determine the scope and validity of the proprietary rights of the
Company and others. Any such litigation, whether with or without merit, could be
costly and a diversion of management's attention, which could have an adverse
effect on the Company's business, operating results or financial condition.
Adverse determinations in litigation relating to any of the Company's products
could result in the loss of the Company's proprietary rights, subject the
Company to liabilities, require the Company to seek licenses from third parties
or prevent the Company from selling that product.
DEPENDENCE ON MAJOR SUPPLIER
In 1997, the production, assembly and distribution of the Company's
North American line of products was performed by two units of Bertelsmann AG
(collectively, "BMG"), (with the exception of school channel products and
certain OEM products). The Company believes that BMG's existing production
capacity is sufficient to handle anticipated increases in volume and titles into
the foreseeable future. Although the Company believes that suitable alternative
suppliers exist, there can be no assurance that any termination or modification
of the agreement with BMG would not result in a short-term business interruption
for the Company.
YEAR 2000 COMPLIANCE
The Company has initiated an internal study to ensure that its computer systems
and related applications are Year 2000 compliant. The Company has been taking,
and will continue to take, actions intended to resolve Year 2000 issues through
planned replacement or upgrades of its software systems. During the execution of
this project the Company has incurred, and may continue to incur, internal staff
costs as well as consulting and other expenses related to enhancements necessary
to prepare systems for the year 2000. Based on information currently available
to it, the Company believes it will be able to modify or replace any affected
systems in time to minimize any detrimental effects on operations, and that any
additional associated costs will not be material to the financial condition or
results of operations of the Company. The Company is in the process of
determining the effect of this issue on its vendors' and customers' systems.
There can be no assurance that the systems of such third parties will be Year
2000 compliant on a timely basis, or that the Company's results of operations
will not be adversely affected by the failure of systems operated by third
parties to properly operate in the year 2000.
-13-
<PAGE> 16
HISTORY OF OPERATING LOSSES
A variety of factors may cause period-to-period fluctuations in the
Company's operating results, including integration of operations resulting from
acquisitions of companies, products or technologies, revenues and expenses
related to the introduction of new products or new versions of existing
products, changes in selling prices, customer delays in purchases in
anticipation of upgrades to existing products, currency fluctuations, dealer and
distributor order patterns, general economic trends or a slowdown of PC sales
and seasonality of customer buying patterns. Historical operating results of the
Company and its predecessors cannot be relied upon as indicative of the future
performance of the Company. On an historical basis, the Company incurred net
losses of $65,960,000 for the year ended January 6, 1996 (after amortization,
merger and other costs of $103,172,000), $405,451,000 for the year ended January
4, 1997 (after amortization, merger and other costs of $501,330,000) and
$475,667,000 for the year ended January 3, 1998 (after amortization, merger and
other costs of $515,016,000). The Company had net income of $21,145,000 for the
year ended December 31, 1994. There can be no assurance that the Company will be
profitable in the future.
CAPITAL RESOURCES
The expansion of the Company's current business involves significant
financial risk and capital investment. There is no assurance that financing will
be available in the future to meet the needs of the Company for additional
investment.
DEPENDENCE ON CONTINUED PERSONAL COMPUTER SALES
The success of the Company is dependent upon the continuing use of PCs,
and especially multimedia PCs, in the consumer and school market. A general
decrease in unit sales of PCs or shift to an alternative means of delivery could
adversely affect the Company's future results of operations.
VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the NYSE. The market price of the Common
Stock, like that for the shares of many other high technology companies, has
been and may continue to be volatile. Recently, the stock market in general and
the shares of personal computer software companies in particular have
experienced significant price fluctuations. These broad market fluctuations, as
well as general economic and political conditions and factors such as quarterly
fluctuations in results of operations, the announcement of technological
innovations, the introduction of new products by the Company or its competitors
and general conditions in the computer hardware and software industries may have
a significant impact on the market price of the Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Stockholders. The Company will bear all costs (excluding any
underwriting discounts and commissions or expenses incurred by the Selling
Stockholders for brokerage, accounting, tax or legal services or any other
expenses incurred by the Selling Stockholders in taking possession of or
disposing of the Shares), fees and expenses incurred in effecting the
registration of the Shares covered by this Prospectus, including, without
limitation, all registration and filing fees, exchange listing fees, fees and
expenses of counsel for the Company, fees and expenses of accountants for the
Company, printing expenses and blue sky fees and expenses.
-14-
<PAGE> 17
THE ACQUISITION
Pursuant to an Agreement and Plan of Merger, dated April 30, 1998 (the
"Merger Agreement"), by and among the Company, PF.Magic and PSM Merger Corp.,
PF.Magic merged with and into PSM Merger Corp., a wholly owned subsidiary of the
Company. As a result of the merger, the stockholders of PF.Magic (collectively,
the "PF. Magic Stockholders") became stockholders of the Company. As payment for
the purchase price, the Company issued 471,370 shares of its Common Stock to the
PF. Magic Stockholders.
Pursuant to the Merger Agreement, the Company issued 24,394 shares of
Common Stock to Frost & Berman Incorporated, one of the Selling Stockholders
("F&B"), for consulting and advisory services rendered by F&B in connection with
the Acquisition.
Pursuant to the terms of the Merger Agreement, 49,651 shares of the
Common Stock of the Company issued to the Selling Stockholders were placed in
escrow as a source of indemnification for the Company. These shares are
scheduled to be released from escrow upon (i) for items expected to be
encountered in the audit process, the earlier of (A) May 14, 1999; and (B) the
issuance of the first independent audit report on the Company's financial
statements which includes the financial results of TEC Direct; and (ii) for all
other items, May 14, 1999, provided that shares will not be released from escrow
to the extent necessary to secure or satisfy any claim for indemnification made
by the Company prior to such date.
THE SELLING STOCKHOLDERS
The following table sets forth, to the knowledge of the Company,
certain information, as of June 15, 1998, with respect to the Selling
Stockholders for whom the Company is registering the Shares for resale to the
public. The Company will not receive any of the proceeds from the sale of the
Shares. The shares of Common Stock covered by this Prospectus were issued to the
Selling Stockholders in connection with the acquisition of PF.Magic. See "The
Acquisition."
To the Company's knowledge, none of the Selling Stockholders holds any
position or office with, has been employed by, or has otherwise had a material
relationship with the Company or any of its subsidiaries within the past three
years.
<TABLE>
<CAPTION>
Number of
Number of Shares of Percentage of
Shares of Common Shares of
Common Stock Number of Stock Common Stock
Beneficially Shares of Beneficially Beneficially
Owned Prior to Common Stock Owned after Owned after
Name of Selling Stockholder Offering(1)(3) Offered Hereby Offering(1)(2) Offering (1)(2)
--------------------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Ernest W. Adams and 1,287 1,287 0 0
Mary Ellen Foley
Jacek Adamiec 190 190 0 0
Noah L. Anglin 708 708 0 0
</TABLE>
-15-
<PAGE> 18
<TABLE>
<CAPTION>
Number of
Number of Shares of Percentage of
Shares of Common Shares of
Common Stock Number of Stock Common Stock
Beneficially Shares of Beneficially Beneficially
Owned Prior to Common Stock Owned after Owned after
Name of Selling Stockholder Offering(1)(3) Offered Hereby Offering(1)(2) Offering (1)(2)
--------------------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Bayview Investors, Ltd. 21,759 21,759 0 0
Travis Boatman 20 20 0 0
David Brownstein 81 81 0 0
Jeremy Cantor 49 49 0 0
Ann Mei Chang 129 129 0 0
Steven Choi 4,508 4,508 0 0
John Danhakle 579 579 0 0
Anthea Fane 17 17 0 0
Steven Feuling 515 515 0 0
William Friedewald 279 279 0 0
Frost & Berman Incorporated 24,394 24,394 0 0
Robert Fulop 74,641 74,641 0 0
Christina Garden 49 49 0 0
R. James Guerard 1,287 1,287 0 0
Charles F. Hacskaylo 161 161 0 0
David Han 5,617 5,617 0 0
Les Hedger 338 338 0 0
Joan Howard 71 71 0 0
Daphne West Jackson 17 17 0 0
Andrew Kaluzniacki 387 387 0 0
Cynthia Karr 13 13 0 0
Elizabeth Karr 13 13 0 0
Karr Family 1982 Trust 29 29 0 0
Teri Keyser 39 39 0 0
Keith Kirby 1,673 1,673 0 0
Lucent Technologies, Inc. 58,864 58,864 0 0
George and Anna Mandel 857 857 0 0
</TABLE>
-16-
<PAGE> 19
<TABLE>
<CAPTION>
Number of
Number of Shares of Percentage of
Shares of Common Shares of
Common Stock Number of Stock Common Stock
Beneficially Shares of Beneficially Beneficially
Owned Prior to Common Stock Owned after Owned after
Name of Selling Stockholder Offering(1)(3) Offered Hereby Offering(1)(2) Offering (1)(2)
--------------------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Kimberly B. Reiss Maron 13 13 0 0
Michael Masters 17 17 0 0
Christopher Mayer 49 49 0 0
Bradley McKee 100 100 0 0
Douglas C. Modie 65 65 0 0
Scott Oki 54,262 54,262 0 0
W. Preston Raisin 3,486 3,486 0 0
Brenda D. Ross 49 49 0 0
RS & Co. IV, L.P. 123,299 123,299 0 0
Eric Rudney 579 579 0 0
David Schwartz and 4,508 4,508 0 0
Rosemarie Ratto
John Scull 79,471 79,471 0 0
James Stiefelmaier 258 258 0 0
Jesse Sugarman 26 26 0 0
Venture Lending, a division of 6,025 6,025 0 0
Cupertino National Bank
Paul Wilkerson 592 592 0 0
</TABLE>
- ----------------------
* Less than one percent of the number of shares of Common Stock outstanding.
(1) The number of Shares beneficially owned is determined under rules
promulgated by the Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any Shares as to which the
individual has sole or shared voting power or investment power and also
any Shares which the individual has the right to acquire within 60 days
after June 15, 1998 through the exercise of any stock option or other
right. The inclusion herein of such Shares, however, does not
constitute an admission that the Selling Stockholders are direct or
indirect beneficial owners of such Shares. The Selling Stockholders
have sole voting power and investment power with respect to all Shares
listed as owned by the Selling Stockholders.
(2) It is unknown if, when or in what amounts a Selling Stockholder may
offer Shares for sale and there can be no assurance that the Selling
Stockholders will sell any or all of the Shares offered hereby. Because
the Selling Stockholders may offer all or some of the Shares pursuant
to this Offering, and because there are currently no agreements,
arrangements or understandings with respect to the sale of any of the
Shares that will be held by the Selling Stockholders after completion
of the Offering, no estimate can be given as to the amount of the
Shares that will be held by the Selling Stockholders after completion
of the Offering. However,
-17-
<PAGE> 20
for purposes of this table, the Company has assumed that, after
completion of the Offering, no Shares will be held by the Selling
Stockholders.
(3) Includes the following number of shares of Common Stock placed in
escrow pursuant to the terms of the Merger Agreement: Ernest W. Adams
and Mary Ellen Foley (143); Jacek Adamiec (21); Noah L. Anglin (79);
Bayview Investors, Ltd. (2,418); Travis Boatman (2); David Brownstein
(8); Jeremy Cantor (5); Ann Mei Chang (14); Steven Choi (500); John
Danhakle (64); Anthea Fane (1); Steven Feuling (57); William Friedewald
(31); Robert Fulop (8,293); Christian Garden (5); R. James Guerard
(143); Charles F. Hacskaylo (18); David Han (624); Les Hedger (38);
Joan Howard (8); Daphne West Jackson (1); Andrew Kaluzniacki (42);
Cynthia Karr (1); Elizabeth Karr (1); Karr Family 1982 Trust (3); Teri
Keyser (4); Keith Kirby (186); Lucent Technologies, Inc. (6,540);
George and Anna Mandel (95); Kimberly B. Reiss Maron (1); Michael
Masters (1); Christopher Mayer (5); Bradley McKee (11); Douglas C.
Modie (7); Scott Oki (6,029); W. Preston Raisin (3,486); Brenda D. Ross
(5); RS & Co. IV, L.P. (13,700); Eric Rudney (64); David Schwartz and
Rosemarie Ratto (500); John Scull (8,830); James Stiefelmaier (28);
Jesse Sugarman (3); Venture Lending, a division of Cupertino National
Bank (669); Paul Wilkerson (66).
PLAN OF DISTRIBUTION
The Shares covered hereby may be offered and sold from time to time by
the Selling Stockholders, or by their pledgees, donees, transferees or other
successors in interest. The Selling Stockholders will act independently of the
Company in making decisions with respect to the timing, manner and size of each
sale. Such sales may be made in the over-the-counter market or otherwise, at
prices related to the then current market price or in negotiated transactions,
including pursuant to one or more of the following methods: (i) purchases by a
broker-dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (ii) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (iii) block trades in
which the broker-dealer so engaged will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction. In effecting sales, broker-dealers engaged by the Selling
Stockholders, or by their pledgees, donees, transferees or other successors in
interest may arrange for other broker-dealers to participate. Broker-dealers
will receive commissions or discounts from the Selling Stockholders, or from
their pledgees, donees, transferees or other successors in interest in amounts
to be negotiated immediately prior to the sale.
In offering the Shares covered hereby, the Selling Stockholders, or
their pledgees, donees, transferees or other successors in interest and any
broker-dealers and any other participating broker-dealers who execute sales for
the Selling Stockholders may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any profits realized by
the Selling Stockholders and the compensation of such broker-dealer may be
deemed to be underwriting discounts and commissions. In addition, any of the
Shares covered by this Prospectus which qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this Prospectus.
The Company has agreed with the Selling Stockholders to keep the
Registration Statement of which this Prospectus constitutes a part effective
until the earlier of (i) such time as all of the Shares have been disposed of
pursuant to and in accordance with such Registration Statement; or (ii) May 14,
1999. The Company intends to de-register any of the Shares not sold by the
Selling Stockholders at the end of such period.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Neal S. Winneg, General Counsel of the Company. Mr. Winneg owns
options to purchase an aggregate of 131,500 shares of Common Stock, which are to
become exercisable in periodic installments through January 1999.
-18-
<PAGE> 21
EXPERTS
The consolidated balance sheets as of January 3, 1998 and January 4,
1997 and the consolidated statements of income, retained earnings, and cash
flows for each of the three years in the period ended January 3, 1998,
incorporated by reference in this Prospectus, have been incorporated herein in
reliance on the report of Coopers & Lybrand, L.L.P., independent accountants,
given on the authority of the firm as experts in accounting and auditing.
The financial statements as of December 31, 1997 and for the year then
ended of the Mindscape Group, incorporated by reference in this Prospectus, have
been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
-19-
<PAGE> 22
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION OF AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE HEREOF.
TABLE OF CONTENTS
PAGE
Available Information........................ 3
Incorporation of Certain Documents
By Reference............................... 3
Special Note Regarding Forward-Looking
Information................................ 5
The Company.................................. 6
Recent Developments.......................... 7
Risk Factors................................. 8
Use of Proceeds.............................. 14
The Acquisition.............................. 15
The Selling Stockholders..................... 15
Plan of Distribution......................... 18
Legal Matters................................ 18
Experts...................................... 19
THE LEARNING COMPANY, INC.
521,021 SHARES
COMMON STOCK
PROSPECTUS
June __, 1998
================================================================================
<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by the Company (except expenses incurred by
the Selling Stockholders for brokerage, accounting, tax or legal services or any
other expenses incurred by the Selling Stockholders in taking possession of or
disposing of the Shares). All amounts shown are estimates except the Securities
and Exchange Commission registration fee.
<TABLE>
<CAPTION>
<S> <C>
Filing Fee - Securities and Exchange Commission...................... $ 4,000
Legal fees and expenses of the Company............................... $25,000
Accounting fees and expenses......................................... $10,000
Printing expenses.................................................... $ 5,000
Miscellaneous expenses............................................... $ 1,000
Total Expenses.............................................. $45,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, as amended, allows
a corporation to eliminate the personal liability of directors of a corporation
to the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the Delaware General Corporation Law, as amended,
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at its request in such capacity in another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 8 of the Company's Restated Certificate of Incorporation, as
amended, provides for elimination of directors' personal liability and
indemnification as follows:
II-1
<PAGE> 24
"8. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
8.1 ELIMINATION OF CERTAIN LIABILITIES OF DIRECTORS. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the directors' duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after approval by the stockholders of this
Section to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of this Section by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
8.2 INDEMNIFICATION AND INSURANCE.
8.2.1 RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee, or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to its fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability, and loss (including attorneys' fees,
judgments, fines, Employee Retirement Income Security Act of 1974, excise taxes
or penalties, and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith, and such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors, and
administrators; provided, however, that the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
8.2.2 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of this Restated Certificate, Bylaw, agreement, vote of stockholders,
or disinterested directors or otherwise.
II-2
<PAGE> 25
8.2.3 INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee, or agent of
the Corporation or another corporation, partnership, joint venture, trust, or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability, or loss under the Delaware General Corporation Law."
The Company has purchased directors' and officers' liability insurance
which would indemnify the directors and officers of the Company against damages
arising out of certain kinds of claims which might be made against them based on
their negligent acts or omissions while acting in their capacity as such.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
5* Opinion of Neal S. Winneg, Esq.
23.1* Consent of Coopers & Lybrand, L.L.P.
23.2* Consent of Price Waterhouse LLP
23.3* Consent of Neal S. Winneg, Esq., included in Exhibit 5.
24* Power of Attorney
---------
Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any derivation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to Section 13 or Section 15(d) of the
Securities
II-3
<PAGE> 26
Exchange Act of 1934, as amended (the "Exchange Act") that are incorporated by
reference in this Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as
amended (the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has caused this Amendment No. 1 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Cambridge,
Commonwealth of Massachusetts, on this 26th day of June, 1998.
THE LEARNING COMPANY, INC.
By: /s/ Neal S. Winneg
------------------------------------
Neal S. Winneg
Senior Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and June 26, 1998
- ----------------------- Chief Executive Officer
Michael J. Perik (Principal Executive Officer)
* Executive Vice President and June 26, 1998
- ----------------------- Chief Financial Officer (Principal
R. Scott Murray Financial and Accounting Officer)
* President and Director June 26, 1998
- -----------------------
Kevin O'Leary
</TABLE>
II-5
<PAGE> 28
* Director June 26, 1998
- -----------------------------------
Lamar Alexander
* Director June 26, 1998
- -----------------------------------
Michael A. Bell
* Director June 26, 1998
- -----------------------------------
Robert Gagnon
Director June , 1998
- -----------------------------------
Carolynn N. Reid-Wallace
* Director June 26, 1998
- -----------------------------------
Robert A. Rubinoff
* Director June 26, 1998
- -----------------------------------
Scott M. Sperling
* Director June 26, 1998
- -----------------------------------
Anthony J. DiNovi
Director June , 1998
- -----------------------------------
Mark E. Nunnelly
* Director June 26, 1998
- -----------------------------------
Paul J. Zepf
*By: /s/ Neal S. Winneg
-------------------------------
Neal S. Winneg
Attorney-in-Fact
II-6
<PAGE> 29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
5* Opinion of Neal S. Winneg, Esq.
23.1* Consent of Coopers & Lybrand, L.L.P.
23.2* Consent of Price Waterhouse LLP
23.3* Consent of Neal S. Winneg, Esq., included in Exhibit 5.
24* Power of Attorney (See page II-5 of this Registration
Statement).
----------
* Previously filed.
II-7
