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As filed with the Securities and Exchange Commission on April 24, 1998
Registration Statement No. 333-48009
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE LEARNING COMPANY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 94-2562108
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Address, including zip code, and
telephone number, including area code,
of registrant's principal
executive offices)
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NEAL S. WINNEG
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
THE LEARNING COMPANY, INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] 333-_______.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] 333-__________.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
SHALL DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED APRIL 24, 1998
PROSPECTUS
THE LEARNING COMPANY, INC.
429,733 SHARES OF COMMON STOCK
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This prospectus covers the offer and sale (the "Offering") of 429,733
shares (the "Shares") of common stock, $.01 par value per share (the "Common
Stock"), of The Learning Company, Inc. (the "Company"). The Shares may be
offered and sold from time to time for the account of certain stockholders of
the Company (the "Selling Stockholders"). See "The Selling Stockholders." The
Shares were issued to the Selling Stockholders in connection with the
acquisition by the Company of TEC Direct, Inc. ("TEC Direct") on December 30,
1997. See "The Acquisition."
The Company will not receive any of the proceeds from the sale of the
Shares covered by this Prospectus. The Company will bear all costs (excluding
any underwriting discounts and commissions or expenses incurred by the Selling
Stockholders for brokerage, accounting, tax or legal services or any other
expenses incurred by the Selling Stockholders in taking possession of or
disposing of the Shares), fees and expenses incurred in effecting the
registration of the Shares covered by this Prospectus, including, without
limitation, all registration and filing fees, exchange listing fees, fees and
expenses of counsel for the Company, fees and expenses of accountants for the
Company, printing expenses and blue sky fees and expenses.
The Shares covered by this Prospectus may be sold from time to time by the
Selling Stockholders, or by their pledgees, donees, transferees or other
successors in interest, in the over-the-counter market, through the writing of
options on the Shares, in ordinary brokerage transactions, in negotiated
transactions, or otherwise, at market prices prevailing at the time of sale or
at negotiated prices. See "Plan of Distribution."
The Selling Stockholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Shares offered
hereby, and any profits realized or commissions received may be deemed
underwriting compensation. See "Plan of Distribution."
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "TLC." On April 23, 1998, the closing sale price of the
Common Stock on the NYSE was $27 per share.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is April __, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Company is required to file electronic versions of these documents
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements, exhibits and schedules thereto,
the "Registration Statement") under the Securities Act, with respect to the
Shares offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, as certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company and the Shares, reference is made to such
Registration Statement. Statements contained in this Prospectus regarding the
contents of any agreement or other document are not necessarily complete, and in
each instance reference is made to the copy of such agreement or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement may be inspected
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) The Company's Annual Report on Form 10-K for the year ended
January 3, 1998, filed with the Commission on March 13, 1998;
(ii) The Company's Current Report on Form 8-K, dated March 12, 1998,
filed with the Commission on March 17, 1998;
(iii) The Company's Definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 21, 1998, filed with the
Commission on April 2, 1998;
(iv) The Company's Current Report on Form 8-K, dated March 27, 1998,
filed with the Commission on April 13, 1998; and
(v) The Company's Registration Statement on Form 8-A, filed with the
Commission on October 29, 1996.
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All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Shares registered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). All such requests shall be
directed to: The Learning Company, Inc., One Athenaeum Street, Cambridge,
Massachusetts 02142, Attention: Secretary, Telephone: (617) 494-1200.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents incorporated
herein constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 2B of the Exchange Act. For this purpose, any
statements contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "plans," "expects" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements. These
factors include those set forth in "Risk Factors" herein.
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THE COMPANY
The Learning Company, Inc. (the "Company") develops and publishes a broad
range of high quality branded consumer software for personal computers ("PCs")
that educate across every age category, from young children to adults. The
Company's primary emphasis is in education and reference software, but it also
offers a selection of lifestyle, productivity and, to a lesser extent,
entertainment products, both in North America and internationally.
The Company's educational products are principally sold under a number of
well known brands, including The Learning Company, Minnesota Educational
Computing Corporation ("MECC") and Creative Wonders brands. The Company develops
and markets educational products for children ages 18 months to 7 years in the
popular "Reader Rabbit" family, which includes both single-subject and
multi-subject titles such as Reader Rabbit's Reading 1 and Reader Rabbit's Math
1, and Reader Rabbit's Toddler, Reader Rabbit's Pre-School, Reader Rabbit's
Kindergarten and Reader Rabbit's 1st Grade. The Company also publishes
educational products for this age group based on the popular Sesame Street and
Madeline characters, among others. For children seven years and older, the
Company develops and markets engaging educational products such as the
long-running "Trail" series, which includes Oregon Trail 3rd Edition, as well as
products based on the popular Baby-Sitter's Club books. During 1997, the Company
launched its American Girls Premiere title, which is marketed towards girls in
this age group.
The Company develops and markets several different lines of software
designed to teach children and adults such foreign languages as French, German,
Spanish and Japanese. These lines include, among others, the Learn to Speak and
Berlitz lines of products.
The Company's reference products include the "Compton's Home Library" line
which includes, among others, Compton's Interactive Encyclopedia and Compton's
World Atlas. In addition, the Company offers a line of medical reference
products that includes BodyWorks, Home Medical Reference Library and Mosby's
Medical Encyclopedia. The Company's productivity line is marketed under the
SoftKey and the Creative Office brands. The Company also publishes a
lower-priced line of products in box version under the Key and Classics brands
and a jewel-case only version under the SoftKey brand.
During 1997, the Company began offering an Internet filtering product with
the introduction of the popular Cyber Patrol, which allows parents and teachers
to choose what content on the Internet is appropriate for children. Adults can
choose to block material organized into many different categories such as
violence, nudity, and explicit sexual material and hate speech. In addition to
marketing the product to homes and schools, the Company is also marketing to
corporations a version of Cyber Patrol that can block sites with content such as
sports, leisure and shopping to improve productivity in the office.
The Company distributes its products through retail channels, including
direct sales to computer electronics stores, office superstores, mass
merchandisers, discount warehouse stores and software specialty stores which
control over 23,000 North American storefronts. The Company also sells its
products directly to consumers through the mail, telemarketing and the Internet,
and directly to schools. The Company's international sales are conducted from
subsidiaries in Germany, France, Holland, Ireland, the United Kingdom, Australia
and Japan. The Company also derives revenue from licensing its products to
original equipment manufacturers ("OEMs") which bundle the Company's products
for sale with computer systems or components and through on-line offerings.
The Company has a history of acquiring companies in order to broaden its
product lines and sales channels. In March 1998, the Company completed the
acquisition of Mindscape, Inc. and certain related companies (collectively,
"Mindscape"), a publisher of educational, productivity and entertainment
software. During 1997, the Company completed a number of small complementary
acquisitions
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in the educational software segment. During the third quarter of 1997, the
Company acquired Learning Services Inc. ("Learning Services") (a national school
software catalog for teachers), Skills Bank Corporation ("Skills Bank") (a
developer of older age and remedial educational software for schools) and
Microsystems Software, Inc. ("Microsystems") (an Internet filtering publisher
and creator of Cyber Patrol). During the fourth quarter of 1997, the Company
acquired control of Creative Wonders, L.L.C. ("Creative Wonders") (a developer
of branded children's educational software) and acquired TEC Direct (the
publisher of an educational consumer software catalog).
In May 1996, the Company consummated the acquisition of MECC, an
educational software publisher. That acquisition, together with the acquisitions
in December 1995 of The Learning Company ("The Former Learning Company") and
Compton's NewMedia, Inc. ("Compton's"), marked the completion of the Company's
strategic initiative to expand its educational software franchise.
The Company was incorporated in California in October 1978 and
reincorporated in Delaware in October 1986. In February 1994, the Company, which
was then known as WordStar International Incorporated, completed a three-way
business combination with SoftKey Software Products Inc. and Spinnaker Software
Corporation in which the Company changed its name to SoftKey International Inc.
In October 1996, the Company changed its name from SoftKey International Inc. to
The Learning Company, Inc. to reflect its expanded emphasis on educational
software. The Company's executive offices are located at One Athenaeum Street,
Cambridge, Massachusetts 02142. Its telephone number is (617) 494-1200, and its
internet web site is located at http:/www.learningco.com. "The Learning Company,
Inc." and all of the Company's logos and product names are trademarks of the
Company.
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RISK FACTORS
The Shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information
included or incorporated by reference in this Prospectus before purchasing the
Shares offered hereby.
INTENSE COMPETITIVE ENVIRONMENT
The consumer software industry is intensely and increasingly competitive
and is characterized by rapid changes in technology and customer requirements.
The Company competes for retail shelf space and general consumer awareness with
a number of companies that market consumer software. The Company encounters
competition from both established companies, including the largest companies in
the industry, and new companies that may develop comparable or superior
products. A number of the Company's competitors and potential competitors
possess significantly greater capital, marketing resources and brand recognition
than the Company. Rapid changes in technology, product obsolescence and advances
in computer software and hardware require the Company to develop or acquire new
products and to enhance its existing products on a timely basis. The Company's
marketplace has recently experienced a higher emphasis on online and Internet
related services and content tailored for this new delivery vehicle. To the
extent that demand increases for online products and content, the demand for the
Company's existing products may change. There can be no assurance that the
Company will be able to successfully maintain market share and otherwise compete
successfully in the future.
Competitive pressures in the software industry have resulted, and the
Company believes may continue to result, in pressure to reduce the prices of its
products or risk loss of market share. In response to such competitive pressures
during early 1997 the Company reduced the retail selling price of certain of its
educational products. There can be no assurance that the Company's product
selling prices will not continue to decline in the future or that the Company
will not respond to such declines with additional price reductions. Such price
reductions may reduce the Company's revenues and operating margins in the
future. During 1997, the Company and many of its competitors began using rebate
coupons in order to induce consumers to purchase their products. In addition,
the Company uses various forms of prints and television advertising to enhance
brand and product awareness. The use of these methods of channel marketing and
advertising is becoming more prevalent among the larger consumer software
publishers. To the extent that the Company fails to match competitor's future
channel marketing and advertising programs, it could risk loss of market share
and corresponding revenues and operating profits.
Large companies with substantial bases of intellectual property content in
the motion picture and media industries, sophisticated product marketing and
technical abilities and/or financial resources that may not need to realize an
immediate profit or return on investment have increasingly entered or announced
their intention to enter the consumer software market. These competitors include
Microsoft Corporation, The Walt Disney Company, Mattel, Inc., Hasbro, Inc. and
Cendant Corporation (formerly CUC International Inc.). For example, technology
companies have begun to acquire greater access to content, and content-oriented
companies have begun to acquire greater technological capabilities. To the
extent that competitors achieve a performance, price or distribution advantage,
the Company could be adversely affected. Furthermore, increased consolidation of
the consumer software market may impact future growth potential and performance.
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INTENSE COMPETITION FOR DISTRIBUTION CHANNELS
In the retail distribution channel resellers typically have available a
limited amount of shelf space and promotional resources. There is intense
competition for high quality and adequate levels of shelf space and promotional
support from retailers. To the extent that the number of consumer computer
platforms and products increases, this competition for shelf space may also
increase. The Company also competes for shelf space against non-educational and
reference category publishers such as games. To the extent that these vendors
acquire greater shelf space, the Company's position may be reduced. Mass
merchants such as Wal-Mart and Kmart are increasingly becoming a larger portion
of the Company's sales. As these retailers achieve greater market share from the
traditional software retailers, the Company may experience higher marketing
costs and increased competition for shelf space, which could impact future sales
and operating margins. Additionally, as technology changes, the type and number
of distribution channels will further change and new types of competitors, such
as cable or telephone companies, are likely to emerge. There can be no assurance
that the Company will compete effectively in these channels in the future.
The retail channels of distribution available for products are subject to
rapid changes as retailers and distributors enter and exit the consumer software
market or alter their product inventory preferences. Other types of retail
outlets and methods of product distribution may become important in the future.
These new methods may include delivery of software using online services or the
Internet, which will necessitate certain changes in the Company's business and
operations including addressing operational challenges such as improving
download time for pictures, images and programs, ensuring proper regulation of
content quality and developing sophisticated security for transmitting payments.
Should on-line distribution channels increase, the Company will be required to
modify its existing technology platforms in order for its products to be
compatible and remain competitive. It is critical to the success of the Company
that, as these changes occur, it maintain access to those channels of
distribution offering software in its market segments.
ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES
The Company has historically expanded its business through, among other
strategies, acquisitions, business combinations and strategic alliances.
Moreover, the consumer software industry as a whole has recently experienced
consolidation. The Company believes that its customers will in the future demand
that the Company offer increasing numbers of titles throughout the range of
product categories. The Company believes that in many cases the most efficient
means to acquire such titles or the ability to develop or license such titles is
to enter into acquisitions, business combinations or strategic alliances with
consumer software companies and others.
The Company continuously evaluates and considers other businesses of
varying sizes as potential strategic partners and candidates for acquisition
(whether negotiated or non-negotiated) and continuously engages in discussions
with certain businesses in pursuit of possible transactions. Certain of these
businesses may be substantial in size as compared to the Company. There can be
no assurance that the Company will enter into any such transaction or, if the
Company does identify and consummate such a transaction, that the transaction
will enable the Company to achieve its goals.
Acquisitions or business combination transactions that would result in
further expansion of the Company's business in the entertainment and educational
product areas may result in a higher degree of product acceptance risk and
longer development cycles for the Company's products. In addition, companies
that develop entertainment software (for PC, Sega, Nintendo and 3DO platforms)
typically experience lower gross margins than the Company has experienced from
its current operations. Further, should purchase accounting be used by the
Company for future acquisitions or business combination transactions, such
accounting treatment may result in large, one-time expense charges for
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in-process research and development costs and short amortization periods for
acquired technology and other intangible assets acquired in the transaction.
Competition for suitable acquisitions, business combinations and strategic
alliances and the cost of these transactions have recently been increasing. The
future availability of desirable prospects for these transactions in the
computer software industry is uncertain. In addition, assuming that the Company
is able to identify appropriate transaction prospects, the execution and
implementation of acquisitions, business combinations and strategic alliances
involves a significant time commitment from senior management and can result in
large restructuring costs. There can be no assurance that suitable opportunities
will be identified, that transactions can be consummated or that assets,
businesses or relationships acquired in such transactions can be integrated
successfully into the Company's operations.
LEVERAGE
As of April 4, 1998, the Company had outstanding $303,650,000 principal
amount of 5 1/2% Senior Convertible Notes due 2000 (the "Notes"). The
Notes will be redeemable by the Company on or after November 2, 1998 at
declining redemption prices. If the holders of the Notes do not convert the
Notes held by them into Common Stock, there can be no assurance that the
Company's operating cash flow will be sufficient to meet its debt service
requirements, or that the Company will be able to repay the Notes at maturity or
in accordance with their respective terms or to refinance the Notes on favorable
terms or at all.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES; KEY EMPLOYEES
The Company is currently experiencing a period of rapid growth that is
placing and will likely continue to place a strain on the Company's financial,
management and other resources in the future. The Company's ability to continue
to manage its growth effectively will require it, among other things, to
continue to improve its operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
employees. If the Company's management becomes unable to manage growth
effectively, the Company's business, operating results and financial condition
could be adversely affected. For example, over the past two years, the Company
has acquired The Former Learning Company, Compton's, Compton's Learning Company,
MECC, Learning Services, Skills Bank, Microsystems, TEC Direct and Mindscape,
among other companies. Should certain key employees not be retained, future
operating results may be adversely affected.
Additionally, as a result of such acquisitions, the Company faces
challenges relating to integration of operations such as coordinating
geographically separate organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. The process of
combining organizations may cause an interruption of, or a loss of momentum in,
the activities of the Company's business, which could have an adverse effect on
the revenues and operating results of the Company, at least in the near term.
The ability of software companies with significant internal development and
marketing capabilities to continue to manage growth, develop competitive new
products and respond to rapid technological change depends on an ability to
attract, motivate, manage and retain talented developers, product marketers and
other employees with valuable technological and marketing expertise. The
Company's educational software products require a substantially larger internal
development and marketing staff than its operations had previously required. If
the Company is unable to attract, motivate, manage and retain such employees,
the Company's results of operations will likely be adversely affected.
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NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The Company operates in a highly competitive and technology driven
environment. The consumer software industry is undergoing substantial change and
is subject to a high level of uncertainty. Software companies must continue to
develop or acquire new products or upgrade existing products on a timely basis
to sustain revenues and profitable operations. Factors contributing to the short
life span of PC software have included rapid technological change and an
expanded demand for content-rich products. Software companies must continue to
create or acquire innovative new products reflecting technological changes in
hardware and software and translate current products into newly accepted
hardware and software formats, in order to gain and maintain a viable market for
their products. PC hardware, in particular, is steadily advancing in power and
function, expanding the market for increasingly complex and flexible software
products. This has also resulted in longer periods necessary for research and
development of new products and a greater degree of unpredictability in the time
necessary to develop products. Furthermore, the rapid changes in the market and
the increasing number of new products available to consumers have increased the
degree of consumer acceptance risk with respect to any specific title that the
Company may publish. It is expected that this trend will continue and may become
more pronounced in the future.
The Company's rights to license many of its software products are
non-exclusive and, generally, of limited duration, and there is no assurance the
Company will be able to continue to obtain new products from developers or to
maintain or expand its market share in the event that a competitor offers the
same or similar software products. If the Company is unable to develop or
acquire new products in a timely manner as revenues decrease from products
reaching the end of their natural life cycle, the Company's results of
operations will be adversely affected.
Certain of the Company's products, such as The American Girls Premiere and
the Sesame Street line of products, among others, include branded content
licensed from third parties. This content is licensed pursuant to agreements
with terms of finite duration and which may contain restrictions on the
Company's ability to develop future products without the consent of the
applicable licensor. If the Company is not able to develop future products under
these agreements or enter into alternative arrangements with the same or
additional licensors, the Company's operating results could be adversely
affected.
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT
Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
high-quality educational software products for adequate levels of shelf space
and promotional support from retailers. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The amounts paid to retailers by software publishers for preferred shelf space
are customarily determined by arms-length negotiations on a case by case basis,
and there is no general formula or industry standard for determining such fees.
There can be no assurance that such retailers will continue to purchase the
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Company's products, provide the Company's products with adequate levels and
quality of shelf space or continue to participate with the Company in
cooperative advertising, promotional or market development arrangements. In
addition, the Company has implemented new promotional programs, including coupon
rebates and other various programs through print and television media. These
programs may increase the Company's cost of marketing and reduce operating
margins.
SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE
Recently, several major publishers of PC software, including the Company,
have significantly reduced the prices of their products with the goal of gaining
greater market share. The retail and wholesale prices of many of the Company's
products have declined and the Company has introduced new lines of lower-priced
software products. There can be no assurance that such price reductions or new
product lines will result in an increase in unit sales volume or that prices
will not continue to decline in the future. Such a decline would lead to a
decrease in the revenues from, and gross margin on, sales of such products in
the future and could result in lower cash flow or operating margins.
RISK OF INTERNATIONAL OPERATIONS
The Company derived approximately 19% of its revenues in the year ended
January 3, 1998 from sales occurring outside North America. These revenues are
subject to the risks normally associated with international operations,
including currency conversion risks, limitations (including taxes) on the
repatriation of earnings, slower and more difficult accounts receivable
collection, greater difficulty and expense in administering business abroad,
complications in complying with foreign laws and the necessity of obtaining
requisite export licenses, which on occasion may be delayed or difficult to
obtain. In addition, while United States copyright law, international
conventions and international treaties may provide meaningful protection
against unauthorized duplication of software, the laws of foreign jurisdictions
may not protect the Company's proprietary rights to the same extent as the laws
of the United States. Software piracy has been, and can be expected to be, a
persistent problem for participants in the "shrink-wrap" software industry,
including the Company. These problems are particularly acute in certain
international markets such as South America, the Middle East, the Pacific Rim
and the Far East.
PROTECTION OF PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS
The Company relies on a combination of trade secret, copyright, trademark
and other proprietary rights laws and license agreements to protect its rights
to its software products and related documentation. The Company does not have
any patents. United States copyright law, international conventions and
international treaties, however, may not provide meaningful protection against
unauthorized duplication of the Company's software. The Company generally
licenses its externally developed products rather than transferring title and
has relied on contractual arrangements with recipients and users of its products
to establish certain proprietary rights and to maintain confidentiality of those
products protected by trade secret law. Consistent with standard industry
practice, the Company's products generally are licensed pursuant to
"shrink-wrap" licenses that are not signed by the licensee. The enforceability
of such licenses has not been conclusively determined. The Company's products do
not contain any mechanisms to prevent or inhibit unauthorized copying.
The Company has registered numerous trademarks in the United States and
Canada, and a smaller number in other countries, for titles or components of its
products and has trademark registrations pending in the United States and other
countries for various new products.
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
-12-
<PAGE> 15
industry. These problems are particularly acute in certain international markets
such as South America, the Middle East, the Pacific Rim and the Far East.
The Company periodically receives communications alleging or suggesting
that its products may incorporate material covered by the copyrights, trademarks
or other proprietary rights of third parties. With the increased use of music
and animation in CD-ROM products and the increased number of software products
on the market generally, the Company is likely to experience an increase in the
number of infringement claims asserted against it in the future. With respect to
licensed products, the Company is generally indemnified against liability on
these matters. The Company's policy is to investigate the factual basis of such
communications and to resolve such matters promptly by enforcing its rights,
negotiating licenses (if necessary) or taking other appropriate actions.
In certain circumstances, litigation may be necessary to enforce the
Company's proprietary rights, to protect copyrights, trademarks and trade
secrets and other intellectual property rights owned by the Company or its
licensors, to defend the Company against claimed infringements of the rights of
others and to determine the scope and validity of the proprietary rights of the
Company and others. Any such litigation, whether with or without merit, could be
costly and a diversion of management's attention, which could have an adverse
effect on the Company's business, operating results or financial condition.
Adverse determinations in litigation relating to any of the Company's products
could result in the loss of the Company's proprietary rights, subject the
Company to liabilities, require the Company to seek licenses from third parties
or prevent the Company from selling that product.
DEPENDENCE ON MAJOR SUPPLIER
In 1997, the production, assembly and distribution of the Company's North
American line of products was performed by two units of Bertelsmann AG
(collectively, "BMG"), (with the exception of school channel products and
certain OEM products). The Company believes that its existing production
capacity is sufficient to handle anticipated increases in volume and titles into
the foreseeable future. Although the Company believes that suitable alternative
suppliers exist, there can be no assurance that any termination or modification
of the agreement with BMG would not result in a short-term business interruption
for the Company.
YEAR 2000 COMPLIANCE
The Company has initiated an internal study to ensure that its computer
systems and related applications are Year 2000 compliant. The Company has been
taking, and will continue to take, actions intended to resolve Year 2000 issues
through planned replacement or upgrades of its software systems. During the
execution of this project the Company has incurred, and may continue to incur,
internal staff costs as well as consulting and other expenses related to
enhancements necessary to prepare systems for the year 2000. Based on
information currently available to it, the Company believes it will be able to
modify or replace any affected systems in time to minimize any detrimental
effects on operations, and that any additional associated costs will not be
material to the financial condition or results of operations of the Company. The
Company is in the process of determining the effect of this issue on its
vendors' and customers' systems. There can be no assurance that the systems of
such third parties will be Year 2000 compliant on a timely basis, or that the
Company's results of operations will not be adversely affected by the failure of
systems operated by third parties to properly operate in the year 2000.
HISTORY OF OPERATING LOSSES
A variety of factors may cause period-to-period fluctuations in the
Company's operating results, including integration of operations resulting from
acquisitions of companies, products or technologies, revenues and expenses
related to the introduction of new products or new versions of existing
products, changes in selling prices, customer delays in purchases in
anticipation of upgrades to existing products, currency fluctuations, dealer and
distributor order patterns, general economic trends or a slowdown of PC sales
and seasonality of customer buying patterns. Historical operating results of the
Company and its predecessors cannot be relied upon as indicative of the future
performance of the Company. On an historical basis, the Company incurred net
losses of $65,960,000 for the year ended January 6, 1996 (after amortization,
merger and other costs of $103,172,000), $405,451,000 for the year ended January
4, 1997 (after amortization, merger and other costs of $501,330,000) and
$475,667,000 for the year ended January 3, 1998 (after amortization, merger and
other costs of $515,016,000). The Company had net income of $21,145,000 for the
year ended December 31, 1994. There can be no assurance that the Company will be
profitable in the future.
-13-
<PAGE> 16
CAPITAL RESOURCES
The expansion of the Company's current business involves significant
financial risk and capital investment. There is no assurance that financing will
be available in the future to meet the needs of the Company for additional
investment.
DEPENDENCE ON CONTINUED PERSONAL COMPUTER SALES
The success of the Company is dependent upon the continuing use of PCs, and
especially multimedia PCs, in the consumer and school market. A general decrease
in unit sales of PCs or shift to an alternative means of delivery could
adversely affect the Company's future results of operations.
VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the NYSE. The market price of the Common
Stock, like that for the shares of many other high technology companies, has
been and may continue to be volatile. Recently, the stock market in general and
the shares of personal computer software companies in particular have
experienced significant price fluctuations. These broad market fluctuations, as
well as general economic and political conditions and factors such as quarterly
fluctuations in results of operations, the announcement of technological
innovations, the introduction of new products by the Company or its competitors
and general conditions in the computer hardware and software industries may have
a significant impact on the market price of the Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders. The Company will bear all costs (excluding any
underwriting discounts and commissions or expenses incurred by the Selling
Stockholders for brokerage, accounting, tax or legal services or any other
expenses incurred by the Selling Stockholders in taking possession of or
disposing of the Shares), fees and expenses incurred in effecting the
registration of the Shares covered by this Prospectus, including, without
limitation, all registration and filing fees, exchange listing fees, fees and
expenses of counsel for the Company, fees and expenses of accountants for the
Company, printing expenses and blue sky fees and expenses.
THE ACQUISITION
Pursuant to a Stock Exchange Agreement (the "Stock Exchange Agreement"),
dated December 30, 1997, by and among the Company, TEC Direct and the
stockholders of TEC Direct (the "Selling Stockholders"), the Company acquired
all of the outstanding capital stock of TEC Direct. As payment for the purchase
price, the Company issued 429,733 shares of its Common Stock to the Selling
Stockholders.
Pursuant to the terms of the Stock Exchange Agreement, 42,996 shares of the
Common Stock of the Company issued to the Selling Stockholders were placed in
escrow as a source of indemnification for the Company. These shares are
scheduled to be released from escrow upon (i) for items expected to be
encountered in the audit process, the earlier of (A) December 30, 1998; and (B)
the issuance of the first independent audit report on the Company's financial
statements which includes the financial results of TEC Direct; and (ii) for all
other items, December 30, 1998, provided that shares will not be released from
escrow to the extent necessary to secure or satisfy any claim for
indemnification made by the Company prior to such date.
-14-
<PAGE> 17
THE SELLING STOCKHOLDERS
The following table sets forth, to the knowledge of the Company, certain
information, as of December 30, 1997, with respect to the Selling Stockholders
for whom the Company is registering the Shares for resale to the public. The
Company will not receive any of the proceeds from the sale of the Shares. The
shares of Common Stock covered by this Prospectus were issued to the Selling
Stockholders in connection with the acquisition of TEC Direct. See "The
Acquisition."
To the Company's knowledge, none of the Selling Stockholders holds any
position or office with, has been employed by, or has otherwise had a material
relationship with the Company or any of its subsidiaries within the past three
years.
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Number of Shares Shares of
Common Stock Number of of Common Stock Common Stock
Beneficially Shares of Beneficially Benefically
Name of Selling Owned Prior Common Stock Owned after Owned after
Stockholder to Offering (1) Offered Hereby Offering (1)(2) Offering (1)(2)
----------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Bain, Willard 50,786(3)(4) 50,786 0 0%
Companies, L.P.
Bruce G. Bernhart 21(4) 121 0 0%
Robert J. Bernard 770(4) 770 0 0%
Roy A. Clothier, Jr 854(4) 854 0 0%
W. Gray Crary 205(4) 205 0 0%
Louis Faust, III & Lori 12,541(4) 12,541 0 0%
Ann Wahl
Matthew Grosjean 513(4) 513 0 0%
Martin Grosjean, Sr 1,539(4) 1,539 0 0%
Martin Grosjean, Jr 3,334(3)(4) 3,334 0 0%
Jonathan Hanauer 854(4) 854 0 0%
Nicholas Hanauer 855(4) 855 0 0%
Samuel A. Hoisington 2,052(4) 2,052 0 0%
Judy Kilpatrik 513(4) 513 0 0%
Lewis Kilpatrik 513(4) 513 0 0%
Beverly Levine 513(4) 513 0 0%
Edward Levine 770(4) 770 0 0%
Ronald M. Levine 513(4) 513 0 0%
Merle D. McCreery 2,083(4) 2,083 0 0%
</TABLE>
-15-
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
Lee and Bonnie 21,946(4) 21,946 0 0%
McGrath
Tammy McLeod and 821(4) 821 0 0%
John Hamilton
Allen Meisels 3,788(4) 3,788 0 0%
David Meyers 513(4) 513 0 0%
Jeffrey Moskowitz 4,542(4) 4,542 0 0%
Manju Nilsson 205(4) 205 0 0%
Parthenon 1995 78,418(4) 78,418 0 0%
Deferred
Compensation
Limited
Partnership
Parthenon 1996 39,209(4) 39,209 0 0%
Deferred
Compensation
Limited
Partnership
Parthenon 1997 16,912(4) 16,912 0 0%
Deferred
Compensation
Limited
Partnership
The Parthenon Group, 17,822(3)(4) 17,822 0 0%
Inc.
Piks Equities LLC 26,518(4) 26,518 0 0%
Todd Pines 5,683(4) 5,683 0 0%
Julian G. Sallis 3,078(4) 3,078 0 0%
Sheri M. Sapp 3,848(4) 3,848 0 0%
The Scion Group LLC 5,683(4) 5,683 0 0%
Lee Strongwater 3,334(3)(4) 3,334 0 0%
Robert Strongwater 1,539(4) 1,539 0 0%
Jeffrey Tauber 3,078(4) 3,078 0 0%
Michael Tauber 513(4) 513 0 0%
David E. Tenzer and 770(4) 770 0 0%
Ana Lazo Tenzer
Cheryl Veit 4,250(4) 4,250 0 0%
</TABLE>
-16-
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
Westbury Capital 101,572(3)(4) 101,572 0 0%
Partners, L.P.
John Feder and 821(4) 821 0 0%
Annette Cohen
Eugene J. Fine 1,026(4) 1,026 0 0%
Ravi Kant Jain 3,078(4) 3,078 0 0%
Lawrence Levenson 616(4) 616 0 0%
David Shein 821(4) 821 0 0%
</TABLE>
- --------------------
* Less than one percent of the number of shares of Common Stock outstanding.
(1) The number of Shares beneficially owned is determined under rules
promulgated by the Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any Shares as to which the individual has
sole or shared voting power or investment power and also any Shares which
the individual has the right to acquire within 60 days after December 30,
1997 through the exercise of any stock option or other right. The inclusion
herein of such Shares, however, does not constitute an admission that the
Selling Stockholders are direct or indirect beneficial owners of such
Shares. The Selling Stockholders have sole voting power and investment
power with respect to all Shares listed as owned by the Selling
Stockholders.
(2) It is unknown if, when or in what amounts a Selling Stockholder may offer
Shares for sale and there can be no assurance that the Selling Stockholders
will sell any or all of the Shares offered hereby. Because the Selling
Stockholders may offer all or some of the Shares pursuant to this Offering,
and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares that will be
held by the Selling Stockholders after completion of the Offering, no
estimate can be given as to the amount of the Shares that will be held by
the Selling Stockholders after completion of the Offering. However, for
purposes of this table, the Company has assumed that, after completion of
the Offering, no Shares will be held by the Selling Stockholders.
(3) Each of these Stockholders has agreed that he, she or it will not sell,
transfer or otherwise dispose of, or reduce his, her or its interest or
risk relating to shares of Common Stock of the Company until at such time
as the Company has published (within the meaning of Accounting Series
Release No. 130, as amended, of the Commission) financial results covering
at least 30 days of combined operations (the "Combined Financial Results")
of the Company and TEC Direct. The Company expects the Combined Financial
Results to be published in early May 1998.
(4) Includes the following shares of Common Stock placed in escrow pursuant to
the terms of the Stock Exchange Agreement: Bain, Willard Companies, L.P.
(5,079); Bruce G. Bernhart (13); Robert J. Bernard (77); Roy A. Clothier,
Jr. (86); W. Gray Crary (21); Louis Faust, III and Lori Ann Wahl (1,255);
Matthew Grosjean (52); Martin Grosjean, Sr. (154); Martin Grosjean, Jr.
(334); Jonathan Hanauer (86); Nicholas Hanauer (86); Samuel A. Hoisington
(206); Judy Kilpatrik (52); Lewis Kilpatrik (52); Beverly Levine (52);
Edward Levine (77); Ronald M. Levine (52); Merle D. McCreery (209); Lee and
Bonnie McGrath (2,195); Tammy McLeod and John Hamilton (83); Allen
-17-
<PAGE> 20
Meisels (379); David Meyers (52); Jeffrey Moskowitz (455); Manju Nilsson
(21); Parthenon 1995 Deferred Compensation Limited Partnership (7,842);
Parthenon 1996 Deferred Compensation Limited Partnership (3,921); Parthenon
1997 Deferred Compensation Limited Partnership (1,692); The Parthenon
Group, Inc. (1,783); Piks Equities LLC (2,652); Todd Pines (569); Julian G.
Sallis (308); Shari M. Sapp (385); The Scion Group LLC (569); Lee
Strongwater (334); Robert Strongwater (154); Jeffrey Tauber (308); Michael
Tauber (52); David E. Tenzer and Ana Lazo Tenzer (77); Cheryl Veit (425);
Westbury Capital Partners, LP (10,158); John Feder and Annette Cohen (83);
Eugene J. Fine (103); Ravi Kant Jain (308); Lawrence Levenson (62); David
Shein (83).
PLAN OF DISTRIBUTION
The Shares covered hereby may be offered and sold from time to time by the
Selling Stockholders, or by their pledgees, donees, transferees or other
successors in interest. The Selling Stockholders will act independently of the
Company in making decisions with respect to the timing, manner and size of each
sale. Such sales may be made in the over-the-counter market or otherwise, at
prices related to the then current market price or in negotiated transactions,
including pursuant to one or more of the following methods: (i) purchases by a
broker-dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (ii) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (iii) block trades in
which the broker-dealer so engaged will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction. In effecting sales, broker-dealers engaged by the Selling
Stockholders, or by their pledgees, donees, transferees or other successors in
interest may arrange for other broker-dealers to participate. Broker-dealers
will receive commissions or discounts from the Selling Stockholders, or from
their pledgees, donees, transferees or other successors in interest in amounts
to be negotiated immediately prior to the sale.
In offering the Shares covered hereby, the Selling Stockholders, or their
pledgees, donees, transferees or other successors in interest and any
broker-dealers and any other participating broker-dealers who execute sales for
the Selling Stockholders may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any profits realized by
the Selling Stockholders and the compensation of such broker-dealer may be
deemed to be underwriting discounts and commissions. In addition, any of the
Shares covered by this Prospectus which qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this Prospectus.
The Company has agreed with the Selling Stockholders to keep the
Registration Statement of which this Prospectus constitutes a part effective
until the earlier of (i) such time as all of the Shares have been disposed of
pursuant to and in accordance with such Registration Statement or pursuant to
Rule 144 under the Securities Act or any other applicable exemption under the
Securities Act without additional restriction upon public resale or are eligible
for resale pursuant to Rule 144(k) under the Securities Act; or (ii) January 21,
1999. The Company intends to de-register any of the Shares not sold by the
Selling Stockholders at the end of such period.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Neal S. Winneg, General Counsel of the Company. Mr. Winneg owns
options to purchase an aggregate of 148,750 shares of Common Stock, which are to
become exercisable in periodic installments through January 1999.
-18-
<PAGE> 21
EXPERTS
The consolidated balance sheets as of January 3, 1998 and January 4, 1997
and the consolidated statements of income, retained earnings, and cash flows for
each of the three years in the period ended January 3, 1998, incorporated by
reference in this prospectus, have been incorporated herein in reliance on the
report of Coopers & Lybrand, L.L.P., independent accountants, given on the
authority of the firm as experts in accounting and auditing.
The financial statements as of December 31, 1997 and 1996 and for the
years then ended of Mindscape Group, incorporated by reference in this
Prospectus, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
-19-
<PAGE> 22
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION OF AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE HEREOF.
---------------
TABLE OF CONTENTS
PAGE
Available Information........... 3
Incorporation of Certain
Documents By Reference........ 3
Special Note Regarding
Forward-Looking Information.... 5
The Company..................... 6
Risk Factors.................... 8
Use of Proceeds................. 14
The Acquisition................. 14
The Selling Stockholders........ 15
Plan of Distribution............ 18
Legal Matters................... 18
Experts......................... 19
================================================================================
THE LEARNING COMPANY, INC.
429,733 SHARES
COMMON STOCK
--------------
PROSPECTUS
--------------
April __, 1998
================================================================================
<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by the Company (except expenses incurred by
the Selling Stockholders for brokerage, accounting, tax or legal services or any
other expenses incurred by the Selling Stockholders in taking possession of or
disposing of the Shares). All amounts shown are estimates except the Securities
and Exchange Commission registration fee.
<TABLE>
<S> <C>
Filing Fee - Securities and Exchange Commission ..... $ 2,445
Legal fees and expenses of the Company .............. $25,000
Accounting fees and expenses ........................ $10,000
Printing expenses ................................... $ 3,500
Miscellaneous expenses .............................. $19,055
Total Expenses ............................... $60,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at its request in such capacity in another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 8 of the Company's Restated Certificate of Incorporation, as
amended, provides for elimination of directors' personal liability and
indemnification as follows:
"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
II-1
<PAGE> 24
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after approval by the stockholders of this
Section to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of this Section by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
8.2 INDEMNIFICATION AND INSURANCE.
8.2.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee, or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to its fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability, and loss (including attorneys' fees,
judgments, fines, Employee Retirement Income Security Act of 1974, excise taxes
or penalties, and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith, and such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors, and
administrators; provided, however, that the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
8.2.2 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of this Restated Certificate, Bylaw, agreement, vote of stockholders,
or disinterested directors or otherwise.
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."
II-2
<PAGE> 25
The Company has purchased directors' and officers' liability insurance
which would indemnify the directors and officers of the Company against damages
arising out of certain kinds of claims which might be made against them based on
their negligent acts or omissions while acting in their capacity as such. In
addition, certain of the Company's directors may be entitled to indemnification
and advancement of expenses under the charter documents of Tribune Company and
may be covered by directors' and officers' liability insurance maintained by
Tribune Company.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
5* Opinion of Neal S. Winneg, Esq.
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of Price Waterhouse LLP.
23.3* Consent of Neal S. Winneg, Esq., included in Exhibit 5.
24* Power of Attorney (See page II-5 of this Registration Statement).
- ---------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
derivation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") that are
incorporated by reference in this Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 26
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as
amended (the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cambridge, Commonwealth of Massachusetts, on this 24th day of April,
1998.
THE LEARNING COMPANY, INC.
By: /s/ Neal S. Winneg
--------------------------------------------
Neal S. Winneg
Senior Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Michael J. Perik* Chairman of the Board and Chief April 24, 1998
- ------------------------ Executive Officer (Principal
Michael J. Perik Executive Officer)
/s/ R. Scott Murray* Executive Vice President and Chief April 24, 1998
- ------------------------ Financial Officer (Principal
R. Scott Murray Financial and Accounting Officer)
/s/ Kevin O'Leary* President and Director April 24, 1998
- ------------------------
Kevin O'Leary
</TABLE>
II-5
<PAGE> 28
<TABLE>
<S> <C> <C>
/s/ Lamar Alexander* Director April 24, 1998
- ------------------------
Lamar Alexander
/s/ Michael A. Bell* Director April 24, 1998
- ------------------------
Michael A. Bell
/s/ James C. Dowdle* Director April 24, 1998
- ------------------------
James C. Dowdle
/s/ Robert Gagnon* Director April 24, 1998
- ------------------------
Robert Gagnon
/s/ Carolynn N. Reid-Wallace* Director April 24, 1998
- -----------------------------
Carolynn N. Reid-Wallace
/s/ Robert A. Rubinoff* Director April 24, 1998
- ------------------------
Robert A. Rubinoff
/s/ Scott M. Sperling* Director April 24, 1998
- ------------------------
Scott M. Sperling
/s/ Anthony J. DiNovi* Director April 24, 1998
- ------------------------
Anthony J. DiNovi
/s/ Mark E. Nunnelly* Director April 24, 1998
- ------------------------
Mark E. Nunnelly
/s/ Paul J. Zepf* Director April 24, 1998
- ------------------------
Paul J. Zepf
</TABLE>
*By: /s/ Neal S. Winneg
-------------------------
Neal S. Winneg
II-6
<PAGE> 29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
5* Opinion of Neal S. Winneg, Esq.
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of Price Waterhouse LLP.
23.3* Consent of Neal S. Winneg, Esq., included in Exhibit 5.
24* Power of Attorney (See page II-5 of this Registration Statement).
- ----------
* Previously filed.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-3 (File No. 333-48009) of our report dated February 9, 1998 (except as
to Note 12 which is as of March 6, 1998), on our audits of the financial
statements and financial statement schedule of The Learning Company, Inc. as of
January 3, 1998 and January 4, 1997, and for the three years in the fiscal
period ended January 3, 1998. We also consent to references to our firm under
the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 24, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to Registration Statement on Form S-3
(File No. 333-48009) of The Learning Company, Inc. (the "Company") of our
report dated March 2, 1998, relating to the combined financial statements of
the Mindscape Group which appear in the Company's Current Report on Form 8-K,
dated March 27, 1998. We also consent to the reference to us under the caption
"Experts" in such Prospectus.
/s/ Price Waterhouse LLP
- ----------------------------------
PRICE WATERHOUSE LLP
San Jose, California
April 24, 1998
