<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
THE LEARNING COMPANY, INC.
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-2562108
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NO.) IDENTIFICATION
NUMBER)
</TABLE>
------------------------------
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)
------------------------------
NEAL S. WINNEG, ESQ.
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)
------------------------------
Copies to:
<TABLE>
<S> <C>
MARK G. BORDEN, ESQ. LARRY W. SONSINI, ESQ.
THOMAS E. NEELY, ESQ. MARTIN W. KORMAN, ESQ.
Hale and Dorr LLP DANIEL R. MITZ, ESQ.
60 State Street Wilson Sonsini Goodrich & Rosati,
Boston, Massachusetts 02109 Professional Corporation
(617) 526-6000 650 Page Mill Road
Palo Alto, California 94304-1050
(650) 493-9300
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and certain
other conditions under the Merger Agreement are met or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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. / / ______________________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
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. / / _____________________________________________________
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.01
par value per
share............ 18,053,276 shares $22.50 $406,198,710 $119,829
</TABLE>
(1) Based upon an estimate of the number of shares of the Common Stock of the
Registrant issuable in the merger described herein to stockholders of
Broderbund Software, Inc. ("Broderbund").
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(c) and 457(f)(1) under the Securities Act of 1933, as
amended (the "Securities Act"), and based upon the average of the high and
low sales prices of the Common Stock of Broderbund on the Nasdaq National
Market on July 7, 1998.
(3) A fee of $93,429 was previously paid by the Registrant pursuant to Rule
14a-6 promulgated under the Securities Exchange Act of 1934, as amended, in
connection with the filing of the preliminary Joint Proxy
Statement/Prospectus on July 2, 1998. Pursuant to Rule 457(b) under the
Securities Act, such fee is being credited against the registration fee, and
accordingly, $26,400 of additional fee is being paid in connection with this
Registration Statement.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant 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 Section 8(a), may
determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD OF THE LEARNING COMPANY, INC.]
July 27, 1998
Dear Stockholder:
I am delighted to invite you to attend a special meeting of the stockholders
of The Learning Company, Inc. ("TLC") to be held on August 31, 1998 at 1:00
p.m., local time, at The Royal Sonesta Hotel, 5 Cambridge Parkway, Cambridge,
Massachusetts 02142 (the "TLC Special Meeting"). Enclosed are a Notice of
Special Meeting of TLC Stockholders, a Joint Proxy Statement/Prospectus and a
proxy relating to the TLC Special Meeting. Also enclosed for holders of
Exchangeable Non-Voting Shares of SoftKey Software Products Inc. (the
"Exchangeable Shares") are an Information Statement and a Direction with respect
to the voting of the one outstanding share of special voting stock of TLC.
At the TLC Special Meeting you will be asked to consider and vote upon a
proposal described in the Joint Proxy Statement/Prospectus to approve the
issuance by TLC of common stock in connection with the proposed strategic merger
of TLC Merger Corp., a Delaware corporation and a wholly owned subsidiary of TLC
("Sub"), with and into Broderbund Software, Inc. ("Broderbund"), pursuant to an
Agreement and Plan of Merger dated as of June 21, 1998 (the "Merger Agreement").
Pursuant to the Merger Agreement, among other things, (a) Sub will be merged
with and into Broderbund, with Broderbund being the surviving corporation and
becoming a wholly-owned subsidiary of TLC (the "Merger"), and (b) each
outstanding share of common stock, $.01 par value per share, of Broderbund
(together with the associated preferred stock purchase rights) will be converted
into the right to receive 0.80 shares (the "Exchange Ratio") of common stock,
$.01 par value per share, of TLC ("TLC Common Stock"). At the TLC Special
Meeting you will also be asked to consider and vote upon certain related and
other matters.
TLC's Board of Directors has approved the Merger and recommends that you
vote FOR the proposed issuance of TLC Common Stock in the Merger. For further
information regarding the Merger and the potential benefits of the Merger, I
urge you to read carefully the accompanying Joint Proxy Statement/Prospectus
and, specifically, the section "The Merger--Reasons for the Merger."
Even if you plan to attend the TLC Special Meeting in person, please
complete, sign and promptly return the enclosed proxy card in the enclosed
postage-prepaid envelope.
Sincerely,
MICHAEL J. PERIK
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
<PAGE>
THE LEARNING COMPANY, INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 31, 1998
To the Stockholders of
The Learning Company, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "TLC
Special Meeting") of The Learning Company, Inc., a Delaware corporation ("TLC"),
will be held on August 31, 1998, at The Royal Sonesta Hotel, 5 Cambridge
Parkway, Cambridge, Massachusetts 02142, commencing at 1:00 p.m., local time,
for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of shares
of Common Stock, par value $.01 per share, of TLC ("TLC Common Stock"),
as contemplated by the Agreement and Plan of Merger dated as of June 21,
1998 (the "Merger Agreement") among TLC, TLC Merger Corp., a Delaware
corporation and wholly-owned subsidiary of TLC ("Sub"), and Broderbund
Software, Inc., a Delaware corporation ("Broderbund"). The Merger
Agreement provides that, among other things, (a) Sub will be merged with
and into Broderbund, with Broderbund being the surviving corporation and
becoming a wholly-owned subsidiary of TLC and (b) each outstanding share
of Common Stock, par value $.01 per share, of Broderbund (together with
the associated preferred stock purchase rights) will be converted into
the right to receive 0.80 shares (the "Exchange Ratio") of TLC Common
Stock.
2. To consider and vote upon a proposal to amend the TLC 1990 Long Term
Equity Incentive Plan.
3. To transact such other business as may properly come before the TLC
Special Meeting or any adjournment or postponement of the TLC Special
Meeting.
A copy of the Merger Agreement is attached as Annex A to the accompanying
Joint Proxy Statement/ Prospectus.
Holders of record of TLC's Common Stock and Series A Convertible
Participating Preferred Stock at the close of business on July 22, 1998 (the
"Record Date") will be entitled to notice of and to vote at the TLC Special
Meeting or any adjournment or postponement of the TLC Special Meeting. In
addition, holders of record of Exchangeable Shares of TLC's Canadian subsidiary,
SoftKey Software Products Inc. (the "TLC Exchangeable Shares"), at the close of
business on the Record Date will be entitled to notice of the TLC Special
Meeting and to direct the vote of CIBC Mellon Trust Company, the holder as
trustee for such persons, of the one outstanding share of TLC's Special Voting
Stock.
All Stockholders and holders of TLC Exchangeable Shares are cordially
invited to attend the meeting in person. HOWEVER, TO ENSURE YOUR REPRESENTATION
AT THE MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY
CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
By Order of the Board of Directors
NEAL S. WINNEG
SECRETARY
CAMBRIDGE, MASSACHUSETTS
JULY 27, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
[LETTERHEAD OF BRODERBUND SOFTWARE, INC.]
JULY 27, 1998
Dear Stockholder:
As most of you are aware, Broderbund Software, Inc. ("Broderbund") has
entered into an Agreement and Plan of Merger dated as of June 21, 1998 (the
"Merger Agreement") with The Learning Company, Inc., a Delaware corporation, and
a wholly-owned subsidiary of TLC ("Sub"), pursuant to which, among other things,
(a) Sub will be merged with and into Broderbund, with Broderbund being the
surviving corporation and becoming a wholly-owned subsidiary of TLC (the
"Merger") and (b) each outstanding share of common stock, $.01 par value per
share, of Broderbund (together with the associated preferred stock purchase
rights) will be converted into the right to receive 0.80 shares (the "Exchange
Ratio") of common stock, $.01 par value per share, of TLC ("TLC Common Stock").
At a Special Meeting of Stockholders of Broderbund on August 31, 1998 (the
"Broderbund Special Meeting"), you will be asked to consider and vote upon the
approval and adoption of the Merger Agreement. The accompanying Joint Proxy
Statement/Prospectus presents the details of this proposed strategic Merger.
Broderbund's Board of Directors has unanimously approved the Merger
Agreement and recommends that you vote FOR the approval and adoption of the
Merger Agreement. For further information regarding the Merger and the potential
benefits of the Merger, I urge you to read carefully the accompanying Joint
Proxy Statement/Prospectus and, specifically, the section "The Merger--Reasons
for the Merger."
Even if you plan to attend the Broderbund Special Meeting in person, please
complete, sign and promptly return the enclosed proxy card in the enclosed
postage-prepaid envelope.
Sincerely,
JOSEPH P. DURRETT
CHIEF EXECUTIVE OFFICER
<PAGE>
BRODERBUND SOFTWARE, INC.
500 REDWOOD BOULEVARD
NOVATO, CALIFORNIA 94948-6121
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 31, 1998
To the Stockholders of
Broderbund Software, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Broderbund Special Meeting") of Broderbund Software, Inc., a Delaware
corporation ("Broderbund"), will be held on August 31, 1998, at the Wyndham
Garden Hotel-Marin, 1010 Northgate Drive, San Rafael, California, commencing at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of June 21, 1998 (the "Merger
Agreement") among The Learning Company Inc., a Delaware corporation ("TLC"),
TLC Merger Corp., a Delaware corporation and a wholly-owned subsidiary of
TLC ("Sub"), and Broderbund, pursuant to which, among other things, (a) Sub
will be merged with and into Broderbund, with Broderbund being the surviving
corporation and becoming a wholly-owned subsidiary of TLC and (b) each
outstanding share of Common Stock, par value $.01 per share, of Broderbund
(together with the associated preferred stock purchase rights) will be
converted into the right to receive 0.80 shares of Common Stock, par value
$.01 per share, of TLC ("TLC Common Stock").
2. To transact such other business as may properly come before the
Broderbund Special Meeting or any adjournment or postponement of the
Broderbund Special Meeting.
A copy of the Merger Agreement is attached as Annex A to the accompanying
Joint Proxy Statement/ Prospectus.
Stockholders of record at the close of business on July 22, 1998 are
entitled to notice of, and to vote at, the Broderbund Special Meeting and any
adjournment or postponement of the Broderbund Special Meeting.
All stockholders are cordially invited to attend the meeting in person.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO
COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
By Order of the Board of Directors
J. MARK HATTENDORF
GROUP VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Novato, California
July 27, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. DO NOT
SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
<PAGE>
THE LEARNING COMPANY, INC.
AND
BRODERBUND SOFTWARE, INC.
---------------------
JOINT PROXY STATEMENT
------------------------
THE LEARNING COMPANY, INC. PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $.01 per share ("TLC Common Stock") and Series A
Convertible Participating Preferred Stock, $.01 par value per share ("TLC Series
A Preferred Stock") of The Learning Company, Inc., a Delaware corporation
("TLC"), in connection with the solicitation of proxies by the Board of
Directors of TLC for use at a Special Meeting of Stockholders of TLC (the "TLC
Special Meeting") to be held on August 31, 1998, at The Royal Sonesta Hotel, 5
Cambridge Parkway, Cambridge, Massachusetts 02142, commencing at 1:00 p.m.,
local time, and at any adjournment or postponement thereof. In addition, holders
of record of Exchangeable Shares of TLC's Canadian subsidiary, SoftKey Software
Products Inc. (the "TLC Exchangeable Shares"), at the close of business on the
Record Date will be entitled to notice of the TLC Special Meeting and to direct
the vote of CIBC Mellon Trust Company, the holder as trustee for such persons,
of the one outstanding share of TLC's Special Voting Stock.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, par value $.01 per share ("Broderbund Common Stock"), of
Broderbund Software, Inc., a Delaware corporation ("Broderbund"), in connection
with the solicitation of proxies by the Board of Directors of Broderbund for use
at the Special Meeting of Stockholders of Broderbund (the "Broderbund Special
Meeting") to be held on August 31, 1998, at the Wyndham Garden Hotel-Marin, 1010
Northgate Drive, San Rafael, California 94903, commencing at 10:00 a.m., local
time, and at any adjournment or postponement thereof.
TLC has filed a Registration Statement on Form S-4 (including the exhibits
and amendments thereto, the "Registration Statement") pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), covering up to 18,053,276 shares
of TLC Common Stock which may be issued pursuant to the Agreement and Plan of
Merger, dated as of June 21, 1998 among TLC, TLC Merger Corp., a Delaware
corporation and wholly-owned subsidiary of TLC ("Sub"), and Broderbund (the
"Merger Agreement") in exchange for outstanding shares of Broderbund Common
Stock. This Joint Proxy Statement/Prospectus constitutes the Prospectus of TLC
comprising a part of the Registration Statement. The Merger Agreement is
attached as Annex A to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference. Pursuant to the Merger Agreement, Sub will be merged with
and into Broderbund (the "Merger"), with Broderbund being the surviving
corporation (the "Surviving Corporation") in the Merger and becoming a
wholly-owned subsidiary of TLC, and each outstanding share of Broderbund Common
Stock (together with the associated preferred stock purchase rights) will be
converted into the right to receive 0.80 shares (the "Exchange Ratio") of TLC
Common Stock. Based upon the number of outstanding shares of TLC Common Stock
and Broderbund Common Stock as of July 22, 1998, the stockholders of Broderbund
immediately prior to the consummation of the Merger will own approximately 18.6%
of the outstanding shares of TLC Common Stock immediately following consummation
of the Merger (including shares issuable upon conversion of outstanding shares
of TLC Series A Preferred Stock and in exchange for outstanding TLC Exchangeable
Shares). On July 13, 1998, the last reported sale price of the TLC Common Stock
on the New York Stock Exchange was $30.4375 per share, and the last reported
sale price of the Broderbund Common Stock on the Nasdaq National Market was
$23.375 per share. As used herein, the term "Combined Company" means TLC and
Broderbund and their respective subsidiaries as a consolidated entity following
the Merger.
All information contained in this Joint Proxy Statement/Prospectus relating
to TLC has been supplied by TLC, and all information relating to Broderbund has
been supplied by Broderbund.
<PAGE>
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY BOTH TLC AND BRODERBUND STOCKHOLDERS.
---------------------
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 JOINT PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to Stockholders of TLC and Broderbund on or about July
27, 1998.
The date of this Joint Proxy Statement/Prospectus is , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................................. 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................ 5
FORWARD-LOOKING STATEMENTS............................................................. 7
SUMMARY................................................................................ 8
The Companies........................................................................ 8
Date and Place of the Meetings....................................................... 8
Stockholders Entitled to Vote........................................................ 8
Purposes of the Meetings............................................................. 9
Votes Required....................................................................... 9
Effects of the Merger................................................................ 9
Recommendations...................................................................... 10
Opinions of Financial Advisors....................................................... 10
Interests of Certain Persons in the Merger........................................... 11
Voting Agreements.................................................................... 11
Effective Time of the Merger......................................................... 12
Conditions to the Merger............................................................. 12
Termination.......................................................................... 12
Dissenters' Rights................................................................... 12
Certain Federal Income Tax Consequences.............................................. 13
Accounting Treatment................................................................. 13
Surrender of Certificates............................................................ 13
Certain Effects of the Merger on the Rights of Holders of Broderbund Common Stock.... 13
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION............................................. 14
COMPARATIVE PER SHARE DATA............................................................. 17
MARKET PRICE INFORMATION............................................................... 18
RISK FACTORS........................................................................... 19
Risks Relating to the Merger......................................................... 19
Risks Relating to TLC................................................................ 20
Risks Relating to Broderbund......................................................... 26
THE TLC SPECIAL MEETING................................................................ 30
General.............................................................................. 30
Matters to be Considered............................................................. 30
Board of Directors' Recommendation................................................... 30
Record Date and Voting............................................................... 30
Proxies.............................................................................. 31
THE BRODERBUND SPECIAL MEETING......................................................... 33
General.............................................................................. 33
Matters to be Considered............................................................. 33
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Boards of Directors' Recommendation.................................................. 33
Record Date and Voting............................................................... 33
Proxies.............................................................................. 34
THE MERGER............................................................................. 35
Background of the Merger............................................................. 35
Recommendations of the Boards of Directors of TLC and Broderbund..................... 37
Reasons for the Merger............................................................... 37
Opinions of Financial Advisors....................................................... 40
Interests of Certain Persons in the Merger........................................... 48
Accounting Treatment................................................................. 49
Certain Federal Income Tax Considerations............................................ 50
Regulatory Approvals................................................................. 51
Federal Securities Law Consequences.................................................. 51
Stock Market Quotation............................................................... 52
Dissenters' Rights................................................................... 52
MERGER AGREEMENT....................................................................... 53
General.............................................................................. 53
Conversion of Shares................................................................. 53
Representations and Warranties....................................................... 54
Certain Covenants.................................................................... 54
No Solicitation...................................................................... 55
Related Matters After the Merger..................................................... 56
Stock Options and Employee Benefits.................................................. 56
Stockholders Rights Plans............................................................ 57
Director and Officer Indemnification................................................. 57
Conditions........................................................................... 57
Termination; Termination Fees and Expenses........................................... 58
Amendment and Waiver................................................................. 60
THE LEARNING COMPANY, INC.............................................................. 61
Business............................................................................. 61
Security Ownership of Certain Beneficial Owners and Management....................... 63
Executive Compensation............................................................... 66
Certain Relationships and Related Transactions....................................... 68
Stock Option Grants.................................................................. 69
Option Exercises and Year-End Option Table........................................... 70
BRODERBUND SOFTWARE, INC............................................................... 71
Business............................................................................. 71
Security Ownership of Certain Beneficial Owners and Management....................... 72
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............... 74
DESCRIPTION OF TLC CAPITAL STOCK....................................................... 85
Common Stock......................................................................... 85
Special Voting Stock................................................................. 85
Preferred Stock...................................................................... 86
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
COMPARISON OF STOCKHOLDER RIGHTS....................................................... 89
APPROVAL OF AMENDMENT TO THE LEARNING COMPANY, INC. 1990 LONG TERM EQUITY INCENTIVE
PLAN................................................................................. 91
Summary of the 1990 Plan............................................................. 91
Tax Consequences to TLC.............................................................. 93
Board Recommendation................................................................. 93
LEGAL MATTERS.......................................................................... 93
EXPERTS................................................................................ 93
</TABLE>
<TABLE>
<S> <C> <C> <C>
Annex A -- Agreement and Plan of Merger......................................... A-1
Annex B -- Opinion of BT Alex. Brown Incorporated............................... B-1
Annex C -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation....... C-1
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
TLC and Broderbund are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by TLC and Broderbund with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, 13th floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street,
Washington, D.C. 20549. In addition, TLC and Broderbund are each required to
file electronic versions of such material with the Commission 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 TLC
Common Stock is listed on the New York Stock Exchange. Reports, proxy and
information statements and other information concerning TLC can be inspected and
copied at the offices of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005. The Broderbund Common Stock is quoted on the Nasdaq National
Market. Reports and other information concerning Broderbund can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., Market Listing Section, 1735 K Street, N.W., Washington, D.C. 20006.
TLC has filed with the Commission a Registration Statement on Form S-4 under
the Securities Act with respect to the shares of TLC Common Stock to be issued
pursuant to the Merger Agreement. This Joint Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement. For further
information with respect to TLC, Broderbund and the TLC Common Stock, reference
is hereby made to the Registration Statement (including the exhibits and
schedules thereto). Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated by reference in this Joint
Proxy Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document (if any) filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following TLC documents filed with the Commission are incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended January 3, 1998,
filed with the Commission on March 13, 1998;
2. Amendment No. 1 to Annual Report on Form 10-K for the fiscal year ended
January 3, 1998, filed with the Commission on May 29, 1998;
3. 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;
4. Current Report on Form 8-K, dated March 12, 1998, filed with the
Commission on March 17, 1998;
5. Definitive Proxy Statement for the Annual Meeting of Stockholders held
on May 21, 1998, filed with the Commission on April 2, 1998;
6. Current Report on Form 8-K, dated March 27, 1998, filed with the
Commission on April 13, 1998;
7. Amendment No. 1 to Current Report on Form 8-K/A, dated March 27, 1998,
filed with the Commission on April 29, 1998;
5
<PAGE>
8. Amendment No. 2 to Current Report on Form 8-K/A, dated March 27, 1998,
filed with the Commission on May 8, 1998;
9. Amendment No. 3 to Current Report on Form 8-K/A, dated March 27, 1998,
filed with the Commission on May 20, 1998;
10. Amendment No. 4 to Current Report on Form 8-K/A, dated March 27, 1998,
filed with the Commission on May 29, 1998;
11. Quarterly Report on Form 10-Q for the quarter ended April 4, 1998, filed
with the Commission on May 13, 1998;
12. Current Report on Form 8-K, dated June 21, 1998, filed with the
Commission on June 24, 1998; and
13. Registration Statement on Form 8-A, filed with the Commission on October
29, 1996.
The following Broderbund documents filed with the Commission are
incorporated by reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended August 31, 1997,
filed with the Commission on November 26, 1997;
2. Quarterly Report on Form 10-Q for the fiscal quarter ended November 30,
1997, filed with the Commission on January 14, 1998;
3. Quarterly Report on Form 10-Q for the fiscal quarter ended February 28,
1998, filed with the Commission on April 14, 1998;
4. Form 10-Q/A, Amendment No. 1 to Form 10-Q for the fiscal quarter ended
February 28, 1998, filed with the Commission on May 1, 1998;
5. Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1998,
filed with the Commission on July 14, 1998;
6. Current Report on Form 8-K, dated February 20, 1998, filed with the
Commission on February 27, 1998;
7. Amendment No. 1 to Form 8-K/A, dated February 20, 1998, filed with the
Commission on March 19, 1998;
8. Definitive Proxy Statement for the Annual Meeting of Stockholders held
on January 22, 1998, filed with the Commission on December 23, 1997; and
9. The description of Broderbund capital stock and stockholder rights
contained in the Registration Statement on Form 8-A, filed with the
Commission on October 15, 1991.
All documents and reports subsequently filed by TLC or Broderbund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the TLC Special
Meeting and the Broderbund Special Meeting shall be deemed to be incorporated by
reference in this Joint Proxy Statement/Prospectus and to be part hereof from
the date of filing of such documents or reports. 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 Joint Proxy
Statement/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 such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference) are available to any person, including any beneficial owner, to whom
this Joint Proxy Statement/Prospectus is delivered, on written or oral request,
without charge, in the case of documents relating to TLC, directed to The
Learning Company, Inc., One Athenaeum Street, Cambridge, Massachusetts 02142
(telephone number (617) 494-1200), Attention: Investor Relations, or, in
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the case of documents relating to Broderbund, directed to Broderbund Software,
Inc., 500 Redwood Boulevard, Novato, California 94948-6121 (telephone number
(415) 382-4400).
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TLC,
BRODERBUND OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TLC OR
BRODERBUND SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
THE LEARNING COMPANY, MECC, COMPTON'S, READER RABBIT, OREGON TRAIL,
BODYWORKS and CYBER PATROL are registered trademarks and LEARN TO SPEAK and HOME
MEDICAL ADVISOR are trademarks of TLC or its subsidiaries. SESAME STREET is a
registered trademark of Children's Television Workshop. THE BABY-SITTERS CLUB is
a trademark of Scholastic Inc. based on the Baby-Sitters Club book series -C-
Ann M. Martin. AMERICAN GIRLS is a registered trademark of Pleasant Company.
BERLITZ is a registered trademark of Berlitz Investment Corporation. MOSBY'S is
a registered trademark of Mosby-Year Book, Inc. MADELINE is a trademark of
Madeline Bemelmans and Barbara Bemelmans. The names of all other TLC brands and
products are trademarks of TLC or its subsidiaries.
BRODERBUND, FAMILY TREE MAKER, LIVING BOOKS, THE PRINT SHOP and PARSONS
TECHNOLOGY are registered trademarks, and CARMEN SANDIEGO and the Broderbund
logo are trademarks, of Broderbund. MYST is a registered trademark and RIVEN is
a trademark of Cyan, Inc.
FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE
CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE RESULTS OF OPERATIONS AND
BUSINESSES OF TLC, BRODERBUND AND THE COMBINED COMPANY. THE CAUTIONARY
STATEMENTS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED, PROJECTED,
FORECAST OR ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE ACTUAL RESULTS OF TLC (ASSUMING CONSUMMATION OF THE MERGER) TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY OR PROJECTED, FORECAST OR ESTIMATED OR IN
FORWARD-LOOKING STATEMENTS INCLUDE (A) ANY FAILURE TO ACHIEVE ANY COST SAVINGS
OR REVENUE ENHANCEMENTS EXPECTED TO BE REALIZED FROM THE MERGER, (B) POTENTIAL
INCREASED COSTS ASSOCIATED WITH THE MERGER, SUCH AS COSTS OR DIFFICULTIES
RELATED TO THE INTEGRATION OF THE BUSINESSES OF TLC AND BRODERBUND, AND (C)
CHANGES IN THE COMPETITIVE ENVIRONMENT IN THE SOFTWARE INDUSTRY. SEE "RISK
FACTORS."
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED, OR
INCORPORATED BY REFERENCE, IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE
ANNEXES HERETO. UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS
SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
CERTAIN OF THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS MAY CONSTITUTE FORWARD-LOOKING STATEMENTS, INCLUDING
STATEMENTS AS TO THE BENEFITS AND SYNERGIES EXPECTED TO BE REALIZED AS A RESULT
OF THE MERGER, FUTURE FINANCIAL PERFORMANCE AND THE ANALYSES USED BY THE
FINANCIAL ADVISORS TO TLC AND BRODERBUND. SEE "THE MERGER--REASONS FOR THE
MERGER" AND "--OPINIONS OF FINANCIAL ADVISORS." THERE ARE A NUMBER OF IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, WITHOUT
LIMITATION, THOSE SET FORTH IN THIS JOINT PROXY STATEMENT/ PROSPECTUS UNDER THE
HEADING "RISK FACTORS."
THE COMPANIES
TLC. TLC develops and publishes a broad range of high-quality branded
consumer software for personal computers that educate across every age category,
from young children to adults. TLC'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 principal executive office of TLC is located at One
Athenaeum Street, Cambridge, Massachusetts 02142. As used in this Joint Proxy
Statement/Prospectus, the term "TLC" refers to TLC and its wholly-owned
subsidiaries, unless the context otherwise requires.
BRODERBUND. Broderbund develops, publishes and markets a broad line of
interactive personal productivity, entertainment and education software for use
in the home, school and small business markets. The principal executive office
of Broderbund is located at 500 Redwood Boulevard, Novato, California
94948-6121. As used in this Joint Proxy Statement/Prospectus, the term
"Broderbund" refers to Broderbund and its wholly-owned subsidiaries, unless the
context otherwise requires.
DATE AND PLACE OF THE MEETINGS
TLC. The TLC Special Meeting will be held on August 31, 1998 at The Royal
Sonesta Hotel, 5 Cambridge Parkway, Cambridge, Massachusetts 02142, commencing
at 1:00 p.m., local time.
BRODERBUND. The Broderbund Special Meeting will be held August 31, 1998 at
the Wyndham Garden Hotel-Marin, 1010 Northgate Drive, San Rafael, California
94903, commencing at 10:00 a.m., local time.
STOCKHOLDERS ENTITLED TO VOTE
TLC. Holders of record of shares of TLC Common Stock and TLC's Series A
Convertible Participating Preferred Stock, $.01 par value per share (the "TLC
Series A Preferred Stock"), at the close of business on July 22, 1998 (the
"Record Date") are entitled to notice of and to vote at the TLC Special Meeting.
On the Record Date there were outstanding shares of TLC Common Stock,
each of which will be entitled to one vote, and 750,000 outstanding shares of
TLC Series A Preferred Stock, each of which is convertible into 20 shares of TLC
Common Stock and entitled to 20 votes. In addition, at the TLC Special Meeting,
CIBC Mellon Trust Company, as the holder of the one outstanding share of special
voting stock of TLC, $1.00 par value per share (the "Special Voting Share"),
will be entitled to cast votes. These votes represent the number of
Exchangeable Shares (the "TLC Exchangeable Shares") of Softkey Software
Products, Inc., TLC's Canadian subsidiary, that were outstanding on the Record
Date (other than TLC Exchangeable Shares held by TLC, its subsidiaries or any
entity controlled by TLC). The
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TLC Exchangeable Shares are exchangeable on a one-for-one basis for TLC Common
Stock. Accordingly, an aggregate of votes may be cast at the TLC Special
Meeting by holders of TLC Common Stock and TLC Series A Preferred Stock and the
holder of the Special Voting Share.
BRODERBUND. Holders of record of shares of Broderbund Common Stock at the
close of business on the Record Date are entitled to notice of and to vote at
the Broderbund Special Meeting. At such date there were shares of
Broderbund Common Stock outstanding, each of which will be entitled to one vote
on each matter to be acted upon or which may properly come before the Broderbund
Special Meeting.
PURPOSES OF THE MEETINGS
TLC SPECIAL MEETING. The purpose of the TLC Special Meeting is to consider
and vote upon the following proposals: (i) the approval of the issuance of
shares of TLC Common Stock in exchange for shares of Broderbund Common Stock
pursuant to the Merger Agreement (the "Merger Proposal"); (ii) the amendment of
the TLC 1990 Long Term Equity Incentive Plan (the "1990 Plan") and (iii) such
other matters as may properly be brought before the TLC Special Meeting, or any
adjournment or postponement thereof.
BRODERBUND SPECIAL MEETING. The purpose of the Broderbund Special Meeting
is to consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement and the Merger; and (ii) such other matters as may properly be brought
before the Broderbund Special Meeting, or any adjournment or postponement
thereof.
VOTES REQUIRED
TLC. The approval of the Merger Proposal and the amendment to the 1990 Plan
will require the affirmative vote of the holders of a majority of the votes
represented by the shares of TLC Common Stock, the Special Voting Share and the
TLC Series A Preferred Stock, voting together as one class, present in person or
represented by proxy at the TLC Special Meeting. Stockholders of TLC who
beneficially own in the aggregate 17.0% of the outstanding shares of TLC Common
Stock (including shares issuable upon conversion of outstanding shares of TLC
Series A Preferred Stock) as of June 30, 1998 have agreed to vote all shares of
TLC Common Stock held by such Stockholders as of June 21, 1998 in favor of the
Merger Proposal at the TLC Special Meeting. See "--Voting Agreements."
BRODERBUND. The approval and adoption of the Merger Agreement will require
the affirmative vote of the holders of a majority of the shares of Broderbund
Common Stock outstanding on the record date. A stockholder of Broderbund who
beneficially owned in the aggregate approximately 8.7% of the outstanding shares
of Broderbund Common Stock as of June 21, 1998 has agreed to vote all shares of
Broderbund Common Stock held by such stockholder as of June 21, 1998 in favor of
the proposal to approve and adopt the Merger Agreement at the Broderbund Special
Meeting. See "--Voting Agreements."
EFFECTS OF THE MERGER
Upon consummation of the Merger, pursuant to the Merger Agreement, (i) Sub
will be merged with and into Broderbund, with Broderbund being the surviving
corporation in the Merger (the "Surviving Corporation") and becoming a
wholly-owned subsidiary of TLC, and (ii) each issued and outstanding share of
Broderbund Common Stock (together with the associated preferred stock purchase
rights) will be converted into the right to received 0.80 shares of TLC Common
Stock (the "Exchange Ratio"). Fractional shares of TLC Common Stock will not be
issuable in connection with the Merger. Broderbund stockholders otherwise
entitled to a fractional share will be paid the value of such fraction in cash
determined as described below under "The Merger Agreement--Conversion of
Shares." Each outstanding share of TLC Common Stock will remain outstanding and
be unaffected by the Merger.
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Based upon the number of outstanding shares of TLC Common Stock and
Broderbund Common Stock as of July 22, 1998, the stockholders of Broderbund
immediately prior to the consummation of the Merger will own approximately 18.6%
of the outstanding shares of TLC Common Stock immediately following consummation
of the Merger (including shares issuable upon conversion of outstanding shares
of TLC Series A Preferred Stock and in exchange for outstanding TLC Exchangeable
Shares).
Upon consummation of the Merger, pursuant to the Merger Agreement, each
Broderbund Stock Option will be converted into an option to purchase such number
of shares of TLC Common Stock (rounded down to the nearest whole number) as is
equal to the number of shares of Broderbund Common Stock issuable upon exercise
of such option immediately prior to the Effective Time (as defined below)
multiplied by the Exchange Ratio. The exercise price per share of each such
option, as so converted, will be equal to (x) the aggregate exercise price for
the shares of Broderbund Common Stock otherwise purchasable pursuant to such
Broderbund Stock Option immediately prior to the Effective Time divided by (y)
the number of whole shares of TLC Common Stock deemed purchasable pursuant to
such Broderbund Stock Option as determined above (rounded up to the nearest
whole cent). As of July 13, 1998, options to acquire 3,352,141 shares of
Broderbund Common Stock were outstanding. See "The Merger Agreement--Stock
Options and Employee Benefits."
RECOMMENDATIONS
TLC. The Board of Directors of TLC (the "TLC Board") has, by unanimous vote
of all directors present, approved the Merger Proposal and recommends that
stockholders of TLC vote in favor of the Merger Proposal. See "The
Merger--Reasons for the Merger."
BRODERBUND. The Board of Directors of Broderbund (the "Broderbund Board")
has unanimously approved the Merger Agreement and unanimously recommends that
holders of Broderbund Common Stock vote in favor of the approval and adoption of
the Merger Agreement and the Merger. See "The Merger--Reasons for the Merger."
OPINIONS OF FINANCIAL ADVISORS
TLC. On June 21, 1998, BT Alex. Brown Incorporated ("BT Alex. Brown")
delivered its oral opinion, subsequently confirmed in writing that, as of such
date, the Exchange Ratio was fair, from a financial point of view, to TLC.
The full text of the written opinion of BT Alex. Brown, dated June 21, 1998,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with its opinion, is attached hereto as Annex B
and is incorporated herein by reference. HOLDERS OF TLC COMMON STOCK, TLC
EXCHANGEABLE SHARES AND TLC SERIES A PREFERRED STOCK ARE URGED TO, AND SHOULD,
READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--Opinions of Financial
Advisors--TLC."
BRODERBUND. On June 21, 1998, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") delivered its oral opinion, subsequently confirmed in
writing, to the Broderbund Board to the effect that, as of such date, the
Exchange Ratio was fair to the stockholders of Broderbund from a financial point
of view.
The full text of the written opinion of DLJ, dated June 21, 1998, which sets
forth assumptions made, matters considered and limitations on the review
undertaken in connection with its opinion is attached hereto as Annex C and is
incorporated herein by reference. HOLDERS OF BRODERBUND COMMON STOCK ARE URGED
TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--Opinions of
Financial Advisors--Broderbund."
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to an Employment Agreement between Broderbund and Joseph P.
Durrett, Broderbund's Chief Executive Officer, dated March 26, 1997, if Mr.
Durrett's employment with Broderbund terminates without cause following a change
in control, Mr. Durrett shall be entitled to receive continuing payments of
severance pay (less applicable withholding taxes) at a rate equal to his base
salary as then in effect (but not less than $400,000 per year) for a period of
12 months from the date of such termination, and any bonus to which he would
have been entitled had his employment not been terminated. In addition, the
vesting of options to purchase 350,000 shares of Broderbund Common Stock held by
Mr. Durrett will be fully accelerated upon a change in control of Broderbund.
Moreover, pursuant to Employment Agreements between Broderbund and certain of
its employees, including Dan Steever, Group Vice President and Mark Hattendorf,
Group Vice President and Chief Financial Officer, the vesting of the stock
options held by each such employee will be accelerated upon the involuntary
termination of such employee within eighteen months after a change in control of
Broderbund. If such involuntary termination occurs on or prior to October 31,
1998, the vesting of the terminated employee's options will be accelerated as to
50% of the underlying shares of stock, and if the termination occurs after
October 31, 1998, the vesting of the terminated employee's options will be
accelerated as to 100% of the underlying shares of stock. The Merger will
constitute a change of control of Broderbund under each Employment Agreement.
The Broderbund Board has authorized the payment of up to $2,000,000 in
retention bonuses to up to 50 key employees, including members of Broderbund's
senior management team. These bonuses will be payable to certain employees who
remain employed (and whose job performance and completion of assignments
continue at a good or excellent level) by Broderbund until 20 business days
following consummation of the Merger or are terminated prior thereto without
cause.
Pursuant to the Merger Agreement, TLC has, for certain time periods
specified in the Merger Agreement, agreed to (i) indemnify each present and
former director and officer of Broderbund against liabilities or expenses
incurred in connection with claims arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time (as defined below) of
the Merger to the fullest extent permitted under Delaware law, and (ii) subject
to certain limitations, maintain in effect directors' and officers' liability
insurance for the benefit of the directors and officers of Broderbund with
coverage in amount and scope at least as favorable to such persons as
Broderbund's existing coverage. See "The Merger Agreement--Director and Officer
Indemnification."
See "The Merger--Interests of Certain Persons in the Merger" for a
description of the TLC Common Stock and Broderbund Common Stock owned by TLC and
Broderbund directors and officers and their affiliates.
VOTING AGREEMENTS
Douglas G. Carlston, a stockholder and director of Broderbund, has entered
into a Voting Agreement, dated as of June 21, 1998, with TLC pursuant to which
Mr. Carlston has agreed to vote all shares over which he exercises voting
control (1,840,726 shares of Broderbund Common Stock) in favor of approval and
adoption of the Merger Agreement and the Merger.
Michael J. Perik, Kevin O'Leary, Thomas H. Lee Company and Bain Capital,
Inc., stockholders of TLC, have each entered into Voting Agreements, dated as of
June 21, 1998, with Broderbund pursuant to which they have agreed to vote all
shares over which they exercised voting control as of June 21, 1998
(representing an aggregate of 13,253,820 votes) in favor of the Merger Proposal.
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated upon the filing by the Surviving Corporation
and Sub of a certificate of merger in such form as is required by the laws of
the State of Delaware with the Secretary of State of the
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State of Delaware (the time of the filing of such certificate of merger is
referred to herein as the "Effective Time"). The Effective Time will occur as
promptly as practicable after the requisite stockholder approvals have been
obtained and all other conditions to the Merger have been satisfied or waived.
It is currently anticipated that the Merger will be consummated on or about
August 31, 1998.
CONDITIONS TO THE MERGER
The obligations of TLC and Broderbund to consummate the Merger are subject
to the satisfaction of certain conditions, including, but not limited to,
obtaining requisite approvals of the stockholders of TLC and Broderbund,
expiration or termination of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the continuing accuracy as of the Effective Time of the representations
and warranties made by TLC and Broderbund in the Merger Agreement, the
performance in all material respects of all obligations required by TLC, Sub and
Broderbund under the Merger Agreement at or prior to the Closing Date, the
receipt of certain legal opinions with respect to tax matters, the receipt of
required governmental consents and approvals, the absence of orders, stays,
decrees, judgments or injunctions of any governmental entity prohibiting the
Merger, the effectiveness of the Registration Statement under the Securities
Act, the receipt of an accountants' letter from PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") at the closing of the Merger with respect to
qualification under United States generally accepted accounting principles
("U.S. GAAP") of the Merger as a pooling-of-interests transaction, and the
listing on the New York Stock Exchange of the shares of TLC Common Stock to be
issued in the Merger. Each party has the right to waive certain of the closing
conditions referred to above. See "The Merger--Accounting Treatment," "--
Certain Federal Income Tax Considerations," "--Regulatory Approvals" and "The
Merger Agreement-- Conditions."
TERMINATION
The Merger Agreement is subject to termination (i) by mutual written consent
of TLC and Broderbund, (ii) by TLC or Broderbund if the Merger is not
consummated by December 31, 1998 (other than by reason of the failure of the
terminating party to fulfill any obligation under the Merger Agreement), (iii)
by TLC if the Broderbund Board withdraws or modifies its recommendation of the
Merger Proposal, (iv) by Broderbund if the TLC Board withdraws or modifies its
recommendation of the Merger Proposal, (v) by either TLC or Broderbund if a
governmental entity issues a nonappealable final order, decree or ruling
permanently restraining, enjoining or otherwise prohibiting the Merger; (vi) by
TLC or Broderbund if the Broderbund Stockholders do not approve and adopt the
Merger Agreement at the Broderbund Special Meeting; (vii) by Broderbund or TLC
if the TLC Stockholders do not approve the Merger Proposal at the TLC Special
Meeting; and (viii) upon the occurrence of certain other events and
circumstances set forth in the Merger Agreement. See "The Merger
Agreement--Termination; Termination Fees and Expenses."
Under certain circumstances, Broderbund may be required to pay TLC a
termination fee of $22,500,000 and/or to reimburse TLC for expenses of up to
$2,000,000, or TLC may be required to pay Broderbund a termination fee of
$22,500,000 and/or to reimburse Broderbund for expenses of up to $2,000,000. See
"The Merger Agreement--Termination; Termination Fees and Expenses."
DISSENTERS' RIGHTS
TLC STOCKHOLDERS. Under the Delaware General Corporation Law, TLC
Stockholders are not entitled to dissenters' appraisal rights in connection with
the Merger because TLC is not a constituent corporation in the Merger.
BRODERBUND STOCKHOLDERS. Broderbund Stockholders are not entitled to
dissenters' appraisal rights under the Delaware General Corporation Law in
connection with the Merger because the Broderbund
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Common Stock is quoted on the Nasdaq National Market and Broderbund Stockholders
will receive no Merger consideration other than shares of TLC Common Stock,
which will be listed on the New York Stock Exchange at the Effective Time, and
cash in lieu of fractional shares.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization in which no gain or
loss will be recognized by TLC or Broderbund and no gain or loss will be
recognized by Broderbund Stockholders, except in respect of cash received in
lieu of fractional shares or cash paid to dissenting Stockholders of Broderbund.
A condition to the Merger is that TLC and Broderbund each have received an
opinion of counsel to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). For a further discussion of the federal income
tax consequences of the Merger, see "The Merger--Certain Federal Income Tax
Consequences." See also "The Merger Agreement--Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for financial
reporting purposes under U.S. GAAP. Under this method of accounting, the
recorded assets and liabilities of TLC and Broderbund will be carried forward to
the Combined Company at their recorded amounts, the operating results of the
Combined Company will include the operating results of TLC and Broderbund for
the entire year in which the combination occurs and the reported operating
results of the separate companies for periods prior to the year in which the
combination occurs will be combined and restated as the operating results of the
Combined Company. A condition to the Merger is that TLC and Broderbund shall
have received a letter at the closing of the Merger from PricewaterhouseCoopers,
TLC's independent auditors, regarding its concurrence with the conclusions of
TLC's management as to the appropriateness of pooling-of-interests accounting,
under Accounting Principles Board Opinion No. 16 and related interpretations
under U.S. GAAP, for the Merger. See "The Merger--Accounting Treatment" and "The
Merger Agreement-- Conditions."
SURRENDER OF CERTIFICATES
Following the Effective Time, TLC or its agent will mail a notice and a
transmittal form to all holders of record of Broderbund Common Stock immediately
prior to the Effective Time containing instructions for surrendering their stock
certificates in exchange for certificates representing shares of TLC Common
Stock and a cash payment in lieu of fractional shares, if any. Certificates
should not be surrendered until the letter of transmittal is received. See "The
Merger Agreement--Conversion of Shares."
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF BRODERBUND COMMON
STOCK
Upon consummation of the Merger, holders of Broderbund Common Stock will
become Stockholders of TLC. The internal affairs of TLC are governed by the
Delaware General Corporation Law, the TLC Restated Certificate of Incorporation
and, as amended, the TLC Bylaws. See "Description of TLC Capital Stock" and
"Comparison of Stockholder Rights."
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SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA
The following selected historical consolidated financial data of TLC and
Broderbund (and their related subsidiaries) have been derived from their
respective historical consolidated or combined financial statements, including
the notes thereto, and should be read in conjunction with such consolidated or
combined financial statements and the notes thereto incorporated by reference
herein. See "Available Information" and "Incorporation of Certain Documents by
Reference." The TLC and Broderbund historical financial data as of and for the
interim periods presented below has been prepared on the same basis as the
historical data derived from historical financial statements prepared on an
annual basis and, in the opinion of management of the respective companies,
includes all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations of the respective companies as of such dates and for such periods.
All amounts presented are in thousands of dollars, except share and per share
data.
The selected pro forma combined financial data are derived from the selected
historical consolidated or combined financial statements, give effect to the
Merger as a pooling-of-interests, and should be read in conjunction with the
unaudited pro forma combined condensed consolidated financial statements and the
notes thereto included elsewhere herein. In preparing the pro forma combined
condensed consolidated balance sheet, Broderbund's consolidated balance sheet as
of February 28, 1998 has been combined with TLC's consolidated balance sheet as
of April 4, 1998, giving effect to the Merger as if it had occurred on April 4,
1998. On March 27, 1998, pursuant to a Stock Purchase Agreement, dated as of
March 5, 1998, by and between TLC on the one hand, and Mindscape Holding
Company, Pearson Overseas Holdings Ltd. and Pearson Netherlands, BV, on the
other hand, TLC completed its acquisition of all of the outstanding capital
stock of Mindscape, Inc., Mindscape International Ltd. and Mindscape France SARL
(collectively, "Mindscape" or "Mindscape Group"). The following periods have
been combined for purposes of preparing the pro forma combined condensed
consolidated statements of operations. Broderbund's results for the three months
ended February 28, 1998 have been combined with TLC's results for the three
months ended March 31, 1998 and Mindscape's results for the period from January
1, 1998 to March 4, 1998; Broderbund's results for the twelve months ended
November 30, 1997 have been combined with TLC's and Mindscape's results for the
year ended December 31, 1997; Broderbund's results for the fiscal year ended
August 31, 1996 have been combined with TLC's results for the year ended
December 31, 1996; and Broderbund's results for the fiscal year ended August 31,
1995 have been combined with TLC's results for the year ended December 31, 1995.
TLC expects to incur Merger related pre-tax charges for the transaction
costs of the Merger, and for other related costs, principally in the quarter in
which the Merger is consummated. Such pre-tax charges are currently estimated to
be approximately $6 million and will include the direct transaction costs of the
Merger, including primarily fees to financial advisors, legal counsel and
independent accountants as well as printing costs.
14
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Transition
Three Months Period Year
Ended Years Ended December 31, Ended Ended
March 31, -------------------------------------------- December, 31 June 30,
1998 1997 1996 1995 1994 1993 1993
------------- ----------- --------- --------- --------- ------------- ---------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
TLC--HISTORICAL
OPERATING DATA:
Revenues $ 113,602 $ 392,438 $ 343,321 $ 167,042 $ 121,287 $ 41,645 $ 109,704
Operating income (loss) (123,894) (393,055) (381,312) (60,870) 25,741 (69,057) (56,981)
Net income (loss) (129,408) (475,667) (405,451) (65,960) 21,145 (73,258) (57,250)
Net income (loss) per
share-diluted $ (2.45) $ (9.59) $ (9.94) $ (2.65) $ 1.07 $ (5.01) $ (4.36)
Shares used in computing
diluted net income (loss)
per share 52,732,000 49,613,000 40,801,000 24,855,000 20,462,000 14,618,000 13,129,000
</TABLE>
<TABLE>
<CAPTION>
December 31,
March 31, -----------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ----------- --------- --------- --------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 465,823 $ 416,791 $ 793,518 $ 900,413 $ 90,815 $ 79,334
Total long-term
obligations(1) 355,576 360,221 574,928 561,101 21,859 24,687
Total stockholders' equity
(deficit)(1) (59,027) (103,786) 104,937 214,519 37,485 (8,632)
</TABLE>
<TABLE>
<CAPTION>
Six Months
Nine Months Ended
Ended February Years Ended August 31,
May 31, 28, ---------------------------------------------------------
1998 1998 1997 1996 1995 1994 1993
------------- ----------- --------- --------- --------- ------------- ---------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
BRODERBUND-- HISTORICAL
OPERATING DATA:
Revenues $ 230,296 $ 177,820 $ 190,787 $ 186,207 $ 171,594 $ 111,774 $ 95,583
Operating income (loss) 12,834 20,573 (25,563) 44,413 51,490 29,048 20,630
Net income (loss) 11,799 14,461 (13,482) 36,777 36,187 11,061 13,628
Net income (loss) per
share-diluted $ .56 $ .68 $ (.65) $ 1.71 $ 1.72 $ .55 $ .68
Shares used in computing
diluted net income (loss)
per share 21,231,000 21,351,000 20,686,000 21,509,000 21,037,000 20,145,000 20,006,000
</TABLE>
<TABLE>
<CAPTION>
February August 31,
May 31, 28, -----------------------------------------------------------
1998 1998 1997 1996 1995 1994 1993
------------- ----------- --------- --------- --------- ------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 200,409 $ 231,503 $ 186,603 $ 200,432 $ 161,551 $ 97,651 $ 77,229
Total long-term obligations 1,870 1,950 2,030 1,462 -- 146 1,013
Total stockholders' equity 163,405 165,685 148,082 165,548 128,882 80,179 62,010
</TABLE>
- ------------------------------
(1) On June 8, 1998, TLC repurchased from funds managed by Loomis Sayles &
Company, L.P., approximately $96.7 million aggregate principal amount of
TLC's 5 1/2% Senior Convertible Notes due 2000, which were cancelled. The
purchase price for this repurchase was satisfied by the issuance of
approximately 3.4 million shares of TLC Common Stock.
15
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months
Ended Years Ended December 31,
March 31, ----------------------------------------
1998 1997 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(In thousands, except share and per share data)
PRO FORMA COMBINED
TLC/BRODERBUND
OPERATING DATA:
Revenues $ 201,315 $ 759,451 $ 529,528 $ 338,636
Operating loss (164,761) (424,478) (330,435) (9,380)
Net loss (172,602) (495,762) (377,674) (29,773)
Net loss per share--diluted $ (2.20) $ (6.58) $ (6.59) $ (.73)
Shares used in computing diluted net loss per share 78,547,000 75,301,000 57,347,000 40,877,000
<CAPTION>
March 31,
1998
-------------
(In
thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 697,326
Total long-term obligations 357,526
Total stockholders' equity 100,658
</TABLE>
16
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of TLC and
Broderbund and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling-of-interests basis (and assuming the
issuance of 0.80 of a share of TLC Common Stock in the Merger in exchange for
each share of Broderbund Common Stock). This data should be read in conjunction
with the selected historical consolidated financial data and the unaudited pro
forma combined financial data included elsewhere in this Joint Proxy
Statement/Prospectus and the separate historical consolidated financial
statements of TLC and Broderbund incorporated by reference herein. The pro forma
combined financial data is not necessarily indicative of the operating results
or financial position that would have been achieved if the Merger had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
TLC. Neither TLC nor Broderbund has paid cash dividends on its Common Stock.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995
------------- --------- --------- ---------
HISTORICAL--TLC
Net loss per share $ (2.45) $ (9.59) $ (9.94) $ (2.65)
Book value per share $ (1.03) $ (2.06)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS
ENDED ENDED
MAY 31, FEBRUARY 28, YEARS ENDED AUGUST 31,
-------------------------------
<S> <C> <C> <C> <C> <C>
1998 1998 1997 1996 1995
------------ ------------- --------- --------- ---------
HISTORICAL--BRODERBUND
Net income (loss) per share $ .56 $ .68 $ (.65) $ 1.71 $ 1.72
Book value per share $ 7.79 $ 7.91 $ 7.13
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995
------------- --------- --------- ---------
PRO FORMA COMBINED--TLC/BRODERBUND(2)
Net loss per share $ (2.20) $ (6.58) $ (6.59) $ (.73)
Book value per share(1) $ 1.21 $ 1.27
EQUIVALENT PRO FORMA COMBINED --
PER BRODERBUND SHARE(2)(3)
Net loss per share $ (1.76) $ (5.27) $ (5.27) $ (0.58)
Book value per share(1) $ .97 $ 1.02
</TABLE>
- ------------------------
(1) The pro forma combined balance sheet as of January 3, 1998 and April 4, 1998
includes an accrual of $6 million for the estimated direct transaction
costs. See Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
(2) For purposes of the pro forma combined data, TLC's financial data for the
fiscal years ended January 3, 1998, January 4, 1997 and January 6, 1996, and
the three months ended April 4, 1998 have been combined with Broderbund's
financial data for the twelve months ended November 30, 1997 and the years
ended August 31, 1996 and 1995 and the three months ended February 28, 1998,
respectively.
(3) The equivalents of Broderbund's pro forma per share amounts are calculated
by multiplying the combined pro forma per share amounts by the inverse of
the Exchange Ratio of 0.80 shares of TLC Common Stock for each share of
Broderbund Common Stock.
17
<PAGE>
MARKET PRICE INFORMATION
TLC Common Stock is traded on the New York Stock Exchange under the symbol
"TLC." TLC Common Stock has been traded on the New York Stock Exchange since
November 14, 1996. Prior thereto the TLC Common Stock was traded on the Nasdaq
National Market under the symbol "SKEY." Broderbund Common Stock is traded on
the Nasdaq National Market under the symbol "BROD."
The table below sets forth, for the periods indicated, the reported high and
low sale prices of TLC Common Stock on the New York Stock Exchange or the Nasdaq
National Market and Broderbund Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
TLC BRODERBUND COMMON
COMMON STOCK STOCK
----------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
---------- ----------- --------- ---------
CALENDAR 1996
First Quarter..................................................... $ 27.75 $ 13.375 $ 59.50 $ 37.00
Second Quarter.................................................... 30.3125 17.25 48.75 31.50
Third Quarter..................................................... 22.375 15.25 37.00 22.375
Fourth Quarter.................................................... 25.75 13.375 33.875 24.031
CALENDAR 1997
First Quarter..................................................... $ 18.00 $ 5.75 $ 35.125 $ 20.75
Second Quarter.................................................... 9.625 5.50 27.625 18.375
Third Quarter..................................................... 15.75 8.5625 37.25 21.50
Fourth Quarter.................................................... 20.50 13.78125 35.938 25.625
CALENDAR 1998
First Quarter..................................................... $ 25.75 $ 14.125 $ 27.125 $ 18.25
Second Quarter.................................................... 30.00 22.625 22.813 15.50
Third Quarter (through July 13, 1998)............................. 30.875 28.25 23.875 21.625
</TABLE>
On June 19, 1998, the last full trading day prior to the execution and
delivery of the Merger Agreement and the public announcement thereof, the last
reported sale price of TLC Common Stock on the New York Stock Exchange was
$25.00 per share, and the last reported sale price of Broderbund Common Stock on
the Nasdaq National Market was $16.50 per share. Based on the Exchange Ratio of
0.80 shares of TLC Common Stock for each share of Broderbund Common Stock, the
pro forma equivalent per share value of Broderbund Common Stock on June 19, 1998
was $20.00 per share.
On July 13, 1998, the most recent practicable date prior to the printing of
this Joint Proxy Statement/ Prospectus, the last reported sale price of TLC
Common Stock on the New York State Exchange was $30.4375 per share, and the last
reported sale price of Broderbund Common Stock on the Nasdaq National Market was
$23.375 per share.
Because the market price of TLC Common Stock is subject to fluctuation and
the Exchange Ratio is fixed, the market value of the shares of TLC Common Stock
that holders of Broderbund Common Stock will receive in the Merger may increase
or decrease prior to the Merger.
TLC and Broderbund Stockholders are urged to obtain a current market
quotation for the TLC Common Stock and the Broderbund Common Stock.
18
<PAGE>
RISK FACTORS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT
ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING
STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES,"
"PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
INDICATED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN RISK FACTORS
SET FORTH BELOW AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
The following risk factors, in addition to the other information contained
or incorporated by reference in this Joint Proxy Statement/Prospectus, should be
considered by holders of TLC Common Stock in evaluating whether to approve the
Merger Proposal and by holders of Broderbund Common Stock in evaluating whether
to approve and adopt the Merger Agreement and Merger and thereby become holders
of TLC Common Stock.
RISKS RELATING TO THE MERGER
INTEGRATION OF OPERATIONS. TLC and Broderbund each have similar operations
involving the development and sale of consumer software. Integrating the
operations (including, among other things, product development, sales and
marketing activities, information and software systems, customer and direct
response services, product manufacturing and fulfillment, employee hiring and
training, and expansion strategy) and management of the two companies will be a
time-consuming process, and there can be no assurance that this integration will
result in the achievement of any of the anticipated synergies and other benefits
that may be realized from the Merger. Moreover, the integration of these
organizations will require the dedication of management resources, which may
temporarily distract attention from the day-to-day business of TLC. The
inability of management to successfully integrate the operations of the two
companies could have a material adverse effect on the business and operating
results of TLC. See "The Merger--Reasons for the Merger."
TLC expects to incur restructuring and integration costs in connection with
the integration of the operations of TLC and Broderbund. These costs include
costs for employee severance and other compensation charges, facilities
closures, relocation, discontinuance of overlapping products and other merger-
related costs. The amount of these costs has not yet been determined and TLC
expects to charge such costs to operations in the quarter in which the Merger is
consummated.
POSSIBLE DILUTION. There can be no assurance that the combining of the two
companies' businesses, even if achieved in an efficient and effective manner,
will result in increased earnings per share of TLC Common Stock (taking into
consideration the greater number of shares of TLC Common Stock outstanding as a
result of the Merger) or a financial condition superior to that which would have
been achieved by TLC or Broderbund on a stand-alone basis. While neither TLC nor
Broderbund anticipates that the Merger will be dilutive to the stockholders of
TLC, there can be no assurance that, if the Merger fails to produce the
anticipated benefits, it will not have the dilutive effect of causing the per
share earnings of TLC to be lower than they would have been if operated
independently. Furthermore, if the anticipated benefits are not achieved, or if
the Merger has other adverse effects that are not currently anticipated, the
Merger could result in a reduction in per share earnings of the Combined Company
as compared to the per share earnings that either or both of the companies would
have achieved if the Merger had not occurred. Even if the effects of the Merger
prove to be as anticipated, there can be no assurance that future earnings will
not be adversely affected by any number of economic, market or other factors
that are not related to the Merger.
19
<PAGE>
SHARE PRICE FLUCTUATION THROUGH THE EFFECTIVE TIME. The relative market
prices of shares of Broderbund Common Stock and shares of TLC Common Stock at
the Effective Time may vary significantly from the prices as of the date of
execution of the Merger Agreement, the date hereof or the date on which the
respective Broderbund and TLC Special Meetings occur, due to changes in the
business, operations, and prospects of TLC or Broderbund, market assessments of
the Merger, the synergies expected to be achieved in the Merger, the likelihood
that the Merger will be consummated and the timing thereof, general market and
economic conditions, and other factors.
The Exchange Ratio was fixed at 0.80 at the time of execution of the Merger
Agreement by the parties and is not subject to adjustment. Any increase or
decrease of the market price of the shares of TLC Common Stock will
correspondingly increase or decrease the value of the merger consideration to be
received by the holders of Broderbund Common Stock pursuant to the Merger. In
considering whether to approve the Merger Agreement and the Merger Proposal, the
holders of Broderbund Common Stock and the holders of TLC Common Stock, the
Special Voting Share and TLC Series A Preferred Stock, respectively, should
consider the risks associated with a potential change in the price of TLC Common
Stock between the date of this Joint Proxy Statement/Prospectus and the
Effective Time. The last reported sale price of the TLC Common Stock on the New
York Stock Exchange was $25.00 on June 19, 1998 (the last trading day prior to
the date that the Merger was publicly announced) and was $30.4375 on July 13,
1998.
ADDITIONAL SHARES TO BE ISSUED BY TLC; SHARES ELIGIBLE FOR FUTURE
SALE. Based on the shares of Broderbund Common Stock outstanding as of
the Record Date and assuming all outstanding options are exercised, TLC would
issue shares of TLC Common Stock in the Merger. On the record date there
were shares of Broderbund Common Stock outstanding and outstanding options
to acquire shares of Broderbund Common Stock that could be exchanged in
connection with the Merger. In general, the shares issued for outstanding shares
of Broderbund Common Stock will be freely tradable upon the issuance of certain
financial information regarding the Combined Company following the Merger. The
sale of any of the foregoing shares may cause substantial fluctuations in the
price of TLC Common Stock over short periods of time. Moreover, sales of
substantial amounts of TLC Common Stock (including shares issued upon the
exercise of outstanding options) in the public market could materially adversely
affect the market price of the TLC Common Stock.
DEPENDENCE ON RETENTION OF CERTAIN EMPLOYEES, CUSTOMERS, VENDORS AND OTHER
BUSINESS PARTNERS. The success of the Combined Company following the Merger is
dependent on the retention of the management, key employees, customers,
distributors, vendors and other business partners of TLC and Broderbund. There
can be no assurance that any such persons or entities will remain with or
continue to do business with the Combined Company following the Merger. Employee
attrition may occur in areas of actual or perceived overlap between the business
of Broderbund and TLC, including general and administrative, sales and
marketing, operations and research and development. In addition, in connection
with the transactions contemplated by the Merger Agreement, Broderbund has
authorized the payment of retention bonuses to certain employees in the
aggregate amount of $2,000,000. There can be no assurance that payment of these
bonuses will be sufficient to retain current employees of Broderbund following
announcement of, and during pendency of, the Merger. The loss of any key
personnel or business partner could cause a material adverse effect on the
Combined Company's business, financial condition or results of operations and
prospects.
RISKS RELATING TO TLC
INTENSE COMPETITIVE ENVIRONMENT. The consumer software industry is
intensely and increasingly competitive and is characterized by rapid changes in
technology and customer requirements. TLC competes for retail shelf space and
general consumer awareness with a number of companies that market consumer
software. TLC encounters competition from both established companies, including
the largest companies in the industry, and new companies that may develop
comparable or superior products. A
20
<PAGE>
number of TLC's competitors and potential competitors possess significantly
greater capital, marketing resources and brand recognition than TLC. Rapid
changes in technology, product obsolescence and advances in computer software
and hardware require TLC to develop or acquire new products and to enhance its
existing products on a timely basis. TLC'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 TLC's existing products may change. There
can be no assurance that TLC will be able to successfully maintain market share
and otherwise compete successfully in the future.
Competitive pressures in the software industry have resulted, and TLC
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, TLC reduced the retail selling price of certain of its
educational products. There can be no assurance that TLC's product selling
prices will not continue to decline in the future or that TLC will not respond
to such declines with additional price reductions. Such price reductions may
reduce TLC's revenues and operating margins in the future. During 1997, TLC and
many of its competitors began using rebate coupons in order to induce consumers
to purchase their products. In addition, TLC uses various forms of print 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 TLC fails to match
its competitors' 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,
TLC could be adversely affected. Furthermore, increased consolidation of the
consumer software market may impact future growth potential and performance.
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. TLC 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, TLC's position may
be reduced. Mass merchants such as Wal-Mart and Kmart are increasingly
accounting for a larger portion of TLC's sales. As these retailers achieve
greater market share from the traditional software retailers, TLC 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 TLC 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 TLC's business and
operations including addressing operational challenges such as improving
download time for pictures, images and programs, ensuring proper regulation of
content
21
<PAGE>
quality and developing sophisticated security for transmitting payments. Should
on-line distribution channels increase, TLC 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 TLC 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. TLC 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.
TLC believes that its customers will in the future demand that TLC offer
increasing numbers of titles throughout the range of product categories. TLC
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.
TLC 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 TLC. There can be no
assurance that TLC will enter into any such transaction or, if TLC does identify
and consummate such a transaction, that the transaction will enable TLC to
achieve its goals.
Acquisitions or business combination transactions that would result in
further expansion of TLC's business in the entertainment and educational product
areas may result in a higher degree of product acceptance risk and longer
development cycles for TLC's products. In addition, companies that develop
entertainment software (for personal computer ("PC"), Sega, Nintendo and 3DO
platforms) typically experience lower gross margins than TLC has experienced
from its current operations. Further, should purchase accounting be used by TLC
for future acquisitions or business combination transactions, such accounting
treatment may result in large, one-time expense charges for in-process research
and development costs and short amortization periods for acquired technology and
other intangible assets acquired in the transaction.
Competition for suitable acquisitions, business combinations and strategic
alliances and the cost of these transactions have recently been increasing. The
future availability of desirable prospects for these transactions in the
computer software industry is uncertain. In addition, assuming that TLC 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 TLC's operations.
LEVERAGE. As of July 4, 1998, TLC had outstanding long-term debt of
$190,955,000, comprised of 5 1/2% Senior Convertible Notes due 2000 (the
"Notes"). The Notes are convertible into Common Stock at a price of $53 per
share. If the holders of the Notes do not convert the Notes held by them into
Common Stock, there can be no assurance that TLC's operating cash flow will be
sufficient to meet its debt service requirements, or that TLC 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. TLC is currently experiencing a period of rapid growth that is
placing and will likely continue to place a strain on TLC's financial,
management and other resources in the future. TLC'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 TLC's
management becomes unable to manage growth effectively, TLC's business,
operating results and financial condition could be adversely affected. For
example, over the past two years, TLC has acquired The
22
<PAGE>
Learning Company ("The Former Learning Company"), Compton's NewMedia, Inc. and
Compton's Learning Company (collectively, "Compton's"), Minnesota Educational
Computing Corporation (MECC) ("MECC"), Learning Services Inc. ("Learning
Services"), Skills Bank Corporation ("Skills Bank"), Microsystems Software, Inc.
("Microsystems"), Creative Wonders LLC ("Creative Wonders"), TEC Direct, Inc.
("TEC Direct"), Sofsource, Inc. ("Sofsource"), PF. Magic, Inc. ("PF. Magic"),
and Mindscape, Inc. and certain related entities (collectively, "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, TLC 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 TLC's business, which could have an adverse effect on the revenues
and operating results of TLC, 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. TLC's
educational software products require a substantially larger internal
development and marketing staff than its operations had previously required. If
TLC is unable to attract, motivate, manage and retain such employees, TLC's
results of operations will likely be adversely affected.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE. TLC 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 TLC may publish. It is expected
that this trend will continue and may become more pronounced in the future.
TLC's rights to license many of its software products are non-exclusive and,
generally, of limited duration, and there is no assurance TLC 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 TLC 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,
TLC's results of operations will be adversely affected.
Certain of TLC's products, such as THE AMERICAN GIRLS PREMIERE, THE
PRINCETON REVIEW, NATIONAL GEOGRAPHIC 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 TLC's ability to develop future products without the
consent of the applicable licensor. If TLC is not able to develop future
products under these agreements or enter into alternative arrangements with the
same or additional licensors, TLC's operating results could be adversely
affected.
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT. Retailers of TLC's
products typically have a limited amount of shelf space and promotional
resources, and there is intense competition among high-
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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 TLC's
products, provide TLC's products with adequate levels and quality of shelf space
or continue to participate with TLC in cooperative advertising, promotional or
market development arrangements. In addition, TLC has implemented new
promotional programs, including coupon rebates and other various programs
through print media. These programs may increase TLC's future cost of marketing
and reduce future operating margins.
SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE. Recently,
several major publishers of PC software, including TLC, have significantly
reduced the prices of their products with the goal of gaining greater market
share. The retail and wholesale prices of many of TLC's products have declined
and TLC 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. TLC 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, the laws of foreign jurisdictions may not
protect TLC'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 TLC.
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. TLC 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. TLC does not have any patents. United States
copyright law, international conventions and international treaties, however,
may not provide meaningful protection against unauthorized duplication of TLC's
software. TLC 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, TLC'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. TLC's
products do not contain any mechanisms to prevent or inhibit unauthorized
copying.
TLC has registered numerous trademarks in the United States and Canada, and
a smaller number in other countries, for titles or components of its products
and has trademark registrations pending in the United States and other countries
for various new products.
Policing unauthorized use of a broadly disseminated product such as PC
software is very difficult. Software piracy can be expected to be a persistent
problem for the "shrink-wrap" software industry. These
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problems are particularly acute in certain international markets such as South
America, the Middle East, the Pacific Rim and the Far East.
TLC 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, TLC is likely to experience an increase in the number of
infringement claims asserted against it in the future. With respect to licensed
products, TLC is generally indemnified against liability on these matters. TLC'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 TLC's
proprietary rights, to protect copyrights, trademarks and trade secrets and
other intellectual property rights owned by TLC or its licensors, to defend TLC
against claimed infringements of the rights of others and to determine the scope
and validity of the proprietary rights of TLC 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 TLC's business, operating
results or financial condition. Adverse determinations in litigation relating to
any of TLC's products could result in the loss of TLC's proprietary rights,
subject TLC to liabilities, require TLC to seek licenses from third parties or
prevent TLC from selling that product.
DEPENDENCE ON MAJOR SUPPLIER. In 1997, the production, assembly and
distribution of TLC'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). TLC believes that its existing production
capacity is sufficient to handle anticipated increases in volume and titles into
the foreseeable future. Although TLC 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 TLC.
YEAR 2000 COMPLIANCE. TLC has initiated an internal study to determine
whether its computer systems and related applications are Year 2000 compliant.
TLC 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 TLC 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, TLC 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 TLC. TLC 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 TLC'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.
HISTORY OF LOSSES. A variety of factors may cause period-to-period
fluctuations in TLC'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 TLC
and its predecessors cannot be relied upon as indicative of the future
performance of TLC. On an historical basis, TLC 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), $475,667,000 for
the year ended January 3, 1998 (after amortization, merger and other costs of
$515,016,000) and $129,408,000 for the three months ended April
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4, 1998 (after amortization, merger and other costs of $156,820,000). There can
be no assurance that TLC will be profitable in the future.
CAPITAL RESOURCES. The expansion of TLC'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 TLC for
additional investment.
DEPENDENCE ON CONTINUED PERSONAL COMPUTER SALES. The success of TLC is
dependent upon the continuing use of PCs, and especially multimedia PCs, in the
consumer and school markets. A general decrease in unit sales of PCs or shift to
an alternative means of delivery could adversely affect TLC's future results of
operations.
VOLATILITY OF STOCK PRICE. The TLC Common Stock is quoted on the New York
Stock Exchange. 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 TLC 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.
RISKS RELATING TO BRODERBUND
FLUCTUATIONS IN PERFORMANCE AND OPERATING RESULTS. Broderbund has
experienced, and expects to continue to experience, significant fluctuations in
operating results due to a variety of factors, including but not limited to, the
rate of growth of the consumer software market, market acceptance of
Broderbund's products or those of its competitors, the timing of new product
introductions, expenses relating to the development and promotion of new product
introductions, changes in pricing policies by Broderbund or its competitors,
projected and actual changes in platforms and technologies, timely and
successful adaptation to such platforms or technologies, the accuracy of
forecasts of consumer demand, sales of personal computers, product returns,
market seasonality, the timing of orders from major customers and order
cancellations, and changes or disruptions in the consumer software distribution
channels and the successful acquisition and integration of new businesses,
products and technologies.
Broderbund's business has generally been highly seasonal, with net revenues
normally highest in the first fiscal quarter during the calendar year-end
holiday selling season, lower in the second fiscal quarter, and lowest in the
seasonally slow third and fourth fiscal quarters. Products are generally shipped
as orders are received, therefore sales and operating results depend on the
volume and timing of orders received during the fiscal quarter. Additionally,
Broderbund's operating expenses are based in part on its expectations of future
revenues and are relatively fixed in the short-term. Accordingly, any revenue
shortfall below expectations, due to either the timing of orders received or
delays in product releases, could have an immediate and significant adverse
effect on Broderbund's consolidated results of operations and financial
condition. Due to the foregoing factors, Broderbund believes that
quarter-to-quarter comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
As anticipated in a press release issued by Broderbund on June 15, 1998, and
as reflected in Broderbund's financial results set forth in Form 10-Q filed with
the Commission on July 14, 1998, Broderbund's financial results for the third
quarter of fiscal year 1998 fell below analysts' estimates for such period.
Moreover, Broderbund's future operating results and business in future quarters
may be materially adversely affected as a direct or indirect result of the
public announcement of the Merger
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including without limitation the loss of employees, deterioration in
distribution or development relationships and/or distraction of senior
management. See "--Risks Relating to the Merger--Share Price Fluctuation Through
the Effective Time."
INDUSTRY AND COMPETITION. End user demand for consumer software has
historically been volatile in Broderbund's industry and has been affected by
changing technology, limited hardware platform life cycles, hit products,
competition, seasonality, consumer spending and other economic trends.
Broderbund believes that this volatility in consumer demand seen in this
industry will continue which could have a material adverse affect on
Broderbund's future revenues. In addition, the intense competition in the
consumer software business continues to accelerate as an increasing number of
companies, many of which have financial, technical and/or intellectual property
resources greater than those of Broderbund, offer products that compete directly
with one or more of Broderbund's products. As a result, an increasingly large
number of products are competing for limited consumer demand and retail shelf
space. In addition, competitors have actively developed, aggressively marketed
and aggressively priced, products directly competitive to those of Broderbund,
including Broderbund's best-selling series, THE PRINT SHOP, which has caused a
reduction in revenues, including significant revenue reductions in THE PRINT
SHOP product line. Although Broderbund has taken steps to respond to such
competitive pressures, there can be no assurances that Broderbund's efforts will
be effective in the market or that Broderbund will be successful in regaining
market share. Further, in the education category, competitors have significantly
reduced retail prices on key brand and premium line products, in some cases
pricing products at retail (and after rebate) at, near or below zero. Although
Broderbund believes that such tactics are not sustainable in the long term, in
the short term such competitive tactics have had a material, adverse effect on
Broderbund's performance in the education category and may continue to do so in
future periods.
Due to changes in platforms, technologies and consumer preferences in the
industry, sales of products on older platforms and in certain product lines have
declined. Broderbund takes efforts to forecast such technology, life cycle and
consumer demand changes, and manage such products accordingly. However, the
sales of these products may continue to decline further or experience lower than
expected sales levels. Retailers of Broderbund's products typically have a
limited amount of shelf space and promotional resources for which there is
intense competition. For example, there are 21 products available from
Broderbund's Living Books product line and it has become increasingly difficult
to maintain shelf space in the retail channel for all of these products.
Retailers may not purchase all of these products or provide these products with
adequate levels of shelf space and promotional support and although Broderbund
has initiated aggressive direct-to-consumer efforts to offset such trends they
may not be successful.
Competition for employees in the consumer software business is intense as
competition in the industry increases. The attraction and retention of key
personnel and other creative talent, including independent developers, has
intensified and become increasingly difficult. Further, like many companies in
the technology sector, Broderbund relies in part on stock option grants to
attract and retain key personnel. In light of the decrease in Broderbund's stock
price in recent periods, the effectiveness of such benefits in attracting and
retaining key personnel has diminished. There can be no assurance that
Broderbund will continue to attract or retain key personnel and creative talent.
In connection with the transactions contemplated by the Merger Agreement,
Broderbund has authorized the payment of retention bonuses to certain employees
in the aggregate amount of $2,000,000. There can be no assurance that payment of
the aforementioned bonuses will be sufficient to retain current employees of
Broderbund following announcement of, and during pendency of, the Merger.
DEPENDENCE ON NEW PRODUCTS AND PLATFORMS. Broderbund's future success will
depend in large part on its ability to develop and release new products on a
timely basis and to achieve widespread market acceptance for such products. The
MYST sequel product, RIVEN, was released in the first quarter of fiscal 1998,
and the initial sales of the highly anticipated sequel product were the primary
reason for the significant increase in net revenues for the first half of fiscal
1998 compared to prior periods. However,
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Broderbund does not believe that the revenues from RIVEN will continue at the
rate experienced during the initial sell-in period, and there can be no
assurance that the product will achieve prolonged and continued widespread
market acceptance. In the third quarter of fiscal 1998, Broderbund experienced
significant returns of RIVEN. There can be no assurance that revenues, including
those derived from sales of this product, will increase during the subsequent
fiscal quarters or that returns, including returns of RIVEN, will decrease.
Because of complexities in technology and consumer preferences associated
with developing and publishing consumer software, new product introductions can
be subject to material delays. In addition, there can be no assurance that new
products introduced by Broderbund will achieve any significant degree of market
acceptance, or that such acceptance, if achieved, will be sustained for any
length of time. Since Broderbund expects that the cost of developing and
introducing new products will continue to increase, the financial risks
associated with new product development will increase as will the risks
associated with material delays in the introduction of such new products.
Broderbund's development and introduction of entertainment titles increases the
risk associated with the development and marketing of consumer software products
and their market acceptance because the entertainment sector is more hit-driven,
and with titles generally having a relatively shorter life-cycle compared to
titles in the productivity and education segments. Further, the substantial
year-over-year decline in MYST revenues was not fully replaced with the release
of RIVEN, and there can be no guarantee that the shortfall from the continuing
decline in MYST revenues will be replaced by other products.
DISTRIBUTION. The distribution channels through which consumer software
products are traditionally sold have been characterized by intense competition,
consolidation and continuing uncertainties. Broderbund believes that this
competition, consolidation and uncertainty will increase which may affect the
levels at which distributors and retailers will continue to purchase
Broderbund's products or provide Broderbund's products with adequate levels of
shelf space and promotional support. Broderbund has experienced increasing
pressure from distributors and retailers to obtain marketing and promotional
funds and discounts in connection with access to shelf space, in-store promotion
and sale of products, and Broderbund believes that these pressures will continue
or increase.
Broderbund also permits distributors and retailers to return products under
certain circumstances and in recent periods, Broderbund has experienced an
increase in the rate of returns as the competition in the distribution channel
increases and as mass merchants, office and warehouse stores become an
increasing percentage of Broderbund's sales in the traditional retail channel.
Broderbund believes that the rate of product returns may continue at this pace,
and it is possible that return rates will increase further. In particular, in
the third fiscal quarter of 1998, Broderbund had experienced significant returns
of RIVEN. There can be no assurance that these returns will decrease. Broderbund
establishes allowances based on estimated future returns of product after
considering various factors, and accordingly, if the level of actual returns
exceeds management's estimates, it could have a material adverse impact on
Broderbund's operating results. Further, certain distributors and retailers have
experienced business and financial difficulties. Such difficulties for these or
additional distributors and retailers may continue or increase which could have
an adverse effect on the operating results and financial condition of
Broderbund. Broderbund manufactures its products based upon estimated future
sales, and accordingly, if the level of actual orders of products falls short of
management's estimates, inventory levels could be excessive which could lead to
inventory write-offs and have an adverse impact on Broderbund's operating
results.
Sales to a limited number of distributors and retailers have constituted and
are expected to continue to constitute a substantial amount of Broderbund's
revenues. Arrangements with these accounts generally may be terminated at any
time by the distributor or retailer. The loss of, a significant reduction in
sales to, or inability to collect receivables from, or any other adverse change
in Broderbund's relationship with, any of Broderbund's principal resellers or
accounts sold through such resellers could materially adversely affect
Broderbund's results of operations. Broderbund's retailers and distributors
compete in a volatile industry and are subject to the risk of bankruptcy or
other business failure, and certain distributors and retailers
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have experienced difficulties. Broderbund maintains a reserve for uncollectible
receivables which it believes is adequate, however, due to factors outside of
Broderbund's control, the reserve may prove to be insufficient which could have
an adverse effect on the operating results and financial condition of
Broderbund. Broderbund has significantly increased its efforts to sell its
products direct-to-consumer, including its acquisition of Parsons Technology, a
direct-to-consumer software specialist, and increasing its telemarketing and
Internet efforts, however there can be no guarantees that such efforts will
successfully offset the changes in the retail channel.
IMPACT OF YEAR 2000. Many computer systems were not designed to handle any
dates beyond the year 1999, and therefore computer hardware and software will
need to be modified prior to the Year 2000 in order to remain functional.
Broderbund is still assessing the impact the Year 2000 issue will have on its
internal information systems and has begun corrective efforts in these areas.
Broderbund does not anticipate that addressing the Year 2000 problem for its
internal information systems will have a material impact on its operations or
financial results. However, there can be no guarantee that these costs will not
be greater than anticipated, or that corrective actions undertaken will be
completed before the Year 2000 problems could occur. Broderbund is in the
process of completing testing of its product line to determine Year 2000
compliance. Broderbund does not anticipate that its products will have any
significant Year 2000 issues, but there can be no assurance that Year 2000
problems will not occur or that all of the products will be Year 2000
compatible.
Broderbund has certain key relationships with suppliers. If these suppliers
fail to adequately address the Year 2000 issue for the products they provide
Broderbund, this could have a material adverse impact on Broderbund's operations
and financial results. Broderbund is still assessing the effect the Year 2000
issue will have on its suppliers and, at this time, cannot determine the impact
it will have.
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THE TLC SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of TLC
Common Stock, TLC Exchangeable Shares and TLC Series A Preferred Stock in
connection with the solicitation of proxies by the TLC Board for use at the TLC
Special Meeting to be held on August 31, 1998, at The Royal Sonesta Hotel, 5
Cambridge Parkway, Cambridge, Massachusetts 02142, commencing at 1:00 p.m.,
local time, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to Stockholders of TLC on or about July 27, 1998.
MATTERS TO BE CONSIDERED
At the TLC Special Meeting, holders of TLC Common Stock, TLC Exchangeable
Shares and TLC Series A Preferred Stock will be asked to consider and vote upon:
(i) the approval of the Merger Proposal;
(ii) the amendment of the 1990 Plan; and
(iii) such other matters as may properly be brought before the TLC
Special Meeting, or any adjournment or postponement thereof.
BOARD OF DIRECTORS' RECOMMENDATION
The TLC Board has, by unanimous vote of all directors present, approved the
Merger Proposal and the amendment to the 1990 Plan and recommends a vote FOR
approval of the Merger Proposal and amendment to the 1990 Plan.
RECORD DATE AND VOTING
TLC. Holders of record of shares of TLC Common Stock and TLC Series A
Preferred Stock at the close of business on July 22, 1998 are entitled to notice
of and to vote at the TLC Special Meeting. At such date there were
outstanding shares of TLC Common Stock, each of which will be entitled to one
vote, and 750,000 outstanding shares of TLC Series A Preferred Stock, each of
which is convertible into 20 shares of TLC Common Stock and entitled to 20
votes. In addition, at the TLC Special Meeting, CIBC Mellon Trust Company, as
the holder of the one outstanding Special Voting Share, will be entitled to cast
votes. These votes represent the number of TLC Exchangeable Shares of
Softkey Software Products, Inc. that were outstanding on the Record Date (other
than TLC Exchangeable Shares held by TLC, its subsidiaries or any entity
controlled by or under common control of TLC, if any). The TLC Exchangeable
Shares are exchangeable on a one-for-one basis for TLC 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 a TLC Exchangeable Share (other than TLC, its subsidiaries or any
entity controlled by or under common control of TLC) is entitled to instruct the
Trustee to exercise one of the votes attached to the Special Voting Share for
each TLC Exchangeable Share held by such holder. Accordingly, an aggregate of
votes may be cast at the TLC Special Meeting by holders of TLC Common
Stock and TLC Series A Preferred Stock and the holder of the Special Voting
Share. The representation, in person or by properly executed proxy, of the
holders of a majority of all of the shares of stock entitled to vote at the TLC
Special Meeting is necessary to constitute a quorum at the TLC Special Meeting.
The approval of the Merger Proposal and the amendment to the 1990 Plan will
require the affirmative vote of the holders of a majority of the votes
represented by the shares of TLC Common Stock, the Special
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Voting Share and the shares of TLC Series A Preferred Stock, voting together as
one class, present in person or represented by proxy at the TLC Special Meeting.
Shares of TLC Common Stock and TLC Series A Preferred Stock and the Special
Voting Share, represented in person or by proxy, will be counted for the purpose
of determining whether a quorum is present at the TLC Special Meeting. Shares
that abstain from voting as to a particular matter will be treated as shares
that are present and entitled to vote at the TLC Special Meeting for purposes of
determining whether a quorum exists, but will not be counted as votes cast on
such matter. If a broker or nominee holding stock in "street name" indicates on
a proxy that it does not have discretionary authority to vote as to a particular
matter ("broker non-votes"), those shares will be treated as present and
entitled to vote at the TLC Special Meeting for purposes of determining whether
a quorum exists, but will not be counted as votes cast on such matter.
Accordingly, in determining whether the Merger Proposal and amendment to the
1990 Plan have received the requisite number of affirmative votes, abstentions
and broker non-votes will have no effect on the voting on such proposals.
As of July 22, 1998, directors and executive officers of TLC and their
affiliates may be deemed to be beneficial owners of approximately 24.2% of the
votes represented by the outstanding shares of TLC Common Stock, and TLC Series
A Preferred Stock and the Special Voting Share. Each of the directors and
executive officers of TLC has advised TLC that he or she intends to vote or
direct the vote of all shares of TLC Common Stock over which he or she has
voting control for approval of the Merger Proposal. See "TLC--Security Ownership
of Certain Beneficial Owners and Management." Stockholders of TLC who
beneficially own shares of TLC Common Stock and TLC Series A Preferred Stock
representing, as of June 30, 1998, 17.0% of the votes that may be cast at the
TLC Special Meeting have irrevocably appointed Broderbund as proxy to vote all
shares of TLC Common Stock held by such Stockholders, as of June 21, 1998 in
favor of the Merger Proposal at the TLC Special Meeting. See "The
Merger--Interests of Certain Persons in the Merger."
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to TLC Stockholders
in connection with the solicitation of proxies by and on behalf of the TLC Board
for use at the TLC Special Meeting, and is accompanied by a form of proxy.
All shares of TLC Common Stock and TLC Series A Preferred Stock which are
entitled to vote and are represented at the TLC Special Meeting by properly
executed proxies received prior to or at such meeting, and not revoked, will be
voted at such meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated (other than in the case of broker
non-votes), such proxies will be voted for approval of the Merger Proposal and
the amendment to the 1990 Plan.
Enclosed with this Joint Proxy Statement/Prospectus are materials informing
holders of TLC Exchangeable Shares of their rights with respect to voting at the
TLC Special Meeting and instructing such holders as to how to exercise such
rights.
If any other matters are properly presented at the TLC Special Meeting for
consideration, including, among other things, consideration of a motion to
adjourn such meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed forms of proxy and acting thereunder will have discretion to
vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of TLC, at or before the taking of the vote at the TLC
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of TLC before the taking of the vote at the TLC
Special Meeting, or (iii) attending the TLC Special Meeting and
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voting in person (although attendance at the TLC Special Meeting will not in and
of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent to The Learning Company, Inc., One Athenaeum
Street, Cambridge, Massachusetts 02142, Attention: Secretary, or hand delivered
to the Secretary of TLC at or before the taking of the vote at the TLC Special
Meeting.
All expenses of TLC's solicitation of proxies, including the cost of
preparing and mailing this Joint Proxy Statement/Prospectus to TLC Stockholders,
will be borne by TLC. In addition to solicitation by use of the mails, proxies
may be solicited from TLC Stockholders by directors, officers and employees of
TLC in person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with brokerage houses, custodians,
nominees and fiduciaries for forwarding of proxy solicitation materials to
beneficial owners of shares held of record by such brokerage houses, custodians,
nominees and fiduciaries, and TLC will reimburse such brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith.
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THE BRODERBUND SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Broderbund Common Stock in connection with the solicitation of proxies by the
Broderbund Board for use at the Broderbund Special Meeting to be held on August
31, 1998, at the Wyndham Garden Hotel-Marin, 1010 Northgate Drive San Rafael,
California 94903, commencing at 10:00 a.m., local time, and at any adjournment
or postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to Stockholders of Broderbund on or about July 27, 1998.
MATTERS TO BE CONSIDERED
At the Broderbund Special Meeting, holders of Broderbund Common Stock will
be asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement and the Merger and such other matters as may properly be brought
before the Broderbund Special Meeting, or any adjournment or postponement
thereof.
BOARD OF DIRECTORS' RECOMMENDATION
The Broderbund Board has unanimously approved the Merger Agreement and the
Merger and recommends a vote FOR approval and adoption of the Merger Agreement
and the Merger.
RECORD DATE AND VOTING
The Broderbund Board has fixed July 22, 1998 as the record date for the
determination of the Broderbund Stockholders entitled to notice of and to vote
at the Broderbund Special Meeting. Accordingly, only holders of record of shares
of Broderbund Common Stock on the Record Date will be entitled to notice of and
to vote at the Broderbund Special Meeting. As of July 22, 1998, there were
outstanding and entitled to vote shares of Broderbund Common Stock
(constituting all of the voting stock of Broderbund), which shares were held by
approximately holders of record. Each holder of record of shares of
Broderbund Common Stock on the Record Date is entitled to one vote per share,
which may be cast either in person or by properly executed proxy, at the
Broderbund Special Meeting. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of Broderbund
Common Stock entitled to vote at the Broderbund Special Meeting is necessary to
constitute a quorum at the Broderbund Special Meeting.
The approval and adoption of the Merger Agreement and Merger will require
the affirmative vote of the holders of a majority of the shares of Broderbund
Common Stock outstanding on the Record Date.
Shares of Broderbund Common Stock represented in person or by proxy will be
counted for the purpose of determining whether a quorum is present at the
Broderbund Special Meeting. Shares which abstain from voting as to a particular
matter, and shares held by a broker or nominee in "street name" which indicates
on a proxy that it does not have discretionary authority to vote as to a
particular matter, will be treated as shares that are present and entitled to
vote at the Broderbund Special Meeting for purposes of determining whether a
quorum exists. Because the Merger Agreement must be approved by the holders of a
majority of the shares of Broderbund Common Stock outstanding on the Record
Date, abstentions and broker non-votes will have the same effect as a vote
against the Merger Agreement.
As of July 22, 1998, directors and executive officers of Broderbund and
their affiliates may be deemed to have or share beneficial ownership of
approximately 10.8% of the outstanding shares of Broderbund Common Stock. See
"Broderbund--Security Ownership of Certain Beneficial Owners and Management." A
stockholder of Broderbund who beneficially owned in the aggregate approximately
8.7% of the shares of
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Broderbund Common Stock outstanding as of July 22, 1998 has irrevocably
appointed certain officers of TLC as proxies to vote all shares of Broderbund
Common Stock held by such stockholder as of June 21, 1998 in favor of the
proposal to approve and adopt the Merger Agreement and Merger at the Broderbund
Special Meeting. See "The Merger--Interests of Certain Persons in the Merger."
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Broderbund
Stockholders in connection with the solicitation of proxies by and on behalf of
the Broderbund Board for use at the Broderbund Special Meeting, and is
accompanied by a form of proxy.
All shares of Broderbund Common Stock which are entitled to vote and are
represented at the Broderbund Special Meeting by properly executed proxies
received prior to or at such meeting, and not revoked, will be voted at such
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated (other than in the case of broker non-votes), such
proxies will be voted for approval and adoption of the Merger Agreement.
If any other matters are properly presented at the Broderbund Special
Meeting for consideration, including, among other things, consideration of a
motion to adjourn such meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed forms of proxy and acting thereunder will have discretion to
vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Broderbund, at or before the taking of the vote at the
Broderbund Special Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of Broderbund before the taking of the
vote at the Broderbund Special Meeting or (iii) attending the Broderbund Special
Meeting and voting in person (although attendance at the Meeting will not in and
of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent to Broderbund, 500 Redwood Boulevard, Novato,
California 94948-6121, Attention: Secretary, or hand delivered to the Secretary
of Broderbund at or before the taking of the vote at the Broderbund Special
Meeting.
All expenses of Broderbund's solicitation of proxies, including the cost of
mailing this Joint Proxy Statement/Prospectus to Broderbund Stockholders, will
be borne by Broderbund. In addition to solicitation by use of the mails, proxies
may be solicited from Broderbund Stockholders by directors, officers and
employees of Broderbund in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Broderbund has retained CIC International, a
proxy solicitation firm, for assistance in connection with the solicitation of
proxies for the Broderbund Special Meeting at an estimated cost of approximately
$10,000 plus reimbursement of reasonable out-of-pocket expenses. Arrangements
will also be made with brokerage houses, custodians, nominees and fiduciaries
for forwarding of proxy solicitation materials to beneficial owners of shares
held of record by such brokerage houses, custodians, nominees and fiduciaries,
and Broderbund will reimburse such brokerage houses, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection therewith.
BRODERBUND STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
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THE MERGER
BACKGROUND OF THE MERGER
Throughout 1996 and 1997, the market for consumer software became
increasingly competitive, and the software industry experienced significant
consolidation. In response to these trends, Broderbund began discussions in
October 1997 with representatives of DLJ to explore various strategic
alternatives, including, among other things, potential strategic relationships
with other companies as well as the potential sale of Broderbund to another
company.
Broderbund management and DLJ representatives continued their discussions of
Broderbund's strategic alternatives throughout November and December 1997. On
January 21, 1998, DLJ representatives made a formal presentation to Broderbund
management and the Broderbund Board on the state of the interactive software
industry and the suitability of various potential strategic partners for
Broderbund.
On January 21, 1998, Broderbund signed an engagement letter with DLJ. At its
meeting on January 21, 1998, after reviewing with management Broderbund's
strategic alternatives, the Broderbund Board authorized management and DLJ to
contact certain potential strategic partners, including potential acquirors of
Broderbund's business.
In early February 1998, Michael J. Perik, TLC's Chief Executive Officer, and
Kevin O'Leary, TLC's President, had an introductory meeting with Joseph Durrett,
Broderbund's Chief Executive Officer and Mark Hattendorf, Broderbund's Group
Vice President and Chief Financial Officer.
In late March and early April 1998, Mr. O'Leary and Mr. Durrett held various
discussions exploring the possibility of a business combination between TLC and
Broderbund.
On April 10, 1998, Broderbund and TLC executed a Non-Disclosure Agreement,
and Broderbund provided certain financial and other confidential information to
TLC for use in its due diligence review of Broderbund. The two companies
continued to discuss business, financial and structural considerations regarding
a potential business combination through mid-April 1998, when the companies
agreed mutually to terminate formal discussions. Subsequent to the termination
of these discussions, the financial advisors of the two companies continued to
have intermittent conversations regarding a potential transaction.
Prior to June 15, 1998 Broderbund held discussions with other companies as
to potential strategic transactions, but none of these discussions resulted in
any transactions.
On June 15, 1998, prior to the opening of trading on the Nasdaq National
Market, Broderbund issued a press release announcing, among other things, that
it had retained DLJ in order to explore strategic alternatives.
Later in the day on June 15, 1998, Joseph Reece of DLJ contacted Scott
Murray, Executive Vice President and Chief Financial Officer of TLC, and
expressed interest in exploring a business combination between TLC and
Broderbund.
On June 17, 1998, Mr. Durrett and Mr. Reece of DLJ held a meeting at the
offices of TLC in Cambridge, Massachusetts with Mr. Perik, Mr. O'Leary, Mr.
Murray, and Neal Winneg, TLC's Senior Vice President and General Counsel. The
representatives of the two companies held a preliminary discussion of the
feasibility of a business combination between TLC and Broderbund, as well as the
potential structure and financial terms of such a combination.
On June 17, 1998, TLC engaged BT Alex. Brown to act as its financial advisor
in connection with a potential business combination with Broderbund.
On June 18, 1998, Broderbund and Wilson Sonsini Goodrich & Rosati P.C.
("WSGR"), Broderbund's outside legal counsel, received an initial draft of the
Merger Agreement from Hale and Dorr LLP, TLC's outside legal counsel. Also on
June 18, representatives of the two companies and their financial and legal
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advisors explored potential synergies between the two companies and the
operational issues associated with a potential acquisition of Broderbund by TLC.
On June 19, 1998, the Broderbund Board met telephonically and reviewed with
Broderbund management and representatives of WSGR (i) the status of the
discussions between Broderbund and TLC representatives and the benefits and
potential risks of a potential merger with TLC and (ii) the principal terms of
the proposed Merger Agreement and related documents, including the Voting
Agreements. The Broderbund Board authorized management to continue discussions
with TLC as to a possible acquisition of Broderbund by TLC.
Over the course of June 19, 20 and 21, 1998, the two companies' legal
counsel and executive officers held further discussions regarding the terms of
the proposed Merger Agreement and related documents, including the terms of the
proposed Voting Agreements, the termination rights contained in the proposed
Merger Agreement, the conditions upon which any termination fees would be
payable and the amount of such fees, Broderbund's rights under the proposed
Merger Agreement to consider and negotiate other acquisition proposals in
certain circumstances and the representations, warranties and covenants to be
made by Broderbund and TLC. In addition, Broderbund's and TLC's financial
advisors had further discussions regarding valuation issues relevant to
negotiation of a mutually acceptable exchange ratio for the stock of Broderbund
and TLC, as well as other terms and conditions of a possible acquisition of
Broderbund by TLC.
On June 21, 1998, the Broderbund Board met telephonically to consider and
vote upon the proposed Merger and related transactions. At this specially
scheduled meeting, (i) management of Broderbund reported that an agreement had
been reached as to the principal terms of the Merger Agreement, including the
Exchange Ratio for the stock of Broderbund and TLC, (ii) the Broderbund Board
considered reports from management, legal and financial advisors as to the
results of their due diligence investigation of TLC, (iii) management responded
to questions regarding various aspects of the proposed Merger, (iv) Broderbund's
legal advisors held discussions regarding the Broderbund Board's fiduciary
duties in considering a strategic business combination and reviewed proposed
definitive terms of the Merger Agreement and related documents, including the
Voting Agreements, (v) DLJ made a presentation to the Broderbund Board regarding
the Exchange Ratio, reviewed its detailed financial analysis and pro forma and
other information with respect to the companies and delivered its written
opinion to the effect that, as of such date, the consideration to be received by
the stockholders of Broderbund pursuant to the Exchange Ratio was fair to such
stockholders from a financial point of view (a copy of this opinion is annexed
hereto and stockholders are urged to review it carefully) and (vi) the
Broderbund Board approved the Merger, the Merger Agreement and related
agreements. See "--Opinions of Financial Advisors--Broderbund."
On June 21, 1998, the TLC Board met telephonically to consider and vote upon
the proposed Merger and related transactions. At this specially scheduled
meeting, (i) management of TLC reported that an agreement had been reached as to
the principal terms of the Merger Agreement, including the Exchange Ratio for
the stock of Broderbund and TLC, (ii) the TLC Board considered reports from
management, legal and financial advisors as to the results of their due
diligence investigation of Broderbund, (iii) management responded to questions
regarding various aspects of the proposed Merger, (iv) TLC's legal advisors
reviewed TLC Board's fiduciary duties in considering a strategic business
combination and reviewed proposed definitive terms of the Merger Agreement and
related documents, including the Voting Agreements, (v) BT Alex. Brown made a
presentation to the TLC Board regarding the Exchange Ratio, reviewed its
detailed financial analysis and pro forma and other information with respect to
the companies and delivered its oral opinion to the effect that, as of such
date, the Exchange Ratio was fair to TLC from a financial point of view (a copy
of this opinion is annexed hereto and stockholders are urged to review it
carefully; see "--Opinions of Financial Advisors--TLC.") and (vi) the TLC Board
approved the Merger, the Merger Agreement and related agreements.
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On June 21, 1998, following final approval by the Broderbund Board and the
TLC Board, the Merger Agreement was executed by both companies, a Voting
Agreement was executed by TLC and a principal stockholder of Broderbund and the
TLC Voting Agreements were executed by Broderbund and certain principal
stockholders of TLC.
On June 22, 1998, prior to the opening of trading on the New York Stock
Exchange and the Nasdaq National Market, TLC and Broderbund issued a joint press
release announcing the Merger.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF TLC AND BRODERBUND
The TLC Board has, by unanimous vote of those directors present, determined
that the Merger is in the best interests of TLC and its stockholders and
recommends that the stockholders of TLC vote FOR approval of the Merger Proposal
for the reasons set forth below.
The Broderbund Board has unanimously determined that the Merger is in the
best interests of Broderbund and its stockholders and recommends that the
stockholders of Broderbund vote FOR approval and adoption of the Merger
Agreement and Merger for the reasons set forth below.
REASONS FOR THE MERGER
JOINT REASONS FOR THE MERGER
The TLC Board and Broderbund Board each believe that the Combined Company
will have the potential for greater financial strength, operational
efficiencies, earning power and growth potential than either TLC or Broderbund
would have on its own. The TLC Board and Broderbund Board identified a number of
potential benefits of the Merger which they believe could contribute to the
success of the Combined Company and thus enure to the benefit of stockholders of
both companies, including the following:
- Given the complementary nature of the product lines and distribution
channels of Broderbund and TLC, the Merger may enhance the opportunity for
the potential realization of the strategic objective of both companies to
expand their market share and increase the Combined Company's ability to
compete effectively in the highly competitive educational, reference and
productivity software segments of the consumer market.
- The broadening of the companies' product lines resulting from the Merger
may enable the Combined Company to avoid excessive dependence on any
particular product or group of products for a substantial portion of its
revenue.
- The Merger may provide the Combined Company with the financial resources
and expanded product offerings to expand the scope of distribution of the
Combined Company's products and to obtain efficiencies in the development,
marketing and promotion of its product offerings.
- The combined experience, financial resources, size and breadth of product
offerings of the Combined Company may allow it to respond more quickly and
effectively to technological change, increased competition and market
demands in an industry experiencing rapid innovation and change.
- The creation of a larger end-user customer base, a higher market profile
and greater financial strength may present greater opportunities for
marketing the products of the Combined Company. In addition, the Combined
Company may be in a better position to effectively service large mass
merchants in the retail channel.
- The Merger could provide the Combined Company with a vast database of
end-users who have in the past purchased products from TLC or Broderbund.
The Combined Company expects to be able to market its products directly to
end-user customers using these end-user names.
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- The Combined Company expects to have a stronger presence in the
international market through TLC's operations in France, Germany, Holland,
Ireland, the United Kingdom, Latin America and the Pacific Rim. TLC
expects to be able to market the Broderbund products through these
channels to expand sales.
- Combined financial and technological resources may allow the Combined
Company to compete more effectively in a rapidly consolidating market by
providing the Combined Company with enhanced ability to develop new
products and greater functionality for existing and future products.
TLC'S REASONS FOR THE MERGER
In reaching its conclusion to approve the Merger Agreement, the TLC Board
considered the factors described above under "Joint Reasons for the Merger", as
well as the opportunity of the TLC Stockholders to participate in the potential
growth of the Combined Company after the Merger.
In the course of its deliberations during a TLC Board meeting held on June
21, 1998, the TLC Board considered and reviewed with TLC management a number of
factors relevant to the Merger, including, but not limited to, the following:
(i) historical information concerning Broderbund's and TLC's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations filed during the most recent fiscal year and
fiscal quarter for each company with the Commission; (ii) the financial
condition, results of operations and businesses of Broderbund and TLC before and
after giving effect to the Merger; (iii) current financial market conditions and
historical market prices, volatility and trading information with respect to the
Common Stock of Broderbund and the Common Stock of TLC; (iv) the consideration
to be received by Broderbund's stockholders in the Merger and the relationship
between the market value of the Common Stock of TLC to be issued in exchange for
each share of Common Stock of Broderbund and a comparison of comparable merger
transactions; (v) the belief that the terms of the Merger Agreement, including
the parties' representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable; (vi) the prospects of TLC as an
independent company; (vii) detailed financial analysis and pro forma and other
information with respect to the companies presented by BT Alex. Brown to the TLC
Board, including BT Alex. Brown's opinion that, as of such date, the Exchange
Ratio was fair to TLC from a financial point of view (a copy of this opinion is
annexed hereto and stockholders are urged to review it carefully); and (viii)
reports from management, legal and financial advisors as to the results of the
due diligence investigation of Broderbund. The TLC Board also considered the
terms of the proposed Merger Agreement, including the possible effects of the
provisions regarding termination fees. In addition, the TLC Board noted that the
Merger is expected to be accounted for as a pooling-of-interests under U.S. GAAP
and that no goodwill is expected to be created on the books of the Combined
Company as a result thereof.
The TLC Board also considered a number of potential risks relating to the
Merger, including (i) the risk that the synergies and benefits sought in the
Merger would not be fully achieved, (ii) the risk that the Merger would not be
consummated, and the effect of the public announcement of the Merger on the
market price of TLC Common Stock, (iii) the risk that the announcement of the
Merger would result in a certain degree of disruption in Broderbund's marketing
efforts and (iv) the substantial charges expected to be incurred by TLC in
connection with the Merger and (v) various other risks, including the risks
described under "Risk Factors" herein. The TLC Board believed that these risks
were outweighed by the potential benefits to be realized from the Merger.
The foregoing discussion of the information and factors considered by the
TLC Board is not intended to be exhaustive but is believed to include all
material factors considered by the TLC Board. In view of the wide variety of
information and factors considered, the TLC Board did not find it practical to,
and did not, assign any relative or specific weights to the foregoing factors,
and individual directors may have given differing weights to different factors.
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BRODERBUND'S REASONS FOR THE MERGER
In reaching its conclusions to approve the Merger Agreement, the Broderbund
Board considered the factors described above under "--Joint Reasons for the
Merger", as well as the opportunity of the Broderbund Stockholders to
participate in the potential growth of the Combined Company after the Merger.
In the course of its deliberations during Broderbund Board meetings held on
June 19, 1998 and June 21, 1998, the Broderbund Board considered and reviewed
with Broderbund management a number of factors relevant to the Merger,
including, but not limited to, the following: (i) historical information
concerning Broderbund's and TLC's respective businesses, prospects, financial
performance and condition, operations, technology, management and competitive
position, including public reports concerning results of operations during the
most recent fiscal year and fiscal quarter for each company with the Commission;
(ii) the financial condition, results of operations and businesses of Broderbund
and TLC before and after giving effect to the Merger; (iii) current financial
market conditions and historical market prices, volatility and trading
information with respect to the Common Stock of Broderbund and the Common Stock
of TLC; (iv) the consideration to be received by Broderbund's stockholders in
the Merger and the relationship between the market value of the Common Stock of
TLC to be issued in exchange for each share of Common Stock of Broderbund and a
comparison of comparable merger transactions; (v) the belief that the terms of
the Merger Agreement, including the parties' representations, warranties and
covenants, and the conditions to their respective obligations, are reasonable;
(vi) the prospects of Broderbund as an independent company; (vii) the potential
for other third parties to enter into strategic relationships with or to acquire
Broderbund; (viii) detailed financial analysis and pro forma and other
information with respect to the companies presented by DLJ to the Broderbund
Board, including DLJ's opinion that the Exchange Ratio was fair to the
stockholders of Broderbund from a financial point of view (a copy of this
opinion is annexed hereto and stockholders are urged to review it carefully);
(ix) the impact of the Merger on Broderbund's customers and employees; and (x)
reports from management, legal and financial advisors as to the results of their
due diligence investigation of TLC. The Broderbund Board also considered the
terms of the proposed Merger Agreement regarding Broderbund's rights to consider
and negotiate other acquisition proposals in certain circumstances, as well as
the possible effects of the provisions regarding termination fees. In addition,
the Broderbund Board noted that the Merger is expected to be accounted for as a
pooling-of-interests under U.S. GAAP and that no goodwill is expected to be
created on the books of the Combined Company as a result thereof.
The Broderbund Board also considered a variety of potentially negative
factors in its deliberations concerning the Merger, including, but not limited
to: (i) the risk that the potential benefits sought in the Merger might not be
fully realized; (ii) the possibility that the Merger might not be consummated
and the effect of public announcement of the Merger on (a) Broderbund's sales,
operating results and stock price, (b) Broderbund's ability to attract and
retain key management, sales, marketing, product development and technical
personnel and (c) progress of certain development projects; (iii) the
substantial charges to be incurred in connection with the Merger, including
costs of integrating the businesses and transaction expenses arising from the
Merger; (iv) the risk that despite the efforts of the Combined Company, key
technical and management personnel might not remain employed by the Combined
Company; (v) risks associated with fluctuations in TLC's stock price prior to
closing of the Merger; and (vi) various other risks, including the risks
described under "Risk Factors" herein. The Broderbund Board believed that these
risks were outweighed by the potential benefits of the Merger.
The foregoing discussion of the information and factors considered by the
Broderbund Board is not intended to be exhaustive but is believed to include all
material factors considered by the Broderbund Board. In view of the wide variety
of information and factors considered, the Broderbund Board did not find it
practical to, and did not, assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights to
different factors.
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OPINIONS OF FINANCIAL ADVISORS
TLC
TLC retained BT Alex. Brown Incorporated ("BT Alex. Brown") on June 17, 1998
to act as TLC's financial advisor in connection with the Merger, including
rendering its opinion to the Board of Directors of TLC as to the fairness, from
a financial point of view, of the Exchange Ratio to TLC. At the June 21, 1998
meeting of the TLC Board of Directors, representatives of BT Alex. Brown made a
presentation with respect to the Merger and rendered to the Board its oral
opinion, subsequently confirmed in writing as of the same date, that, as of such
date, and subject to the assumptions made, matters considered and limitations
set forth in such opinion and summarized below, the Exchange Ratio was fair,
from a financial point of view, to TLC. No limitations were imposed by the Board
upon BT Alex. Brown with respect to the investigations made or procedures
followed by it in rendering its opinion.
THE FULL TEXT OF BT ALEX. BROWN'S WRITTEN OPINION DATED JUNE 21, 1998 (THE
"BT ALEX. BROWN OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED
HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. TLC STOCKHOLDERS ARE
URGED TO READ THE BT ALEX. BROWN OPINION IN ITS ENTIRETY. THE BT ALEX. BROWN
OPINION IS DIRECTED TO THE BOARD, ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE
RATIO TO TLC FROM A FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY TLC STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT
THE TLC MEETING. THE BT ALEX. BROWN OPINION WAS RENDERED TO THE TLC BOARD FOR
ITS CONSIDERATION IN DETERMINING WHETHER TO APPROVE THE MERGER AGREEMENT. THE
DISCUSSION OF THE BT ALEX. BROWN OPINION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE BT ALEX. BROWN OPINION.
In connection with the BT Alex. Brown Opinion, BT Alex. Brown reviewed
certain publicly available financial information and other information
concerning TLC and Broderbund and certain internal analyses and other
information furnished to it by TLC and Broderbund. BT Alex. Brown also held
discussions with the members of the senior managements of TLC and Broderbund
regarding the businesses and prospects of their respective companies and the
joint prospects of the Combined Company, including synergies that may be
achieved thereby. In addition, BT Alex. Brown (i) reviewed the reported prices
and trading activity for the common stock of both TLC and Broderbund, (ii)
compared certain financial and stock market information for TLC and Broderbund
with similar information for certain other companies whose securities are
publicly traded, (iii) reviewed the financial terms of certain recent business
combinations which it deemed comparable in whole or in part, (iv) reviewed the
terms of the Merger Agreement and certain related documents, and (v) performed
such other studies and analyses and considered such other factors as it deemed
appropriate.
In conducting its review and arriving at its opinion, BT Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
information relating to the prospects of TLC and Broderbund and the joint
prospects of the Combined Company, including synergies that may be achieved
thereby, BT Alex. Brown assumed that such information reflected the best
currently available judgments and estimates of the respective managements of TLC
and Broderbund as to the likely future financial performance of TLC and
Broderbund and the Combined Company. BT Alex. Brown assumed, with the consent of
TLC, that the Merger will qualify for pooling-of-interests accounting treatment
under U.S. GAAP and as a tax-free transaction for federal income tax purposes.
BT Alex. Brown did not make and it was not provided with, an independent
evaluation or appraisal of the assets of TLC and Broderbund, nor has BT Alex.
Brown been furnished with any such
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evaluations or appraisals. In rendering its opinion, BT Alex. Brown has not been
asked to consider, and did not address, the relative merits of the Merger as
compared to any alternative business transactions with third parties that might
exist for TLC or the effect of any such other transaction in which TLC might
engage. The BT Alex. Brown Opinion is based on market, economic and other
conditions as they existed and could be evaluated as of the date of the BT Alex.
Brown Opinion.
The following is a summary of the analyses performed and factors considered
by BT Alex. Brown in connection with rendering the BT Alex. Brown Opinion.
HISTORICAL FINANCIAL POSITION. In rendering its opinion, BT Alex. Brown
reviewed and analyzed the historical and current financial condition of TLC
which included (i) an assessment of each of TLC's and Broderbund's recent
financial statements; (ii) an analysis of each of TLC's and Broderbund's
revenue, growth and operating performance trends; and (iii) an assessment of
each of TLC's and Broderbund's margin changes and leverage.
HISTORICAL STOCK PRICE PERFORMANCE. BT Alex. Brown reviewed and analyzed
the daily closing per share market prices and trading volume for TLC Common
Stock and Broderbund Common Stock from June 20, 1996 to June 19, 1998. Although
BT Alex. Brown reviewed the trading volume of TLC Common Stock and Broderbund
Common Stock, it primarily focused on the relative stock price movements of the
two companies. BT Alex. Brown also reviewed the daily closing per share market
prices of the TLC Common Stock and Broderbund Common Stock and compared the
movement of such daily closing prices with the movement of the Nasdaq composite
average over the period from June 19, 1996 to June 19, 1998. BT Alex. Brown
noted that, on a relative basis, each of TLC and Broderbund underperformed the
Nasdaq composite average over the two-year period. BT Alex. Brown also reviewed
the daily closing per share market prices of TLC Common Stock and Broderbund
Common Stock and compared the movement of such closing prices with the movement
of a consumer software industry composite average (consisting of Activision,
Inc., Electronic Arts Inc., GT Interactive Software Corporation, International
Microcomputer Software, Inc. and Midway Games, Inc. (collectively, the "Selected
Companies")), over the period from June 19, 1996 through June 19, 1998. On a
relative basis each of TLC and Broderbund underperformed the composite average.
This information was presented to give the TLC Board background information
regarding the respective stock prices of TLC and Broderbund over the periods
indicated.
CONTRIBUTION ANALYSIS. BT Alex. Brown analyzed the relative contributions
of TLC and Broderbund, as compared to TLC's pro forma ownership of approximately
81.6% of the outstanding common stock (calculated on a treasury stock basis) of
the Combined Company and approximately 88.9% of the Combined Company (on an
Enterprise Value (as defined below) basis), to the pro forma income statement of
the combined company, based on publicly available analyst forecasts for TLC and
on Broderbund management estimates for Broderbund. This analysis showed that on
a pro forma combined basis (excluding (x) the effect of any synergies that may
be realized as a result of the Merger and (y) non-recurring expenses relating to
the Merger), TLC and Broderbund would account for approximately (i) 69.5% and
30.5%, respectively, of the combined company's pro forma 1998 revenue, 72.1% and
27.9%, respectively, of the combined company's pro forma 1998 gross margin and,
92.5% and 7.5%, respectively, of the combined company's pro forma 1998 operating
income; and (ii) 73.2% and 26.8%, respectively, of the combined company's pro
forma 1999 revenue, 74.1% and 25.9%, respectively, of the combined company's pro
forma 1999 gross margin and, 83.5% and 16.5%, respectively, of the combined
company's pro forma 1999 operating income.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. This analysis examines
a company's valuation in the public market as compared to the valuation in the
public market of other selected publicly traded companies. BT Alex. Brown
compared certain financial information (based on the commonly used valuation
measurements described below) relating to TLC and Broderbund to certain
corresponding information for the Selected Companies and TLC (together, the
"Selected Public Companies"). Such financial information included, among other
things, (i) common equity market valuation; (ii) capitalization
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ratios, (iii) operating performance, (iv) ratios of common equity market value
as adjusted for debt and cash ("Enterprise Value") to trailing 12-month revenues
and revenues for calendar years 1998 and 1999; (v) ratios of common equity value
implied by the Exchange Ratio as adjusted for debt and cash ("Merger Enterprise
Value") to trailing 12-month revenues and revenues for calendar year 1998 and
1999; (vi) ratios of common equity market prices per share ("Per Share Equity
Value") to trailing 12-month, calendar year 1998 and calendar year 1999 earnings
per share ("EPS"); and (vii) ratios of common equity prices per share implied by
the Exchange Ratio ("Per Share Merger Equity Value") to trailing 12-month EPS,
calendar year 1998 EPS and calendar year 1999 EPS. The financial information
used in connection with the multiples provided below was based on publicly
available analyst forecasts for TLC and Broderbund management estimates for
Broderbund. BT Alex. Brown noted that on a trailing 12-month basis, the multiple
of Enterprise Value to revenues was 5.6x for TLC and 0.8x for Broderbund,
compared to a range of 0.7x to 5.6x, with a mean of 2.1x, for the Selected
Public Companies; the multiple of Enterprise Value to calendar year 1998
revenues was 3.9x for TLC and 0.9x for Broderbund, compared to a range of 0.5x
to 3.9x, with a mean of 1.7x, for the Selected Public Companies; and the
multiple of Enterprise Value to calendar year 1999 revenues was 3.2x for TLC and
0.9x for Broderbund, compared to a range of 0.4x to 3.2x with a mean of 1.5x,
for the Selected Public Companies. BT Alex. Brown further noted that the
multiple of Per Share Equity Value to trailing 12-month EPS was 16.7x for TLC
and 33.7x for Broderbund, compared to a range of 11.1x to 37.2x, with a mean of
23.0x, for the Selected Public Companies; the multiple of Per Share Equity Value
to calendar year 1998 EPS was 15.8x for TLC and 34.4x for Broderbund, compared
to a range of 10.4x to 30.7x, with a mean of 20.1x, for the Selected Public
Companies; the multiple of Per Share Equity Value to calendar year 1999 EPS was
13.7x for TLC and 14.1x for Broderbund, compared to a range of 8.5x to 24.8x,
with a mean of 14.2x, for the Selected Public Companies. As a result of the
foregoing procedures, BT Alex. Brown noted that the multiples for TLC and
Broderbund were generally within the range of the multiples for the Selected
Public Companies, with TLC's revenue multiples setting the high end of such
ranges.
HISTORICAL EXCHANGE RATIO ANALYSIS. BT Alex. Brown reviewed and analyzed
the historical ratio of the daily per share market closing prices of Broderbund
Common Stock divided by the corresponding prices of TLC Common Stock over the
one-year, six-month, three-month and one-month periods prior to June 19, 1998
(the last business day prior to announcement of the transaction). Such average
exchange ratios for the aforementioned time periods were 1.5888, 1.0791, 0.7038
and 0.6370, respectively.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. BT Alex. Brown reviewed the
financial terms, to the extent publicly available, of sixteen proposed, pending
or completed mergers and acquisitions since March 1994 in the consumer software
industry (the "Selected Transactions"). BT Alex. Brown calculated various
financial multiples and the premiums over market value based on certain publicly
available information for each of the Selected Transactions and compared them to
corresponding financial multiples and the premiums over market for the Merger,
based on the Exchange Ratio of 0.80. The Selected Transactions reviewed, in
reverse chronological order of public announcement, were: Sofsource, Inc./TLC
(06/03/98); PF.Magic, Inc./TLC (05/07/98); Mindscape, Inc./TLC (03/05/98);
Creative Wonders, L.L.C./ TLC (10/24/97); Maxis, Inc./Electronic Arts Inc.
(06/04/97); Edmark Corporation/IBM Corporation (11/13/96); Knowledge
Adventure/CUC International Inc. (11/01/96); T/Maker Company/Broderbund
(08/06/96); EduSoft/SoftKey International Inc. (08/01/96); Humongous
Entertainment, Inc./GT Interactive Software Corporation (07/10/96); FormGen
Corporation/GT Interactive Software Corporation (07/01/96); Wizard Works Group,
Inc./GT Interactive Software Corporation (06/25/96); New World Computing, Inc./
The 3DO Company (05/30/96); Sierra On-Line, Inc./CUC International Inc.
(02/20/96); Davidson & Associates, Inc./CUC International Inc. (02/20/96);
Compton's/SoftKey International Inc. (11/30/95); The Learning Company/SoftKey
International Inc. (10/30/95); Minnesota Educational Computing Corp./ SoftKey
International Inc. (10/30/95); Future Vision/SoftKey International Inc.
(08/01/95); Banner Blue/ Broderbund Software, Inc. (04/28/95); and The Software
Toolworks, Inc./Pearson Inc. (03/31/94). BT Alex. Brown noted that (i) the
multiple of the equity purchase price, as adjusted for debt and cash (the
"Adjusted Purchase Price"), to LTM revenues was 1.1x for the Merger versus a
range of 1.1x to 9.8x, with a mean of
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4.1x, for the Selected Transactions; (ii) the multiple of the Adjusted Purchase
Price to LTM operating income was 25.7x for the Merger versus a range of 13.7x
to 61.0x, with a mean of 45.2x, for the Selected Transactions; (iii) the
multiple of the Aggregate Purchase Price to net income was 38.5x for the Merger
versus a range of 22.1x to 101.8x, with a mean of 71.4x, for the Selected
Transactions; and (iv) the multiple of the Aggregate Purchase Price to book
value was 2.6x for the Merger versus a range of 2.1x to 18.7x, with a mean of
8.6x, for the Selected Transactions.
BT Alex. Brown also reviewed the premiums of seven of the Selected
Transaction (i.e., Maxis, Inc./ Electronic Arts Inc.; Edmark Corporation/IBM;
Davidson & Associates, Inc./CUC International Inc.; Sierra On-Line, Inc./CUC
International Inc.; The Learning Company/SoftKey International Inc.; Minnesota
Educational Computing Corp./SoftKey International Inc.; and The Software
Toolworks, Inc./Pearson Inc.). BT Alex. Brown noted that these transactions were
effected at a range of the premium to the target's per share market price four
weeks prior to announcement and to the target's per share market price one day
prior to announcement of 31.9% to 105.3%, with a mean of 64.1% and a median of
67.8%, and 1.8% to 73.3%, with a mean of 52.5% and a median of 67.7%,
respectively, versus transaction premiums of 19.9% and 21.2%, respectively, for
the Merger (based on the per share market price four weeks prior to and one day
prior to the June 19, 1998). All multiples for the Selected Transactions were
based on public information available at the time of announcement of such
transaction, without taking into account differing market and other conditions
during the two-year period during which the Selected Transactions occurred.
PRO FORMA COMBINED EARNINGS ANALYSIS. BT Alex. Brown analyzed certain pro
forma effects of the Merger. Based on such analysis, BT Alex. Brown computed the
resulting dilution/accretion to the combined company's EPS estimates for the
fiscal year ending December 31, 1998 and December 31, 1999, pursuant to the
Merger before taking into account assumed potential cost savings and other
synergies and before nonrecurring costs relating to the Merger. BT Alex. Brown
noted that before taking into account any potential cost savings and other
synergies and before certain nonrecurring costs relating to the Merger, the
Merger would be approximately 10.2% dilutive to the combined company's EPS for
the fiscal year ending December 31, 1998 and 0.6% dilutive to the combined
company's EPS for the fiscal year ending December 31, 1999. BT Alex. Brown also
noted that after taking into account potential cost savings and other synergies
estimated by TLC for the fiscal year ending December 31, 1999, and before
nonrecurring costs relating to the Merger, the Merger would be approximately
5.8% accretive to the combined company's EPS for the fiscal year ending December
31, 1999. There can be no assurance that the combined company will be able to
realize savings and synergies in the amounts identified, or at all, following
the Merger.
RELEVANT MARKET AND ECONOMIC FACTORS. In rendering its opinion, BT Alex.
Brown considered, among other factors, the condition of the U.S. stock markets,
particularly in the consumer software sector, and the current level of economic
activity. No company used in the analysis of certain other publicly traded
companies or any transaction used in the analysis of selected precedent
transactions summarized above is identical to TLC, Broderbund or the Merger.
Accordingly, such analyses must take into account differences in the financial
and operating characteristics of the Selected Companies and the companies in the
Selected Transactions and other factors that would affect the public trading
value and acquisition value of the Selected Companies and the companies in the
Selected Transactions, respectively.
While the foregoing summary describes all analyses and factors that BT Alex.
Brown deemed material in its presentation to the TLC Board of Directors, it is
not a comprehensive description of all analyses and factors considered by BT
Alex. Brown. The preparation of a fairness opinion is a complex process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. BT Alex. Brown believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the evaluation process underlying the BT Alex.
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Brown Opinion. In performing its analyses, BT Alex. Brown considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of TLC and Broderbund. The analyses performed by BT Alex.
Brown are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than those suggested by such
analyses. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Additionally, analyses relating to the value of a
business do not purport to be appraisals or to reflect the prices at which the
business actually may be sold. Furthermore, no opinion is being expressed as to
the prices at which shares of TLC Common Stock may trade at any future time.
Pursuant to a letter agreement dated June 17, 1998 between TLC and BT Alex.
Brown, the fees to date payable to BT Alex. Brown for rendering the BT Alex.
Brown Opinion have been $400,000, which amount will be credited against a fee of
$1.25 million, payable upon consummation of the Merger. In addition, TLC has
agreed to reimburse BT Alex. Brown for its reasonable out-of-pocket expenses
incurred in connection with rendering financial advisory services, including
fees and disbursements of its legal counsel. TLC has agreed to indemnify BT
Alex. Brown and its directors, officers, agents, employees and controlling
persons, for certain costs, expenses, losses, claims, damages and liabilities
related to or arising out of its rendering of services under its engagement as
financial advisor. The terms of the fee arrangement with BT Alex. Brown, which
TLC and BT Alex. Brown believe are customary in transactions of this nature,
were negotiated at arm's length between TLC and BT Alex. Brown, and the Board of
Directors of TLC was aware of such arrangements.
The Board of Directors of TLC retained BT Alex. Brown to act as its advisor
based upon BT Alex. Brown's qualifications, reputation, experience and
expertise. BT Alex. Brown is an internationally recognized investment banking
firm and, as a customary part of its investment banking business, is engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and valuations for
corporate and other purposes. BT Alex. Brown has acted as the lead managing
underwriter of an initial public offering of the common stock of Broderbund and
has previously acted as financial advisor to Broderbund. BT Alex. Brown
maintains a market in the TLC Common Stock and Broderbund Common Stock and
regularly publishes research reports regarding the consumer software and new
media industries and the businesses and securities of TLC, Broderbund and other
publicly owned companies in the consumer software and new media industries. In
the ordinary course of business, BT Alex. Brown may actively trade the equity
securities of TLC and Broderbund for its own account and for the account of its
customers and accordingly may at any time hold a long or short position in such
securities.
BRODERBUND
In its role as financial advisor to Broderbund, DLJ was retained to render
an opinion to the Broderbund Board as to the fairness to the stockholders of
Broderbund, from a financial point of view, of the Exchange Ratio. On June 21,
1998, DLJ delivered its written opinion (the "DLJ Opinion") to the effect that,
as of the date of such opinion, and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the Exchange Ratio was
fair to the stockholders of Broderbund from a financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX C. BRODERBUND
STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY
DLJ.
The DLJ Opinion was prepared for the Broderbund Board and is directed only
to the fairness of the Exchange Ratio to the stockholders of Broderbund from a
financial point of view. The DLJ Opinion does not constitute a recommendation to
any Broderbund stockholder as to how such stockholder should vote on the Merger,
nor did it constitute a recommendation to any member of the Broderbund Board as
to how
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such member should have voted on the Merger. DLJ was not retained as an advisor
or agent to Broderbund stockholders or any other person, other than as an
advisor to the Broderbund Board.
Broderbund selected DLJ as its exclusive financial advisor with respect to
the Merger because DLJ is an internationally recognized investment banking firm
that has substantial experience in the computer software industry and is
familiar with Broderbund and TLC. As part of its investment banking business,
DLJ is regularly engaged in the valuation of businesses and securities in
connection with mergers, acquisitions, underwritings, sales and distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
The DLJ Opinion does not constitute an opinion as to the price at which the
shares of TLC Common Stock will actually trade at any time. The Exchange Ratio
was determined in arm's-length negotiations between Broderbund and TLC, in which
negotiations DLJ advised Broderbund. No restrictions or limitations were imposed
by Broderbund upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ reviewed the draft of the Merger Agreement
dated June 17, 1998. DLJ also reviewed financial and other information that was
publicly available or furnished to it by Broderbund and TLC, including
information provided during discussions with their respective managements. In
addition, DLJ compared certain financial and securities data of Broderbund and
TLC with various other publicly traded companies that DLJ deemed appropriate,
reviewed the historical stock prices and trading volumes of Broderbund Common
Stock and TLC Common Stock, reviewed prices and premiums paid in certain other
business combinations that DLJ deemed appropriate, examined the relative
contribution of the financial results of Broderbund and TLC to their combined
operations, analyzed the impact of the Merger on the historical and projected
financial results of Broderbund and TLC, and conducted such other financial
studies, analyses and investigations as DLJ deemed appropriate for purposes of
rendering its opinion.
In rendering its opinion, with the consent of the Broderbund Board, DLJ (i)
relied upon and assumed the accuracy, completeness and fairness of all of the
financial and other information that was available to it from public sources,
that was provided to it by Broderbund and TLC or their respective
representatives, or that was otherwise reviewed by it, (ii) based on discussions
with the respective managements of Broderbund and TLC, assumed that the publicly
available financial projections supplied to it were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of Broderbund and TLC, and (iii) relied upon the
estimates of the respective managements of Broderbund and TLC of the operating
synergies achievable as a result of the Merger and upon its discussion of such
synergies with the respective managements of Broderbund and TLC. DLJ did not
make any independent investigation of any legal matters affecting Broderbund or
TLC, and assumed the correctness of all legal advice given to each of them and
to the Broderbund Board, including advice as to the tax consequences of the
Merger. DLJ did not make any independent evaluation of the assets or liabilities
of Broderbund or TLC, nor did DLJ independently verify the information reviewed
by it.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, the date of its opinion and does not speak to any date other than the
date on which it was delivered. It should be understood that, although
subsequent developments may affect its opinion, DLJ does not have any obligation
to update, revise or reaffirm the DLJ Opinion.
The following is a brief summary of the presentation made by DLJ to the
Broderbund Board at its June 21, 1998 telephonic board meeting.
PRO FORMA MERGER ANALYSIS. DLJ analyzed the pro forma effects resulting
from the Merger on EPS of both Broderbund and TLC. DLJ reviewed these effects
both with and without the operating synergies contemplated by Broderbund to
result from the Merger by combining the operations of Broderbund and
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TLC. The analysis indicated that the pro forma EPS, both before and after giving
effect to the annual operating synergies contemplated by Broderbund to result
from the Merger, would be higher in the fiscal years ending December 31, 1998
and December 31, 1999 than comparable projections for Broderbund as a
stand-alone company during the same periods.
CONTRIBUTION ANALYSIS. DLJ analyzed Broderbund's and TLC's relative
contribution to the combined companies with respect to total revenues, earnings
before interest and taxes ("EBIT") and net income. Its analysis was made for the
actual fiscal years ended December 31, 1996 and 1997 and the projected results
for the fiscal years ending December 31, 1998, 1999 and 2000. As a result of the
Merger, current Broderbund stockholders will own approximately 16.9% of the
fully diluted shares of TLC Common Stock after the Effective Time compared with
Broderbund's contribution to the Combined Company's pro forma results for the
period ended December 31, 1997 (prior to taking into account any operating
synergies that may result from the Merger) of approximately 36.2% of revenues,
9.9% of EBIT, and 11.4% of net income.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. To provide contextual
data and comparative market information, DLJ compared selected historical
earnings and operating and financial ratios for Broderbund to corresponding data
and ratios of certain personal computer consumer software companies whose
securities are publicly traded. In conducting its analysis, DLJ compared the
ratios implied by the consideration to be paid to Broderbund stockholders in the
Merger to the ratios implied from the market valuation of publicly traded
companies selected by DLJ (the "Consumer Software Companies") based upon
qualitative factors that DLJ deemed relevant based upon its experience in the
personal computer consumer software industry. The Consumer Software Companies
included: Activision, Inc., Electronic Arts Inc., GT Interactive Software Corp.,
Eidos plc and TLC. Although DLJ used these companies for comparative purposes,
none of such companies is directly comparable to Broderbund. Accordingly, a
complete analysis of the results cannot be limited to a quantitative review and
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the Consumer Software Companies and
other factors that could affect the public trading value of the Consumer
Software Companies as well as that of Broderbund. Data and ratios considered by
DLJ included: (i) the ratio of enterprise value to (a) latest twelve months
("LTM") revenue and (b) LTM EBIT; and (ii) the ratio of market price to (a) LTM
EPS and (b) estimated forward 1998 calendar ("CY1998") EPS. Enterprise value is
defined as the product of stock price and total shares outstanding minus net
cash. The ratio of enterprise value to LTM revenue ranged from 0.7x to 5.4x for
the Consumer Software Companies and was 0.8x for Broderbund compared to an
implied ratio of enterprise value to LTM revenue of 1.1x attributable to
Broderbund based upon the Exchange Ratio. The ratio of enterprise value to LTM
EBIT ranged from 8.7x to 27.4x for the Consumer Software Companies and was 14.6x
for Broderbund compared to an implied ratio of enterprise value to LTM EBIT of
19.8x attributable to Broderbund based upon the Exchange Ratio. The ratio of
market price to LTM EPS ranged from 13.8x to 40.2x for the Consumer Software
Companies and was 29.0x for Broderbund compared to an implied ratio of market
price to LTM EPS of 35.1x attributable to Broderbund based upon the Exchange
Ratio. The ratio of market price to CY1998 EPS ranged from 13.1x to 32.4x for
the Consumer Software Companies and was 22.0x for Broderbund compared to an
implied ratio of market price to CY1998 EPS of 26.7x attributable to Broderbund
based upon the Exchange Ratio.
STOCK TRADING ANALYSIS. To provide contextual data and comparative market
information, DLJ examined the history of the trading prices for both shares of
Broderbund Common Stock and TLC Common Stock, for the previous one year, 90
trading day and 30 trading day periods. The high, low and mean prices for shares
of Broderbund Common Stock over the twelve-month period ended June 19, 1998 were
$37.25, $15.50 and $24.77, respectively, and the high, low and mean prices for
shares of TLC Common Stock over the twelve-month period ended June 19, 1998 were
$28.63, $8.50 and $17.70, respectively. The high, low and mean prices for shares
of Broderbund Common Stock over the 90 trading day period ended June 19, 1998
were $26.13, $15.50 and $19.94, respectively, and the high, low and mean prices
for shares of TLC Common Stock over the 90 trading day period ended June 19,
1998 were $28.63,
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$15.44 and $23.69, respectively. The high, low and mean prices for shares of
Broderbund Common Stock over the 30 trading day period ended June 19, 1998 were
$20.19, $15.50 and $17.09, respectively, and the high, low and mean prices for
shares of TLC Common Stock over the 30 trading day period ended June 19, 1998
were $28.50, $24.56 and $26.99, respectively.
PREMIUM ANALYSIS. DLJ compared the percentage premium of the offer price
over the trading price one day, one week and one month prior to the announcement
date to that of seven selected comparable personal computer consumer software
merger or acquisition transactions involving targets whose securities were
publicly traded. The range of premiums for the selected transactions over the
target's trading prices, one day, one week and one month prior to the
announcement dates were 1.8% to 88.2%, 0.6% to 87.5% and 9.2% to 90.4%,
respectively. For the Merger, premiums based on the Exchange Ratio and
Broderbund's and TLC's Common Stock price one day, one week and one month prior
to June 20, 1998 were 21.2%, 16.4% and 19.9%, respectively.
COMPARABLE MERGER AND ACQUISITION ANALYSIS. Using publicly available
information, DLJ reviewed the implied valuation multiples of 15 comparable
personal computer consumer software merger transactions (the "Comparable
Consumer Software Transactions"). No transaction utilized in the comparable
mergers and acquisition analysis is identical to the Merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of Broderbund and TLC and other factors that could affect the
acquisition value of the companies to which they are being compared. In
reviewing the multiples in the Comparable Consumer Software Transactions set
forth above, DLJ compared the ratios implied by the Exchange Ratio to (i) the
ratio of enterprise value to LTM revenue and enterprise value to LTM EBIT
implied by the consideration paid in the Comparable Consumer Software
Transactions, and (ii) the ratio of market price to LTM EPS and market price to
CY1998 EPS implied by the consideration paid in the Comparable Consumer Software
Transactions. The ratio of enterprise value implied by the consideration paid to
(a) LTM revenue provided a range of 1.1x to 9.5x for the Comparable Consumer
Software Transactions compared to 1.1x for the Merger based upon the Exchange
Ratio, and (b) LTM EBIT provided a range of 4.0x to 53.7x for the Comparable
Consumer Software Transactions compared to 19.8x for the Merger based upon the
Exchange Ratio. The ratio of market price implied by the consideration paid to
(i) LTM EPS provided a range of 7.9x to 97.7x for the Comparable Consumer
Software Transactions compared to 35.1x for the Merger based upon the Exchange
Ratio, and (ii) CY1998 EPS provided a range of 35.8x to 51.2x for the Comparable
Consumer Software Transactions compared to 26.7x for the Merger based upon the
Exchange Ratio.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ, but describes, in summary form, the principal
elements of the presentation made by DLJ to the Broderbund Board on June 21,
1998. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Each of the
analyses conducted by DLJ was carried out in order to provide a different
perspective on the transaction and add to the total mix of information
available. DLJ did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to
fairness from a financial point of view. Rather, in reaching its conclusion, DLJ
considered the results of the analyses in light of each other and ultimately
reached its opinion based on the results of all analyses taken as a whole. DLJ
did not place particular reliance or weight on any individual analysis, but
instead concluded that its analyses, taken as a whole, supported its
determination. Accordingly, notwithstanding the separate factors summarized
above, DLJ believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
considering all analyses and factors, could create an incomplete or misleading
view of the evaluation process underlying its opinions. In performing its
analyses, DLJ made numerous assumptions with respect to industry performance,
business and economic conditions and other matters. The analyses performed by
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DLJ are not necessarily indicative of actual or future results, which may be
significantly more or less favorable than suggested by such analyses.
Pursuant to the terms of an engagement letter dated January 21, 1998,
Broderbund agreed to pay DLJ (i) an initial retainer of $50,000 and a monthly
retainer fee of $25,000 until such time as DLJ has received $100,000 (ii) a fee
of $500,000 upon notification that DLJ is prepared to deliver the DLJ Opinion,
irrespective of the conclusion reached therein, and an additional fee of $50,000
for each update of the DLJ Opinion and (c) an additional fee to be paid upon
consummation of the Merger equal to 0.50% of the Transaction Value (as defined)
less amounts paid pursuant to clauses (a) and (b) above. "Transaction Value"
means the aggregate value of outstanding Broderbund Common Stock, as applicable
(treating any shares issuable upon exercise of options, warrants or other rights
of conversion as outstanding), plus the amount of any debt assumed, acquired,
remaining outstanding, retired or defeased or preferred stock redeemed or
remaining outstanding in connection with the Transaction. Broderbund has also
agreed to reimburse DLJ promptly for all reasonable expenses (including the
reasonable fees and out-of-pocket expenses of counsel) incurred by DLJ in
connection with its engagement; and to indemnify DLJ and certain related persons
against certain liabilities in connection with its engagement, including
liabilities under the federal securities laws. The terms of the fee arrangement
with DLJ, which DLJ and Broderbund believe are customary in transactions of this
nature, were negotiated at arm's length between Broderbund and DLJ and the
Broderbund Board was aware of such arrangement, including the fact that a
significant portion of the aggregate fee payable to DLJ is contingent upon
consummation of the Merger.
In the ordinary course of business, DLJ may actively trade the securities of
both Broderbund and TLC for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
SEVERANCE AND BONUS AGREEMENTS.
The Broderbund Board has authorized the payment of up to $2,000,000 in
retention bonuses to certain key employees, including members of Broderbund's
senior management team. These bonuses will be payable to employees who remain
employed (and whose job performance and completion of assignments continue at a
good or excellent level) by Broderbund until 20 business days following
consummation of the Merger or are terminated prior thereto without cause.
Pursuant to Employment Agreements between Broderbund and certain of its
employees, including Dan Steever, Group Vice President and Mark Hattendorf,
Group Vice President and Chief Financial Officer, the vesting of the stock
options held by each such employee will be accelerated upon the involuntary
termination of such employee within eighteen months after a change in control of
Broderbund. If such involuntary termination occurs on or prior to October 31,
1998, the vesting of the terminated employee's options will be accelerated as to
50% of the underlying shares of stock, and if the termination occurs after
October 31, 1998, the vesting of the terminated employee's options will be
accelerated as to 100% of the underlying shares of stock. Pursuant to an
Employment Agreement, dated March 26, 1997, between Broderbund and Joseph P.
Durrett, Broderbund's Chief Executive Officer, if Mr. Durrett's employment with
Broderlund terminates without cause following a change in control, Mr. Durrett
shall be entitled to receive continuing payments of severance pay (less
applicable withholding taxes) at a rate equal to his base salary as then in
effect (but not less than $400,000 per year) for a period of 12 months from the
date of such termination, and any bonus to which he would have been entitled had
his employment not been terminated. In addition, the vesting of options to
purchase 350,000 shares of Broderbund Common Stock held by Mr. Durrett will be
fully accelerated upon a change in control of Broderbund. The Merger will
constitute a change of control of Broderbund under each Employment Agreement.
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INDEMNITY ARRANGEMENTS.
Pursuant to the Merger Agreement, TLC has, for certain time periods
specified in the Merger Agreement, agreed to (i) indemnify each present director
and officer of Broderbund against liabilities or expenses incurred in connection
with claims arising out of or pertaining to matters occurring prior to the
Effective Time of the Merger, (ii) maintain in effect directors' and officers'
liability insurance for the benefit of the directors and officers of Broderbund
with coverage in amount and scope at least as favorable to such persons as
Broderbund's existing coverage. See "Merger Agreement--Director and Officer
Indemnification."
OWNERSHIP AND VOTING OF STOCK.
As of June 30, 1998, directors and executive officers of TLC and their
affiliates may be deemed to be beneficial owners of approximately 24.2% of the
outstanding shares of TLC Common Stock (including shares issuable upon
conversion of outstanding shares of Series A Preferred Stock and in exchange for
outstanding TLC Exchangeable Shares). See "The Learning Company, Inc.--Security
Ownership of Certain Beneficial Owners and Management."
As of May 31, 1998, directors and executive officers of Broderbund and their
affiliates may be deemed to have or share beneficial ownership of approximately
10.8% of the outstanding shares of Broderbund Common Stock. See
"Broderbund--Security Ownership of Certain Beneficial Owners and Management."
Douglas G. Carlston, a stockholder and director of Broderbund, has entered
into a Voting Agreement, dated as of June 21, 1998, with TLC pursuant to which
Mr. Carlston has agreed to vote all shares over which he exercises voting
control (1,840,726 shares of Broderbund Common Stock) in favor of approval and
adoption of the Merger Agreement and the Merger.
Michael J. Perik, Kevin O'Leary, Thomas H. Lee Company, and Bain Capital,
Inc., stockholders of TLC, have each entered into Voting Agreements, dated as of
June 21, 1998, with Broderbund pursuant to which they have agreed to vote all
shares of TLC Common Stock and TLC Series A Preferred Stock over which they
exercise voting control (representing an aggregate of 13,253,820 votes) in favor
of the Merger Proposal.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for financial
reporting purposes under U.S. GAAP. Under this method of accounting, the
recorded assets and liabilities of TLC and Broderbund will be carried forward to
the combined company at their recorded amounts, the operating results of the
combined company will include the operating results of the Combined Company for
the entire year in which the combination occurs and the reported operating
results of the separate companies for periods prior to the year in which the
combination occurs will be combined and restated as the operating results of the
Combined Company. A condition to the Merger is that TLC shall have received a
letter at the closing of the Merger from PricewaterhouseCoopers LLP regarding
its concurrence with the conclusions of TLC's management as to the
appropriateness of pooling-of-interests accounting, under Accounting Principles
Board Opinion No. 16 and related interpretations, for the Merger. See "Merger
Agreement--Conditions" and "Unaudited Pro Forma Combined Condensed Financial
Statements."
Each of the affiliates of TLC and Broderbund has executed a written
agreement to the effect that such person will not transfer shares of common
stock of either TLC or Broderbund during the period beginning 30 days prior to
the Effective Time and ending on the date that TLC publishes financial
statements which reflect 30 days of combined operations of TLC and Broderbund
(which agreements relate to the ability of TLC to account for the Merger as a
pooling of interests).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion addresses the material federal income tax
considerations of the Merger that are applicable to holders of Broderbund Common
Stock. Broderbund stockholders should be aware that this section does not deal
with all federal income tax considerations that may be relevant to particular
Broderbund stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are foreign persons or who
acquired their Broderbund Common Stock through stock option or stock purchase
programs or in other compensatory transactions. In addition, the following
discussion does not address the tax consequences of transactions effectuated
prior to or after the Merger (whether or not such transactions are in connection
with the Merger), including, without limitation, the exercise of options or
rights to purchase Broderbund Common Stock in anticipation of the Merger.
Finally, no foreign, state or local tax considerations are addressed herein.
ACCORDINGLY, BRODERBUND STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM.
The following discussion is based on the Code, applicable Treasury
Regulations, judicial authority and administrative rulings and practice, all as
of the date hereof. The Internal Revenue Service (the "IRS") is not bound by
such discussion and is not precluded from adopting a contrary position. In
addition, there can be no assurance that future legislative, judicial or
administrative changes or interpretations will not adversely affect the accuracy
of the statements and conclusions set forth herein. Any such changes or
interpretations could be applied retroactively and could affect the tax
consequences of the Merger to TLC, Broderbund and their respective stockholders.
The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Code, with each of TLC, Broderbund and Sub intended to
qualify as a "party to the reorganization" under Section 368(b) of the Code, in
which case the following tax consequences will result (subject to the
limitations and qualifications referred to herein):
(a) No gain or loss will be recognized by the holders of Broderbund Common
Stock upon the receipt of TLC Common Stock solely in exchange for such
Broderbund Common Stock in the Merger (except to the extent of cash received in
lieu of fractional shares).
(b) The aggregate tax basis of the TLC Common Stock so received by
Broderbund stockholders in the Merger (including any fractional share of TLC
Common Stock not actually received) will be the same as the aggregate tax basis
of the Broderbund Common Stock surrendered in exchange therefor.
(c) The holding period of the TLC Common Stock received by each Broderbund
stockholder in the Merger will include the holding period for the Broderbund
Common Stock surrendered in exchange therefor, provided that the Broderbund
Common Stock so surrendered is held as a capital asset at the Effective Time.
(d) Cash payments received by holders of Broderbund Common Stock in lieu of
a fractional share will be treated as received in redemption of such fractional
share, subject to the provisions of Section 302 of the Code, as if such
fractional share of TLC Common Stock had been issued in the Merger and then
redeemed by TLC.
(e) No gain or loss will be recognized by TLC, Sub or Broderbund solely as a
result of the Merger.
Neither TLC nor Broderbund has requested a ruling from the IRS in connection
with the Merger. However, it is a condition of the respective obligations of TLC
and Broderbund to consummate the Merger that such parties receive opinions from
their respective counsel (the "Tax Opinions") to the effect that for federal
income tax purposes, the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code. These Tax Opinions neither bind the IRS
nor preclude the IRS from adopting a contrary position. The Tax Opinions will be
subject to certain assumptions and qualifications and will be
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based on the truth and accuracy of certain representations of TLC, Broderbund
and Sub including representations in certain certificates of the respective
managements of TLC, Broderbund and Sub.
A successful IRS challenge to the Reorganization status of the Merger would
result in a Broderbund stockholder recognizing gain or loss with respect to each
share of Broderbund Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Time of the Merger, of the TLC Common Stock received in exchange therefor. In
such event, a stockholder's aggregate basis in the TLC Common Stock so received
would equal its fair market value, and the stockholder's holding period for such
stock would begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
TLC Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely Broderbund Common Stock). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that a
Broderbund stockholder was treated as receiving (directly or indirectly)
consideration other than TLC Common Stock in exchange for the stockholder's
Broderbund Common Stock.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. On July 2, 1998, TLC
and Broderbund filed notification and report forms under the HSR Act with the
FTC and the Antitrust Division. At any time before or after consummation of the
Merger, and notwithstanding that the HSR Act waiting period may have terminated,
the Antitrust Division or the FTC could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger or seeking divestiture of
assets of TLC or Broderbund. At any time before or after the Effective Time of
the Merger, and notwithstanding that the HSR Act waiting period may have been
terminated, any state could take such action under its antitrust laws as it
deems necessary or desirable in the public interest. Such action could include
seeking to enjoin the consummation of the Merger or seeking divestiture of
assets of TLC or Broderbund. Private parties may also seek to take legal action
under the antitrust laws under certain circumstances.
Based on information available to them, TLC and Broderbund believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, TLC and Broderbund would prevail or would not be required to accept
certain conditions, including the divestitures of assets, in order to consummate
the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of TLC Common Stock received by Broderbund stockholders in the
Merger will be freely transferable, except that shares of TLC Common Stock
received by persons who are deemed to be affiliates of Broderbund prior to the
Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 in the
case of such persons who become affiliates of TLC) or otherwise in compliance
with (or pursuant to an exemption from) the registration requirements of the
Securities Act. Persons deemed to be affiliates of Broderbund or TLC are those
individuals or entities that control, are controlled by, or are under common
control with, such party and generally include executive officers and directors
of such party as well as certain principal stockholders of such party. The
Merger Agreement requires Broderbund to use its commercially reasonable efforts
to cause each of its affiliates to execute a written agreement to the effect
that such person will not offer or sell or otherwise dispose of any of the
shares of TLC Common Stock issued to such person in
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or pursuant to the Merger except in compliance with the Securities Act and the
rules and regulations promulgated by the Commission thereunder. This Joint Proxy
Statement/Prospectus does not cover any resales of TLC Common Stock received by
affiliates of Broderbund in the Merger.
STOCK MARKET QUOTATION
It is a condition to the Merger that the shares of TLC Common Stock to be
issued pursuant to the Merger Agreement be approved for listing on the New York
Stock Exchange, subject to official notice of issuance. An application for
listing the shares of TLC Common Stock on the New York Stock Exchange was filed
on .
DISSENTERS' RIGHTS
TLC STOCKHOLDERS. Under the Delaware General Corporation Law, the TLC
stockholders are not entitled to dissenters' appraisal rights in connection with
the Merger because TLC is not a constituent corporation in the Merger.
BRODERBUND STOCKHOLDERS. The Broderbund stockholders are not entitled to
dissenters' appraisal rights under the Delaware General Corporation Law in
connection with the Merger because the Broderbund Common Stock is quoted on the
Nasdaq National Market and the shares of TLC Common Stock which the Broderbund
stockholder will be entitled to receive in the Merger will be listed on the New
York Stock Exchange at the Effective Time.
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MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
TLC and Broderbund are urged to read the Merger Agreement in its entirety for a
more complete description of the terms and conditions of the Merger.
GENERAL
The Merger Agreement provides that, following the approval of the Merger
Proposal by the stockholders of TLC, the approval and adoption of the Merger
Agreement by the stockholders of Broderbund, and the satisfaction or waiver of
the other conditions to the Merger, Sub will be merged with and into Broderbund,
with Broderbund continuing as the Surviving Corporation, which shall be a
wholly-owned subsidiary of TLC.
If all conditions to the Merger are satisfied or waived, the Merger will
become effective at the time (the "Effective Time") of the filing by the
Surviving Corporation of a duly executed Certificate of Merger with the
Secretary of State of the State of Delaware.
CONVERSION OF SHARES
Upon consummation of the Merger, pursuant to the Merger Agreement, each
issued and outstanding share of Broderbund Common Stock (other than shares owned
by Broderbund as treasury stock or by TLC, Sub or any other wholly-owned
subsidiary of TLC, all of which will be cancelled) will be converted into the
right to receive 0.80 shares (the "Exchange Ratio") of TLC Common Stock. Based
upon the number of outstanding shares of TLC Common Stock and Broderbund Common
Stock as of the Record Date, the stockholders of Broderbund immediately prior to
the consummation of the Merger will own approximately % of the outstanding
shares of TLC Common Stock immediately following consummation of the Merger
(including shares issuable upon conversion of outstanding shares of TLC Series A
Preferred Stock and in exchange for outstanding TLC Exchangeable Shares). If any
holder of shares of Broderbund Common Stock would be entitled to receive a
number of shares of TLC Common Stock that includes a fraction, then, in lieu of
a fractional share, such holder will be entitled to receive cash in an amount
equal to such fractional share of TLC Common Stock multiplied by the average of
the last reported sales price of TLC Common Stock, as reported on the New York
Stock Exchange, on each of the ten trading days immediately preceding the date
of the Effective Time. Each share of Sub Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
common stock of the Surviving Corporation.
As soon as reasonably practicable after the Effective Time, Boston EquiServe
LP (the "Exchange Agent") will mail transmittal forms and exchange instructions
to each holder of record of Broderbund Common Stock to be used to surrender and
exchange certificates formerly evidencing shares of Broderbund Common Stock for
certificates evidencing the shares of TLC Common Stock to which such holder has
become entitled. After receipt of such transmittal forms, each holder of
certificates formerly representing Broderbund Common Stock will be able to
surrender such certificates to the Exchange Agent, and each such holder will
receive in exchange therefor certificates evidencing the number of whole shares
of TLC Common Stock to which such holder is entitled and any cash which may be
payable in lieu of a fractional share of TLC Common Stock. BRODERBUND
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate formerly representing Broderbund
Common Stock, until so surrendered and exchanged, shall be deemed, for all
purposes, to evidence only the right to receive the number of whole shares of
TLC Common Stock which the holder of such certificate is entitled to receive in
the Merger and any cash payment in lieu of a fractional share of TLC Common
Stock. The holder of such
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unexchanged certificate will not be entitled to receive any dividends or other
distributions payable by TLC until the certificate has been exchanged. Subject
to applicable laws, following surrender of such certificates, such dividends and
distributions, together with any cash payment in lieu of a fractional share of
TLC Common Stock, will be paid without interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things: (a) due organization, valid
existence and good standing of each of TLC, Broderbund and each of their
respective subsidiaries and certain similar corporate matters; (b) the capital
structure of each of TLC and Broderbund; (c) the authorization, execution,
delivery and enforceability of the Merger Agreement, the consummation of the
transactions contemplated by the Merger Agreement and related matters; (d)
conflicts under their respective Certificates of Incorporation or By-Laws,
required consents or approvals and violations of any instruments or law; (e)
documents and financial statements filed by each of TLC and Broderbund with the
Commission and the accuracy of information contained therein; (f) undisclosed
liabilities; (g) the absence of certain material adverse events, changes or
other actions; (h) taxes and tax returns; (i) properties; (j) intellectual
property; (k) agreements, contracts and commitments; (l) litigation; (m)
environmental matters; (n) compliance with laws; (o) accounting and tax matters
relating to the Merger; (p) the accuracy of information supplied by each of TLC
and Broderbund in connection with the Registration Statement and this Joint
Proxy Statement/Prospectus; (q) labor matters; (r) employee benefit plans; (s)
insurance; (t) the absence of existing discussions by Broderbund with other
parties; (u) opinions of financial advisors; (v) the taking by Broderbund's
Board of Directors of actions that make inapplicable to the Merger certain
provisions of the Delaware General Corporation Law; (w) the Broderbund Rights
Plan (as defined below); and (x) the interim operations of Sub.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, each of TLC and Broderbund has agreed
that, during the period from the date of the Merger Agreement until the
Effective Time, except as otherwise consented to in writing by the other party
or as contemplated by the Merger Agreement, it and each of its respective
subsidiaries will: (a) carry on its business in the ordinary course in
substantially the same manner as previously conducted; (b) pay its debts and
taxes and perform other obligations when due subject to good faith disputes over
such debts, taxes or obligations; (c) use commercially reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, management team and business relationships; (d) not
declare or pay any dividends on or make other distributions in respect of any of
its capital stock, not effect certain other changes in its capitalization, and
not purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in connection
with the termination of service; (e) not amend its Certificate of Incorporation
or Bylaws, except as contemplated by the Merger Agreement; or (f) not take, or
agree in writing or otherwise to take, any of the actions described in (a)
through (e) above.
In addition, Broderbund has agreed that, during the period from the date of
the Merger Agreement until the Effective Time, except as otherwise consented to
in writing by TLC or as contemplated by the Merger Agreement, it and each of its
respective subsidiaries will not: (a) accelerate, amend or change the period of
exercisability of options or restricted stock granted under any employee stock
plan or authorize cash payments in exchange for any options granted under any
employee stock plan, except as required pursuant to the plan or any related
agreements; (b) issue or sell, or authorize or propose the issuance or sale of,
any shares of its capital stock or securities convertible into shares of its
capital stock, or any subscriptions, rights, warrants or options to acquire, or
other agreements obligating it to issue any such shares or other convertible
securities, subject to certain exceptions; (c) make any material acquisitions;
(d) sell, lease, license or otherwise dispose of material properties or assets
outside the ordinary course of
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business; (e) increase the compensation payable to its officers or employees
(except for increases to non-officer employees consistent with past practices),
grant additional severance or termination pay or enter into employment or
severance agreements, enter into any collective bargaining agreement or
establish, adopt, enter into or amend any plan for the benefit of its directors,
officers, or employees; (f) incur indebtedness for money borrowed other than
pursuant to credit agreements in effect as of the date of the Merger Agreement;
(g) initiate, compromise or settle any material litigation or arbitration except
in connection with the Merger Agreement or the transactions contemplated
thereby; (h) except in the ordinary course of business modify, amend or
terminate any material contracts or release material rights or claims; (i) make
any material tax election, settle or compromise any material tax liability or
amend any material tax return except in the ordinary course of business; (j)
except as required by generally accepted accounting principles, change its
methods of accounting; (k) make or commit to make any capital expenditures in
excess of $1,000,000 in the aggregate; (l) license any intellectual property
rights to or from any third party pursuant to an arrangement that involves a
minimum commitment or advance exceeding $500,000 or royalties at a rate
exceeding 20%; (m) except pursuant to existing commitments, make cash
disbursements exceeding $1,000,000 for any single item or related series of
items; (n) close any facility or office; (o) invest funds and instruments
maturing more than 90 days after the date of investment; or (p) adopt or
implement any stockholder rights plan that could impede or restrict the
consummation of the transactions contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, TLC and Broderbund each have agreed to use
commercially reasonable efforts to (a) take all appropriate action to consummate
the transactions contemplated by the Merger Agreement as promptly as practical,
(b) obtain any consents, licenses, permits, waivers, approvals, authorizations
or orders from governmental entities or other third parties required in
connection with the transactions contemplated by the Merger Agreement and (c)
make all necessary filings and submissions with respect to the transactions
contemplated by the Merger Agreement under federal and state securities laws,
antitrust laws and other applicable laws. TLC and Broderbund have also agreed to
use commercially reasonable efforts to obtain any governmental clearances
required under antitrust laws for the closing of the Merger. TLC is entitled to
direct any governmental proceedings or negotiations relating to the foregoing,
provided that it has agreed to provide Broderbund with a reasonable opportunity
to participate therein. TLC and its subsidiaries are not required either to
divest any of their businesses, product lines or assets or take other action
that would reasonably be expected to have a material adverse effect on TLC or on
TLC or the Combined Company, or to take any action with respect to such
government approvals if the Department of Justice or the Federal Trade
Commission authorizes its staff to seek a preliminary injunction or restraining
order to enjoin consummation of the Merger.
NO SOLICITATION
The Merger Agreement provides that Broderbund will not, directly or
indirectly, through any officer, director, employee, financial advisor,
representative or agent, (a) solicit, initiate or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets (other than the sale of Broderbund's products or used
equipment in the ordinary course of business), sale of shares of capital stock
(including without limitation by way of a tender offer but excluding sales
pursuant to existing employee and director stock plans) or similar transaction
involving Broderbund or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement (any of the foregoing inquiries or
proposals being referred to as an "Acquisition Proposal"), (b) engage in
negotiations or discussions concerning, or provide any non-public information to
any person or entity relating to, any Acquisition Proposal, or (c) agree to or
recommend any Acquisition Proposal; PROVIDED, HOWEVER, that nothing contained in
the Merger Agreement shall prevent Broderbund or its Board of Directors from (i)
furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written Acquisition Proposal by such person or entity or agreeing to (with
the terms of any such agreement being subject to termination of the Merger
Agreement in accordance with its terms) or
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recommending an unsolicited bona fide written Acquisition Proposal to the
stockholders of Broderbund, if and only to the extent that (1) the Board of
Directors of Broderbund believes in good faith (after consultation with its
financial advisor) that such Acquisition Proposal is reasonably capable of being
completed on the terms proposed and would, if consummated, result in a
transaction more favorable than the transaction contemplated by the Merger
Agreement (any such more favorable Acquisition Proposal being referred to as a
"Superior Proposal") and Broderbund's Board of Directors determines in good
faith after consultation with outside legal counsel that such action is
necessary for such Board of Directors to comply with its fiduciary duties to
stockholders under applicable law and (2) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such person
or entity, such Board of Directors receives from such person or entity an
executed confidentiality agreement with terms no less favorable to such party
than those contained in the agreement dated April 10, 1998 between TLC and
Broderbund; or (ii) complying with Rule 14d-9 and Rule 14e-2 promulgated under
the Exchange Act with regard to an Acquisition Proposal or making any disclosure
to Broderbund's stockholders if, in the good faith judgment of Broderbund's
Board of Directors, after consultation with outside legal counsel, such
disclosure is required by applicable law.
Broderbund has agreed to notify TLC (orally and in writing) within one day
of receipt of any Acquisition Proposal or request for non-public information in
connection with an Acquisition Proposal or for access to the properties, books
or records of Broderbund by any person or entity that informs Broderbund that it
is considering making, or has made, an Acquisition Proposal. In addition to
indicating in reasonable detail the identity of any offeror and the terms and
conditions of any proposal, Broderbund has agreed to continue to keep TLC
informed on a current basis of the status of any discussions and all material
terms being discussed or negotiated.
RELATED MATTERS AFTER THE MERGER
At the Effective Time, Sub will be merged with and into Broderbund, and
Broderbund will be the surviving corporation (the "Surviving Corporation") and a
wholly-owned subsidiary of TLC. Each share of Sub Common Stock issued and
outstanding immediately prior to the Effective Time will be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
The Certificate of Incorporation of Broderbund, as in effect immediately
prior to the Effective Time and as the capitalization provisions are amended in
accordance with the provisions of the Merger Agreement, will become the
Certificate of Incorporation of the Surviving Corporation. The Bylaws of Sub, as
in effect immediately prior to the Effective Time, will become the Bylaws of the
Surviving Corporation.
After the Effective Time, all shares of Broderbund Common Stock will cease
to be listed on the Nasdaq National Market, and the Surviving Corporation will
terminate the registration of Broderbund Common Stock under the Exchange Act.
STOCK OPTIONS AND EMPLOYEE BENEFITS
At the Effective Time, each outstanding option to purchase shares of
Broderbund Common Stock (a "Broderbund Stock Option") shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Broderbund Stock Option, the number of shares of TLC
Common Stock (rounded down to the nearest whole number) as the holder of such
Broderbund Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time. The exercise price per share of each such option, as so
converted, will be equal to (x) the aggregate exercise price for the shares of
Broderbund Common Stock otherwise purchasable pursuant to such Broderbund Stock
Option immediately prior to the Effective Time divided by (y) the number of
whole shares of TLC Common Stock deemed purchasable pursuant to such
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<PAGE>
Broderbund Stock Option as determined above (rounded up to the nearest whole
cent). As of July 13, 1998, options to acquire 3,352,141 shares of Broderbund
Common Stock were outstanding.
TLC has agreed to reserve for issuance a sufficient number of shares of TLC
Common Stock for delivery upon exercise of the Broderbund Stock Options assumed
as described above. As soon as practicable after the Effective Time, TLC will
file a registration statement on Form S-8 with respect to the shares of TLC
Common Stock subject to such options and will use its best efforts to maintain
the effectiveness of such registration statement for so long as such options
remain outstanding.
Broderbund has agreed to terminate its Employee Stock Purchase Plan in
accordance with its terms as of or prior to the Effective Time.
STOCKHOLDERS RIGHTS PLANS
Broderbund entered into a Preferred Share Rights Agreement dated as of May
1, 1996 with Chemical Mellon Shareholder Services, L.L.C. (the "Broderbund
Rights Plan"). The Broderbund Rights Plan has been amended to provide that the
transactions contemplated by the Merger Agreement are exempt from the provisions
of the Broderbund Rights Plan.
DIRECTOR AND OFFICER INDEMNIFICATION
The Merger Agreement provides that, from and after the Effective Time, TLC
and the Surviving Corporation will indemnify and hold harmless each present and
former director and officer of Broderbund against all costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation arising out of or pertaining to any
matter existing or occurring at or prior to the Effective Time, whether asserted
or claimed prior to, or at or after the Effective Time, to the fullest extent
permitted under Delaware law. TLC and the Surviving Corporation shall also be
obligated to advance expenses as incurred to the fullest extent permitted under
applicable law, provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification.
For a period of six years after the Effective Time, TLC shall cause the
Surviving Corporation to maintain (to the extent available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are covered as of the date of the Merger Agreement by Broderbund's
directors' and officers' liability insurance policy, with coverage in an amount
and scope at least as favorable as Broderbund's existing coverage; provided that
neither TLC nor the Surviving Corporation shall be required to expend in excess
of 150% of the annual premium paid by Broderbund as of the date of the Merger
Agreement for such coverage.
CONDITIONS
The respective obligations of TLC and Broderbund to effect the Merger are
subject to the satisfaction (or waiver) of the following conditions: (a) the
Merger Proposal shall have been approved by the stockholders of TLC and the
Merger Agreement shall have been approved and adopted by the stockholders of
Broderbund; (b) the waiting period applicable to the consummation of the Merger
under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended shall
have expired or been terminated; (c) all material governmental authorizations,
consents, orders or approvals shall have been obtained; (d) the Registration
Statement shall have become effective and shall not be the subject of a stop
order or proceedings seeking a stop order; (e) no order, injunction or judgment,
or statute, rule or regulation, shall be in effect that makes the Merger illegal
or otherwise prohibits the consummation of the Merger; and (f) TLC and
Broderbund shall have received a letter from PricewaterhouseCoopers LLP
regarding its concurrence with the conclusions of TLC's management as to the
appropriateness of accounting for the
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<PAGE>
Merger as a pooling-of-interests under Accounting Principles Board Opinion No.
16. See "The Merger-- Accounting Treatment."
In addition, the obligations of TLC and Sub to effect the Merger are subject
to the satisfaction of the following conditions: (a) the representations and
warranties of Broderbund in the Merger Agreement shall be true and correct as of
the date of the Merger Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date, except for changes contemplated by the
Merger Agreement and breaches which, individually or in the aggregate, have not
had and are not reasonably likely to have a material adverse effect upon either
Broderbund or the consummation of the transactions contemplated by the Merger
Agreement (the "Broderbund Representation Bringdown Condition"); (b) Broderbund
shall have performed in all material respects all obligations required to be
performed by it under the Merger Agreement at or prior to the Closing Date (the
"Broderbund Covenant Condition"); and (c) TLC shall have received a written
legal opinion to the effect that the Merger will be treated for federal income
tax purposes as a tax-free reorganization within the meaning of Section 368(a)
of the Code (see "The Merger--Certain Federal Income Tax Considerations"). In
addition, the obligations of Broderbund to effect the Merger are subject to the
satisfaction of the following conditions: (a) the representations and warranties
of TLC in the Merger Agreement shall be true and correct as of the date of the
Merger Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except for changes contemplated by the Merger Agreement and
breaches which, individually or in the aggregate, have not had and are not
reasonably likely to have a material adverse effect upon either TLC or the
consummation of the transactions contemplated by the Merger Agreement (the "TLC
Representation Bringdown Condition"); (b) TLC shall have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date (the "TLC Covenant Condition");
(c) Broderbund shall have received a written legal opinion to the effect that
the Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code (see "The
Merger--Certain Federal Income Tax Considerations"); and (d) the shares of TLC
Common Stock to be issued in the Merger shall have been approved for listing on
the New York Stock Exchange.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of TLC and Broderbund:
(a) by mutual written consent of TLC and Broderbund; or
(b) by either TLC or Broderbund if the Merger shall not have been
consummated by December 31, 1998 (the "Outside Date") (provided that the right
to terminate the Merger Agreement under this clause shall not be available to
any party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of or resulted in the failure of the Merger to occur on or before
such date); or
(c) by either TLC or Broderbund if a Governmental Entity (as defined in the
Merger Agreement) shall have issued a nonappealable final order, decree or
ruling or taken any other nonappealable final action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; or
(d) by TLC or Broderbund if (i) at the Broderbund Special Meeting (including
any adjournment or postponement), the requisite vote of the stockholders of
Broderbund in favor of the Merger Agreement shall not have been obtained; or if
(ii) at the TLC Special Meeting (including any adjournment or postponement), the
requisite vote of the stockholders of TLC in favor of the Merger Proposal shall
not have been obtained (provided that the right to terminate the Merger
Agreement under this clause will not
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<PAGE>
be available to any party seeking termination who at the time is in breach of or
has failed to fulfill its obligations under the Merger Agreement); or
(e) by TLC, if (i) the Board of Directors of Broderbund shall have withdrawn
or modified its recommendation of the Merger Agreement or the Merger; (ii) after
the receipt by Broderbund of an Acquisition Proposal, TLC requests in writing
that the Board of Directors of Broderbund reconfirm its recommendation of the
Merger Agreement or the Merger and the Board of Directors of Broderbund fails to
do so within 10 business days after its receipt of TLC's request; (iii) the
Board of Directors of Broderbund shall have recommended to the stockholders of
Broderbund an Alternative Transaction (as defined below); (iv) a tender offer or
exchange offer for 20% or more of the outstanding shares of Broderbund Common
Stock is commenced (other than by TLC or an affiliate of TLC) and the Board of
Directors of Broderbund recommends that the stockholders of Broderbund tender
their shares in such tender or exchange offer; or (v) for any reason Broderbund
fails to call and hold the Broderbund Special Meeting by the Outside Date;
(f) by Broderbund, if (i) the Board of Directors of TLC shall have withdrawn
or modified its recommendation of the Merger Agreement or the Merger; or (ii)
for any reason TLC fails to call and hold the TLC Special Meeting by the Outside
Date; or
(g) by TLC or Broderbund, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party set forth in the
Merger Agreement, which breach causes the Broderbund Representation Bringdown
Condition or the Broderbund Covenant Condition (in the case of a termination by
TLC) or the TLC Representation Bringdown Condition or the TLC Covenant Condition
(in the case of a termination by Broderbund) not to be satisfied.
In the event of any termination of the Merger Agreement by either TLC or
Broderbund as provided above, the Merger Agreement will become void and there
will be no liability or obligation on the part of TLC, Broderbund, Sub or their
respective officers, directors, stockholders or affiliates, except as set forth
in certain sections of the Merger Agreement, provided that any such termination
shall not limit liability for any willful breach of the Merger Agreement and the
provisions described below with respect to expense reimbursements and
termination fees shall survive.
Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby (other than expenses incurred with respect
to the printing and filing of this Joint Proxy Statement/Prospectus and the
Registration Statement, which shall be shared equally) shall be paid by the
party incurring such expenses.
Broderbund has agreed to pay TLC up to $2,000,000 as reimbursement for
expenses of TLC actually incurred relating to the transactions contemplated by
the Merger Agreement prior to termination (including fees and expenses of TLC's
counsel, accountants and financial advisors, but excluding any discretionary
fees paid to such financial advisors), upon the termination of the Merger
Agreement by TLC (i) under the circumstances described in paragraphs (d), (e) or
(g) above or (ii) under the circumstances described in paragraph (b) above as a
result of the failure to satisfy the Broderbund Representation Bringdown
Condition.
Broderbund has agreed to pay TLC a termination fee of $22,500,000 (the "TLC
Termination Fee") upon the earliest to occur of the following events: (i)
termination of the Merger Agreement by TLC under the circumstances described in
paragraph (e) above; (ii) the termination of the Merger Agreement by TLC under
the circumstances described in paragraph (g) above after a breach by Broderbund
of the Merger Agreement; or (iii) the termination of the Merger Agreement by TLC
under the circumstances described in paragraph (d) above as a result of the
failure to receive the requisite vote for approval of the Merger by the
stockholders of Broderbund at the Broderbund Special Meeting if, at the time of
such failure, there shall have been announced an Alternative Transaction
relating to Broderbund which shall not have been absolutely and unconditionally
withdrawn and abandoned.
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TLC has agreed to pay Broderbund up to $2,000,000 as reimbursement for
expenses of Broderbund actually incurred relating to the transactions
contemplated by the Merger Agreement prior to termination (including fees and
expenses of Broderbund's counsel, accountants and financial advisors, but
excluding any discretionary fees paid to such financial advisors), upon the
termination of the Merger Agreement by Broderbund (i) under the circumstances
described in paragraphs (d), (f) and (g) above or (ii) under the circumstances
described in paragraph (b) above as a result of the failure to satisfy the TLC
Representation Bringdown Condition
TLC has agreed to pay Broderbund a termination fee of $22,500,000 (the
"Broderbund Termination Fee") upon the earliest to occur of the following
events: (i) termination of the Merger Agreement by Broderbund under the
circumstances described in paragraph (f) above; (ii) termination of the Merger
Agreement by Broderbund under the circumstances described in paragraph (g) above
after a breach by TLC of the Merger Agreement; or (iii) termination of the
Merger Agreement by Broderbund under the circumstances described in paragraph
(d) above as a result of the failure to receive the requisite vote for approval
of the Merger Agreement and the Merger by the stockholders of TLC at the TLC
Special Meeting if, at the time of such failure, there shall have been announced
an Alternative Transaction relating to TLC which shall not have been absolutely
and unconditionally withdrawn and abandoned.
As used in the Merger Agreement, "Alternative Transaction" means either (i)
a transaction pursuant to which any person (or group of persons), other than TLC
or Broderbund or their respective affiliates (a "Third Party"), acquires more
than 20% of the outstanding shares of Broderbund Common Stock or TLC Common
Stock, as the case may be, pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger or other business combination involving Broderbund or
TLC pursuant to which any Third Party acquires more than 20% of the outstanding
shares of Broderbund Common Stock or TLC Common Stock, as the case may be, or
the entity surviving such merger or business combination, (iii) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the outstanding equity securities of subsidiaries of
Broderbund or TLC, and the entity surviving any merger or business combination
including any of them) of Broderbund or TLC having a fair market value equal to
more than 20% of the fair market value of all the assets of Broderbund or TLC,
as the case may be, immediately prior to such transaction (except for sale of
products or used equipment in the ordinary course of business), or (iv) any
public announcement by a Third Party of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing.
If applicable, any expenses and fees payable as described above shall be
paid within one business day after the first to occur of the relevant
termination events.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the respective Boards of Directors of
TLC and Broderbund at any time before or after approval by the stockholders of
either party of the matters presented in connection with the Merger. After any
such stockholder approval, however, no amendment may be taken which by law
requires further approval by such stockholders until such further approval has
been obtained.
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<PAGE>
THE LEARNING COMPANY, INC.
BUSINESS
The information in this section pertains to the business of TLC as it is
currently conducted without giving effect to the Merger.
OVERVIEW
TLC develops and publishes a broad range of high quality branded consumer
software for PCs that educate across every age category, from young children to
adults. TLC'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.
TLC's educational products are principally sold under a number of well known
brands, including The Learning Company, MECC and Creative Wonders brands. TLC
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, READER RABBIT'S MATH 1,
and READER RABBIT'S TODDLER, READER RABBIT'S PRESCHOOL, READER RABBIT'S
KINDERGARTEN and READER RABBIT'S 1ST GRADE. TLC 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, TLC develops and
markets engaging educational products such as the long-running "Trail" series,
which includes THE OREGON TRAIL 3RD EDITION, as well as products based on the
popular THE BABY-SITTERS CLUB books. During 1997, TLC launched THE AMERICAN
GIRLS PREMIERE title, which is marketed towards girls in this age group.
TLC's reference products include the "Compton's Home Library" line which
includes, among others, COMPTON'S INTERACTIVE ENCYCLOPEDIA and COMPTON'S 3-D
WORLD ATLAS DELUXE. In addition, TLC offers a line of medical reference products
that includes BODYWORKS, HOME MEDICAL ADVISOR and MOSBY'S MEDICAL ENCYCLOPEDIA.
TLC's productivity line is marketed under the SoftKey and the Creative Office
brands. TLC 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.
TLC 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.
TLC also offers an Internet filtering product, CYBER PATROL, which allows
parents and teachers to choose what content on the Internet is appropriate for
children.
TLC 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. TLC also sells its products directly to consumers through
the mail, telemarketing and the Internet, and directly to schools. TLC's
international sales are conducted from subsidiaries in Germany, France, Holland,
Ireland, the United Kingdom, Australia and Japan. TLC also derives revenue from
licensing its products to original equipment manufacturers (OEMs) which bundle
TLC's products for sale with computer systems or components and through on-line
offerings.
TLC has a history of acquiring companies in order to broaden its product
lines and sales channels. In July 1998, TLC completed its acquisition of
Sofsource, a publisher of teen and adult mathematics and language software
products. In May 1998, TLC completed the acquisition of PF. Magic, a publisher
of virtual life software. In March 1998, TLC and certain of its affiliates
completed the acquisition of Mindscape, a publisher of educational, productivity
and entertainment software. During 1997, TLC completed a number of small
complementary acquisitions in the educational software segment. During the third
quarter of 1997, TLC acquired Learning Services (a national school software
catalog for teachers),
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Skills Bank (a developer of older age and remedial educational software for
schools) and Microsystems (an Internet filtering publisher and creator of CYBER
PATROL). During the fourth quarter of 1997, TLC and certain of its affiliates
acquired control of Creative Wonders (a developer of branded children's
educational software) and acquired TEC Direct (the publisher of an educational
consumer software catalog).
In May 1996, TLC consummated the acquisition of MECC, an educational
software publisher. That acquisition, together with the acquisitions in December
1995 of The former Learning Company and Compton's, marked the completion of
TLC's strategic initiative to expand its educational software franchise.
TLC was incorporated in California in October 1978 and reincorporated in
Delaware in October 1986. In October 1996, TLC changed its name from SoftKey
International Inc. to The Learning Company, Inc. to reflect its expanded
emphasis on educational software. TLC'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.
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SECURITY OWNERSHIP OF THE COMPANY
The following table sets forth information with respect to the beneficial
ownership of the shares of TLC Common Stock as of June 30, 1998 held by (i)
TLC's Chief Executive Officer and the other executive officers listed in TLC's
Summary Compensation Table below (collectively, the "TLC Named Executive
Officers"), (ii) each current director of TLC, (iii) all current directors and
executive officers as a group and (iv) each person known to TLC 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).................................................................... 97,500 *
Michael A. Bell(2).................................................................... 166,871 *
Anthony J. DiNovi(3).................................................................. 9,146,340 13.3%
Robert Gagnon(4)...................................................................... 255,485 *
R. Scott Murray(5).................................................................... 197,326 *
Mark E. Nunnelly(6)................................................................... 3,414,640 5.4%
Kevin O'Leary(7)...................................................................... 1,087,857 1.8%
David E. Patrick(2)................................................................... 217,833 *
Michael J. Perik(8)................................................................... 1,278,781 2.1%
Kathryn M. Quinby-Johnson(9).......................................................... 109,228 *
Carolynn Reid-Wallace(2).............................................................. 28,750 *
Robert A. Rubinoff(10)................................................................ 201,330 *
Scott M. Sperling(3)(11).............................................................. 9,346,961 13.5%
Paul J. Zepf(12)...................................................................... 2,440,020 3.9%
All current directors and executive officers as a group %
(16 persons)(13).................................................................... 18,895,684 24.2
Affiliates of Bain Capital, Inc.(6)................................................... 3,414,640 5.4%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Affiliates of Thomas H. Lee Company(3)................................................ 9,146,340 13.3%
c/o Thomas H. Lee Company
75 State Street
Boston, Massachusetts 02109
Tribune Company(14)................................................................... 5,210,796 8.7%
435 North Michigan Avenue
Chicago, Illinois 60611
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding shares of TLC Common Stock.
(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. The information contained in this table is based upon
information contained in the filings by such persons or entities under
Sections 13 and 16 of the Securities Exchange Act of 1934, as amended.
(2) Consists of shares of TLC Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 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
TLC Series A Preferred Stock, which were convertible as of
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June 30, 1998 into 9,146,340 shares of TLC Common Stock. Each of Messrs.
DiNovi and Sperling, directors of TLC, is the direct owner of 1,628 shares
of TLC Series A Preferred Stock, which were convertible as of June 30, 1998
into 32,560 shares of TLC 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 TLC 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 TLC 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 15,000 shares of TLC Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and 240,485 shares
of TLC Common Stock issuable upon exchange of TLC Exchangeable Shares owned
by a corporation wholly-owned by Mr. Gagnon.
(5) Consists of 196,466 shares of TLC Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and 860 shares of
TLC Common Stock issuable upon exchange of TLC Exchangeable Shares owned by
Mr. Murray.
(6) 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 TLC Series A Preferred Stock, which were convertible as of June
30, 1998 into 3,414,640 shares of TLC Common Stock. Mr. Nunnelly, a
director of TLC, 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 TLC Series A Preferred Stock owned by the affiliates of Bain
Capital, Inc. Mr. Nunnelly disclaims beneficial ownership of all shares of
TLC Series A Preferred Stock. Based upon information contained in a
Schedule 13D dated December 12, 1997 filed with the SEC.
(7) Consists of 350,000 shares of TLC Common Stock owned directly by Mr.
O'Leary, 525,699 shares of TLC Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and 212,158 shares
of TLC Common Stock issuable upon exchange of TLC Exchangeable Shares owned
by a corporation wholly-owned by Mr. O'Leary.
(8) Consists of 407,960 shares of TLC Common Stock owned directly by Mr. Perik,
867,700 shares of TLC Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1998 and 3,121 shares of TLC
Common Stock issuable upon exchange of TLC Exchangeable Shares owned by Mr.
Perik.
(9) Consists of 316 shares of TLC Common Stock owned directly by Ms. Quinby-
Johnson and 108,912 shares of TLC Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998.
(10) Consists of 146,330 shares of TLC Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and 55,000 shares of
TLC Common Stock issuable upon exchange of TLC Exchangeable Shares owned by
a corporation over which Mr. Rubinoff exercises investment and voting
power.
(11) Consists of 200,621 shares of TLC Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and shares of TLC
Common Stock issuable pursuant to the conversion of TLC Series A Preferred
Stock held directly and beneficially by Mr. Sperling. See note (3) above.
(12) Consists of 1,000 shares of TLC Common Stock owned directly by Mr. Zepf and
2,439,020 shares of TLC Common Stock issuable upon the conversion of TLC
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
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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 TLC Series A Preferred Stock,
which were convertible as of June 30, 1998 into 2,439,020 shares of TLC
Common Stock. Mr. Zepf, a director of TLC, 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 TLC Series A Preferred
Stock owned by the affiliates of Centre Partners Management LLC. Mr. Zepf
disclaims beneficial ownership of all shares of TLC Series A Preferred
Stock. Based upon information contained in a Schedule 13D dated December
12, 1997 filed with the SEC.
(13) Includes (i) 2,624,784 shares of TLC Common Stock issuable pursuant to
stock options exercisable within 60 days after June 30, 1998, (ii) 511,624
shares of TLC Common Stock issuable upon exchange of TLC Exchangeable
Shares and (iii) 15,000,000 shares of TLC Common Stock issuable upon
conversion of 750,000 shares of TLC Series A Preferred Stock. Does not
include securities beneficially owned by Kathryn Quinby-Johnson, who is a
TLC Named Executive Officer but who was no longer an executive officer of
TLC on June 30, 1998.
(14) Based upon information contained in Amendment No. 2 to a Schedule 13D dated
April 16, 1996 filed with the SEC.
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EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation of the TLC Named Executive Officers for each
of the last three years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
<S> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- --------------------------------------------------- --------- ----------- ----------- ----------- ----------------
Michael J. Perik................................... 1997 400,000 300,000 517,500 -- (1)
Chairman of the Board 1996 400,000 312,125 1,000,000 --
and Chief Executive Officer 1995 300,000 -- 475,000 33,847
R. Scott Murray.................................... 1997 250,000 179,374 230,000(2)
Executive Vice President 1996 250,000 125,000 100,000 -- (3)
and Chief Financial Officer 1995 230,000 30,000 100,000 -- 37,260
1997 400,000 300,000 475,499 -- (4)
Kevin O'Leary...................................... 1996 400,000 312,125 1,000,000 --
President 1995 300,000 -- 475,000 4,574
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 TLC 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.
(3) Represents amounts paid to reimburse Mr. Murray for income taxes incurred
from payments he received from TLC for rent and moving expenses.
(4) Represents amounts paid to reimburse Mr. O'Leary for income taxes incurred
from payments he received from TLC 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.
EMPLOYMENT ARRANGEMENTS
On April 9, 1997, Messrs. Perik and O'Leary each entered into a three-year
employment agreement with TLC providing for their continued employment by TLC 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 TLC Compensation Committee. Each of
the agreements also provides that if the executive's employment with TLC is
terminated by TLC other than for just cause or by the executive
66
<PAGE>
for good reason, TLC will make severance payments to the executive 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 TLC 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 TLC
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, TLC 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, TLC 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.
TLC 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 TLC providing for his continued employment by TLC 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 TLC is terminated by TLC other than for just cause or by the
executive for good reason, TLC 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 bonus 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 TLC 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 TLC's Management Committee bonus
program, or any similar program that may replace such program, approved by TLC's
Compensation Committee for each employment year. The agreement also provides
that if Ms. Quinby-Johnson's employment with TLC is terminated by TLC other than
for just cause or by Ms. Quinby-Johnson for good reason, TLC 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 TLC 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 $85,000
per year payable on a quarterly basis on such terms as the Board of Directors
determines. The agreement also provides that if TLC terminates Mr. Patrick's
employment with TLC 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 base salary then in
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<PAGE>
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 TLC and Mr.
Perik's sister, is indebted to TLC 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 TLC 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, TLC 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 TLC'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 TLC. In connection with this
transaction, TLC 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 TLC, are Managing Directors of
Thomas H. Lee Company, Mr. Nunnelly, a director of TLC, is a Managing Director
of Bain Capital, Inc. Mr. Zepf, a director of TLC, is a Managing Director of
Centre Partners Management LLC. Mr. Dowdle, a former director of TLC, is
Executive Vice President and a director of Tribune Company.
Mr. Perik, the Chief Executive Officer of TLC, is indebted to TLC under a
promissory note dated October 15, 1997 between TLC and Mr. Perik, pursuant to
which TLC 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 TLC is terminated for any reason.
As of March 2, 1998, the aggregate principal amount of the loan outstanding was
$500,000.
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<PAGE>
STOCK OPTION GRANTS
The following table summarizes certain information concerning stock options
granted during fiscal year 1997 to the TLC Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL
SECURITIES TOTAL RATES OF
UNDERLYING OPTIONS STOCK PRICE
OPTIONS GRANTED TO EXERCISE APPRECIATION
GRANTED EMPLOYEES OR BASE FOR OPTION TERM
(% OF SHARES) IN FISCAL PRICE EXPIRATION ----------------------
(1) YEAR (%) ($/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 TLC'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.
(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 an option repricing. 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.
(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 an option repricing. The repriced option was exercisable (i) as to
5,000 of the shares subject thereto in quarterly increments over a
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<PAGE>
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 TLC 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.
70
<PAGE>
BRODERBUND SOFTWARE, INC.
BUSINESS
Broderbund develops, publishes and markets a broad line of interactive
personal productivity, entertainment and education software for use in the home,
school and small business markets. Since its founding in 1980, Broderbund has
developed innovative products which take advantage of advances in personal
computer technology and which have won over 400 awards and sold over 40 million
units. Broderbund is committed to creating imaginative software to provide value
for consumers of all ages.
Broderbund's product strategy is to identify and develop families of
products that will achieve sustained consumer appeal and brand name recognition
primarily across three major consumer software categories: personal
productivity, entertainment and education. Broderbund's best known products are
THE PRINT SHOP-REGISTERED TRADEMARK- family of personal productivity products,
the CARMEN SANDIEGO-TM- family of educational products, the FAMILY TREE
MAKER-REGISTERED TRADEMARK- line of genealogy products, and the entertainment
products MYST-REGISTERED TRADEMARK-, which is the best selling PC game of all
time, and RIVEN-TM-. Recognizing that new and emerging technologies have
historically played, and will continue to play, an increasingly significant role
in the multimedia environment and consumer preferences, Broderbund seeks to
adapt to and incorporate such technologies into its product offerings. In this
respect, Broderbund believes that the emergence of the Internet represents an
important trend and opportunity in the consumer software market, and as part of
its Internet strategy it is developing on-line capabilities for its existing
products, expanding its web-site presence and infrastructure and investing in a
number of small Internet related companies in order to keep abreast of
developments in this rapidly-evolving area, and to position itself as a leading
participant in this emerging platform.
Broderbund sells its products through distributors, computer superstores,
electronics stores, mass merchandisers, discount warehouse stores, office
stores, software specialty retail chains and educational dealers. In addition,
Broderbund also sells its products directly to schools and to consumers through
direct mail, telemarketing and via the Internet. In August 1997, Broderbund
acquired Parsons Technology, a consumer productivity software company based in
Iowa that distributes its products primarily direct-to-consumer. Broderbund
believes that the direct-to-consumer channel will play an increasingly important
role in the distribution of its products. International sales are primarily
derived from a subsidiary in the United Kingdom and from licensing arrangements
with foreign distributors. Broderbund also leverages its distribution strength
by acting as the exclusive distributor for other publishers through its
affiliated label program.
Broderbund was incorporated in California in September 1981 and was
reincorporated in Delaware in February 1987. Broderbund's executive offices are
located at 500 Redwood Boulevard, Novato, California 94948-6121. Its telephone
number is (415) 382-4400. Broderbund's Internet web site is located at http://
www.broderbund.com.
71
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the shares of Broderbund Common Stock as of May 31, 1998 held by
(i) each Broderbund shareholder known by Broderbund to be the beneficial owner
of more than 5% of the outstanding shares of Broderbund Common Stock; (ii) each
Broderbund director; (iii) Broderbund's Chief Executive Officer and certain
other executive officers of Broderbund and (iv) all current executive officers
and directors of Broderbund as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENTAGE
NAME OWNERSHIP(1) OWNED(1)
- ----------------------------------------------------------------------------- ---------------------- ----------
<S> <C> <C>
Invesco PLC.................................................................. 2,083,600 9.9%
11 Devonshire Square
London EC2M4YR England
Pioneering Management Corp................................................... 1,417,500 6.8%
60 State Street
Boston, MA 02109
FMR Corp..................................................................... 1,268,500 6.1%
82 Devonshire Street
Boston, MA 02109
Trimark Investment Management Inc............................................ 1,235,600 5.9%
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, ON M5X IE5
Douglas S. Carlston(2)....................................................... 1,855,276 8.9%
c/o Broderbund Software, Inc.
500 Redwood Boulevard
Novato, CA 94947
Edmund R. Auer(3)............................................................ 77,568 *
Gary L. Buckmiller(4)........................................................ 16,100 *
Scott D. Cook(5)............................................................. 16,000 *
Joseph P. Durrett(6)......................................................... 64,088 *
William P. Egan(7)........................................................... 47,360 *
William M. McDonagh(8)....................................................... 135,459 *
Lawrence H. Wilkinson(9)..................................................... 40,000 *
Thomas L. Marcus(10)......................................................... 50,836 *
Daniel J. Steever............................................................ -- *
J. Mark Hattendorf........................................................... -- *
Alma Rodoni(11).............................................................. 5,408 *
All executive officers and directors as a group (12 persons)................. 2,293,545 10.8%
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding shares of Broderbund Common
Stock.
(1) Based on information supplied by Broderbund officers, directors and
principal shareholders. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission
72
<PAGE>
that deem shares to be beneficially owned by any person who has or shares
voting power or investment power with respect to such shares. Unless
otherwise indicated below, the persons or entities named in the table have
sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Broderbund Common Stock issuable to the identified person or
entity pursuant to stock options that are either immediately exercisable or
exercisable within 60 days of May 31, 1998 are deemed to be outstanding and
to be beneficially owned by the person holding such options for the purpose
of computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Includes 15,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(3) Includes 6,668 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(4) Includes 16,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(5) Includes 16,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(6) Includes 60,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(7) Includes 40,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(8) Includes 115,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(9) Includes 40,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(10) Includes 41,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
(11) Includes 5,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after May 31, 1998.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated financial
statements assume a business combination between TLC and Broderbund accounted
for using the pooling-of-interests method and are based upon the respective
historical consolidated financial statements and the notes thereto of TLC and
Broderbund, as well as the historical combined financial statements of Mindscape
Group (as defined in the accompanying notes), all of which are incorporated by
reference in this Joint Proxy Statement/Prospectus. All amounts presented in
these pro forma combined condensed consolidated financial statements are in
thousands of dollars, except for share and per share data.
The pro forma combined condensed consolidated financial statements reflect
the pro forma financial position of the combining entities as of March 31, 1998
and the pro forma results of operations for the three months ended March 31,
1998 and each of the three years in the period ended December 31, 1997.
In preparing the pro forma combined condensed consolidated balance sheet,
Broderbund's balance sheet as of February 28, 1998 has been combined with TLC's
balance sheet as of March 31, 1998. The following periods have been combined for
purposes of preparing the pro forma combined condensed consolidated statements
of operations. Broderbund's results for the three months ended February 28, 1998
have been combined with TLC's results for the Three Months Ended March 31, 1998
and Mindscape's results for the period from January 1, 1998 to March 4, 1998;
Broderbund's results for the twelve months ended November 30, 1997 have been
combined with TLC's and Mindscape's results for the Year Ended December 31,
1997; Broderbund's results for the fiscal year ended August 31, 1996 have been
combined with TLC's results for the Year Ended December 31, 1996; and
Broderbund's results for the fiscal year ended August 31, 1995 have been
combined with TLC's results for the Year Ended December 31, 1995.
The pro forma combined condensed consolidated financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the financial position or operating results that would have been achieved if the
Merger had been consummated as of the beginning of the periods presented, nor
are they necessarily indicative of the future financial position or operating
results of TLC. No pro forma adjustments are required to conform the financial
reporting policies of TLC and Broderbund for the periods presented. However, on
a prospective basis, TLC expects to review the accounting practices of
Broderbund to ensure consistency with those of TLC. The pro forma combined
condensed consolidated financial information does not give effect to any cost
savings or restructuring and integration costs which may result from the
integration of TLC's and Broderbund's operations. Such costs related to
restructuring and integration have not yet been determined and TLC expects to
charge such costs to operations during the quarter in which the proposed Merger
of TLC and Broderbund is consummated.
TLC expects to incur Merger related pre-tax charges for the transaction
costs of the Merger, and for other related costs, principally in the quarter in
which the Merger is consummated. Such pre-tax transaction charges are currently
estimated to be $6 million and will include the direct transaction costs of the
Merger, including primarily fees to financial advisors, legal counsel and
independent accountants as well as printing costs.
These pro forma combined condensed consolidated financial statements are
based on, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of TLC and Broderbund, as
well as the historical combined financial statements of Mindscape Group, all of
which are incorporated by reference in this Joint Proxy Statement/Prospectus.
See "Available Information" and "Incorporation of Certain Documents by
Reference."
74
<PAGE>
THE LEARNING COMPANY, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Combined
Broderbund Adjustments Pro Forma
---------------- ----------- --------------
The Learning
Company
--------------
March 31, 1998 February 28, 1998 March 31, 1998
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 107,710 $ 137,058 $ -- $ 244,768
Accounts receivable, net 94,428 11,505 -- 105,933
Inventories 38,087 7,892 -- 45,979
Other current assets 45,289 28,219 -- 73,508
-------------- -------- ----------- --------------
285,514 184,674 -- 470,188
Fixed assets and other, net 37,224 30,593 -- 67,817
Goodwill and other intangible assets, net 143,085 16,236 -- 159,321
-------------- -------- ----------- --------------
$ 465,823 $ 231,503 $ -- $ 697,326
-------------- -------- ----------- --------------
-------------- -------- ----------- --------------
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities $ 169,274 $ 63,868 $ 6,000(a) $ 239,142
-------------- -------- ----------- --------------
LONG-TERM OBLIGATIONS:
Long-term debt 287,650 -- -- 287,650
Accrued and deferred income taxes 58,512 -- -- 58,512
Other 9,414 1,950 -- 11,364
-------------- -------- ----------- --------------
355,576 1,950 -- 357,526
STOCKHOLDERS' EQUITY (DEFICIT) (59,027) 165,685 (6,000)(a) 100,658
-------------- -------- ----------- --------------
$ 465,823 $ 231,503 $ -- $ 697,326
-------------- -------- ----------- --------------
-------------- -------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
75
<PAGE>
THE LEARNING COMPANY, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
The Learning Mindscape Pro Forma Combined
Company (Preacquisition) Broderbund Adjustments Pro Forma
------------------- ----------------- ------------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Period from
January 1, 1998 Three Months
Three Months Ended to Three months ended Ended
March 31, 1998 March 4, 1998 February 28, 1998 March 31, 1998
REVENUES $ 113,602 $ 9,090 $ 78,623 $ -- $ 201,315
COSTS AND EXPENSES:
Costs of production 33,964 9,846 34,381 -- 78,191
Sales and marketing 28,145 15,869 19,734 -- 63,748
General and administrative 7,574 3,013 5,078 -- 15,665
Development and software
costs 10,993 5,446 12,062 -- 28,501
Amortization, merger and
other charges 156,820 19,186 2,217 1,748(b) 179,971
------------------- ----------------- ------------------- ------------- --------------
Total operating
expenses 237,496 53,360 73,472 1,748 366,076
------------------- ----------------- ------------------- ------------- --------------
OPERATING INCOME (LOSS) (123,894) (44,270) 5,151 (1,748) (164,761)
INTEREST AND OTHER INCOME
(EXPENSE), NET (5,514) 6 965 -- (4,543)
------------------- ----------------- ------------------- ------------- --------------
INCOME (LOSS) BEFORE TAXES (129,408) (44,264) 6,116 (1,748) (169,304)
PROVISION FOR INCOME TAXES -- 1,066 2,232 -- 3,298
------------------- ----------------- ------------------- ------------- --------------
NET INCOME (LOSS) $ (129,408) $ (45,330) $ 3,884 $ (1,748) $ (172,602)
------------------- ----------------- ------------------- ------------- --------------
------------------- ----------------- ------------------- ------------- --------------
NET INCOME (LOSS) PER SHARE:
Basic $ (2.45) $ (4.97) $ .23 $ (2.20)
Diluted $ (2.45) $ (4.97) $ .23 $ (2.20)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 52,732,000 9,117,600(d) 16,697,600(d) 78,547,200(d)
Diluted 52,732,000 9,117,600(d) 17,000,000(d) 78,547,200(d)
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
76
<PAGE>
THE LEARNING COMPANY, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
The Learning Mindscape Pro Forma Combined
Company (Preacquisition) Broderbund Adjustments Pro Forma
------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, December 31, November 30, December 31,
1997 1997 1997 1997
REVENUES $ 392,438 $ 138,520 $ 228,493 $ -- $ 759,451
COSTS AND EXPENSES:
Costs of production 111,703 54,515 77,516 -- 243,734
Sales and marketing 86,621 43,771 70,176 -- 200,568
General and administrative 31,135 8,035 17,581 -- 56,751
Development and software costs 41,018 22,853 48,969 112,840
Amortization, merger and other
charges 515,016 15,625 37,910 10,485(b) 570,036
(9,000 (c)
------------- -------------- ------------- -------------- -------------
Total operating expenses 785,493 144,799 252,152 1,485 1,183,929
------------- -------------- ------------- -------------- -------------
OPERATING LOSS (393,055) (6,279) (23,659) (1,485) (424,478)
INTEREST AND OTHER INCOME
(EXPENSE), NET (21,378) (531) 5,226 -- (16,683)
------------- -------------- ------------- -------------- -------------
LOSS BEFORE TAXES (414,433) (6,810) (18,433) (1,485) (441,161)
PROVISION (BENEFIT) FOR INCOME
TAXES 61,234 -- (6,633) -- 54,601
------------- -------------- ------------- -------------- -------------
NET LOSS $ (475,667) $ (6,810) $ (11,800) $ (1,485) $ (495,762)
------------- -------------- ------------- -------------- -------------
------------- -------------- ------------- -------------- -------------
NET LOSS PER SHARE:
Basic and Diluted $ (9.59) $ (.75) $ (.71) $ (6.58)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic and Diluted 49,613,000 9,117,600(d) 16,569,900(d) 75,300,500(d)
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
77
<PAGE>
THE LEARNING COMPANY, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
The Learning Pro Forma Combined
Company Broderbund Adjustments Pro Forma
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
December 31, August 31, December 31,
1996 1996 1996
REVENUES $ 343,321 $ 186,207 $ -- $ 529,528
COSTS AND EXPENSES:
Costs of Production 91,045 58,259 -- 149,304
Sales and marketing 67,690 34,381 -- 102,071
General and administrative 28,550 11,256 -- 39,806
Development and software costs 36,018 29,244 -- 65,262
Amortization, merger and other charges 501,330 (6,810) 9,000(c) 503,520
------------- ------------- -------------- -------------
Total operating expenses 724,633 126,330 9,000 859,963
------------- ------------- -------------- -------------
OPERATING INCOME (LOSS) (381,312) 59,877 (9,000) (330,435)
INTEREST AND OTHER INCOME (EXPENSE), NET (24,139) 6,716 -- (17,423)
------------- ------------- -------------- -------------
INCOME (LOSS) BEFORE TAXES (405,451) 66,593 (9,000) (347,858)
PROVISION FOR INCOME TAXES -- 29,816 -- 29,816
------------- ------------- -------------- -------------
NET INCOME (LOSS) $ (405,451) $ 36,777 $ (9,000) $ (377,674)
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
NET INCOME (LOSS) PER SHARE:
Basic $ (9.94) $ 2.22 $ (6.59)
Diluted $ (9.94) $ 2.14 $ (6.59)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 40,801,000 16,545,600(d) 57,346,600(d)
Diluted 40,801,000 17,207,200(d) 57,346,600(d)
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
78
<PAGE>
THE LEARNING COMPANY, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
The Learning Combined
Company Broderbund Pro Forma
------------- ------------- -------------
<S> <C> <C> <C>
December 31, August 31, December 31,
1995 1995 1995
REVENUES $ 167,042 $ 171,594 $ 338,636
COSTS AND EXPENSES:
Costs of production 53,070 60,997 114,067
Sales and marketing 38,370 25,143 63,513
General and administrative 20,813 11,085 31,898
Development and software costs 12,487 22,784 35,271
Amortization, merger and other charges 103,172 95 103,267
------------- ------------- -------------
Total operating expenses 227,912 120,104 348,016
OPERATING INCOME (LOSS) (60,870) 51,490 (9,380)
INTEREST AND OTHER INCOME, NET 705 10,250 10,955
------------- ------------- -------------
INCOME (LOSS) BEFORE TAXES (60,165) 61,740 1,575
PROVISION FOR INCOME TAXES 5,795 25,553 31,348
------------- ------------- -------------
NET INCOME (LOSS) $ (65,960) $ 36,187 $ (29,773)
------------- ------------- -------------
------------- ------------- -------------
NET INCOME (LOSS) PER SHARE:
Basic $ (2.65) $ 2.26 $ (.73)
Diluted $ (2.65) $ 2.15 $ (.73)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 24,855,000 16,021,600(d) 40,876,600(d)
Diluted 24,855,000 16,829,600(d) 40,876,600(d)
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
79
<PAGE>
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
The unaudited pro forma combined condensed consolidated financial statements
assume a business combination between The Learning Company, Inc. ("TLC") and
Broderbund Software, Inc. ("Broderbund") accounted for using the
pooling-of-interests method and are based upon the respective historical
consolidated financial statements and the notes thereto of TLC and Broderbund,
as well as the historical combined financial statements of Mindscape Group.
Pursuant to the Merger Agreement, TLC will issue 0.80 shares (the "Exchange
Ratio") of TLC Common Stock in exchange for each outstanding share of Broderbund
Common Stock, upon consummation of the Merger. TLC expects to account for the
proposed Merger using the pooling-of-interests method.
On March 27, 1998, pursuant to a Stock Purchase Agreement, dated as of March
5, 1998 (the "Mindscape Agreement"), by and between TLC, on the one hand, and
Mindscape Holding Company, Pearson Overseas Holdings Ltd. and Pearson
Netherlands, BV (collectively, the "Sellers"), on the other hand, TLC completed
its acquisition from the Sellers of all of the outstanding capital stock of
Mindscape, Inc., Mindscape International Ltd. and Mindscape France SARL
(collectively, "Mindscape" or "Mindscape Group"). Prior to any potential
adjustment in accordance with the terms of the Mindscape Agreement, the total
purchase price for the acquisition was $155,854, including cash, other
consideration consisting of TLC Common Stock, transaction related costs and net
liabilities assumed. The purchase price is subject to adjustment based upon the
balance of Mindscape's working capital, as defined in the Mindscape Agreement,
at the closing date of the acquisition. TLC Common Stock issued to the Sellers
in connection with the acquisition of Mindscape and the special warrants of
TLC's Canadian subsidiary, Softkey Software Products Inc. ("SoftKey"), issued in
connection with the financing of the acquisition (assuming exercise of SoftKey's
special warrants for SoftKey's exchangeable non-voting shares (the "TLC
Exchangeable Shares") and exchange thereof for TLC Common Stock) represent, in
the aggregate, approximately 9,117,600 shares of TLC Common Stock. TLC accounted
for the acquisition using the purchase method.
TLC's fiscal year is the 52 or 53 weeks ending on or after December 31. For
clarity of presentation herein, with regard to TLC, all references to March 31,
1998 relate to balances as of April 4, 1998, all references to December 31, 1997
relate to balances as of January 3, 1998, the period from January 4, 1998 to
April 4, 1998 is referred to as the Three Months Ended March 31, 1998, the
period from January 5, 1997 to January 3, 1998 is referred to as the Year Ended
December 31, 1997, the period from January 7, 1996 to January 4, 1997 is
referred to as the Year Ended December 31, 1996 and the period from January 1,
1995 to January 6, 1996 is referred to as the Year Ended December 31, 1995.
Broderbund's fiscal year ends on August 31. In preparing the pro forma
combined condensed consolidated balance sheet, Broderbund's balance sheet as of
February 28, 1998 has been combined with TLC's balance sheet as of March 31,
1998. The following periods have been combined for purposes of preparing these
pro forma combined condensed consolidated statements of operations. Broderbund's
results for the three months ended February 28, 1998 have been combined with
TLC's results for the Three Months Ended March 31, 1998 and Mindscape's results
for the period from January 1, 1998 to March 4, 1998; Broderbund's results for
the twelve months ended November 30, 1997 have been combined with TLC's and
Mindscape's results for the Year Ended December 31, 1997; Broderbund's results
for the fiscal
80
<PAGE>
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)
year ended August 31, 1996 have been combined with TLC's results for the Year
Ended December 31, 1996; and Broderbund's results for the fiscal year ended
August 31, 1995 have been combined with TLC's results for the Year Ended
December 31, 1995.
Broderbund's statement of operations for the twelve months ended November
30, 1997 has been compiled from Broderbund's unaudited condensed consolidated
statements of operations for the quarterly periods ended November 30, 1997,
August 31, 1997, May 31, 1997 and February 28, 1997. Broderbund's results of
operations for the three months ended November 30, 1996 have been excluded from
the pro forma combined condensed consolidated statements of operations.
Broderbund's unaudited revenues, operating income and net income were $61,491,
$13,518 and $8,895, respectively, in that period.
The pro forma combined condensed consolidated balance sheet sets forth the
pro forma financial position of TLC and Broderbund at March 31, 1998 as if the
proposed merger of TLC and Broderbund had occurred on March 31, 1998.
The pro forma combined condensed consolidated statements of operations for
the Three Months Ended March 31, 1998 and the Year Ended December 31, 1997 set
forth the pro forma results of operations of TLC, Mindscape and Broderbund as if
the acquisition of Mindscape by TLC and the proposed merger of TLC and
Broderbund had occurred at the beginning of that three month period and year,
respectively. The pro forma combined condensed consolidated statements of
operations for the Years Ended December 31, 1996 and 1995 set forth the pro
forma results of operations of TLC and Broderbund, as if the proposed merger of
TLC and Broderbund had occurred at the beginning of each of those years,
respectively.
The pro forma combined condensed consolidated financial statements are
unaudited, are intended for informational purposes and are not necessarily
indicative of the consolidated financial position or results of operations of
the combined entity which would have been reported had either the acquisition of
Mindscape by TLC or the proposed merger of TLC and Broderbund occurred at the
beginning of the periods presented, nor are they necessarily indicative of the
future consolidated financial position or results of operations of the combined
entity upon consummation of the proposed merger. These pro forma combined
condensed consolidated financial statements should be read in conjunction with
TLC's consolidated financial statements included in TLC's Quarterly Report on
Form 10-Q for the quarterly period ended April 4, 1998 and TLC's Annual Report
on Form 10-K for the fiscal year ended January 3, 1998; Mindscape Group's
combined financial statements included in TLC's Amendment No. 4 to Current
Report on Form 8-K/A dated March 27, 1998; Broderbund's consolidated financial
statements included in Broderbund's Quarterly Reports on Form 10-Q for the
quarterly periods ended February 28, 1998, November 30, 1997, May 31, 1997,
February 28, 1997 and November 30, 1996 and Broderbund's Annual Report on Form
10-K for the fiscal year ended August 31, 1997.
B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(a) The pro forma adjustment to current liabilities and stockholders' equity
(deficit), in the amount $6,000, reflects accruals in connection with the
estimated transaction costs related to the proposed Merger of TLC and
Broderbund. These estimated transaction costs consist primarily of fees to
financial advisors, legal counsel and independent accountants as well as
printing costs. These costs are not considered in the
81
<PAGE>
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)
pro forma combined condensed consolidated statements of operations. These
estimated transaction costs will be charged against the results of operations
during the quarter in which the proposed Merger of TLC and Broderbund is
consummated.
(b) In connection with the acquisition of Mindscape by TLC, TLC recorded
goodwill and other intangible assets, in the amount of $52,854, which reflected
the allocation of the purchase price for that acquisition to brands and trade
names, in the amount of $30,000, completed technology and products, in the
amount of $13,000, and goodwill, in the amount of $9,854. The allocation of the
purchase price reflected a nonrecurring charge, in the amount of $103,000, for
the fair value of in-process research and development. The nonrecurring charge,
in the amount of $103,000, for the fair value of in-process research and
development is not considered in the pro forma combined condensed consolidated
statement of operations for the Year Ended December 31, 1997.
In connection with the acquisition of Mindscape by TLC, for the Three Months
Ended March 31, 1998 and the Year Ended December 31, 1997, the pro forma
adjustments to amortization, merger and other charges in the amounts of $1,748
and $10,485, respectively, reflect amortization of the identified intangible
assets acquired and goodwill over the estimated useful lives of the assets on a
straight-line basis. The estimated useful lives of brands and trade names,
completed technology and products and goodwill are ten, two and ten years,
respectively.
(c) In December 1995, the Former Learning Company terminated an agreement to
merge with Broderbund and merged with TLC. In connection with the termination of
the agreement with Broderbund, the Former Learning Company paid a termination
fee, in the amount of $18,000, to Broderbund, which was included in TLC's
allocation of the purchase price for the Former Learning Company and amortized
over two years. The pro forma adjustment, in the amount of $9,000 for the Year
Ended December 31, 1996, reflects elimination of the $18,000 termination fee,
net of the corresponding reduction in amortization of goodwill in connection
with TLC's purchase of the Former Learning Company. The pro forma adjustment, in
the amount of $9,000 for the Year Ended December 31, 1997, reflects elimination
of the remaining amortization of goodwill which resulted from the termination
fee. There were no other significant intercorporate transactions which required
elimination.
(d) In connection with the acquisition of Mindscape by TLC, for the Three
Months Ended March 31, 1998 and the Year Ended December 31, 1997, the pro forma
adjustments to the weighted average number of shares outstanding reflect the
issuance of TLC Common Stock and SoftKey's special warrants (assuming exercise
of SoftKey's special warrants for TLC Exchangeable Shares and exchange thereof
for TLC Common Stock), which represent in the aggregate approximately 9,117,600
shares of TLC Common Stock.
Based upon the terms of the Mindscape Agreement, as amended, $30,000 of the
purchase price was paid to the Sellers in TLC Common Stock. The number of shares
of TLC Common Stock issued to the Sellers was based upon the average closing
price of TLC Common Stock during the five trading days ended two days prior to
the closing date of the acquisition. Accordingly, TLC issued 1,366,700 shares of
TLC Common Stock to the Sellers in connection with the acquisition of Mindscape
by TLC.
On March 6, 1998, SoftKey agreed to sell to certain Canadian institutional
investors 8,687,500 special warrants for proceeds of approximately $134,500. The
pro forma adjustments for the Three Months Ended March 31, 1998 and the Year
Ended December 31, 1997 reflect TLC's receipt and use of $120,000 of the
proceeds in connection with the acquisition of Mindscape by TLC. Each SoftKey
special warrant is
82
<PAGE>
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)
exercisable without additional payment for one TLC Exchangeable Share. TLC has
issued a special voting share (the "Voting Share") which has a number of votes
equal to the number of TLC Exchangeable Shares outstanding (other than TLC
Exchangeable Shares owned by TLC or any entity controlled by TLC), and which may
be voted by a trustee on behalf of such holders of TLC Exchangeable Shares. The
holder of the Voting Share is not entitled to dividends and, upon receiving
voting instructions from holders of the TLC Exchangeable Shares, shall vote with
the common stockholders as a single class. The TLC Exchangeable Shares are
exchangeable on a one-for-one basis for TLC Common Stock without additional
payment. The exercise of the special warrants for TLC Exchangeable Shares is
subject to certain conditions, including receipt of certain regulatory
approvals.
In connection with the acquisition of Mindscape by TLC and for presentation
in the pro forma combined condensed consolidated statements of operations for
the Three Months Ended March 31, 1998 and Year Ended December 31, 1997, TLC
included 1,366,700 shares of TLC Common Stock issued to the Sellers and the
issuance of special warrants for $120,000, representing approximately 7,750,900
shares of TLC Common Stock, in the computation of basic and diluted earnings per
share as if the special warrants had been exercised for TLC Exchangeable Shares,
the TLC Exchangeable Shares had been exchanged for TLC Common Stock and the
Sellers' TLC Common Stock had been issued at the beginning of that three month
period and year, respectively.
In connection with the proposed Merger of TLC and Broderbund and for
presentation in the pro forma combined condensed consolidated statements of
operations for all periods presented, TLC included the issuance of the number of
TLC's common shares that would have been issued at the Exchange Ratio based upon
the weighted average number of shares of Broderbund Common Stock outstanding in
each period in the computation of basic and diluted earnings. The computation of
earnings per share in the pro forma combined condensed consolidated statements
of operations for all periods presented reflects all adjustments necessary for
presentation in accordance with Statement of Financial Accounting Standards No.
128, Earnings per Share.
For clarity of presentation herein, the following table sets forth the
authorized, issued and outstanding capital stock of TLC as of March 31, 1998,
and on a pro forma basis as of March 31, 1998 to reflect (i) the issuance of
SoftKey's special warrants (assuming exercise of SoftKey's special warrants for
TLC Exchangeable Shares and exchange thereof for TLC Common Stock) which
represent approximately 7,750,900 shares of TLC Common Stock in connection with
the acquisition of Mindscape by TLC and (ii) the issuance of approximately
16,747,300 shares of TLC Common Stock in connection with the proposed Merger of
TLC and Broderbund.
83
<PAGE>
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
SERIES A
PREFERRED
STOCK COMMON STOCK SPECIAL VOTING STOCK
-------------- --------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
REPRESENTING
THE
SHARES SHARE VOTING RIGHTS
AUTHORIZED, SHARES AUTHORIZED, OF
ISSUED ISSUED ISSUED OUTSTANDING TLC
AND SHARES AND AND EXCHANGEABLE
OUTSTANDING AUTHORIZED OUTSTANDING OUTSTANDING SHARES
-------------- ------------- ------------ ----------------- ---------------
TLC, March 31, 1998................. 750,000 120,000,000 51,636,020* 1 5,550,929
Pro Forma Adjustments:
Mindscape........................... -- -- -- -- 7,750,900
Broderbund.......................... -- -- 16,747,300 -- --
--
------- ------------- ------------ ---------------
TLC, Pro Forma...................... 750,000 120,000,000 68,383,320 1 13,301,829
--
--
------- ------------- ------------ ---------------
------- ------------- ------------ ---------------
</TABLE>
- ------------------------
* Balance includes approximately 1,366,700 shares of TLC Common Stock issued
to the Sellers in satisfaction of the stock portion of the purchase price in
connection with the acquisition of Mindscape by TLC prior to March 31, 1998.
84
<PAGE>
DESCRIPTION OF TLC CAPITAL STOCK
Under TLC's Restated Certificate of Incorporation, as amended (the "TLC
Certificate"), TLC is authorized to issue 200,000,000 shares of TLC Common
Stock, 5,000,000 shares of preferred stock, $.01 par value per share (the
"Preferred Stock"), and one share of Special Voting Stock.
COMMON STOCK
The holders of TLC Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not authorized by the TLC Certificate. The
holders of TLC Common Stock are entitled to receive such dividends as may be
declared by TLC's board of directors out of funds legally available therefor and
will be entitled upon any liquidation, dissolution or winding-up of TLC to
receive ratably the net assets of TLC available for distribution. The TLC Common
Stock does not provide for pre-emptive rights, conversion rights, redemption
rights or sinking fund provisions.
SPECIAL VOTING STOCK
A single share of the Special Voting Share is authorized and is outstanding.
The Special Voting Share is held of record by CIBC Mellon Trust Company, as
Trustee (the "Trustee"), under a Voting and Exchange Trust Agreement pursuant to
which each holder of Exchangeable Non-Voting Shares of SoftKey (the "TLC
Exchangeable Shares"), other than TLC or any entity controlled by TLC (a
"Controlled Entity"), is entitled to instruct the Trustee to exercise one of the
votes attached to the Special Voting Share for each TLC Exchangeable Share held
by such holder. Except as otherwise required by law or TLC's Restated
Certificate of Incorporation, as amended, the holder of record of the Special
Voting Share will have a number of votes equal to the number of TLC Exchangeable
Shares outstanding from time to time not owned by TLC or any Controlled Entity.
The holders of shares of the Common Stock and the Special Voting Share vote
together as a single class on all matters, except as may be required by
applicable law. The holder of the Special Voting Share will not be entitled to
receive any assets of TLC available for distribution to its stockholders. The
holder of the Special Voting Share will not be entitled to receive dividends.
Pursuant to the Combination Agreement dated as of August 17, 1993, by and among
WordStar International Incorporated ("WordStar"; now known as The Learning
Company, Inc.), SoftKey Software Products Inc., Spinnaker Software Corporation
and SSC Acquisition Corporation (the "Combination Agreement"), the Special
Voting Share was first issued to the trustee appointed under the Voting and
Exchange Trust Agreement dated as of February 4, 1994, among SoftKey
International Inc. (formerly WordStar; now known as The Learning Company, Inc.),
SoftKey and CIBC Mellon Trust Company (formerly The R-M Trust Company) (the
"Voting and Exchange Trust Agreement"). At such time as the Special Voting Share
has no votes attached to it because there are no exchangeable non-voting shares
of SoftKey outstanding not owned by TLC or a Controlled Entity, and there are no
shares of stock, debt, options or other agreements of SoftKey that could give
rise to the issuance of any exchangeable non-voting shares to any person (other
than TLC or a Controlled Entity), the Special Voting Share will be cancelled.
All TLC Exchangeable Shares not exchanged for an equivalent number of shares
of Common Stock by February 4, 2005 (the "Redemption Date") will be redeemed by
SoftKey for a price per share equal to the current market price of a share of
TLC Common Stock (which shall be paid in TLC Common Stock) plus a cash amount
equivalent to the full amount of all unpaid dividends thereon, and the Voting
Share will thereupon be cancelled. The Board of Directors of SoftKey may extend
the Redemption Date or, if at any time there are less than 50,000 outstanding
TLC Exchangeable Shares (other than Exchangeable Shares held by TLC or any
Controlled Entity, subject to adjustment to reflect permitted changes to the TLC
Exchangeable Shares), accelerate the Redemption Date.
85
<PAGE>
PREFERRED STOCK
Shares of Preferred Stock have a par value of $.01 per share. There are
1,700,000 shares of Preferred Stock presently authorized, of which 750,000
shares have been designated TLC Series A Preferred Stock and are outstanding.
TLC's Board of Directors is authorized to provide for the issuance of shares
of Preferred Stock in one or more series, and to establish from time to time the
number of shares to be included in each such series, to fix the designations,
powers, preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. TLC's Board of Directors
could issue a series of Preferred Stock that could, depending on the terms of
such series, provide for a liquidation preference over the TLC Common Stock or
impede the completion of a merger, tender offer or other takeover attempt. TLC's
Board of Directors, in so acting, could issue Preferred Stock having terms that
could discourage an acquisition attempt through which an acquiror may be
otherwise able to change the composition of the board of directors, including a
tender or exchange offer or other transaction that some, or a majority, of TLC's
stockholders might otherwise believe to be in their best interests.
SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK. The following is a
summary of the terms of the TLC Series A Preferred Stock. This summary is not
intended to be complete and is subject to, and qualified in its entirety by
reference to, the Certificate of Designation of the TLC Series A Preferred Stock
(the "Designation"), setting forth the rights, preferences and limitations of
the TLC Series A Preferred Stock.
DIVIDENDS AND DISTRIBUTIONS. Holders of shares of TLC Series A Preferred
Stock are entitled to receive from TLC, subject to certain exceptions, with
respect to each share of TLC Series A Preferred Stock held, the same dividend or
other distribution received by a holder of the number of shares of Common Stock
into which such share of TLC Series A Preferred Stock is convertible on the
record date for such dividend or other distribution.
VOTING RIGHTS. Each share of TLC Series A Preferred Stock entitles the
holder thereof to vote on all matters voted on by holders of TLC Common Stock
voting together as a single class with other shares entitled to vote at all
meetings of the stockholders of TLC. The affirmative vote of the holders of at
least 66 2/3% of the outstanding shares of Series A Preferred Stock shall be
necessary to (i) authorize, increase the authorized number of shares of or issue
any shares of any class or series of capital stock of TLC (other than TLC Common
Stock) ranking prior to or on parity with (either as to dividends or the
distribution of assets upon liquidation, dissolution or winding up) the TLC
Series A Preferred Stock; (ii) increase the authorized number of shares of, or
issue any shares of TLC Series A Preferred Stock; (iii) authorize, adopt or
approve an amendment to the Restated Certificate of Incorporation of TLC which
would decrease the aggregate number of authorized shares of TLC Series A
Preferred Stock, increase or decrease the par value of such shares or change the
powers, or alter the preferences or special rights of such shares so as to
affect such shares of TLC Series A Preferred Stock adversely; or (iv) reclassify
any shares of TLC Common Stock or any other shares into shares ranking prior to
or on parity with the TLC Series A Preferred Stock.
PURCHASE OF SERIES A PREFERRED STOCK UPON A PURCHASE EVENT. If a Purchase
Event (as defined below) shall occur, then each holder of TLC Series A Preferred
Stock shall have the right to require that TLC purchase, to the extent that TLC
shall have funds legally available therefor, such holder's shares of TLC Series
A Preferred Stock, in whole or in part, at a purchase price in cash in an amount
equal to the Purchase Event Purchase Price (as defined below). A "Purchase
Event" shall be deemed to have occurred if any person (other than any of the
initial purchasers of the TLC Series A Preferred Stock) is or becomes the
beneficial owner, directly or indirectly, of securities of TLC representing 50%
or more of the combined voting power of TLC's then outstanding securities, other
than in an Acquisition Event (as defined below). The "Purchase Event Purchase
Price" shall mean an amount per share equal to $200 (the "Base Purchase Event
Amount") plus, if such Purchase Event occurs after the second anniversary of the
date of issuance of the shares of TLC Series A Preferred Stock, a 9% annual
cumulative return on the Base Purchase Event
86
<PAGE>
Amount, compounded quarterly, from such second anniversary date through the date
of such Purchase Event.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding
up of TLC (including the commencement of proceedings under applicable bankruptcy
laws), no distribution shall be made (i) to the holders of Common Stock or other
capital stock junior to the TLC Series A Preferred Stock unless, prior thereto,
the holders of shares of TLC Series A Preferred Stock shall have received the
Liquidation Amount (as defined below) with respect to each such share or (ii) to
the holders of shares of capital stock on a parity with the TLC Series A
Preferred Stock, except distributions made ratably on the TLC Series A Preferred
Stock and all such parity stock. If upon any liquidation, dissolution or winding
up of TLC, the assets of TLC, or proceeds thereof, distributable among the
holders of the shares of TLC Series A Preferred Stock shall be insufficient to
pay in full the Liquidation Amount and the liquidation preference on all parity
stock, then such assets, or the proceeds thereof, shall be distributed ratably
among the holders of shares of TLC Series A Preferred Stock and any such parity
stock in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. Upon receipt of the
Liquidation Amount, holders of shares of TLC Series A Preferred Stock shall not
be entitled to any further payments following a liquidation, dissolution or
winding up of TLC. The "Liquidation Amount" for a share of TLC Series A
Preferred Stock shall mean the greater of (a) an amount per share equal to $200
(the "Base Liquidation Preference"), plus, if such liquidation, dissolution or
winding up occurs after the second anniversary of the issuance of such shares of
TLC Series A Preferred Stock, an amount equal to a 9% annual cumulative return
on the Base Liquidation Preference, compounded quarterly, from such second
anniversary date through the date of such liquidation, dissolution or winding
up, and (b) the amount that would be distributed with respect to the shares of
TLC Common Stock issuable upon conversion of such share of TLC Series A
Preferred Stock if all outstanding shares of TLC Series A Preferred Stock were
converted into Common Stock immediately prior to such liquidation, dissolution
or winding up.
CONVERSION RIGHTS. The holders of shares of TLC Series A Preferred Stock
shall have the right at any time (and from time to time) to convert each such
share of TLC Series A Preferred Stock into a number of shares of TLC Common
Stock to be determined by dividing $200 by the Conversion Price (as defined
below) in effect at the time of such conversion. The initial Conversion Price is
$10.00. The initial Conversion Price is subject to adjustment in certain events,
including subdivisions and combinations of the TLC Common Stock; a tender offer
by TLC for all or any portion of the TLC Common Stock, that shall require the
payment to stockholders of aggregate consideration having a fair market value
that combined with certain previous payments made by TLC for Common Stock shall
exceed 20% of the product of the then current market price of TLC Common Stock
times the number of shares of TLC Common Stock then outstanding; and certain
reclassifications of TLC Common Stock.
ACQUISITION EVENT. Upon the occurrence of any Acquisition Event (as defined
below), each share of TLC Series A Preferred Stock then outstanding shall
thereafter be convertible into the kind and amount of shares of stock and other
securities or property or assets (including cash) paid in such Acquisition Event
(the "Acquisition Event Consideration") for a number of shares of Common Stock
issuable upon conversion of such shares of TLC Series A Preferred Stock
immediately prior to such Acquisition Event; provided, however, that if such
Acquisition Event occurs after the date which is two years from the date of
issuance of such share of TLC Series A Preferred Stock and the fair market value
of the Acquisition Event Consideration paid for the number of shares of Common
Stock issuable upon conversion of such share of TLC Series A Preferred Stock is
less than an amount equal to the sum of the Base Liquidation Preference and an
amount equal to a 9% annual cumulative return on the Base Liquidation
Preference, compounded quarterly, from such second anniversary date through the
date of such Acquisition Event (the amount, if any, by which such fair market
value is less than such sum being hereinafter referred to as the "Difference"),
then each share of the TLC Series A Preferred Stock shall thereafter be
convertible into the Acquisition Event Consideration into which it becomes
convertible pursuant to the foregoing provisions,
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plus additional Acquisition Event Consideration having a fair market value equal
to the Difference (or, at the option of TLC, cash equal to the Difference). An
"Acquisition Event" shall be deemed to have occurred if (i) a merger,
consolidation or other corporate combination of TLC with any other person is
consummated, other than (a) a merger, consolidation or other corporate
combination which would result in the voting securities of TLC outstanding
immediately prior thereto continuing to represent at least 51% of the combined
voting power of the voting securities of TLC or the surviving corporation
outstanding immediately after such merger, consolidation or other corporate
consolidation or (b) a merger, consolidation or other corporate combination
effected to implement certain recapitalizations, or (ii) the sale or disposition
by TLC of all or substantially all of the property and assets of TLC is
consummated.
MANDATORY CONVERSION. TLC shall have the right, at its option, at a time
after the initial period, if any, of 130 consecutive trading days for which the
weighted average closing price for the TLC Common Stock for such period is
greater than 200% of the Conversion Price, to cause the conversion of each share
of TLC Series A Preferred Stock (but not less than all of such shares) into
shares of TLC Common Stock at the then effective Conversion Price.
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COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of certain of the material differences between
the rights of holders of TLC Common Stock and the rights of holders of
Broderbund Common Stock. Since both TLC and Broderbund are organized under the
laws of the state of Delaware, such differences arise from differences between
various provisions of the respective Certificates of Incorporation and Bylaws of
TLC and Broderbund and from the Broderbund Rights Plan.
CAPITAL STOCK. The total number of authorized shares of capital stock of
TLC is 205,000,001 shares, consisting of 200,000,000 shares of TLC Common Stock,
par value $.01 per share, 5,000,000 shares of Preferred Stock, par value $.01
per share, and one share of Special Voting Stock. The total number of authorized
shares of Broderbund capital stock is 121,000,000, consisting of 120,000,000
shares, $.01 par value per share, of Broderbund Common Stock and 1,000,000
shares, $.01 par value per share, of Preferred Stock.
NUMBER AND ELECTION OF DIRECTORS. The TLC Bylaws provide that the number of
members of the Board of Directors of TLC shall consist of not less than six nor
more than 15 directors, as the Board of Directors shall designate, with each
director serving a one-year term. The number of directors of TLC is currently
11. Whenever the number of directors of TLC is increased between annual meetings
of TLC stockholders, a majority of the directors then in office have the power
to elect the new officers for the balance of the term and until their successors
are elected and qualified. Any decrease in the authorized number of directors
shall not become effective until the expiration of the term of the directors
then in office unless at the time of the decrease there shall be vacancies on
the TLC Board which shall be eliminated by the decrease. The Broderbund Bylaws
provide that the Board of Directors of Broderbund shall consist of nine
directors, with each director serving a one-year term.
SPECIAL MEETING OF STOCKHOLDERS. The TLC Bylaws provide that special
meetings of the stockholders of TLC for any purposes prescribed in the notice of
meeting may be called by the Board of Directors, the Chairman of the Board, the
President or the holders of TLC shares entitled to cast not less than 15% of the
votes at the meeting. The Bylaws of Broderbund provide that special meetings of
the stockholders of Broderbund for any purposes prescribed in the notice of
meeting may be called by the Board of Directors, the Chairman of the Board and
the President of Broderbund.
WRITTEN CONSENT OF STOCKHOLDERS. The TLC Bylaws provide that any action
required or which may be taken at an annual or special meeting of TLC
stockholders may be taken without a meeting, without prior notice and without a
vote if a consent in writing setting forth the action so taken shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize the taking of such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the action without a meeting by less than
unanimous written consent shall be given to those TLC stockholders who have not
consent in writing. The record date for determining TLC stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board is necessary, is the day on which the first written consent
is expressed. The Certificate of Incorporation of Broderbund denies Broderbund
stockholders the right to consent in writing to the taking of any action without
a meetings, so long as the number of stockholders of Broderbund is greater than
10.
NOMINATIONS AND PROPOSALS. The Broderbund Bylaws provide that no
nominations for director of Broderbund and no other proposals by any person
other than the Board of Directors may be presented to any meeting of
stockholders unless the person making the nomination is a record stockholder and
has delivered a written notice to the Secretary of Broderbund no later than the
close of business 60 days in advance of the stockholder meeting or 10 days after
the date on which notice of the meeting is first given to the stockholders,
whichever is later. The TLC Bylaws contain no such comparable provisions.
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RIGHTS PLANS. On April 16, 1996, the Broderbund Board adopted and approved
the Broderbund Rights Plan and declared a dividend of one Right for each share
of Broderbund Common Stock outstanding on May 1, 1996. The Rights have certain
anti-takeover effects and are intended to discourage coercive or unfair takeover
tactics and to encourage any potential acquiror to negotiate a price fair to all
Broderbund stockholders. The Rights may cause substantial dilution to an
acquiring party that attempts to acquire Broderbund on terms not approved by the
Broderbund Board, but they will not interfere with any negotiated merger or
other business combination.
In the event that any person or group acquires beneficial ownership of 15
percent or more of the outstanding shares of Broderbund Common Stock other than
pursuant to a "qualifying offer" as defined in the Broderbund Rights Plan, each
holder of a Right, other than a Right beneficially owned by the acquiring
person, will thereafter have the right to receive upon exercise that number of
shares of Broderbund Common Stock having a market value of two times the
exercise price of the Right. In addition, if at any time following such
acquisition of 15 percent or more of the outstanding Broderbund Common Stock,
Broderbund is acquired in a merger or other business combination or transaction
of 50 percent or more of its consolidated assets or earning power are sold,
other than resulting from a qualifying offer, each holder of a Right will
receive, upon exercise of that Right at the prevailing exercise price of the
Right, that number of shares of common stock of the acquiring company which, at
the time of such transaction, will have a market value of two times the exercise
price of the Right.
TLC has not adopted a Rights Plan.
The foregoing summary does not purport to be a complete statement of the
rights of holders of TLC Common Stock and Broderbund Common Stock under, and is
qualified in its entirety by, the DGCL and the respective Certificates of
Incorporation and Bylaws of TLC and Broderbund and the Broderbund Rights Plan.
See "Description of TLC Capital Stock" for a summary of certain other rights
relating to TLC's Common Stock, Special Voting Stock and Preferred Stock.
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APPROVAL OF AMENDMENT TO THE LEARNING COMPANY, INC.
1990 LONG TERM EQUITY INCENTIVE PLAN
TLC's Long Term Equity Incentive Plan (the "1990 Plan"), which was initially
approved by the stockholders of TLC on October 10, 1990, covers 9,000,000 shares
of TLC Common Stock.
On June 21, 1998, TLC's Board approved amendments to the 1990 Plan, subject
to stockholder approval, to increase the number of shares of TLC Common Stock
issuable under the 1990 Plan from 9,000,000 to 14,000,000.
In order to comply with Section 162(m) of the Code, the increase in the
number of shares covered by the 1990 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 1990 Plan.
SUMMARY OF THE 1990 PLAN
GENERAL. The purpose of the 1990 Plan is to provide selected eligible
employees of and consultants to TLC, its subsidiaries and its affiliates an
opportunity to participate in TLC's future by offering them long-term
performance-based and other incentives and equity interests in TLC so as to
retain, attract and motivate management personnel. As of May 31, approximately
1,150 persons were eligible to participate in the 1990 Plan.
The 1990 Plan provides for grants to eligible employees and consultants of
awards including (a) options to purchase shares of TLC 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 TLC Common Stock subject to the SAR; (c) Stock
Purchase Rights, similar in certain respects to Options; and (d) Performance
Shares which are equivalent in value to shares of TLC 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 1990 Plan is administered by TLC's 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 1990 Plan shall be granted, (y) to determine the nature and
extent of such awards granted, and (z) to determine the terms and condition
applicable to such awards. In administering the 1990 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 1990 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 1990 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.
The Compensation Committee may also amend, alter or discontinue the 1990
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 1990 Plan where such action would (i) increase the number
of shares of TLC Common Stock reserved for issuance pursuant to awards under the
1990 Plan, (ii) change certain minimum price terms for Options or Stock Purchase
Rights, (iii) extend the maximum term of an Option or a Stock Purchase Right
exercise period or (v) materially increase the 1990 Plan benefits accruing to
1990 Plan participants.
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The Compensation Committee may also, at any time without stockholder
approval, amend the 1990 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 TLC Board, the 1990 Plan will terminate on
July 1, 2000, but any award granted pursuant to the 1990 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
1990 Plan and with respect to the sale of TLC Common Stock acquired under the
1990 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 TLC 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 than 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 equal
to the excess of the fair market value of the TLC 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.
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TAX CONSEQUENCES TO TLC
The grant of a stock option under the 1990 Plan will have no tax
consequences to TLC. Moreover, in general, neither the exercise of an incentive
stock option acquired under the 1990 Plan nor the sale of any TLC Common Stock
acquired under the 1990 Plan will have any tax consequences to TLC. TLC
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by an optionee under the
1990 Plan. Any such deduction will be subject to the limitation of Section
162(m) of the Code.
BOARD RECOMMENDATION
The TLC Board of Directors believes the amendment to the 1990 Plan is in the
best interests of TLC and its stockholders and the therefore recommends that the
stockholders vote FOR this proposal.
LEGAL MATTERS
The validity of the shares of TLC Common Stock offered hereby will be passed
upon for TLC by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of The Learning Company, Inc. as of January
3, 1998 and January 4, 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
fiscal years in the period ended January 3, 1998, incorporated by reference in
this Prospectus, have been incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The combined balance sheet of Mindscape Group as of December 31, 1997, and
the related combined statements of operations, shareholder's equity and cash
flows for the year then ended, incorporated by reference in this Prospectus,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the TLC Special Meeting and will have the opportunity to make a statement if
they desire to do so and will also be available to respond to appropriate
questions from Stockholders.
The consolidated financial statements of Broderbund Software, Inc. at August
31, 1997 and 1996, and for each of the three years in the period ended August
31, 1997, incorporated by reference in this Proxy Statement/ Prospectus, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report appearing in Broderbund Software, Inc.'s Annual Report (Form 10-K) for
the year ended August 31, 1997, and are incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Broderbund Special Meeting and will have the opportunity to make a statement if
they desire to do so and will also be available to respond to appropriate
questions from Stockholders.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
among
The Learning Company, Inc.
TLC Merger Corp.
and
Broderbund Software, Inc.
June 21, 1998
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
THE MERGER............................................................................................ A-1
Section 1.01 Effective Time of the Merger............................................................. A-1
Section 1.02 Closing.................................................................................. A-1
Section 1.03 Effects of the Merger.................................................................... A-1
Section 1.04 Directors and Officers................................................................... A-1
ARTICLE II
CONVERSION OF SECURITIES.............................................................................. A-2
Section 2.01 Conversion of Capital Stock.............................................................. A-2
Section 2.02 Exchange of Certificates................................................................. A-2
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER.............................................................. A-4
Section 3.01 Organization of Seller................................................................... A-4
Section 3.02 Seller Capital Structure................................................................. A-5
Section 3.03 Authority; No Conflict; Required Filings and Consents.................................... A-6
Section 3.04 SEC Filings; Financial Statements........................................................ A-6
Section 3.05 No Undisclosed Liabilities............................................................... A-7
Section 3.06 Absence of Certain Changes or Events..................................................... A-7
Section 3.07 Taxes.................................................................................... A-7
Section 3.08 Properties............................................................................... A-8
Section 3.09 Intellectual Property.................................................................... A-8
Section 3.10 Agreements, Contracts and Commitments.................................................... A-9
Section 3.11 Litigation............................................................................... A-9
Section 3.12 Environmental Matters.................................................................... A-9
Section 3.13 Employee Benefit Plans................................................................... A-10
Section 3.14 Compliance With Laws..................................................................... A-10
Section 3.15 Accounting and Tax Matters............................................................... A-10
Section 3.16 Registration Statement; Proxy Statement/Prospectus....................................... A-11
Section 3.17 Labor Matters............................................................................ A-11
Section 3.18 Insurance................................................................................ A-11
Section 3.19 No Existing Discussions.................................................................. A-11
Section 3.20 Opinion of Financial Advisor............................................................. A-11
Section 3.21 Section 203 of the DGCL Not Applicable................................................... A-12
Section 3.22 Rights Agreement......................................................................... A-12
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB....................................................... A-12
Section 4.01 Organization of Buyer and Sub............................................................ A-12
Section 4.02 Buyer Capital Structure.................................................................. A-12
Section 4.03 Authority; No Conflict; Required Filings and Consents.................................... A-13
Section 4.04 SEC Filings; Financial Statements........................................................ A-14
Section 4.05 No Undisclosed Liabilities............................................................... A-14
Section 4.06 Absence of Certain Changes or Events..................................................... A-14
Section 4.07 Taxes.................................................................................... A-15
Section 4.08 Properties............................................................................... A-15
Section 4.09 Intellectual Property.................................................................... A-16
Section 4.10 Agreements, Contracts and Commitments.................................................... A-16
Section 4.11 Litigation............................................................................... A-16
Section 4.12 Environmental Matters.................................................................... A-16
Section 4.13 Employee Benefit Plans................................................................... A-17
Section 4.14 Compliance With Laws..................................................................... A-17
Section 4.15 Accounting and Tax Matters............................................................... A-17
Section 4.16 Registration Statement; Proxy Statement/Prospectus....................................... A-17
Section 4.17 Labor Matters............................................................................ A-18
Section 4.18 Insurance................................................................................ A-18
Section 4.19 Opinion of Financial Advisor............................................................. A-18
Section 4.20 Interim Operations of Sub................................................................ A-18
ARTICLE V
CONDUCT OF BUSINESS................................................................................... A-18
Section 5.01 Covenants of Seller...................................................................... A-18
Section 5.02 Covenants of Buyer....................................................................... A-20
Section 5.03 Cooperation.............................................................................. A-20
Section 5.04 Confidentiality.......................................................................... A-20
ARTICLE VI
ADDITIONAL AGREEMENTS................................................................................. A-20
Section 6.01 No Solicitation.......................................................................... A-20
Section 6.02 Proxy Statement/Prospectus; Registration Statement....................................... A-21
Section 6.03 Nasdaq Quotation......................................................................... A-22
Section 6.04 Access to Information.................................................................... A-22
Section 6.05 Stockholders Meetings.................................................................... A-22
Section 6.06 Legal Conditions to Merger............................................................... A-23
Section 6.07 Public Disclosure........................................................................ A-24
Section 6.08 Tax-Free Reorganization.................................................................. A-24
Section 6.09 Pooling Accounting....................................................................... A-24
Section 6.10 Affiliate Agreements..................................................................... A-24
Section 6.11 NYSE Listing............................................................................. A-24
Section 6.12 Stock Plans.............................................................................. A-24
Section 6.13 Brokers or Finders....................................................................... A-25
Section 6.14 Indemnification.......................................................................... A-25
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ARTICLE VII
CONDITIONS TO MERGER.................................................................................. A-26
Section 7.01 Conditions to Each Party's Obligation To Effect the Merger............................... A-26
Section 7.02 Additional Conditions to Obligations of Buyer and Sub.................................... A-26
Section 7.03 Additional Conditions to Obligations of Seller........................................... A-27
ARTICLE VIII
TERMINATION AND AMENDMENT............................................................................. A-27
Section 8.01 Termination.............................................................................. A-27
Section 8.02 Effect of Termination.................................................................... A-28
Section 8.03 Fees and Expenses........................................................................ A-28
Section 8.04 Amendment................................................................................ A-30
Section 8.05 Extension; Waiver........................................................................ A-30
ARTICLE IX
MISCELLANEOUS......................................................................................... A-30
Section 9.01 Nonsurvival of Representations, Warranties and Agreements................................ A-30
Section 9.02 Notices.................................................................................. A-30
Section 9.03 Interpretation........................................................................... A-31
Section 9.04 Counterparts............................................................................. A-31
Section 9.05 Entire Agreement; No Third Party Beneficiaries........................................... A-31
Section 9.06 Governing Law............................................................................ A-31
Section 9.07 Jurisdiction............................................................................. A-31
Section 9.08 Assignment............................................................................... A-32
Section 9.09 Severability............................................................................. A-32
Section 9.10 WAIVER OF JURY TRIAL..................................................................... A-32
Exhibit A-1 Form of Seller Affiliate Agreement
Exhibit A-2 Form of Buyer Affiliate Agreement
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TABLES OF DEFINED TERMS
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CROSS REFERENCE
TERMS IN AGREEMENT
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Acquisition Proposal........................................................................... Section 6.01(a)
Affiliate...................................................................................... Section 6.10
Affiliate Agreement............................................................................ Section 6.10
Agreement...................................................................................... Preamble
Agreement of Merger............................................................................ Section 1.01
Alternative Transaction........................................................................ Section 8.03(g)
Antitrust Laws................................................................................. Section 6.06(b)
Bankruptcy and Equity Exception................................................................ Section 3.03(a)
Blue Sky....................................................................................... Section 7.02(d)
Buyer Balance Sheet............................................................................ Section 4.04(b)
Buyer Common Stock............................................................................. Section 2.01(b)
Buyer Disclosure Schedule...................................................................... Article IV
Buyer Employee Plans........................................................................... Section 4.13(a)
Buyer Material Adverse Effect.................................................................. Section 4.01
Buyer Material Contracts....................................................................... Section 4.10
Buyer Meeting.................................................................................. Section 3.16
Buyer SEC Reports.............................................................................. Section 4.04(a)
Buyer Stock Plans.............................................................................. Section 4.02(a)
Buyer Voting Proposal.......................................................................... Section 6.05(b)
Certificates................................................................................... Section 2.02(b)
Closing........................................................................................ Section 1.02
Closing Date................................................................................... Section 1.02
Code........................................................................................... Preamble
Confidentiality Agreement...................................................................... Section 5.04
Constituent Corporations....................................................................... Section 1.03
Exchange Ratio................................................................................. Section 2.01(c)
Effective Time................................................................................. Section 1.01
Environmental Law.............................................................................. Section 3.12(c)
ERISA.......................................................................................... Section 3.13(a)
ERISA Affiliate................................................................................ Section 3.13(a)
Exchange Act................................................................................... Section 3.03(c)
Exchange Agent................................................................................. Section 2.02(a)
Exchange Fund.................................................................................. Section 2.02(a)
Governmental Entity............................................................................ Section 3.03(c)
Hazardous Substance............................................................................ Section 3.12(c)
HSR Act........................................................................................ Section 3.03(c)
Indemnified Parties............................................................................ Section 6.14(a)
IRS............................................................................................ Section 3.07(b)
Joint Proxy Statement.......................................................................... Section 3.16
Material Leases................................................................................ Section 3.08
Merger......................................................................................... Preamble
Order.......................................................................................... Section 6.06(b)
Outside Date................................................................................... Section 8.01(b)
Registration Statement......................................................................... Section 3.16
Rule 145....................................................................................... Section 6.10
SEC............................................................................................ Section 3.03(c)
Securities Act................................................................................. Section 3.03(c)
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CROSS REFERENCE
TERMS IN AGREEMENT
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<S> <C>
Seller Balance Sheet........................................................................... Section 3.04(b)
Seller Common Stock............................................................................ Section 2.01(b)
Seller Disclosure Schedule..................................................................... Article III
Seller Employee Plans.......................................................................... Section (a)
Seller Material Adverse Effect................................................................. Section 3.01
Seller Material Contract....................................................................... Section 3.10
Seller Meeting................................................................................. Section 3.16
Seller......................................................................................... Section 3.02(b)
Seller Rights.................................................................................. Section 3.02(b)
Seller Rights Plan............................................................................. Section 3.02(b)
Seller SEC Reports............................................................................. Section 3.04(a)
Seller Stock Plans............................................................................. Section 3.02(a)
Seller Voting Proposal......................................................................... Section 6.05(a)
Subsidiary..................................................................................... Section 3.01
Superior Proposal.............................................................................. Section 6.01(a)
Surviving Corporation.......................................................................... Section 1.03(a)
Tax............................................................................................ Section 3.07(a)
Taxes.......................................................................................... Section 3.07(a)
Third Party.................................................................................... Section 8.03(g)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 21, 1998,
by and among The Learning Company, Inc., a Delaware corporation ("Buyer"), TLC
Merger Corp., a Delaware corporation and a direct, wholly-owned subsidiary of
Buyer ("Sub"), and Broderbund Software, Inc., a Delaware corporation ("Seller").
WHEREAS, the Boards of Directors of Buyer and Seller deem it advisable and
in the best interests of each corporation and its respective stockholders that
Buyer and Seller combine in order to advance the long-term business interests of
Buyer and Seller;
WHEREAS, the combination of Buyer and Seller shall be effected by the terms
of this Agreement through a merger of Sub into Seller, as a result of which the
stockholders of Seller will become stockholders of Buyer (the "Merger");
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.01 Effective Time of the Merger. Subject to the provisions of this
Agreement, a certificate of merger in such form as is required by the relevant
provisions of the Delaware General Corporation Law ("DGCL") (the "Certificate of
Merger") shall be duly executed and acknowledged by the Surviving Corporation
(as defined in Section 1.03) and thereafter delivered to the Secretary of State
of the State of Delaware for filing, as soon as practicable on the Closing Date
(as defined in Section 1.02). The Merger shall become effective upon the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time").
Section 1.02 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., E.S.T., on a date to be specified by Buyer and Seller (the
"Closing Date"), which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Article VII, at the
offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, unless
another date, place or time is agreed to in writing by Buyer and Seller.
Section 1.03 Effects of the Merger. At the Effective Time (i) the separate
existence of Sub shall cease and Sub shall be merged with and into Seller (Sub
and Seller are sometimes referred to below as the "Constituent Corporations" and
Seller following the Merger is sometimes referred to below as the "Surviving
Corporation"), (ii) the Certificate of Incorporation of Seller shall be amended
so that Article 4 of such Certificate of Incorporation reads in its entirety as
follows: "The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,000, all of which shall consist
of Common Stock, $.01 par value per share, and, as so amended, such Certificate
of Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation, and (iii) the Bylaws of Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation. The Merger
shall have the effects set forth in Section 259 of the DGCL.
Section 1.04 Directors and Officers. The directors and officers of Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
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ARTICLE II
CONVERSION OF SECURITIES
Section 2.01 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Seller Common Stock or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the capital
stock of Sub shall be converted into and become one fully paid and nonassessable
share of Common Stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Buyer-Owned Stock. All shares of
common stock $.01 par value per share, of Seller ("Seller Common Stock") that
are owned by Seller as treasury stock and any shares of Seller Common Stock
owned by Buyer, Sub or any other wholly-owned Subsidiary (as defined in Section
3.01) of Buyer shall be cancelled and retired and shall cease to exist and no
stock of Buyer or other consideration shall be delivered in exchange therefor.
All shares of Common Stock, $.01 par value per share, of Buyer ("Buyer Common
Stock") owned by Seller shall be unaffected by the Merger.
(c) Exchange Ratio for Seller Common Stock. Subject to Section 2.02, each
issued and outstanding share of Seller Common Stock (other than shares to be
cancelled in accordance with Section 2.01(b)), together with the Seller Rights
(as defined below) attached thereto or associated therewith, shall be converted
into the right to receive .8 shares (the "Exchange Ratio") of Buyer Common
Stock. All such shares of Seller Common Stock and all Seller Rights, when so
converted, shall no longer be outstanding and shall automatically be cancelled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Buyer Common Stock and any
cash in lieu of fractional shares of Buyer Common Stock to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance with
Section 2.02, without interest.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Buyer
Common Stock or Seller Common Stock), reorganization, recapitalization or other
like change with respect to Buyer Common Stock or Seller Common Stock occurring
after the date hereof and prior to the Effective Time.
Section 2.02 Exchange of Certificates. The procedures for exchanging
outstanding shares of Seller Common Stock for Buyer Common Stock pursuant to the
Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Buyer shall deposit with a
bank or trust company designated by Buyer and Seller (the "Exchange Agent"), for
the benefit of the holders of shares of Seller Common Stock, for exchange in
accordance with this Section 2.02, through the Exchange Agent, (i) certificates
representing the shares of Buyer Common Stock (such shares of Buyer Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
2.01 in exchange for outstanding shares of Seller Common Stock, (ii) cash in an
amount sufficient to make payments required pursuant to Section 2.02(e), and
(iii) any dividends or distributions to which holders of Certificates (as
defined below) may be entitled pursuant to Section 2.02(c)
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Seller Common Stock (the "Certificates") whose
shares were converted pursuant to Section 2.01 into the right to receive shares
of Buyer Common Stock (i) a letter of transmittal in customary form (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Buyer and
Seller may reasonably specify) and (ii) instructions for effecting the surrender
of the Certificates in exchange for certificates representing
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shares of Buyer Common Stock (plus cash in lieu of fractional shares, if any, of
Buyer Common Stock and any dividends or distributions as provided below). Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Buyer, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of whole
shares of Buyer Common Stock which such holder has the right to receive pursuant
to the provisions of this Article II plus cash in lieu of fractional shares
pursuant to Section 2.02(e) and any dividends or distributions pursuant to
Section 2.02(c), and the Certificate so surrendered shall immediately be
cancelled. In the event of a transfer of ownership of Seller Common Stock which
is not registered in the transfer records of Seller, a certificate representing
the proper number of shares of Buyer Common Stock plus cash in lieu of
fractional shares pursuant to Section 2.02(e) and any dividends or distributions
pursuant to Section 2.02(c) may be issued to a transferee if the Certificate
representing such Seller Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing shares of Buyer Common
Stock plus cash in lieu of fractional shares pursuant to Section 2.02(e) and any
dividends or distributions pursuant to Section 2.02(c) as contemplated by this
Section 2.02.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Buyer
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Buyer
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to subsection (e) below until
the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Buyer Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Buyer Common Stock to which such holder
is entitled pursuant to subsection (e) below and the amount of dividends or
other distributions with a record date after the Effective Time previously paid
with respect to such whole shares of Buyer Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Buyer
Common Stock.
(d) No Further Ownership Rights in Seller Common Stock. All shares of Buyer
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash or other distributions paid
pursuant to subsection (c) or (e) of this Section 2.02) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Seller Common Stock, subject, however, to the Surviving Corporation's obligation
to pay any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by Seller on such shares
of Seller Common Stock in accordance with the terms of this Agreement (to the
extent permitted under Section 5.01) prior to the date hereof and which remain
unpaid at the Effective Time, and from and after the Effective Time there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Seller Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Section 2.02.
(e) No Fractional Shares. No certificate or scrip representing fractional
shares of Buyer Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any other rights of a stockholder of Buyer.
Notwithstanding any other provision of this Agreement, each holder of shares of
Seller Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Buyer Common
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Stock (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a share of Buyer Common Stock multiplied by the average
of the last reported sales prices of Buyer Common Stock, as reported on the New
York Stock Exchange, on each of the ten trading days immediately preceding the
Closing Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Seller for 180 days after the
Effective Time shall be delivered to Buyer, upon demand, and any stockholders of
Seller who have not previously complied with this Section 2.02 shall thereafter
look only to Buyer for payment of their claim for Buyer Common Stock, any cash
in lieu of fractional shares of Buyer Common Stock and any dividends or
distributions with respect to Buyer Common Stock.
(g) No Liability. To the extent permitted by applicable law, neither Buyer
nor Seller shall be liable to any holder of shares of Seller Common Stock or
Buyer Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) Withholding Rights. Each of Buyer and the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Seller Common Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Surviving Corporation or
Buyer, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Seller Common Stock in respect of which such deduction and withholding was made
by Surviving Corporation or Buyer, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the shares
of Buyer Common Stock and any cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Buyer Common Stock deliverable in
respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer and Sub that the statements
contained in this Article III are true and correct, except as set forth herein
or in the disclosure schedule delivered by Seller to Buyer on or before the date
of this Agreement (the "Seller Disclosure Schedule"). The Seller Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III and the disclosure in any
paragraph shall qualify other paragraphs in this Article III only to the extent
that it is reasonably apparent from a reading of such disclosure that it also
qualifies or applies to such other paragraphs.
Section 3.01 Organization of Seller. Each of Seller and its Subsidiaries (as
defined below) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, properties, financial condition or results of
operations of Seller and its Subsidiaries, taken as a whole (a "Seller Material
Adverse Effect"); provided, however, that for purposes of this Agreement, any
adverse change in the stock price of Seller in and of itself, as quoted on the
Nasdaq National Market, shall not be taken into account in determining whether
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there has been or would be a "Seller Material Adverse Effect" on or with respect
to Seller and its Subsidiaries, taken as a whole. Except as set forth in the
Seller SEC Reports (as defined in Section 3.04) filed prior to the date hereof,
neither Seller nor any of its Subsidiaries directly or indirectly owns any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any corporation, partnership, joint venture or other
business association or entity, excluding securities in any publicly traded
company held for investment by Seller and comprising less than five percent (5%)
of the outstanding stock of such company. As used in this Agreement, the word
"Subsidiary" means, with respect to Seller, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such party or
any other Subsidiary of such party is a general partner (excluding partnerships,
the general partnership interests of which held by such party or any Subsidiary
of such party do not have a majority of the voting interest in such partnership)
or (ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries and, with respect to Buyer, those entities listed on Buyer
Disclosure Schedule 4.01.
Section 3.02 Seller Capital Structure.
(a) The authorized capital stock of Seller consists of 120,000,000 shares of
Common Stock ("Seller Common Stock"). As of May 31, 1998, (i) 20,964,789 shares
of Seller Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable and (ii) no shares of Seller Common Stock
were held in the treasury of Seller or by Subsidiaries of Seller. The Seller
Disclosure Schedule shows the number of shares of Seller Common Stock reserved
for future issuance pursuant to stock options granted and outstanding as of May
31, 1998 and the plans under which such options were granted (collectively, the
"Seller Stock Plans"). No material change in such capitalization has occurred
between May 31, 1998 and the date of this Agreement. As of the date hereof, all
shares of Seller Common Stock subject to issuance as specified above are duly
authorized and, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be validly issued, fully
paid and nonassessable. As of the date hereof, there are no obligations,
contingent or otherwise, of Seller or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Seller Common Stock or the capital
stock of any Subsidiary or to provide funds to or make any material investment
(in the form of a loan, capital contribution or otherwise) in any such
Subsidiary or any other entity other than guarantees of bank obligations of
Subsidiaries entered into in the ordinary course of business. As of the date
hereof, all of the outstanding shares of capital stock of each of Seller's
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable
and all such shares (other than directors' qualifying shares in the case of
foreign Subsidiaries) are owned by Seller or another Subsidiary free and clear
of all security interests, liens, claims, pledges, agreements, limitations in
Seller's voting rights, charges or other encumbrances of any nature.
(b) As of the date hereof, except as set forth in this Section 3.02 or as
reserved for future grants of options under the Seller Stock Plans and except
for the rights (the "Seller Rights") issued and issuable under the Preferred
Shares Rights Agreement dated as of May 1, 1996 between Seller and Chemical
Mellon Shareholder Services, L.L.C. (the "Seller Rights Plan"), there are no
equity securities of any class of Seller or any of its Subsidiaries, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. As of the date hereof, there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which Seller or any of its Subsidiaries is a party or by
which it is bound obligating Seller or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock of Seller or any of its Subsidiaries or obligating Seller or any of its
Subsidiaries to grant, extend, accelerate the vesting of, otherwise modify or
amend or enter into any such option, warrant, equity security, call, right,
commitment or agreement. As of the date hereof, to the best knowledge of Seller,
there are no voting trusts, proxies or other voting agreements or understandings
with respect to the shares of capital stock of Seller.
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Section 3.03 Authority; No Conflict; Required Filings and Consents.
(a) Seller has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement by Seller have been duly
authorized by all necessary corporate action on the part of Seller, subject only
to the approval of the Merger by Seller's stockholders under the DGCL. This
Agreement has been duly executed and delivered by Seller and constitutes the
valid and binding obligation of Seller, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(b) The execution and delivery of this Agreement by Seller does not, and the
consummation of the transactions contemplated by this Agreement will not, (i)
conflict with, or result in any violation or breach of, any provision of the
Certificate of Incorporation or Bylaws of Seller, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Seller or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Seller or any
of its Subsidiaries or any of its or their properties or assets, except in the
case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which are not, individually or in
the aggregate, reasonably likely to have a Seller Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Seller or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the pre-merger
notification report under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, ("HSR Act"), (ii) the filing of the Certificate of Merger with
the Delaware Secretary of State, (iii) the filing of the Joint Proxy Statement
(as defined in Section 3.16 below) with the Securities and Exchange Commission
(the "SEC") in accordance with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the laws of any foreign country and (v) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not be reasonably likely to have a Seller Material
Adverse Effect.
Section 3.04 SEC Filings; Financial Statements.
(a) Seller has filed and made available to Buyer all forms, reports and
documents required to be filed by Seller with the SEC since January 1, 1996
other than registration statements on Form S-8 (collectively, the "Seller SEC
Reports"). The Seller SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, as the case may
be, and (ii) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Seller SEC Reports or necessary in order to make
the statements in such Seller SEC Reports, in the light of the circumstances
under which they were made, not misleading. None of Seller's Subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Seller SEC Reports complied as to form in
all material respects with the applicable
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published rules and regulations of the SEC with respect thereto, was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and fairly presented the consolidated
financial position of Seller and its Subsidiaries as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The unaudited balance sheet of Seller as of May 31, 1998
is referred to herein as the "Seller Balance Sheet."
Section 3.05 No Undisclosed Liabilities. Except as disclosed in the Seller
SEC Reports filed prior to the date hereof, and except for normal or recurring
liabilities incurred since May 31, 1998 in the ordinary course of business
consistent with past practices, Seller and its Subsidiaries do not have any
liabilities, either accrued, contingent or otherwise (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate are reasonably likely to have a Seller Material Adverse Effect.
Section 3.06 Absence of Certain Changes or Events. Except as disclosed in
the Seller SEC Reports filed prior to the date hereof, since the date of the
Seller Balance Sheet, Seller and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any change in the
financial condition, results of operations, business or properties of Seller and
its Subsidiaries, taken as a whole that has had, or is reasonably likely to
have, a Seller Material Adverse Effect; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to Seller or any of its
Subsidiaries having a Seller Material Adverse Effect; (iii) any material change
by Seller in its accounting methods not required pursuant to generally accepted
accounting principles, principles or practices to which Buyer has not previously
consented in writing; (iv) any revaluation by Seller of any of its assets having
a Seller Material Adverse Effect; or (v) any other action or event that would
have required the consent of Buyer pursuant to Section 5.01 of this Agreement
had such action or event occurred after the date of this Agreement.
Section 3.07 Taxes.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
means any and all material federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, gains, franchise,
withholding, payroll, recapture, employment, excise, unemployment insurance,
social security, business license, occupation, business organization, stamp,
environmental and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) Seller and each of its Subsidiaries have (i) filed all federal, state,
local and foreign tax returns and reports required to be filed by them prior to
the date of this Agreement (taking into account extensions), (ii) paid or
accrued all Taxes due and payable, and (iii) paid or accrued all Taxes for which
a notice of assessment or collection has been received (other than amounts being
contested in good faith by appropriate proceedings), except in the case of
clause (i), (ii) or (iii) for any such filings, payments or accruals which are
not reasonably likely, individually or in the aggregate, to have a Seller
Material Adverse Effect. Unpaid Taxes for periods prior to the date hereof do
not materially exceed accruals and reserves for Taxes (other than accruals and
reserves for Taxes established to reflect timing differences between book and
Tax income) as set forth on the Seller Balance Sheet. Neither the Internal
Revenue Service (the "IRS") nor any other taxing authority has asserted any
claim for Taxes, or to the actual knowledge of the executive officers of Seller,
is threatening to assert any claims for Taxes, which claims, individually or in
the aggregate, are reasonably likely to have a Seller Material Adverse Effect.
Seller and each of its Subsidiaries have withheld or collected and paid over to
the appropriate governmental authorities (or are properly
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holding for such payment) all Taxes required by law to be withheld or collected,
except for amounts which are not reasonably likely, individually or in the
aggregate, to have a Seller Material Adverse Effect. There are no liens for
Taxes upon the assets of Seller or any of its Subsidiaries (other than liens for
Taxes that are not yet due or that are being contested in good faith by
appropriate proceedings), except for liens which are not reasonably likely,
individually or in the aggregate, to have a Seller Material Adverse Effect.
(c) Seller is not and never has been a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement (whether written or unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated Tax Returns, under operation of certain state laws as
a result of being a member of a unitary group, or under comparable laws of other
states or foreign jurisdictions) which includes a party other than Seller nor
does Seller owe any amount under any such agreement.
(d) Neither Seller nor any of its Subsidiaries is a "consenting corporation"
within the meaning of Section 341(f) of the Code, and none of the assets of
Seller or the Subsidiaries are subject to an election under Section 341(f) of
the Code.
(e) Neither Seller nor any of its Subsidiaries has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(f) Neither Seller nor any of its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will be an "excess parachute payment"
under Section 280G of the Code.
Section 3.08 Properties.
(a) Seller has provided to Buyer a true and complete list of all real
property leased by Seller or its Subsidiaries pursuant to leases providing for
the occupancy of facilities in excess of 10,000 square feet (collectively
"Material Lease(s)") and the location of the premises. Seller is not in default
under any of such leases, except where the existence of such defaults,
individually or in the aggregate, is not reasonably likely to have a Seller
Material Adverse Effect.
(b) Seller has provided to Buyer a true and complete list of all real
property that Seller or any of its Subsidiaries owns. With respect to each such
item of real property, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Seller Material Adverse Effect:
(a) Seller or the identified Subsidiary has good and clear record and marketable
title to such property, insurable by a recognized national title insurance
company at standard rates, free and clear of any security interest, easement,
covenant or other restriction, except for recorded easements, covenants and
other restrictions which do not materially impair the current uses or occupancy
of such property; and (b) the improvements constructed on such property are in
good condition, and all mechanical and utility systems servicing such
improvements are in good condition, free in each case of material defects.
Section 3.09 Intellectual Property.
(a) Seller and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names, service
marks and copyrights, any applications for and registrations of such patents,
trademarks, trade names, service marks and copyrights, and all processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of Seller and its Subsidiaries as
currently conducted, or planned to be conducted, the absence of which would be
reasonably likely to have a Seller Material Adverse Effect (the "Seller
Intellectual Property Rights").
(b) The execution and delivery of this Agreement and consummation of the
Merger will not result in the breach of, or create on behalf of any third party
the right to terminate or modify, any license, sublicense or other agreement
relating to the Seller's Intellectual Property Rights, or any material licenses,
sublicenses and other agreements as to which Seller or any of its Subsidiaries
is a party and pursuant to
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which Seller or any of its Subsidiaries is authorized to use any third party
patents, trademarks, copyrights or trade secrets ("Seller Third Party
Intellectual Property Rights"), including software that is used in the
manufacture of, incorporated in, or forms a part of any product sold by or
expected to be sold by Seller or any of its Subsidiaries, the breach of which
would be reasonably likely to have a Seller Material Adverse Effect or would
have a material adverse effect on any product of Seller expected to account for
more than $1 million of revenue in the 12 months following the date hereof.
(c) All patents, registered trademarks, service marks and copyrights which
are held by Seller or any of its Subsidiaries the loss or invalidity of which
would cause a Seller Material Adverse Effect, are valid and subsisting. Seller
(i) has not been sued in any suit, action or proceeding, or received in writing
any claim or notice, which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party; and (ii) has no knowledge that the
manufacturing, marketing, licensing or sale of its products infringes any
patent, trademark, service mark, copyright, trade secret or other proprietary
right of any third party, which infringement in the cases of clause (i) and (ii)
would reasonably be expected to have a Seller Material Adverse Effect.
Section 3.10 Agreements, Contracts and Commitments. Seller has not breached,
or received in writing any claim or notice that it has breached, any of the
terms or conditions of any material agreement, contract or commitment filed as
an exhibit to the Seller SEC Reports ("Seller Material Contracts") in such a
manner as, individually or in the aggregate, are reasonably likely to have a
Seller Material Adverse Effect. Each Seller Material Contract that has not
expired by its terms is in full force and effect.
Section 3.11 Litigation. Except as described in the Seller SEC Reports filed
prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Seller pending or as to which Seller has
received any written notice of assertion, which, individually or in the
aggregate, is reasonably likely to have a Seller Material Adverse Effect or a
material adverse effect on the ability of Seller to consummate the transactions
contemplated by this Agreement.
Section 3.12 Environmental Matters.
(a) Except as disclosed in the Seller SEC Reports filed prior to the date
hereof and except for such matters that, individually or in the aggregate, are
not reasonably likely to have a Seller Material Adverse Effect: (i) Seller and
its Subsidiaries have complied with all applicable Environmental Laws (as
defined in Section 3.12(b)); (ii) the properties currently owned or operated by
Seller and its Subsidiaries (including soils, groundwater, surface water,
buildings or other structures) are not contaminated with any Hazardous
Substances (as defined in Section 3.12(c)); (iii) the properties formerly owned
or operated by Seller or any of its Subsidiaries were not contaminated with
Hazardous Substances during the period of ownership or operation by Seller or
any of its Subsidiaries; (iv) neither Seller nor its Subsidiaries are subject to
liability for any Hazardous Substance disposal or contamination on any third
party property; (v) neither Seller nor any of its Subsidiaries have released any
Hazardous Substance; (vi) neither Seller nor any of its Subsidiaries has
received any notice, demand, letter, claim or request for information alleging
that Seller or any of its Subsidiaries may be in violation of or liable under
any Environmental Law; (vii) neither Seller nor any of its Subsidiaries is
subject to any orders, decrees, injunctions or other arrangements with any
Governmental Entity or is subject to any indemnity or other agreement with any
third party relating to liability under any Environmental Law or relating to
Hazardous Substances; and (viii) there are no circumstances or conditions
involving Seller or any of its Subsidiaries that could reasonably be expected to
result in any material claims, liability, investigations, costs or restrictions
on the ownership, use or transfer of any property of Seller pursuant to any
Environmental Law.
(b) As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, permit, authorization, opinion,
common law or agency requirement relating to: (A) the protection, investigation
or restoration of the environment, health and safety, or natural resources, (B)
the handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (C) noise, wetlands, pollution, contamination or any
injury or threat of injury to persons or property.
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(c) As used herein, the term "Hazardous Substance" means any substance that
is: (A) listed, classified or regulated pursuant to any Environmental Law; (B)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (C) any other substance which is the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law.
Section 3.13 Employee Benefit Plans.
(a) Seller has listed in Section 3.13 of the Seller Disclosure Schedule all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar employee benefit plans, and all unexpired severance
agreements, written or otherwise, for the benefit of, or relating to, any
current or former employee of Seller or any trade or business (whether or not
incorporated) which is a member or which is under common control with Seller (an
"ERISA Affiliate") within the meaning of Section 414 of the Code, or any
Subsidiary of Seller (together, the "Seller Employee Plans").
(b) With respect to each Seller Employee Plan, Seller has made available to
Buyer, a true and correct copy of (i) the most recent annual report (Form 5500)
filed with the IRS, (ii) such Seller Employee Plan, (iii) each trust agreement
and group annuity contract, if any, relating to such Seller Employee Plan and
(iv) the most recent actuarial report or valuation relating to a Seller Employee
Plan subject to Title IV of ERISA.
(c) With respect to the Seller Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Seller, there exists
no condition or set of circumstances in connection with which Seller could be
subject to any liability that is reasonably likely to have a Seller Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Seller Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Seller, which obligations are reasonably likely to have a Seller
Material Adverse Effect.
(e) Except as disclosed in Seller SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Seller nor
any of its Subsidiaries is a party to any oral or written (i) agreement with any
officer or other key employee of Seller or any of its Subsidiaries, the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Seller of the nature contemplated by this
Agreement, (ii) agreement with any officer of Seller providing any term of
employment or compensation guarantee extending for a period longer than one year
from the date hereof and for the payment of compensation in excess of $100,000
per annum, or (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
Section 3.14 Compliance With Laws. Seller has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Seller Material Adverse Effect.
Section 3.15 Accounting and Tax Matters. To its knowledge, after consulting
with its independent auditors, neither Seller nor any of its Affiliates (as
defined in Section 6.10) has taken or agreed to take any
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action which would (i) prevent Buyer from accounting for the business
combination to be effected by the Merger as a pooling of interests or (ii)
prevent the Merger from constituting a transaction qualifying as a
reorganization under 368(a) of the Code. Seller has provided or promptly
following the date hereof (but in no event later than June 30, 1998 upon request
from Buyer) will provide to Buyer a letter of its independent accountants, KPMG
Peat Marwick LLP, as to the eligibility of Buyer for a pooling of interests
transaction.
Section 3.16 Registration Statement; Proxy Statement/Prospectus. The
information to be supplied by Seller for inclusion in the registration statement
on Form S-4 pursuant to which shares of Buyer Common Stock issued in the Merger
will be registered under the Securities Act (the "Registration Statement"),
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information to be
supplied by Seller for inclusion in the joint proxy statement/prospectus to be
sent to the stockholders of Buyer and Seller in connection with the meeting of
Seller's stockholders to consider this Agreement and the Merger (the "Seller
Meeting") and in connection with the meeting of Buyer's stockholders (the "Buyer
Meeting") to consider the issuance of shares of Buyer Common Stock pursuant to
the Merger (the "Joint Proxy Statement") shall not, on the date the Joint Proxy
Statement is first mailed to stockholders of Seller or Buyer, at the time of the
Seller Stockholders' Meeting and the Buyer Stockholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Seller
Meeting or the Buyer Meeting which has become false or misleading. If at any
time prior to the Effective Time any event relating to Seller or any of its
Affiliates, officers or directors should be discovered by Seller which should be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement, Seller shall promptly inform Buyer.
Section 3.17 Labor Matters. Neither Seller nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor,
as of the date hereof, is Seller or any of its Subsidiaries the subject of any
material proceeding asserting that Seller or any of its Subsidiaries has
committed an unfair labor practice or is seeking to compel it to bargain with
any labor union or labor organization nor, as of the date of this Agreement, is
there pending or, to the knowledge of the executive officers of Seller,
threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving Seller or any of its Subsidiaries.
Section 3.18 Insurance. All material fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by Seller or any of its Subsidiaries are with
reputable insurance carriers, provide full and adequate coverage for all normal
risks incident to the business of Seller and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Seller Material Adverse Effect.
Section 3.19 No Existing Discussions. As of the date hereof, Seller has
ceased all discussions or negotiations with any other party with respect to an
Acquisition Proposal (as defined in Section 6.01).
Section 3.20 Opinion of Financial Advisor. The financial advisor of Seller,
Donaldson, Lufkin & Jenrette Incorporated, has delivered to Seller an opinion
dated on or about the date of this Agreement to the effect, as of such date,
that the Exchange Ratio is fair to the holders of Seller Common Stock from a
financial point of view.
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Section 3.21 Section 203 of the DGCL Not Applicable. The Board of Directors
of Seller has taken all actions so that the restrictions contained in Section
203 of the DGCL applicable to a "business combination" (as defined in Section
203) will not apply to the execution, delivery or performance of this Agreement
or the consummation of the Merger or the other transactions contemplated by this
Agreement.
Section 3.22 Rights Agreement. The entering into this Agreement and the
consummation of the transactions contemplated hereby do not and will not result
in the grant of any rights to any person under the Seller Rights Plan or enable
or require the Seller Rights to be exercised, distributed or triggered.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Buyer and Sub represent and warrant to Seller that the statements contained
in this Article IV are true and correct, except as set forth herein or in the
disclosure schedule delivered by Buyer to Seller on or before the date of this
Agreement (the "Buyer Disclosure Schedule"). The Buyer Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article IV and the disclosure in any paragraph shall qualify
other paragraphs in this Article IV only to the extent that it is reasonably
apparent from a reading of such document that it also qualifies or applies to
such other paragraphs.
Section 4.01 Organization of Buyer and Sub. Each of Buyer and Sub and
Buyer's other Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation, has
all requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted and as proposed to be conducted,
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the business, properties, financial condition
or results of operations of Buyer and its Subsidiaries, taken as a whole (a
"Buyer Material Adverse Effect"); provided, however, that for purposes of this
Agreement, any adverse change in the stock price of Buyer in and of itself, as
quoted on the New York Stock Exchange, shall not be taken into account in
determining whether there has been or would be an "Buyer Material Adverse
Effect" on or with respect to Buyer and its Subsidiaries, taken as a whole.
Except as set forth in the Buyer SEC Reports (as defined in Section 4.04) filed
prior to the date hereof, neither Buyer nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity, excluding securities in any
publicly traded company held for investment by Buyer and comprising less than
five percent (5%) of the outstanding stock of such company.
Section 4.02 Buyer Capital Structure.
(a) The authorized capital stock of Buyer consists of (i) 120,000,000 shares
of Common Stock, $.01 par value ("Buyer Common Stock"), (ii) 1,700,000 shares of
Preferred Stock, $.01 par value, of which 750,000 shares have been designated as
Series A Convertible Participating Preferred Stock ("Series A Preferred Stock")
and (iii) one share of special voting stock, $1.00 par value per share (the
"Special Voting Share"). The stockholders of Buyer have approved an increase in
the authorized Buyer Common Stock to 200,000,000 shares. The Special Voting
Share entitles the holder thereof, which is a Subsidiary of Buyer, to vote,
together with the holders of Buyer Common Stock, on all matters submitted for
the vote of the holders of Buyer Common Stock. The number of votes represented
by the Special Voting Share is equal to the number of shares of such Subsidiary
outstanding which are exchangeable into shares of Buyer Common Stock
("Exchangeable Shares"). As of June 15, 1998, there were outstanding 59,109,756
shares of Buyer Common Stock, 750,000 shares of Series A Preferred Stock
(currently convertible into 15,000,000 shares of Common Stock), 12,510,457
Exchangeable Shares (including 8,687,500 Exchangeable Shares subject to
outstanding warrants) and $200,955,000 principal amount of 5 1/2% Senior
Convertible Notes due 2000 (convertible into approximately 3,791,600 shares of
Common Stock). The Buyer Disclosure Schedule
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shows the number of shares of Buyer Common Stock reserved for future issuance
pursuant to stock options granted and outstanding as of April 30, 1998, and the
plans under which such options were granted (collectively, the "Buyer Stock
Plans"). No material change in such capitalization has occurred between June 15,
1998 and the date of this Agreement. All shares of Buyer Common Stock subject to
issuance as specified above are duly authorized and, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
shall be validly issued, fully paid and nonassessable. There are no obligations,
contingent or otherwise, of Buyer or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Buyer Common Stock or the capital
stock of any Subsidiary or to provide funds to or make any material investment
(in the form of a loan, capital contribution or otherwise) in any such
Subsidiary or any other entity other than guarantees of bank obligations of
Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of Buyer's Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and all such shares
(other than directors' qualifying shares and similar shares in the case of
foreign Subsidiaries) are owned by Buyer or another Subsidiary free and clear of
all security interests, liens, claims, pledges, agreements, limitations in
Buyer's voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.02 or as reserved for future
grants of options under the Buyer Stock Plans, there are no equity securities of
any class of Buyer, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. There are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which Buyer or any of its Subsidiaries is a party or by
which it is bound obligating Buyer or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock of Buyer or any of its Subsidiaries or obligating Buyer or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement. To the
best knowledge of Buyer, there are no voting trusts, proxies or other voting
agreements or understandings with respect to the shares of capital stock of
Buyer.
Section 4.03 Authority; No Conflict; Required Filings and Consents.
(a) Each of Buyer and the Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of each of Buyer
and Sub (including the approval of the Merger by Buyer as the sole stockholder
of Sub), subject only to the approval of the Buyer Voting Proposal (as defined
in Section 6.05) by Buyer's stockholders. This Agreement has been duly executed
and delivered by each of Buyer and Sub and constitutes the valid and binding
obligation of each of Buyer and Sub, enforceable in accordance with their terms,
subject to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement by each of Buyer and Sub
does not, and the consummation of the transactions contemplated by this
Agreement will not, (i) conflict with, or result in any violation or breach of,
any provision of the Certificate of Incorporation or Bylaws of Buyer or Sub,
(ii) result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Buyer or any of its Subsidiaries is
a party or by which any of them or any of their properties or assets may be
bound, or (iii) conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Buyer or any of its Subsidiaries or any of its or their properties
or assets, except in the case of (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations which are
not, individually or in the aggregate, reasonably likely to have a Buyer
Material Adverse Effect.
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(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Buyer or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of the pre-merger notification
report under the HSR Act, (ii) the filing of the Registration Statement with the
SEC in accordance with the Securities Act, (iii) the filing of the Certificate
of Merger with the Delaware Secretary of State, (iv) the filing of the Joint
Proxy Statement with the SEC in accordance with the Exchange Act, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country, (vi) the approval by the New York Stock Exchange of the
listing of the shares of Buyer Common Stock to be issued in the transactions
contemplated by this Agreement, and (vii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
be reasonably likely to have a Buyer Material Adverse Effect.
Section 4.04 SEC Filings; Financial Statements.
(a) Buyer has filed and made available to Seller all forms, reports and
documents required to be filed by Buyer with the SEC since January 1, 1996 other
than registration statements on Form S-8 (collectively, the "Buyer SEC
Reports"). The Buyer SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such Buyer SEC Reports or
necessary in order to make the statements in such Buyer SEC Reports, in the
light of the circumstances under which they were made, not misleading. None of
Buyer's Subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Buyer SEC Reports complied as to form in all
material respects with the applicable published rules and regulations of the SEC
with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly presented the consolidated financial position of Buyer and its
Subsidiaries as of the dates and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
unaudited balance sheet of Buyer as of March 31, 1998 is referred to herein as
the "Buyer Balance Sheet."
Section 4.05 No Undisclosed Liabilities. Except as disclosed in the Buyer
SEC Reports filed prior to the date hereof, and except for normal or recurring
liabilities incurred since March 31, 1998 in the ordinary course of business
consistent with past practices, Buyer and its Subsidiaries do not have any
liabilities, either accrued, contingent or otherwise (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate, are reasonably likely to have a Buyer Material Adverse Effect.
Section 4.06 Absence of Certain Changes or Events. Except as disclosed in
the Buyer SEC Reports filed prior to the date hereof, since the date of the
Buyer Balance Sheet, Buyer and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any change in the financial condition,
results of operations, business or properties of Buyer and its Subsidiaries,
taken as a whole, that has had, or is reasonably likely to have, a Buyer
Material Adverse Effect; (ii) any damage, destruction or loss (whether or not
covered by insurance) with respect to Buyer or any of its Subsidiaries having a
Buyer Material Adverse Effect; (iii) any material change by Buyer in its
accounting methods not required pursuant to generally accepted accounting
principles, principles or practices to which Seller has not previously consented
in writing; (iv) any
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revaluation by Buyer of any of its assets having a Buyer Material Adverse
Effect; or (v) any other action or event that would have required the consent of
Seller pursuant to Section 5.02 of this Agreement had such action or event
occurred after the date of this Agreement.
Section 4.07 Taxes.
(a) Buyer and each of its Subsidiaries have (i) filed all federal, state,
local and foreign tax returns and reports required to be filed by them prior to
the date of this Agreement (taking into account extensions), (ii) paid or
accrued all Taxes due and payable, and (iii) paid or accrued all Taxes for which
a notice of assessment or collection has been received (other than amounts being
contested in good faith by appropriate proceedings), except in the case of
clause (i), (ii) or (iii) for any such filings, payments or accruals which are
not reasonably likely, individually or in the aggregate, to have a Buyer
Material Adverse Effect. Unpaid Taxes for periods prior to the date hereof do
not materially exceed accruals and reserves for Taxes (other than accruals and
reserves for Taxes established to reflect timing differences between book and
Tax income) as set forth on the Seller Balance Sheet. Neither the IRS nor any
other taxing authority has asserted any claim for Taxes, or to the actual
knowledge of the executive officers of Buyer, is threatening to assert any
claims for Taxes, which claims, individually or in the aggregate, are reasonably
likely to have a Buyer Material Adverse Effect. Buyer and each of its
Subsidiaries have withheld or collected and paid over to the appropriate
governmental authorities (or are properly holding for such payment) all Taxes
required by law to be withheld or collected, except for amounts which are not
reasonably likely, individually or in the aggregate, to have a Buyer Material
Adverse Effect. There are no liens for Taxes upon the assets of Buyer or any of
its Subsidiaries (other than liens for Taxes that are not yet due or that are
being contested in good faith by appropriate proceedings), except for liens
which are not reasonably likely, individually or in the aggregate, to have a
Buyer Material Adverse Effect.
(b) Buyer is not and never has been a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement (whether written or unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated Tax Returns, under operation of certain state laws as
a result of being a member of a unitary group, or under comparable laws of other
states or foreign jurisdictions) which includes a party other than Buyer nor
does Buyer owe any amount under any such agreement.
(c) Neither Buyer nor any of its Subsidiaries is a "consenting corporation"
within the meaning of Section 341(f) of the Code, and none of the assets of
Buyer or the Subsidiaries are subject to an election under Section 341(f) of the
Code.
(d) Neither Buyer nor any of its Subsidiaries has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Section 4.08 Properties.
(a) Buyer is not in default under any of its Material Leases, except where
the existence of such defaults, individually or in the aggregate, is not
reasonably likely to have a Buyer Material Adverse Effect.
(b) With respect to any item of real property owned by Buyer, except for
such matters that, individually or in the aggregate, are not reasonably likely
to have a Buyer Material Adverse Effect: (a) Buyer or the identified Subsidiary
has good and clear record and marketable title to such property, insurable by a
recognized national title insurance company at standard rates, free and clear of
any security interest, easement, covenant or other restriction, except for
recorded easements, covenants and other restrictions which do not materially
impair the current uses or occupancy of such property; and (b) the improvements
constructed on such property are in good condition, and all mechanical and
utility systems servicing such improvements are in good condition, free in each
case of material defects.
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Section 4.09 Intellectual Property.
(a) Buyer and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names, service
marks and copyrights, any applications for and registrations of such patents,
trademarks, trade names, service marks and copyrights, and all processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of Buyer and its Subsidiaries as
currently conducted, or planned to be conducted, the absence of which would be
reasonably likely to have a Buyer Material Adverse Effect (the "Buyer
Intellectual Property Rights").
(b) The execution and delivery of this Agreement and the consummation of the
Merger will not result in breach of, or create on behalf of any third party the
right to terminate or modify, any license, sublicense or other agreement
relating to the Buyer's Intellectual Property Rights, or any material licenses,
sublicenses and other agreements as to which Buyer or any of its Subsidiaries is
a party and pursuant to which Buyer or any of its Subsidiaries is authorized to
use any third party patents, trademarks, copyrights or trade secrets ("Buyer
Third Party Intellectual Property Rights"), including software that is used in
the manufacture of, incorporated in, or forms a part of any product sold by or
expected to be sold by Buyer or any of its Subsidiaries, the breach of which
would be reasonably likely to have a Buyer Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by Buyer or any of its Subsidiaries the loss or invalidity of which
would cause a Buyer Material Adverse Effect, are valid and subsisting. Buyer (i)
has not been sued in any suit, action or proceeding, or received in writing any
claim or notice, which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party, and (ii) has no knowledge that the
manufacturing, marketing, licensing or sale of its products infringes any
patent, trademark, service mark, copyright, trade secret or other proprietary
right of any third party, which such infringement in the cases of clause (i) and
(ii) would reasonably be expected to have a Buyer Material Adverse Effect.
Section 4.10 Agreements, Contracts and Commitments. Buyer has not breached,
or received in writing any claim or notice that it has breached, any of the
terms or conditions of any material agreement, contract or commitment filed as
an exhibit to the Buyer SEC Reports ("Buyer Material Contracts") in such a
manner as, individually or in the aggregate, are reasonably likely to have a
Buyer Material Adverse Effect. Each Buyer Material Contract that has not expired
by its terms is in full force and effect.
Section 4.11 Litigation. Except as described in the Buyer SEC Reports filed
prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Buyer pending or as to which Buyer has
received any written notice of assertion, which, individually or in the
aggregate, is reasonably likely to have a Buyer Material Adverse Effect or a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated by this Agreement.
Section 4.12 Environmental Matters. Except as disclosed in the Buyer SEC
Reports filed prior to the date hereof and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Buyer
Material Adverse Effect: (i) Buyer and its Subsidiaries have complied with all
applicable Environmental Laws; (ii) the properties currently owned or operated
by Buyer and its Subsidiaries (including soils, groundwater, surface water,
buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Buyer or any of
its Subsidiaries were not contaminated with Hazardous Substances during the
period of ownership or operation by Buyer or any of its Subsidiaries; (iv)
neither Buyer nor its Subsidiaries are subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) neither
Buyer nor any of its Subsidiaries has released any Hazardous Substance; (vi)
neither Buyer nor any of its Subsidiaries has received any notice, demand,
letter, claim or request for information alleging that Buyer or any of its
Subsidiaries may be in violation of or liable under any Environmental Law; (vii)
neither Buyer nor any of its Subsidiaries is subject to any orders, decrees,
injunctions or other arrangements with any Governmental Entity or is subject to
any indemnity or other agreement with any third party relating to liability
under any
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Environmental Law or relating to Hazardous Substances; and (viii) there are no
circumstances or conditions involving Buyer or any of its Subsidiaries that
could reasonably be expected to result in any material claims, liability,
investigations, costs or restrictions on the ownership, use or transfer of any
property of Buyer pursuant to any Environmental Law.
Section 4.13 Employee Benefit Plans.
(a) With respect to each of the employee benefit plans (as defined in
Section 3(3) of ERISA) and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
employee benefit plans, and all unexpired severance agreements, written or
otherwise, for the benefit of, or relating to, any current or former employee of
Buyer or any ERISA Affiliate of Buyer, or any Subsidiary of Buyer (together, the
"Buyer Employee Plans"), Buyer has made available to Seller, a true and correct
copy of (i) the most recent annual report (Form 5500) filed with the IRS, (ii)
such Buyer Employee Plan, (iii) each trust agreement and group annuity contract,
if any, relating to such Buyer Employee Plan and (iv) the most recent actuarial
report or valuation relating to a Buyer Employee Plan subject to Title IV of
ERISA.
(b) With respect to the Buyer Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Buyer, there exists no
condition or set of circumstances in connection with which Buyer could be
subject to any liability that is reasonably likely to have a Buyer Material
Adverse Effect under ERISA, the Code or any other applicable law.
(c) With respect to the Buyer Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Buyer, which obligations are reasonably likely to have a Buyer
Material Adverse Effect.
Section 4.14 Compliance With Laws. Buyer has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Buyer Material Adverse Effect.
Section 4.15 Accounting and Tax Matters. To its knowledge, after consulting
with its independent auditors, neither Buyer nor any of its Affiliates has taken
or agreed to take any action which would (i) prevent Buyer from accounting for
the business combination to be effected by the Merger as a pooling of interests,
or (ii) prevent the Merger from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code.
Section 4.16 Registration Statement; Proxy Statement/Prospectus. The
information in the Registration Statement (except for information supplied by
Seller for inclusion in the Registration Statement, as to which Buyer makes no
representation) shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information (except for information to be supplied by Seller for inclusion in
the Joint Proxy Statement, as to which Buyer makes no representation) in the
Joint Proxy Statement shall not, on the date the Joint Proxy Statement is first
mailed to stockholders of Buyer or Seller, at the time of the Buyer Meeting and
the Seller Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier
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communication with respect to the solicitation of proxies for the Buyer Meeting
or the Seller Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Buyer or any of its Affiliates,
officers or directors should be discovered by Buyer which should be set forth in
an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement, Buyer shall promptly inform Seller.
Section 4.17 Labor Matters. Neither Buyer nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor,
as of the date hereof, is Buyer or any of its Subsidiaries the subject of any
material proceeding asserting that Buyer or any of its Subsidiaries has
committed an unfair labor practice or is seeking to compel it to bargain with
any labor union or labor organization nor, as of the date of this Agreement, is
there pending or, to the knowledge of the executive officers of Buyer,
threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving Buyer or any of its Subsidiaries.
Section 4.18 Insurance. All material fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by Buyer or any of its Subsidiaries are with
reputable insurance carriers, provide full and adequate coverage for all normal
risks incident to the business of Buyer and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Buyer Material Adverse Effect.
Section 4.19 Opinion of Financial Advisor. The financial advisor of Buyer,
BT Alex. Brown Incorporated, has delivered to Buyer an opinion dated the date of
this Agreement, to the effect that, as of such date, the Exchange Ratio is fair
to Buyer from a financial point of view.
Section 4.20 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.01 Covenants of Seller. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Seller agrees as to itself and its respective
Subsidiaries (except to the extent that Buyer shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
Taxes and perform other obligations when due subject to good faith disputes over
such debts, Taxes or obligations, and, to the extent consistent with such
business, use commercially reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, and others having
business dealings with it. Except as expressly contemplated by this Agreement or
set forth in the Seller Disclosure Schedule, Seller shall not (and shall not
permit any of its respective Subsidiaries to), without the written consent of
Buyer:
(a) Accelerate, amend or change the period of exercisability of outstanding
options or restricted stock granted under any employee stock plan of such party
or authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements in
effect as of the date of this Agreement;
(b) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any of its capital stock, or split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its
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capital stock, or purchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to such party;
(c) Issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible into
shares of its capital stock, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than (i) the grant
of options consistent with past practices to new employees, which options
represent in the aggregate the right to acquire no more than 200,000 shares (net
of cancellations) of Seller Common Stock, or (ii) the issuance of shares of
Seller Common Stock pursuant to the exercise of options outstanding on the date
of this Agreement or granted pursuant to the foregoing Clause (i);
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership or
other business organization or division, or otherwise acquire or agree to
acquire any assets (other than inventory and other items in the ordinary course
of business);
(e) Sell, lease, license or otherwise dispose of any of its material
properties or assets, except for transactions in the ordinary course of
business;
(f) (i) Increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
employees (other than officers) in accordance with past practices, (ii) grant
any additional severance or termination pay to, or enter into any employment or
severance agreements with, any employees or officers, (iii) enter into any
collective bargaining agreement, (iv) establish, adopt, enter into or amend any
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination or severance
or other plan, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees;
(g) Amend or propose to amend its charter or bylaws, except as contemplated
by this Agreement;
(h) Incur any indebtedness for borrowed money other than pursuant to credit
agreements in effect as of the date hereof; or
(i) Initiate, compromise, or settle any material litigation or arbitration
proceeding except in connection with the Agreement or the transactions
contemplated hereby;
(j) Except in the ordinary course of business, modify, amend or terminate
any Seller Material Contract or waive, release or assign any material rights or
claims;
(k) Make any material Tax election, settle or compromise any material Tax
liability or amend any material Tax return except in the ordinary course of
business or consistent with past practice;
(l) Change its methods of accounting as in effect at May 31, 1998 except as
required by generally accepted accounting principles;
(m) Make or commit to make any capital expenditures that exceed $1,000,000
in the aggregate;
(n) License any intellectual property rights to or from any third party
pursuant to an arrangement that involves a minimum commitment or advance
exceeding $500,000 or royalties at a rate exceeding 20%;
(o) Except as required pursuant to commitments existing on the date hereof
or made without violation of this Section 5.01, make any cash disbursement
exceeding $1 million for any single item or related series of items;
(p) Close any facility or office;
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(q) Invest funds in debt securities or other instruments maturing more than
90 days after the date of investment;
(r) Adopt or implement any stockholder rights plan that could have the
effect of impeding or restricting the consummation of the transactions
contemplated hereby; or
(s) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (r) above.
Section 5.02 Covenants of Buyer. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Buyer agrees as to itself and its respective Subsidiaries
(except to the extent that Seller shall otherwise consent in writing), to carry
on its business in the usual, regular and ordinary course in substantially the
same manner as previously conducted, to pay its debts and Taxes and perform its
obligations when due subject to good faith disputes over such debts, Taxes or
obligations, and, to the extent consistent with such business, use commercially
reasonable efforts consistent with past practices and policies to preserve
intact is present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, and others having business dealings with it.
Except as expressly contemplated by this Agreement, Buyer shall not (and shall
not permit any of its respective Subsidiaries to), without the written consent
of Seller:
(a) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any of its capital stock, or split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock, except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service by such
party;
(b) Amend or propose to amend its charter or bylaws, except as contemplated
by Section 4.02 of this Agreement; or
(c) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) and (b) above.
Section 5.03 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Buyer and Seller shall make
its officers available to confer on a regular and frequent basis with one or
more representatives of the other party to report on the general status of
ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby and thereby.
Section 5.04 Confidentiality. The parties acknowledge that Buyer and Seller
have previously executed a Confidentiality Agreement, dated as of on or about
April 10, 1998 (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms,
except as expressly modified herein.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01 No Solicitation.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms, Seller
shall not, directly or indirectly, through any officer, director, employee,
financial advisor, representative or agent of such party (i) solicit, initiate,
or encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale of substantial assets (other than the sale of Seller's
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products or used equipment in the ordinary course of business), sale of shares
of capital stock (including without limitation by way of a tender offer but
excluding sales pursuant to existing employee and director stock plans) or
similar transaction involving Seller or any of its Subsidiaries, other than the
transactions contemplated by this Agreement (any of the foregoing inquiries or
proposals being referred to in this Agreement as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any Acquisition Proposal, or
(iii) agree to or recommend any Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent Seller or its Board of
Directors, from (A) furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written Acquisition Proposal by such person or entity or
agreeing to (with the terms of any such agreement being subject to termination
of this Agreement in accordance with Article VIII) or recommending an
unsolicited bona fide written Acquisition Proposal to the stockholders of
Seller, if and only to the extent that (1) the Board of Directors of Seller
believes in good faith (after consultation with its financial advisor) that such
Acquisition Proposal is reasonably capable of being completed on the terms
proposed and would, if consummated, result in a transaction more favorable than
the transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal") and Seller's Board of Directors determines in good faith after
consultation with outside legal counsel that such action is necessary for such
Board of Directors to comply with its fiduciary duties to stockholders under
applicable law and (2) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such person or entity, such
Board of Directors receives from such person or entity an executed
confidentiality agreement with terms no less favorable to such party than those
contained in the Confidentiality Agreement; or (B) complying with Rule 14d-9 and
14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal
or making any disclosure to Seller's stockholders if, in the good faith judgment
of Seller's Board of Directors, after consultation with outside legal counsel,
such disclosure is required by applicable law.
(b) Seller shall notify Buyer within one day after receipt by Seller (or its
advisors) of any Acquisition Proposal or any request for nonpublic information
in connection with an Acquisition Proposal or for access to the properties,
books or records of Seller by any person or entity that informs Seller that it
is considering making, or has made, an Acquisition Proposal. Such notice shall
be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact. Seller shall continue to keep Buyer informed, on a current basis, of
the status of any such discussions or negotiations and all material terms being
discussed or negotiated, which shall include, without limitation, any change to
the proposed price and terms and form of payment.
Section 6.02 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practical after the execution of this Agreement, Buyer
and Seller shall prepare and file with the SEC the Joint Proxy Statement, and
Buyer shall prepare and file with the SEC the Registration Statement, in which
the Joint Proxy Statement will be included as a prospectus, provided that Buyer
may delay the filing of the Registration Statement until approval of the Joint
Proxy Statement by the SEC. Buyer and Seller shall use all reasonable efforts to
cause the Registration Statement to become effective as soon after such filing
as practicable. Each of Buyer and Seller will respond to any comments of the SEC
and will use its respective commercially reasonable efforts to have the Joint
Proxy Statement cleared by the SEC and the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filings
and will cause the Joint Proxy Statement and the prospectus contained within the
Registration Statement to be mailed to its stockholders at the earliest
practicable time after both the Proxy Statement is cleared by the SEC and the
Registration Statement is declared effective under the Securities Act. Each of
Buyer and Seller will notify the other promptly upon the receipt of any comments
from the SEC or its staff or any other government officials and of any request
by the SEC or its staff or any other government officials for amendments or
supplements to the Registration Statement, the Joint Proxy Statement or any
filing pursuant to Section 6.02(b) or for additional information and will supply
the other
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with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Joint Proxy Statement, the Merger or any filing pursuant to
Section 6.02(b). Each of Buyer and Seller will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 6.02 to comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Joint Proxy Statement, the Registration Statement or any filing pursuant ot
Section 6.02(b), Buyer or Seller, as the case may be, will promptly inform the
other of such occurrence and cooperate in filing with the SEC or its staff or
any other government officials, and/or mailing to stockholders of Buyer and/or
Seller, such amendment or supplement.
(b) Buyer and Seller shall make all necessary filings with respect to the
Merger under the Securities Act, the Exchange Act, applicable state blue sky
laws and the rules and regulations thereunder.
Section 6.03 Nasdaq Quotation. Seller agrees to use commercially reasonable
efforts to continue the quotation of Seller Common Stock on the Nasdaq National
Market during the term of this Agreement.
Section 6.04 Access to Information. Upon reasonable notice, Seller and Buyer
shall each (and shall cause each of their respective Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of the
other, reasonable access, during normal business hours during the period prior
to the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, each of Seller and Buyer shall (and shall cause
each of their respective Subsidiaries to) furnish promptly to the other (a) a
copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of federal
securities laws and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request. Unless
otherwise required by law, the parties will hold any such information which is
nonpublic in confidence in accordance with the Confidentiality Agreement. No
information or knowledge obtained in any investigation pursuant to this Section
6.04 or otherwise shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the Merger.
Section 6.05 Stockholders Meetings.
(a) The Seller, acting through its Board of Directors, shall, subject to and
according to applicable law and its Certificate of Incorporation and Bylaws,
promptly and duly call, give notice of, convene and hold as soon as practicable
to ensure obtaining requisite stockholder approval following the date on which
the Registration Statement becomes effective the Seller Meeting for the purpose
of voting to approve and adopt this Agreement and the Merger (the "Seller Voting
Proposal"). The Board of Directors of the Seller shall, subject to the fiduciary
duties of the Board of Directors of Seller under applicable law as advised in a
written opinion by outside counsel, (i) recommend approval and adoption of the
Seller Voting Proposal by the stockholders of the Seller and include in the
Joint Proxy Statement such recommendation and (ii) take all reasonable and
lawful action to solicit and obtain such approval; provided, however, that in
the context of an Acquisition Proposal the Board of Directors of Seller may
withdraw such recommendation (and be relieved of its duty to solicit approval of
Seller's shareholders) if (but only if) (i) the Board of Directors of Seller has
received a Superior Proposal and (ii) such Board of Directors upon advice of its
outside legal counsel determines that it is required, in order to comply with
its fiduciary duties under applicable law, to recommend such Superior Proposal
to the stockholders of Seller. The Seller stockholder vote required for the
approval of the Seller Voting Proposal shall be a majority of the outstanding
shares of Seller Common stock on the record date for the Seller Meeting.
(b) Buyer, acting through its Board of Directors, shall, subject to and in
accordance with applicable law and its Certificate of Incorporation and Bylaws,
promptly and duly call, give notice of, convene and hold as soon as practicable
to ensure obtaining requisite stockholder approval following the date on which
the Registration Statement becomes effective, the Buyer Meeting for the purpose
of voting to approve the
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issuance of the shares of Buyer Common Stock to be issued in the Merger (the
"Buyer Voting Proposal"). The Board of Directors of Buyer shall, subject to the
fiduciary duties of the Board of Directors of Buyer under applicable law as
advised in a written opinion by outside counsel, (i) recommend approval of the
Buyer Voting Proposal and include in the Joint Proxy Statement such
recommendation and (ii) take all reasonable and lawful action to solicit and
obtain such approval. The Buyer stockholder vote required for approval of the
Buyer Voting Proposal shall be a majority of the shares of Buyer Common Stock
present or represented at the Buyer Meeting at which a quorum is present.
Section 6.06 Legal Conditions to Merger.
(a) Subject to the terms hereof, Seller and Buyer shall use their respective
commercially reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary and proper
under applicable law to consummate and make effective the transactions
contemplated hereby as promptly as practicable, (ii) obtain from any
Governmental Entity or any other third party any consents, licenses, permits,
waivers, approvals, authorizations, or orders required to be obtained or made by
Seller or Buyer or any of their Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby including, without limitation, the Merger,
(iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities laws, (B) the HSR Act and any related
governmental request thereunder, and (C) any other applicable law and (iv)
execute or deliver any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Seller and Buyer shall cooperate with each other in connection with
the making of all such filings, including providing copies of all such documents
to the non-filing party and its advisors prior to filing and, if requested, to
accept all reasonable additions, deletions or changes suggested in connection
therewith. Seller and Buyer shall use their respective commercially reasonable
efforts to furnish to each other all information required for any application or
other filing to be made pursuant to the rules and regulations of any applicable
law (including all information required to be included in the Joint Proxy
Statement and the Registration Statement) in connection with the transactions
contemplated by this Agreement.
(b) Subject to the terms hereof, Buyer and Seller agree, and shall cause
each of their respective Subsidiaries, to cooperate and to use their respective
commercially reasonable efforts to obtain any government clearances or approvals
required for Closing under the HSR Act, the Sherman Act, as amended, the Clayton
Act, as amended, the Federal Trade Commission Act, as amended, and any other
Federal, state or foreign law or, regulation or decree designed to prohibit,
restrict or regulate actions for the purpose or effect of monopolization or
restraint of trade (collectively "Antitrust Laws"), to respond to any government
requests for information under any Antitrust Law, and to contest and resist any
action, including any legislative, administrative or judicial action, and to
have vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) (an "Order") that
restricts, prevents or prohibits the consummation of the Merger or any other
transactions contemplated by this Agreement under any Antitrust Law. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to any Antitrust Law. Buyer shall be entitled to direct any
proceedings or negotiations with any Governmental Entity relating to any of the
foregoing, provided that it shall afford Seller a reasonable opportunity to
participate therein. Notwithstanding anything to the contrary in this Section
6.06, neither Buyer nor any of its Subsidiaries shall be required to (i) divest
any of their respective businesses, product lines or assets, or to take or agree
to take any other action or agree to any limitation, that could reasonably be
expected to have a material adverse effect on Buyer or of Buyer combined with
Seller after the Effective Time, or (ii) take any action under this Section 6.06
if the United States Department of Justice or the United States
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Federal Trade Commission authorizes its staff to seek a preliminary injunction
or restraining order to enjoin consummation of the Merger.
(c) Each of Seller and Buyer shall give (or shall cause their respective
Subsidiaries to give) any notices to third parties, and use, and cause their
respective Subsidiaries to use, their commercially reasonable efforts to obtain
any third party consents related to or required in connection with the Merger
that are (A) necessary to consummate the transactions contemplated hereby, (B)
disclosed or required to be disclosed in the Seller Disclosure Schedule or the
Buyer Disclosure Schedule, as the case may be, or (C) required to prevent a
Seller Material Adverse Effect or a Buyer Material Adverse Effect from occurring
prior to or after the Effective Time.
Section 6.07 Public Disclosure. Buyer and Seller shall use commercially
reasonable efforts to consult with each other before issuing any press release
or otherwise making any public statement with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement prior to using such efforts, except as may be required by law.
Section 6.08 Tax-Free Reorganization. Buyer and Seller shall each use its
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code. The parties hereto hereby adopt this
Agreement as a plan of reorganization.
Section 6.09 Pooling Accounting. From and after the date hereof and until
the Effective time, neither Seller nor Buyer, nor any of their respective
Subsidiaries, shall knowingly take any action, or knowingly fail to take any
action, that is reasonably likely to jeopardize the treatment of the Merger as a
pooling of interests for accounting purposes.
Section 6.10 Affiliate Agreements. Upon the execution of this Agreement,
Buyer and Seller will provide each other with a list of those persons who are,
in Buyer's or Seller's respective reasonable judgment, "affiliates" of Buyer or
Seller, respectively, within the meaning of Rule 145 (each such person who is an
"affiliate" of Buyer or Seller within the meaning of Rule 145 is referred to as
an "Affiliate") promulgated under the Securities Act ("Rule 145"). Buyer and
Seller shall provide each other such information and documents as Seller or
Buyer shall reasonably request for purposes of reviewing such list and shall
notify the other party in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. Seller and Buyer shall each use its
commercially reasonable efforts to deliver or cause to be delivered to each
other by July 3, 1998 (and in any case prior to the mailing of the Joint Proxy
Statement) from each of its Affiliates, an executed Affiliate Agreement, in
substantially the form appended hereto as Exhibit A-1 (in the case of Seller
Affiliates) and Exhibit A-2 (in the case of Buyer Affiliates) (collectively, the
"Affiliate Agreements"). Buyer shall be entitled to place appropriate legends on
the certificates evidencing any Buyer Common Stock to be received by such
Affiliates of Seller pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Buyer
Common Stock, consistent with the terms of the Affiliate Agreements (provided
that such legends or stop transfer instructions shall be removed, two years
after the Effective Date, upon the request of any stockholder that is not then
an Affiliate of Buyer).
Section 6.11 NYSE Listing. Buyer shall use commercially reasonable efforts
to cause the shares of Buyer Common Stock to be issued in the Merger to be
listed on the New York Stock Exchange, subject to official notice of issuance,
on or prior to the Closing Date.
Section 6.12 Stock Plans.
(a) At the Effective Time, each outstanding option to purchase shares of
Seller Common Stock ("Seller Stock Option") under the Seller Stock Plans,
whether vested or unvested, shall be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such Seller Stock
Option, the same number of shares of Buyer Common Stock as the holder of such
Seller Stock Option would have been entitled to receive pursuant to the Merger
had such holder exercised such option in full immediately prior to the Effective
Time (rounded downward to the nearest whole number), at a
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price per share (rounded upward to the nearest whole cent) equal to (y) the
aggregate exercise price for the shares of Seller Common Stock purchasable
pursuant to such Seller Stock Option immediately prior to the Effective Time
divided by (z) the number of full shares of Buyer Common Stock deemed
purchasable pursuant to such Seller Stock Option in accordance with the
foregoing.
(b) As soon as practicable after the Effective Time, Buyer shall deliver to
the participants in Seller Stock Plans appropriate notice setting forth such
participants' rights pursuant thereto and the grants pursuant to Seller Stock
Plans shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 6.12 after giving effect to the Merger).
(c) Buyer shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Buyer Common Stock for delivery under Seller
Stock Plans assumed in accordance with this Section 6.12. As soon as practicable
after the Effective Time, Buyer shall file a registration statement on Form S-8
(or any successor or other appropriate forms), or another appropriate form with
respect to the shares of Buyer Common Stock subject to such options and shall
use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options remain
outstanding.
(d) The Board of Directors of Seller shall, prior to or as of the Effective
Time, take all necessary actions, pursuant to and in accordance with the terms
of the Seller Stock Plans and the instruments evidencing the Seller Stock
Options, to provide for the conversion of the Seller Stock Options into options
to acquire Buyer Common Stock in accordance with this Section 6.12, and that no
consent of the holders of the Seller Stock Options is required in connection
with such conversion.
(e) Seller shall terminate its Employee Stock Purchase Plan in accordance
with its terms as of or prior to the Effective Time.
Section 6.13 Brokers or Finders. Each of Buyer and Seller represents, as to
itself, its Subsidiaries and its Affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement except whose fees
and expenses will be paid by Seller in accordance with Seller's agreement with
such firm (a copy of which has been delivered by Seller to Buyer prior to the
date of this Agreement), and whose fees and expenses will be paid by Buyer in
accordance with Buyer's agreement with such firm (a copy of which has been
delivered by Buyer prior to the date of this Agreement).
Section 6.14 Indemnification.
(a) From and after the Effective Time, Buyer agrees that it will, and will
cause the Surviving Corporation to, indemnify and hold harmless each present and
former director and officer of Seller (the "Indemnified Parties"), against any
costs or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities or amounts paid in settlement incurred in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under Delaware law (and Buyer and the Surviving Corporation shall also
advance expenses as incurred to the fullest extent permitted under applicable
law, provided the Indemnified Party to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification).
(b) For a period of six years after the Effective Time, Buyer shall cause
the Surviving Corporation to maintain (to the extent available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are currently covered by Seller's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered to Buyer) with
coverage in amount and scope at least as favorable to such persons as Seller's
existing coverage; provided, that in no event shall Buyer or the
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Surviving Corporation be required to expend in excess of 150% the annual premium
currently paid by Seller for such coverage.
(c) The provisions of this Section 6.14 are intended to be an addition to
the rights otherwise available to the current officers and directors of Seller
by law, charter, statute, bylaw or agreement, and shall operate for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
ARTICLE VII
CONDITIONS TO MERGER
Section 7.01 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Seller Voting Proposal shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
shares of Seller Common Stock outstanding on the record date for the Seller
Meeting and the Buyer Voting Proposal shall have been approved by the
affirmative vote of the holders of a majority of the shares of Buyer Common
Stock present or represented at the Buyer Meeting at which a quorum is present.
(b) HSR Act. The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(c) Approvals. Other than the filing provided for by Section 1.02, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity, the
failure of which to file, obtain or occur is reasonably likely to have a Buyer
Material Adverse Effect or Seller Material Adverse Effect shall have been filed,
been obtained or occurred.
(f) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(g) No Injunctions. No Governmental Entity (including any federal, state or
court) of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any order, executive order, stay, decree, judgment or
injunction (each an "Order) or statute, rule, regulation which is in effect and
which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
(h) Pooling Letter. Buyer and Seller shall have received a letter from
Coopers & Lybrand LLP, addressed to Buyer regarding its concurrence with Buyer's
management conclusions, as to the appropriateness of the pooling of interests
accounting, under Accounting Principles Board Opinion No. 16 for the Merger, as
contemplated to be effected as of the date of the letter, it being agreed that
Buyer and Seller shall each provide reasonable cooperation to Coopers & Lybrand
LLP to enable them to issue such a letter.
Section 7.02 Additional Conditions to Obligations of Buyer and Sub. The
obligations of Buyer and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Buyer and Sub:
(a) Representations and Warranties. The representations and warranties of
Seller set forth in this Agreement shall be true and correct as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except for, (i) changes contemplated by this Agreement and
(ii) where the failures to be true and correct, individually or in the
aggregate, have not had and are not reasonably likely to have a Seller Material
Adverse Effect or a material adverse effect upon the consummation of the
transactions
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contemplated hereby; and Buyer shall have received a certificate signed on
behalf of Seller by the chief executive officer and the chief financial officer
of Seller to such effect.
(b) Performance of Obligations of Seller. Seller shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date; and Buyer shall have received a
certificate signed on behalf of Seller by the chief executive officer and the
chief financial officer of Seller to such effect.
(c) Tax Opinion. Buyer shall have received a written opinion from Hale and
Dorr LLP counsel to Buyer, to the effect that the Merger will be treated for
Federal income tax purposes as a tax-free reorganization within the meaning of
Section 368(a) of the Code; provided that if Hale and Dorr LLP does not render
such opinion, this condition shall nonetheless be deemed satisfied if Wilson
Sonsini Goodrich & Rosati, P.C. renders such opinion to Buyer (it being agreed
that Buyer and Seller shall each provide reasonable cooperation, including
making reasonable representations, to Wilson Sonsini Goodrich & Rosati, P.C. or
Hale and Dorr LLP, as the case may be, to enable them to render such opinion).
Section 7.03 Additional Conditions to Obligations of Seller. The obligation
of Seller to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
Seller:
(a) Representations and Warranties. The representations and warranties of
Buyer and Sub set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except for, (i) changes contemplated by this Agreement and (ii)
where the failures to be true and correct, individually or in the aggregate,
have not had and are not reasonably likely to have a Buyer Material Adverse
Effect or a material adverse effect upon the consummation of the transactions
contemplated hereby; and Seller shall have received a certificate signed on
behalf of Buyer by the chief executive officer and the chief financial officer
of Buyer to such effect.
(b) Performance of Obligations of Buyer and Sub. Buyer and Sub shall have
performed in all material respects all obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and Seller shall have
received a certificate signed on behalf of Buyer by the chief executive officer
and the chief financial officer of Buyer to such effect.
(c) Tax Opinion. Seller shall have received the opinion of Wilson Sonsini
Goodrich & Rosati, P.C., counsel to Seller, to the effect that the Merger will
be treated for Federal income tax purposes as a tax-free reorganization within
the meaning of Section 368(a) of the Code; provided that if Wilson Sonsini
Goodrich & Rosati, P.C. does not render such opinion, this condition shall
nonetheless be deemed satisfied if Hale and Dorr LLP renders such opinion to
Seller (it being agreed that Buyer and Seller shall each provide reasonable
cooperation, including making reasonable representations, to Wilson Sonsini
Goodrich & Rosati, P.C. or Hale and Dorr LLP, as the case may be, to enable them
to render such opinion).
(d) NYSE. The shares of Buyer Common Stock to be issued in the Merger shall
have been approved for listing on the New York Stock Exchange, subject only to
official notice of issuance.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.01 Termination. This Agreement may be terminated at any time prior
to the Effective Time (with respect to Sections 8.01(b) through 8.01(g), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Seller or Buyer:
(a) by mutual written consent of Buyer and Seller; or
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(b) by either Buyer or Seller if the Merger shall not have been consummated
by December 31, 1998 (the "Outside Date") (provided that the right to terminate
this Agreement under this Section 8.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date); or
(c) by either Buyer or Seller if a Governmental Entity of competent
jurisdiction shall have issued a nonappealable final order, decree or ruling or
taken any other nonappealable final action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; or
(d) by Buyer or Seller if (x) at the Seller Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of Seller
in favor of the Seller Voting Proposal shall not have been obtained; or if (y)
at the Buyer Meeting (including any adjournment or postponement), the requisite
vote of the stockholders of Buyer in favor of the Buyer Voting Proposal shall
not have been obtained (provided that the right to terminate this Agreement
under this Section 8.01(d) shall not be available to any party seeking
termination who at the time is in breach of or has failed to fulfill its
obligations under this Agreement); or
(e) by Buyer, if (i) the Board of Directors of Seller shall have withdrawn
or modified its recommendation of the Seller Voting Proposal; (ii) after the
receipt by Seller of an Acquisition Proposal, Buyer requests in writing that the
Board of Directors of Seller reconfirm its recommendation of this Agreement or
the Merger and the Board of Directors of Seller fails to do so within 10
business days after its receipt of Buyer's request; (iii) the Board of Directors
of Seller shall have recommended to the stockholders of Seller an Alternative
Transaction (as defined in Section 8.03(g)); (iv) a tender offer or exchange
offer for 20% or more of the outstanding shares of Seller Common Stock is
commenced (other than by Buyer or an Affiliate of Buyer) and the Board of
Directors of Seller recommends that the stockholders of Seller tender their
shares in such tender or exchange offer; or (v) for any reason Seller fails to
call and hold the Seller Meeting by the Outside Date; or
(f) by Seller, if (i) the Board of Directors of Buyer shall have withdrawn
or modified its recommendation of the Buyer Voting Proposal; or (ii) for any
reason Buyer fails to call and hold the Buyer Meeting by the Outside Date; or
(g) by Buyer or Seller, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party set forth in this
Agreement, which breach (i) causes the conditions set forth in Section 7.02(a)
or (b) (in the case of termination by Buyer) or 7.03(a) or (b) (in the case of
termination by Seller) not to be satisfied, and (ii) shall not have been cured
within 30 days following receipt by the breaching party of written notice of
such breach from the other party.
Section 8.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Buyer, Seller,
Sub or their respective officers, directors, stockholders or Affiliates, except
as set forth in Sections 5.04, 6.13, 8.03 and Article IX; provided that any such
termination shall not limit liability for any willful breach of this Agreement
and the provisions of Sections 5.04, 6.13, 8.03 and Article IX of this Agreement
and the Confidentiality Agreement shall remain in full force and effect and
survive any termination of this Agreement.
Section 8.03 Fees and Expenses.
(a) Except as set forth in this Section 8.03, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided however, that Seller and Buyer shall share equally all
fees and expenses, other than attorneys' fees, incurred with respect to the
printing and filing of the Joint Proxy Statement (including any related
preliminary materials) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements.
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(b) Seller shall pay Buyer up to $2,000,000 as reimbursement for expenses of
Buyer actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, fees and expenses
of Buyer's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Buyer pursuant to (i) Section 8.01(d); (ii) Section 8.01(e),
(iii) Section 8.01(b) as a result of the failure to satisfy the condition set
forth in Section 7.02(a); or (iv) Section 8.01(g).
(c) Seller shall pay Buyer a termination fee of $22,500,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Buyer pursuant to Section
8.01(e); or
(ii) the termination of this Agreement by Buyer pursuant to Section
8.01(g) after a breach by Seller of this Agreement; or
(iii) the termination of the Agreement by Buyer pursuant to Section
8.01(d) as a result of the failure to receive the requisite vote for approval of
the Seller Voting Proposal by the stockholders of Seller at the Seller Meeting
if, at the time of such failure, there shall have been announced an Alternative
Transaction relating to Seller which shall not have been absolutely and
unconditionally withdrawn and abandoned.
(d) Buyer shall pay Seller up to $2,000,000 as reimbursement for expenses of
Seller actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, but excluding any
discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Seller pursuant to (i) Section 8.01(d), (ii) Section 8.01(f),
(iii) Section 8.01(b) as a result of the failure to satisfy the condition set
forth in Section 7.03(a), or (iv) Section 8.01(g).
(e) Buyer shall pay Seller a termination fee of $22,500,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Seller pursuant to Section
8.01(f); or
(ii) the termination of this Agreement by Seller pursuant to Section
8.01(g) after a breach by Buyer of this Agreement; or
(iii) the termination of the Agreement by Seller pursuant to Section
8.01(d) as a result of the failure to receive the requisite vote for approval of
this Agreement and the Merger by the stockholders of Buyer at the Buyer Meeting
if, at the time of such failure, there shall have been announced an Alternative
Transaction relating to Buyer which shall not have been absolutely and
unconditionally withdrawn and abandoned.
(f) The expenses and fees, if applicable, payable pursuant to Section
8.03(b), 8.03(c), 8.03(d) and 8.03(e) shall be paid within one business day
after demand therefor following the first to occur of the events giving rise to
the payment obligation described in Section 8.03(b), 8.03(c)(i), (ii) or (iii),
8.03(d) or 8.03(e)(i), (ii) or (iii); PROVIDED that in no event shall Buyer or
Seller, as the case may be, be required to pay the expenses and fees, if
applicable, to the other, if, immediately prior to the termination of this
Agreement, the party to receive the expenses and fees, if applicable, was in
material breach of its obligations under this Agreement.
(g) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than Buyer
or Seller or their respective affiliates (a "Third Party"), acquires more than
20% of the outstanding shares of Seller Common Stock or Buyer Common stock, as
the case may be, pursuant to a tender offer or exchange offer or otherwise, (ii)
a merger or other business combination involving Seller or Buyer pursuant to
which any Third Party acquires more than 20% of the outstanding shares of Seller
Common Stock or Buyer Common Stock, as the case may be, or the entity surviving
such merger or business combination, (iii) any other transaction pursuant to
which any
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Third Party acquires control of assets (including for this purpose the
outstanding equity securities of Subsidiaries of Seller or Buyer, and the entity
surviving any merger or business combination including any of them) of Seller or
Buyer having a fair market value equal to more than 20% of the fair market value
of all the assets of Seller or Buyer, as the case may be, immediately prior to
such transaction (except for sale of products or used equipment in the ordinary
course of business), or (iv) any public announcement by a Third Party of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
Section 8.04 Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Seller or of Buyer, but, after any such approval,
no amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 8.05 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Nonsurvival of Representations, Warranties and Agreements. None
of the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Articles I and II, Sections 1.04,
2.01, 2.02, 6.12, 6.14 and Article IX, and the agreements of the Affiliates
delivered pursuant to Section 6.10. The Confidentiality Agreement shall survive
the execution and delivery of this Agreement.
Section 9.02 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Buyer or Sub, to
The Learning Company, Inc.
One Atheneaum Street
Cambridge, MA 02142
Attn: General Counsel
Telecopy: (617) 494-5660
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: Mark G. Borden, Esq.
Telecopy: (617) 526-5000
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(b) if to Seller, to
Broderbund Software, Inc.
500 Redwood Blvd
Novato, CA 94948-6121
Attn: General Counsel
Telecopy: (415) 382-4582
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Larry Sonsini, Esq.
Marty Korman, Esq.
Daniel Mitz, Esq.
Telecopy: (650) 493-6811
Section 9.03 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. The phrases "the date of this
Agreement", "the date hereof," and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to June 21, 1998. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be following by the words "without limitation." The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement. For
purposes of this Agreement the term "knowledge" means with respect to a party
hereto, with respect to any matter in question, that any of the Chief Executive
Officer, Chief Financial Officer, General Counsel, any Vice President or
Controller of such party, has actual knowledge of such matter.
Section 9.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.05 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) (a) constitute
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 6.14 are not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder;
provided that the Confidentiality Agreement shall remain in full force and
effect until the Effective Time. Each party hereto agrees that, except for the
representations and warranties contained in this Agreement, neither Seller nor
Buyer makes any other representations or warranties, and each hereby disclaims
any other representations and warranties made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement or
the transactions contemplated hereby, notwithstanding the delivery or disclosure
to the other or the other's representatives of any documentation or other
information with respect to any one or more of the foregoing.
Section 9.06 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 9.07 Jurisdiction. Each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement,
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(ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iii)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this agreement in any court other than a
Federal court sitting in the State of Delaware or a Delaware state court.
Section 9.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 9.09 Severability. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
Section 9.10. WAIVER OF JURY TRIAL. EACH OF BUYER, SELLER AND SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF BUYER, SELLER OR SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, Buyer, Sub and Seller have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
THE LEARNING COMPANY, INC.
By: /s/ NEAL S. WINNEG
--------------------------------------------------------------------------
Title: Senior Vice President
and General Counsel
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TLC MERGER CORP.
By: /s/ NEAL S. WINNEG
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Title: Vice President
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BRODERBUND SOFTWARE, INC.
By: /s/ JOSEPH P. DURRETT
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Title: Chief Executive Officer
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<PAGE>
Exhibit A-1
Seller Affiliate Agreement
AFFILIATE AGREEMENT
, 1998
The Learning Company, Inc.
One Athenaeum Street
Cambridge, MA 02142
Broderbund Software, Inc.
500 Redwood Boulevard
Novato, CA 94948-6121
Ladies and Gentlemen:
An Agreement and Plan of Merger dated as of June 21, 1998 (the "Agreement")
has been entered into by and among Broderbund Software, Inc., a Delaware
corporation ("Seller"), The Learning Company, Inc., a Delaware corporation
("Buyer"), and TLC Merger Corp., a Delaware corporation and a wholly owned
subsidiary of Buyer (the "Sub"). The Agreement provides for the merger of the
Sub with and into Seller (the "Merger"). In accordance with the Agreement,
shares of common stock, $.01 par value per share, of Seller (the "Seller Common
Stock") shall be converted into shares of common stock, $.01 par value per
share, of Buyer (the "Buyer Common Stock"), as described in the Agreement.
The undersigned has been advised that as of the date of this agreement the
undersigned may be deemed to be an "affiliate" of Seller, as the term
"affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145 of the
Rules and Regulations of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), and/or as such term is used in, and for purposes of, Accounting Series
Releases Nos. 130 and 135, as amended, of the Commission.
In consideration of the mutual agreements, provisions and covenants set
forth in the Agreement and hereinafter in this agreement, the undersigned
represents and agree as follows:
1. Pooling Requirements. The undersigned will not within the 30 day period
prior to the Effective Time (as defined in the Agreement), sell, transfer,
pledge, hypothecate or otherwise dispose of, or reduce the undersigned's
interest in or risk relating to, any shares of Seller Common Stock or Buyer
Common Stock owned by the undersigned. In addition, the undersigned will not,
from and after the Effective Time, sell, transfer, pledge, hypothecate or
otherwise dispose of, or reduce the undersigned's interest in or risk relating
to any Buyer common stock issued to the undersigned pursuant to the Merger, or
any other shares of Buyer capital stock, until after such time as Buyer has
published (within the meaning of Accounting Series Release No. 135, as amended,
of the Commission) financial results covering at least 30 days of combined
operations of Seller and Buyer.
2. [To be included in Douglas G. Carlston' s Affiliate Agreement only]
Registration of Shares. Buyer shall file with the Commission, as promptly as
practicable after the Effective Time, a registration statement on Form S-3
covering the resale to the public by Buyer of Buyer Common Stock ( the "Buyer
Registration Statement"). Buyer shall use its reasonable efforts to cause the
Buyer Registration Statement to be declared effective by the Commission as soon
as practicable (the "Effective Date"). Buyer shall cause the Buyer Registration
Statement to remain effective for 6 months after the Effective Date or such
earlier time as all the Buyer Common Stock covered by the Buyer Registration
Statement has been sold pursuant thereto.
3. Rule 145. The undersigned will not offer, sell, pledge, hypothecate,
transfer or otherwise dispose of, or reduce its interest in or risk relating to,
any of the shares of Buyer Common Stock issued to the undersigned in the Merger
unless at such time either: (i) such transaction is permitted pursuant to the
provisions of Rule 145 under the Securities Act; (ii) the undersigned shall have
furnished to Buyer an opinion of counsel, reasonably satisfactory to Buyer to
the effect that such transaction is otherwise exempt from the registration
requirements of the Securities Act; or (iii) a registration statement under the
<PAGE>
Securities Act covering the proposed offer, sale, pledge, hypothecation,
transfer or other disposition shall be effective under the Securities Act.
4. Legend.
(a) The undersigned understands that all certificates representing Buyer
Common Stock delivered to the undersigned pursuant to the Merger shall bear a
legend in substantially the form set forth below, until the earlier to occur of
(i) one of the events referred to in Section 3 above or (ii) the date on which
the undersigned requests removal of such legend, provided, that such request
occurs at least two years from the Effective Time (as defined in the Merger
Agreement) and that the undersigned is not at the time of such request, and has
not been during the three months period preceding to such request, an affiliate
of Buyer.
"The shares represented by this certificate were issued in a transaction to
which Rule 145 of the Securities Act of 1933 applies and may only be
transferred in accordance with the provisions of such rule. In addition, the
shares represented by this certificate may only be transferred in accordance
with the terms of an affiliate agreement dated , 1998 between the
initial holder hereof and The Learning Company, Inc., a copy of which
agreement may be inspected by the holder of this certificate at the
principal offices of The Learning Company, Inc., or furnished by The
Learning Company, Inc. to the holder of this certificate upon written
request without charge."
(b) Buyer in its discretion may cause stop transfer orders to be placed
with its transfer agent with respect to the certificates for the shares of Buyer
Common Stock that are required to bear the foregoing legend.
5. General Provisions. This agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws. This agreement shall be binding on the
undersigned's successors and assigns, including his or her heirs, executors and
administrators.
The undersigned has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with its counsel
or counsel for Buyer.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
Accepted:
Broderbund Software, Inc.
By:
- ------------------------------------------
Name:
- --------------------------------------
Title:
- ---------------------------------------
Dated:
- --------------------------------------
The Learning Company, Inc.
By:
- ------------------------------------------
Name:
- --------------------------------------
Title:
- ---------------------------------------
Dated:
- --------------------------------------
<PAGE>
Exhibit A-2
Buyer Affiliate Agreement
AFFILIATE AGREEMENT
, 1998
The Learning Company, Inc.
One Athenaeum Street
Cambridge, MA 02142
Ladies and Gentlemen:
An Agreement and Plan of Merger dated as of June 21, 1998 (the "Agreement")
has been entered into by and among Broderbund Software, Inc., a Delaware
corporation ("Seller"), The Learning Company, Inc., a Delaware corporation
("Buyer"), and TLC Merger Corp., a Delaware corporation and a wholly owned
subsidiary of Buyer (the "Sub"). The Agreement provides for the merger of the
Sub with and into Seller (the "Merger"). In accordance with the Agreement,
shares of common stock, $.01 par value per share, of Seller (the "Seller Common
Stock") shall be converted into shares of common stock, $.01 par value per
share, of Buyer (the "Buyer Common Stock"), as described in the Agreement.
The undersigned has been advised that as of the date of this agreement the
undersigned may be deemed to be an "affiliate" of Buyer, as the term "affiliate"
is defined under the Rules and Regulations of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended,
and/or as such term is used in, and for purposes of, Accounting Series Releases
Nos. 103 and 135, as amended, of the Commission.
In consideration of the mutual agreements, provisions and covenants set
forth in the Agreement and hereinafter in this agreement, the undersigned
represents and agree as follows:
1. Pooling Requirements. The undersigned will not within the 30 day period
prior to the Effective Time (as defined in the Agreement), sell, transfer,
pledge, hypothecate or otherwise dispose of, or reduce the undersigned's
interest in or risk relating to, any shares of Seller Common Stock or Buyer
Common Stock owned by the undersigned. In addition, the undersigned will not,
from and after the Effective Time, sell, transfer, pledge, hypothecate or
otherwise dispose of, or reduce the undersigned's interest in or risk relating
to any shares of Buyer capital stock, until after such time as Buyer has
published (within the meaning of Accounting Series Release No. 135, as amended,
of the Commission) financial results covering at least 30 days of combined
operations of Seller and Buyer. The restrictions set forth herein may be waived
by the Buyer to the extent such waiver, in the opinion of Buyer's independent
accountants, does not jeopardize the treatment of the Merger as a pooling of
interests.
2. General Provisions. This agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws. This agreement shall be binding on the
undersigned's successors and assigns, including his heirs, executors and
administrators.
The undersigned has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with its counsel
or counsel for Buyer.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
<PAGE>
Accepted:
Broderbund Software, Inc.
By:
- ------------------------------------------
Name:
- --------------------------------------
Title:
- ---------------------------------------
Dated:
- --------------------------------------
The Learning Company, Inc.
By:
- ------------------------------------------
Name:
- --------------------------------------
Title:
- ---------------------------------------
Dated:
- --------------------------------------
<PAGE>
ANNEX B
LETTERHEAD LOGO
June 21, 1998
Board of Directors
The Learning Company, Inc.
1 Athenaeum Street
Cambridge, MA 02142
Dear Board of Directors:
We understand that The Learning Company, Inc. ("TLC") and Broderbund
Software, Inc. ("Broderbund") propose to enter into an Agreement and Plan of
Merger dated as of June 21, 1998 (the "Agreement") pursuant to which a
wholly-owned subsidiary of TLC will be merged with Broderbund (the "Merger").
The Agreement provides, among other things, that each share of Broderbund common
stock issued and outstanding prior to the effective time of the Merger will be
converted into 0.8 shares (the "Exchange Ratio") of common stock of TLC. We have
assumed, with your consent, that the Merger will qualify for
pooling-of-interests accounting treatment and as a tax-free transaction for
federal income tax purposes. The terms and conditions of the Merger are more
fully set forth in the Agreement. You have requested our opinion as to whether
the Exchange Ratio is fair, from a financial point of view, to TLC.
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of TLC in
connection with the transaction described above and will receive a fee for our
services, a portion of which is contingent upon the consummation of the Merger
and a portion of which becomes payable upon the delivery of this opinion. We
have also acted as the lead managing underwriter of an initial public offering
of the common stock of Broderbund and have previously acted as financial advisor
to Broderbund. BT Alex. Brown maintains a market in the common stock of TLC and
Broderbund and regularly publishes research reports regarding the consumer
software and new media industries and the businesses and securities of TLC,
Broderbund and other publicly owned companies in the consumer software and new
media industries. In the ordinary course of business, BT Alex. Brown may
actively trade the securities of TLC and Broderbund for our own account and the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning TLC and Broderbund and
certain internal analyses and other information furnished to us by TLC and
Broderbund. We have also held discussions with the members of the senior
managements of TLC and Broderbund regarding the businesses and prospects of
their respective companies and the joint prospects of the combined company,
including synergies that may be achieved thereby. In addition, we have (i)
reviewed the reported prices and trading activity for the common stock of both
TLC and Broderbund, (ii) compared certain financial and stock market information
for TLC and Broderbund with similar information for certain other companies
whose securities are publicly traded, (iii) reviewed the financial terms of
certain recent business combinations which we deemed comparable in whole or in
part, (iv) reviewed the terms of the Agreement and certain related documents,
and (v) performed such other studies and analyses and considered such other
factors as we deemed appropriate.
LOGO
B-1
<PAGE>
Board of Directors
The Learning Company, Inc.
June 21, 1998
Page 2
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of TLC and
Broderbund and the joint prospects of the combined company, including synergies
that may be achieved thereby, we have assumed that such information reflects the
best currently available judgments and estimates of the management of TLC and
Broderbund as to the likely future financial performance of TLC and Broderbund
and the combined company. In addition, we have not made nor been provided with
an independent evaluation or appraisal of the assets of TLC or Broderbund, nor
have we been furnished with any such evaluations or appraisals. In rendering
this opinion, we have not been asked to consider, and we do not address, the
relative merits of the Merger as compared to any alternative business
transactions with third parties that might exist for TLC or the effect of any
such other transaction in which TLC might engage. Our opinion is based on
market, economic and other conditions as they exist and can be evaluated as of
the date of this letter.
Our advisory services and the opinion expressed herein were prepared for the
use of the Board of Directors of TLC and do not constitute a recommendation to
TLC's stockholders as to how they should vote at the stockholders' meeting in
connection with the Merger. We hereby consent, however, to the inclusion of this
opinion as an exhibit to any proxy or registration statement distributed in
connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio is fair, from a financial point of view,
to TLC.
Very truly yours,
/s/ BT ALEX. BROWN INCORPORATED
B-2
<PAGE>
ANNEX C
LETTERHEAD LOGO
June 21, 1998
Board of Directors
Broderbund Software, Inc.
500 Redwood Boulevard
Novato, CA 94948
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Broderbund Software, Inc. (the "Company") of the
exchange ratio set forth in the Agreement and Plan of Merger, dated as of June
21, 1998 (the "Agreement"), by and among The Learning Company, Inc. ("TLC"),
Broderbund Acquisition Corp. ("BAC"), a wholly owned subsidiary of TLC, and the
Company pursuant to which BAC will be merged (the "Merger") with and into the
Company.
Pursuant to the Agreement, each share of common stock of the Company will be
converted into the right to receive 0.8 shares (the "Exchange Ratio") of common
stock, $0.01 par value per share of TLC.
In arriving at our opinion, we have reviewed the draft dated June 17, 1998
of the Agreement, and the exhibits thereto. We also have reviewed financial and
other information that was publicly available or furnished to us by the Company
and TLC, including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
respective managements were certain financial projections of the Company for the
period beginning May 31, 1998 and ending August 31, 1999 prepared by the
management of the Company and certain financial projections of TLC for the
period beginning June 1, 1998 and ending December 31, 1999 prepared by the
management of TLC. In addition, we have compared certain financial and
securities data of the Company and TLC with various other companies that we
deemed appropriate whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of the common stock of the Company
and TLC, reviewed prices and premiums paid in certain other business
combinations that we deemed appropriate, examined the relative contribution of
the financial results of the Company and TLC to their combined operations,
analyzed the impact of the Merger on the historical and projected financial
results of the Company and TLC, and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and TLC or their
respective representatives, or that was otherwise reviewed by us. In particular,
we have relied upon the estimates of the management of the Company of the
operating synergies achievable as a result of the Merger and upon our discussion
of such synergies with the
C-1
<PAGE>
management of TLC and the Company. With respect to the financial projections
supplied to us, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company and TLC as to the future operating and financial
performance of the Company and TLC, respectively. We have not assumed any
responsibility for making an independent evaluation of any assets or liabilities
of the Company or TLC, or for making any independent verification of any of the
information reviewed by us. We have relied as to certain legal matters on advice
of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which shares of common stock of TLC will actually trade at any time.
Our opinion does not address the relative merits of the Merger or any other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of business
we may actively trade the securities of both TLC and the Company for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the stockholders of the
Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ SAFRA A. CATZ
----------------------------------------------------------------------
Safra A. Catz
Managing Director
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 TLC's Restated Certificate of Incorporation, as amended,
provides for elimination of directors' personal liability and indemnification as
follows:
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
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<PAGE>
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.
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."
TLC has purchased directors' and officers' liability insurance which would
indemnify the directors and officers of TLC 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.
The Registrant has obtained directors' and officers' liability insurance
coverage from National Union Fire Insurance Company of Pittsburg (AIG) and
Zurich--American Insurance Group. The policy covers up to $10,000,000 for each
claim during a three year policy period, and up to $10,000,000 of corporate
reimbursement.
Pursuant to Section 6.14 of the Merger Agreement, TLC shall maintain a
directors' and officers' liability insurance policy covering the persons who are
currently covered by Broderbund's directors' and officers' liability insurance
policy with coverage in scope and amount at least as favorable to such persons
as Broderbund's existing coverage. See "The Merger Agreement--Director and
Officer Indemnification."
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<S> <C> <C>
2.1(1) -- Agreement and Plan of Merger dated as of June 21, 1998 by and among the
Registrant, TLC Merger Corp. and Broderbund.
5.1 -- Opinion of Hale and Dorr LLP.
8.1 -- Opinion of Hale and Dorr LLP as to Tax Matters.
8.2 -- Opinion of Wilson Sonsini, Goodrich & Rosati, P.C. as to Tax Matters.
23.1 -- Consent of Hale and Dorr LLP (included in Exhibit 5.1).
23.2 -- Consent of Hale and Dorr LLP (included in Exhibit 8.1).
23.3 -- Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 8.2).
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5 -- Consent of PricewaterhouseCoopers LLP
23.6 -- Consent of Ernst & Young LLP.
24.1 -- Power of Attorney (See page II-5).
99.1(2) -- Opinion of BT Alex. Brown & Sons Incorporated.
99.2(3) -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation.
99.3 -- Form of Proxy Card of the Registrant.
99.4 -- Form of Proxy Card of Broderbund.
99.5 -- Consent of BT Alex. Brown Incorporated.
99.6 -- Consent of Donaldson, Lufkin & Jenrette Securities Corporation.
</TABLE>
- ------------------------
(1) Attached as Annex A to the Joint Proxy Statement/Prospectus.
(2) Attached as Annex B to the Joint Proxy Statement/Prospectus.
(3) Attached as Annex C to the Joint Proxy Statement/Prospectus.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable, and, therefore, have been omitted.
ITEM 22. UNDERTAKINGS.
A. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "Securities Act"),
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities 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 herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
B. The Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to this
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. 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 foregoing provisions, 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.
D. The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
E. The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth
of Massachusetts on the day of July, 1998.
<TABLE>
<S> <C> <C>
THE LEARNING COMPANY, INC.
By: /s/ MICHAEL J. PERIK
-----------------------------------------
Michael J. Perik
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Michael
J. Perik, Kevin O'Leary, R. Scott Murray and Neal S. Winneg, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them, for him and in his name, place
and stead, and in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form S-4
of The Learning Company, Inc. and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL J. PERIK Chairman of the Board and July 14, 1998
- ------------------------------ Chief Executive Officer
Michael J. Perik (Principal Executive
Officer)
/s/ R. SCOTT MURRAY Executive Vice President July 14, 1998
- ------------------------------ and Chief Financial
R. Scott Murray Officer (Principal
Financial and Accounting
Officer)
/s/ KEVIN O'LEARY President and Director July 14, 1998
- ------------------------------
Kevin O'Leary
/s/ LAMAR ALEXANDER Director July 14, 1998
- ------------------------------
Lamar Alexander
/s/ MICHAEL A. BELL Director July 14, 1998
- ------------------------------
Michael A. Bell
/s/ ROBERT GAGNON Director July 14, 1998
- ------------------------------
Robert Gagnon
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
Director July 14, 1998
- ------------------------------
Carolynn N. Reid-Wallace
/s/ ROBERT A. RUBINOFF Director July 14, 1998
- ------------------------------
Robert A. Rubinoff
/s/ SCOTT M. SPERLING Director July 14, 1998
- ------------------------------
Scott M. Sperling
/s/ ANTHONY J. DINOVI Director July 14, 1998
- ------------------------------
Anthony J. DiNovi
/s/ MARK E. NUNNELLY Director July 14, 1998
- ------------------------------
Mark E. Nunnelly
/s/ PAUL J. ZEPF Director July 14, 1998
- ------------------------------
Paul J. Zepf
</TABLE>
II-6
<PAGE>
[LETTERHEAD]
July 14, 1998
The Learning Company, Inc.
One Athenaeum Street
Cambridge, MA 02142
Re: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), for the registration of up to 18,053,276 shares
of Common Stock, $.01 par value per share (the "Shares"), of The Learning
Company, Inc., a Delaware corporation (the "Company"), issuable pursuant to the
Agreement and Plan of Merger by and among the Company, TLC Merger Corp. and
Broderbund Software, Inc. dated as of June 21, 1998 (the "Merger Agreement").
We are acting as counsel for the Company in connection with the
issuance by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Merger Agreement, minutes of meetings of the Board of Directors
of the Company as provided to us by the Company, record books of the Company as
provided to us by the Company, the Certificate of Incorporation and By-Laws of
the Company, each as restated and/or amended to date, and such other documents
as we have deemed necessary for purposes of rendering the opinions hereinafter
set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
<PAGE>
The Learning Company, Inc.
July 14, 1998
Page 2
We assume that the appropriate action will be taken, prior to the
issuance of the Shares in accordance with the Merger Agreement, to register and
qualify the Shares for sale under all applicable state securities or "blue sky"
laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
Delaware General Corporation Law statute and the federal laws of the United
States of America. To the extent that any other laws govern the matters as to
which we are opining herein, we have assumed that such laws are identical to the
state laws of the Commonwealth of Massachusetts, and we are expressing no
opinion herein as to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that the
Shares to be issued by the Company have been duly authorized for issuance and,
when such Shares are issued in accordance with the terms and conditions of the
Merger Agreement, such Shares will be validly issued, fully paid and
nonassessable.
It is understood that this opinion is to be used only in connection
with the issuance of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is based upon currently existing statutes, rules, regulations and
judicial decisions, and we disclaim any obligation to advise you of any change
in any of these sources of law or subsequent legal or factual developments which
might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE>
[LETTERHEAD]
July 14, 1998
The Learning Company, Inc.
One Athenaeum Street
Cambridge, MA 02142
Re: Merger pursuant to Agreement and Plan of Merger among
The Learning Company, Inc., TLC Merger Corp.,
and Broderbund Software, Inc.
-----------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of
a registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger dated as of June 21, 1998 (the "Merger Agreement"), by and among
The Learning Company, Inc., a Delaware corporation ("Parent"), TLC Merger Corp,
a Delaware corporation and wholly owned subsidiary of Parent ("Sub"), and
Broderbund Software, Inc., a Delaware corporation ("Target"). Pursuant to the
Merger Agreement, Sub will merge with and into Target (the "Merger"). Except as
otherwise provided, capitalized terms not defined herein have the meanings set
forth in the Merger Agreement and the exhibits thereto or in the letters
delivered to Hale and Dorr LLP by Parent and Target containing certain
representations of Parent and Target relevant to this opinion (the
"Representation Letters"). All section references, unless otherwise indicated,
are to the United States Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to Target in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, and such other documents as we considered relevant to our analysis. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any
other documents examined by us have acted, and will act, in accordance with the
terms of such Merger Agreement and documents and that the Merger will be
consummated at
<PAGE>
The Learning Company, Inc.
July 14, 1998
Page 2
the Effective Time pursuant to the terms and conditions set forth in the Merger
Agreement without the waiver or modification of any such terms and conditions.
Furthermore, we have assumed that all representations contained in the Merger
Agreement, as well as those representations contained in the Representation
Letters, will be true and complete in all material respects at the Effective
Time, and that any representation made in any of the documents referred to
herein "to the best of the knowledge and belief" (or similar qualification) of
any person or party will be correct without such qualification. We have also
assumed that as to all matters for which a person or entity has represented that
such person or entity is not a party to, does not have, or is not aware of, any
plan, intention, understanding, or agreement, there is no such plan, intention,
understanding, or agreement. We have not attempted to verify independently such
representations, but in the course of our representation, nothing has come to
our attention that would cause us to question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the
proper treatment of certain aspects of the Merger under the income tax laws of
the United States based upon the Code, Treasury Regulations, case law, and
rulings and other pronouncements of the Internal Revenue Service (the "IRS") as
in effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income
tax consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of
Target that are subject to special tax rules.
On the basis of, and subject to, the foregoing, and in reliance upon
the representations and assumptions described above, we are of the opinion that
the Merger will constitute a reorganization within the meaning of Section
368(a).
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied
<PAGE>
The Learning Company, Inc.
July 14, 1998
Page 3
upon except with respect to the consequences specifically discussed herein. This
opinion is intended solely for the purpose of inclusion as an exhibit to the
Registration Statement. It may not be relied upon for any other purpose or by
any other person or entity, and may not be made available to any other person or
entity without our prior written consent. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement and further consent to
the use of our name in the Registration Statement in connection with references
to this opinion and the tax consequences of the Merger. In giving this consent,
however, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE>
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI]
July 14, 1998
Broderbund Software, Inc.
500 Redwood Boulevard
Novato, California 94948
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
Form S-4 Registration Statement with the Securities and Exchange Commission (the
"Registration Statement") and pursuant to Section 7.03(c) of the Agreement and
Plan of Merger (the "Agreement"), dated as of June 21, 1998, by and among The
Learning Company, Inc., a Delaware corporation ("Parent"), TLC Merger Corp., a
Delaware corporation and a direct, wholly-owned subsidiary of Parent ("Merger
Sub"), and Broderbund Software, Inc., a Delaware corporation ("Target").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Agreement. All section references,
unless otherwise indicated, are to the Internal Revenue Code of 1986, as amended
(the "Code").
We have acted as counsel to Target in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
1. the Agreement;
2. those certain tax representation letters delivered to us by Parent,
Merger Sub and Target containing certain representations of Parent,
Merger Sub and Target (the "Tax Representation Letters"); and
3. such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and Target and
related to the consummation of the Merger and the other transactions
contemplated by the Agreement as we have deemed necessary or
appropriate.
<PAGE>
Broderbund Software, Inc.
July 14, 1998
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
a. Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due
execution and delivery are a prerequisite to the effectiveness
thereof;
b. All representations, warranties and statements made or agreed to by
Parent, Merger Sub and Target, their managements, employees, officers,
directors and shareholders in connection with the Merger, including,
but not limited to, those set forth in the Agreement (including the
exhibits thereto) and the Tax Representation Letters are true and
accurate at all relevant times;
c. All covenants contained in the Agreement (including exhibits thereto)
and the Tax Representation Letters are performed without waiver or
breach of any material provision thereof;
d. The Merger will be reported by Parent and Target on their respective
federal income tax returns in a manner consistent with the opinion set
forth below; and
e. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the Agreement
(and without any waiver, breach or amendment of any of the provisions thereof)
and the statements set forth in the Tax Representation Letters are true and
correct as of the Effective Time, then for federal income tax purposes, the
Merger will be a reorganization within the meaning of Section 368(a) of the
Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Agreement except as specifically set forth herein, and
this opinion may not be relied upon except with respect to the consequences
specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the
<PAGE>
Broderbund Software, Inc.
July 14, 1998
Page 3
Agreement. In addition, no opinion is expressed as to any federal income tax
consequence of the Merger or the other transactions contemplated by the
Agreement except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement, or as to any other transaction whatsoever, including
the Merger, if all of the transactions described in the Agreement are not
consummated in accordance with the terms of the Agreement and without waiver of
any material provision thereof. To the extent that any of the representations,
warranties, statements and assumptions material to our opinion and upon which we
have relied are not accurate and complete in all material respects at all
relevant times, our opinion would be adversely affected and should not be relied
upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or interpretations
would not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is intended for the benefit of Target and may not be relied
upon or utilized for any other purpose or by any other person and may not be
made available to any other person without our prior written consent. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-4 of our report dated February 9, 1998 (except as to Note 12 which
is as of March 6, 1998), on our audits of the consolidated financial
statements and financial statement schedule of valuation and qualifying
accounts of The Learning Company, Inc. as of January 3, 1998 and January 4,
1997 and for each of the three fiscal years in the period ended January 3,
1998. We also consent to the reference to our firm under the caption
"Experts."
/s/ PricewaterhouseCoopers LLP
------------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 14, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of The Learning
Company, Inc. (the "Company") of our report dated March 2, 1998, relating to
the combined financial statements of Mindscape Group, which appear in the
Company's Current Report on Form 8-K/A, dated March 27, 1998. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
July 13, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 3, 1997, with respect to the consolidated
financial statements of Broderbund Software, Inc. included in its Annual
Report (Form 10-K) for the year ended August 31, 1997 incorporated by
reference in the Registration Statement (Form S-4) and related Proxy
Statement/Prospectus of The Learning Company, Inc. for the registration of
18,053,276 shares of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
July 14, 1998
<PAGE>
THE LEARNING COMPANY, INC.
PROXY
PROXY FOR THIS SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 31, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TLC
The undersigned, revoking all prior proxies, hereby appoint(s) Neal S.
Winneg, R. Scott Murray and Mark G. Borden, and each of them, with full power of
substitution, as proxies to represent and vote, as designated herein, all shares
of Common Stock of The Learning Company, Inc. ("TLC") which the undersigned
would be entitled to vote if personally present at the Special Meeting of
Stockholders of TLC to be held at The Royal Sonesta Hotel, 5 Cambridge Parkway,
Cambridge, Massachusetts 02142 on August 31, 1998 at 1:00 p.m., local time, and
at any adjournment thereof.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
This proxy, when properly executed, will be voted in the manner directed by
the undersigned stockholder(s). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. Attendance of the undersigned at the meeting or any
adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing before it is exercised or
affirmatively indicate his intent to vote in person.
1. To approve the issuance of shares of Common Stock, par value $.01 per share,
of TLC ("TLC Common Stock"), pursuant to the Agreement and Plan of Merger
(the "Merger Agreement") dated as of June 21, 1998 among TLC, TLC Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of TLC ("Sub"),
and Broderbund Software, Inc., a Delaware corporation ("Broderbund"),
pursuant to which, among other things (a) Sub will be merged with and into
Broderbund with Broderbund being the surviving corporation, and Broderbund
will become a wholly-owned subsidiary of TLC and (b) each outstanding share
of Common Stock (together with the associated preferred stock purchase
rights), par value $.01 per share, of Broderbund will be converted into the
right to receive 0.80 shares of TLC Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
2. To amend the TLC 1990 Long Term Equity Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
/ / MARK HERE FOR CHANGE OF ADDRESS AND NOTE BELOW
PLEASE DATE AND SIGN EXACTLY AS
NAME(S) APPEAR(S) ON THIS PROXY. WHEN
SHARES ARE HELD BY JOINT OWNERS, BOTH
SHOULD SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE TITLE AS SUCH.
IF A CORPORATION OR A PARTNERSHIP,
PLEASE SIGN BY AUTHORIZING PERSON.
Signature:
------------------------------------------------------------------------------
Date:
--------------------------------------
Signature:
------------------------------------------------------------------------------
Date:
--------------------------------------
<PAGE>
BRODERBUND SOFTWARE, INC.
PROXY
PROXY FOR THIS SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 31, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BRODERBUND
The undersigned, revoking all prior proxies, hereby appoint(s) J. Mark
Hattendorf, Michael J. Pendergast and Brett Robertson, and each of them, with
full power of substitution, as proxies to represent and vote, as designated
herein, all shares of Common Stock of Broderbund Software, Inc. ("Broderbund")
which the undersigned would be entitled to vote if personally present at the
Special Meeting of Stockholders of Broderbund to be held at the Wyndham Garden
Hotel-Marin, 1010 Northgate Drive, San Rafael, California on August 31, 1998 at
10:00 a.m., local time, and at any adjournment thereof.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
This proxy, when properly executed, will be voted in the manner directed by
the undersigned stockholder(s). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL. Attendance of the undersigned at the meeting or any
adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing before it is exercised or
affirmatively indicate his intent to vote in person.
To approve and adopt the Agreement and Plan of Merger dated as of June 21,
1998 (the "Merger Agreement") among The Learning Company, Inc., a Delaware
corporation ("TLC"), TLC Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of TLC ("Sub"), and Broderbund, pursuant to which,
among other things (a) Sub will be merged with and into Broderbund with
Broderbund being the surviving corporation and becoming a wholly-owned
subsidiary of TLC and (b) each outstanding share of Common Stock, par value
$.01 per share, of Broderbund (together with the associated preferred stock
purchase rights) will be converted into the right to receive 0.80 shares of
Common Stock, par value $.01 per share, of TLC.
/ / FOR / / AGAINST / / ABSTAIN
/ / MARK HERE FOR CHANGE OF ADDRESS AND NOTE BELOW
PLEASE DATE AND SIGN EXACTLY AS
NAME(S) APPEAR(S) ON THIS PROXY. WHEN
SHARES ARE HELD BY JOINT OWNERS, BOTH
SHOULD SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE TITLE AS SUCH.
IF A CORPORATION OR A PARTNERSHIP,
PLEASE SIGN BY AUTHORIZING PERSON.
Signature:
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Date:
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Signature:
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Date:
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<PAGE>
Exhibit 99.5
[LOGO]BT Alex. Brown
Incorporated
[LOGO]BANKERS TRUST
Architects of Value
CONSENT OF BT ALEX. BROWN INCORPORATED
We hereby consent to the use of Annex B containing our opinion letter
dated June 21, 1998 (the "Opinion") to the Board of Directors of The Learning
Company, Inc. ("TLC") in the Joint Proxy Statement/Prospectus constituting a
part of the registration statement on Form S-4 of TLC/Broderbund Software,
Inc. ("Broderbund") relating to the business combination of TLC and
Broderbund and to the references to our firm name in the Joint Proxy
Statement/Prospectus in connection with references to the Opinion. In giving
this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities act of 1933, as
amended, or the rules and regulations of the Securities Exchange Commission
promulgated thereunder (collectively, the "Act"), nor do we admit that we are
experts with respect to any part of such registration statement within the
meaning of the term "experts" as used in the Act.
Date: July 6, 1998
BT ALEX. BROWN INCORPORATED
By: /s/ Robert K. Packard
---------------------------
Name: Robert K. Packard
---------------------------
Title: Managing Director
---------------------------
<PAGE>
EXHIBIT 99.6
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated
June 21, 1998, to the Board of Directors of Broderbund Software, Inc. (the
"Company") as Annex C to the Joint Proxy Statement/Prospectus of the Company
and The Learning Company, Inc. ("TLC") contained in the Registration
Statement on Form S-4 being filed with the Securities and Exchange Commission
in the form reviewed by us (the "Proxy") relating to the proposed merger of
TLC Merger Corp. (formerly Broderbund Acquisition Corp.), a wholly owned
subsidiary of TLC, with and into the Company and (ii) all references to
Donaldson, Lufkin & Jenrette Securities Corporation in the sections captioned
"Summary--Opinions of Financial Advisors," "The Merger--Background of the
Merger," "--Broderbund's Reasons for the Merger" and "Opinions of Financial
Advisors" in the Proxy. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, and we do not
admit that we are "experts" for purposes of, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Safra A. Catz
-------------------------
Safra A. Catz
Managing Director
Menlo Park, California
July 13, 1998
