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As filed with the Securities and Exchange Commission on June 19, 1998
Registration Statement No. 333-56641
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT No. 1
TO
REGISTRATION STATEMENT
ON
FORM S-3
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE LEARNING COMPANY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 94-2562108
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Address, including zip code, and
telephone number, including area code,
of registrant's principal
executive offices)
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NEAL S. WINNEG
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
THE LEARNING COMPANY, INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. __
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. _X_
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. 333-_______.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. 333-__________.
If delivery of the Prospectus is expected to be made pursuant to
Rule 434, please check the following box. __
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THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), SHALL DETERMINE.
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PROSPECTUS
THE LEARNING COMPANY, INC.
8,687,500 SHARES OF COMMON STOCK
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Each of the 8,687,500 shares (the "Shares") of common stock, par value
$0.01 per share (the "Common Stock"), of The Learning Company Inc., a Delaware
corporation (the "Company"), offered hereby is issuable upon exchange or
redemption of certain exchangeable non-voting shares (the "New Exchangeable
Shares") of SoftKey Software Products Inc., an Ontario corporation ("SoftKey").
SoftKey, the issuer of the New Exchangeable Shares, is a subsidiary of the
Company. The New Exchangeable Shares are issuable upon exercise of special
warrants (the "Warrants") to purchase non-voting exchangeable shares of SoftKey
offered and sold outside the United States pursuant to the requirements of
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus does not cover the exchange of the New Exchangeable
Shares by the initial purchasers of the Warrants. The Warrants will be
exercisable on the business day following the date that all consents and
approvals necessary to ensure that the rights and benefits of the holders of
the New Exchangeable Shares are substantially equivalent to the rights and
benefits of the holders of the outstanding exchangeable non-voting shares of
SoftKey (the exchangeable non-voting shares of SoftKey, including the New
Exchangeable Shares, are collectively referred to herein as the "Exchangeable
Shares"), provided that if such consents and approvals are not obtained by
July 10, 1998, the Warrants will thereafter be exercisable for 1.07
Exchangeable Shares. Any unexercised Special Warrants as at 5:00 p.m. (Toronto
time) on July 10, 1998 will be deemed to have been exercised immediately prior
to such time by the holder without any further action on the holder's part. See
"Plan of Distribution." The Company has outstanding a single share of special
voting stock, $1.00 par value per share (the "Voting Share"), which has a number
of votes equal to the number of Exchangeable Shares outstanding from time to
time not owned by the Company, or an entity controlled by or under common
control with the Company, for the election of directors and on all other matters
submitted to a vote of stockholders of the Company. The holder of the Voting
Share is not entitled to dividends and shall vote with the holders of Common
Stock of the Company as a single class. The Exchangeable Shares may be exchanged
for the Company's Common Stock on a one-for-one basis until February 4, 2005, at
which time any outstanding Exchangeable Shares will be purchased or
automatically redeemed for shares of the Common Stock of the Company. Shares of
Common Stock are being offered on a continuous basis pursuant to Rule 415 under
the Securities Act for such period as the Registration Statement to which this
Prospectus relates remains effective.
The Company and SoftKey are offering shares of Common Stock to holders of
New Exchangeable Shares pursuant to the terms of the Exchangeable Shares, which
obligate the Company and SoftKey to effect such exchanges when, as and if
Exchangeable Shares are presented by the holders thereof for exchange. Upon such
exchange, holders of Exchangeable Shares will be entitled to receive for each
Exchangeable Share one share of Common Stock, plus an additional amount
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equivalent to the full amount of all declared and unpaid dividends on such
Exchangeable Share. See "Plan of Distribution." All expenses of registration
incurred in connection with this offering are being paid by the Company.
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "TLC." On June 18, 1998, the closing sale price of the
Common Stock on the NYSE was $24.8125 per share.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 10.
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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.
---------------------
The date of this Prospectus is June 19, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Company is required to file electronic versions of these documents
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments, supplements, exhibits and schedules
thereto, the "Registration Statement") under the Securities Act, with respect to
the Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, as certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the Shares, reference is made
to such Registration Statement. Statements contained in this Prospectus
regarding the contents of any agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such agreement
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement may be inspected without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) The Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998, filed with the Commission on March 13,
1998;
(ii) Amendment No. 1 to the Company's Annual Report on Form 10-K/A
for the fiscal year ended January 3, 1998, filed with the
Commission on May 29, 1998;
(iii) Amendment No. 2 to the Company's Annual Report on Form 10-K/A
for the fiscal year ended January 3, 1998, filed with the
Commission on June 19, 1998;
(iv) The Company's Current Report on Form 8-K dated March 12, 1998,
filed with the Commission on March 17, 1998;
(v) The Company's Definitive Proxy Statement for the 1998 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;
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(vii) The Company's Amendment No. 1 to Current Report on Form 8-K/A,
dated March 27, 1998, filed with the Commission on April 29,
1998;
(viii) The Company's Amendment No. 2 to Current Report on Form 8-K/A,
dated March 27, 1998, filed with the Commission on May 8, 1998;
(ix) The Company's Amendment No. 3 to Current Report on Form 8-K/A,
ted March 27, 1998, filed with the Commission on May 20, 1998;
(x) The Company's Amendment No. 4 to Current Report on Form 8-K/A,
dated March 27, 1998, filed with the Commission on May 29,
1998;
(xi) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 4, 1998, filed with the Commission on
May 13, 1998; and
(xii) The Company's Registration Statement on Form 8-A, filed with
the Commission on October 29, 1996.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Shares registered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). All such requests shall be
directed to: The Learning Company, Inc., One Athenaeum Street, Cambridge,
Massachusetts 02142, Attention: Secretary, Telephone: (617) 494-1200.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents incorporated
herein constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 2B of the Exchange Act. For this purpose, any
statements contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "plans," "expects" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements. These
factors include those set forth in "Risk Factors" herein.
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THE COMPANY
The Learning Company, Inc. (the "Company") develops and publishes a broad
range of high quality branded consumer software for personal computers ("PCs")
that educate across every age category, from young children to adults. The
Company's primary emphasis is in education and reference software, but it also
offers a selection of lifestyle, productivity and, to a lesser extent,
entertainment products, both in North America and internationally.
The Company's educational products are principally sold under a number of
well known brands, including The Learning Company, MECC and Creative Wonders
brands. The Company develops and markets educational products for children ages
18 months to 7 years in the popular "Reader Rabbit" family, which includes both
single-subject and multi-subject titles such as Reader Rabbit's Reading 1 and
Reader Rabbit's Math 1, and Reader Rabbit's Toddler, Reader Rabbit's
Pre-School, Reader Rabbit's Kindergarten and Reader Rabbit's 1st Grade. The
Company also publishes educational products for this age group based on the
popular Sesame Street and Madeline characters, among others. For children seven
years and older, the Company develops and markets engaging educational products
such as the long-running "Trail" series, which includes Oregon Trail 3rd
Edition, as well as products based on the popular Baby-Sitter's Club books.
During 1997, the Company launched its American Girls Premiere title, which is
marketed towards girls in this age group.
The Company develops and markets several different lines of software
designed to teach children and adults such foreign languages as French, German,
Spanish and Japanese. These lines include, among others, the Learn to Speak and
Berlitz lines of products.
The Company's reference products include the "Compton's Home Library" line
which includes, among others, Compton's Interactive Encyclopedia and Compton's
World Atlas. In addition, the Company offers a line of medical reference
products that includes BodyWorks, Home Medical Reference Library and Mosby's
Medical Encyclopedia. The Company's productivity line is marketed under the
SoftKey and the Creative Office brands. The Company also publishes a
lower-priced line of products in box version under the Key and Classics brands
and a jewel-case only version under the SoftKey brand.
During 1997, the Company began offering an Internet filtering product with
the introduction of the popular Cyber Patrol, which allows parents and teachers
to choose what content on the Internet is appropriate for children. Adults can
choose to block material organized into many different categories such as
violence, nudity, 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.
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The Company has a history of acquiring companies in order to broaden its
product lines and sales channels. In May 1998, the Company completed the
acquisition of PF. Magic, Inc. ("PF. Magic"), a publisher of virtual life
software for children. In March 1998, the Company and certain of its affiliates
completed the acquisition of Mindscape, a publisher of educational,
productivity and entertainment software. During 1997, the Company completed a
number of small complementary acquisitions in the educational software segment.
During the third quarter of 1997, the Company acquired Learning Services Inc.
("Learning Services") (a national school software catalog for teachers), Skills
Bank Corporation ("Skills Bank") (a developer of older age and remedial
educational software for schools) and Microsystems Software, Inc.
("Microsystems") (an Internet filtering publisher and creator of Cyber Patrol).
During the fourth quarter of 1997, the Company and certain of its affiliates
acquired control of Creative Wonders, L.L.C. ("Creative Wonders") (a developer
of branded children's educational software) and acquired TEC Direct, Inc. (the
publisher of an educational consumer software catalog). The Company has also
entered into an agreement dated June 2, 1998 to acquire SofSource, Inc., a
leading publisher of educational and test software for high school and college
students. The closing of the transaction is subject to certain conditions,
including expiration of waiting periods under pre-merger notification
regulations.
In May 1996, the Company consummated the acquisition of MECC, an
educational software publisher. That acquisition, together with the acquisitions
in December 1995 of The Learning Company ("The Former Learning Company") and
Compton's NewMedia, Inc. ("Compton's"), marked the completion of the Company's
strategic initiative to expand its educational software franchise.
The Company was incorporated in California in October 1978 and
reincorporated in Delaware in October 1986. In February 1994, the Company, which
was then known as WordStar International Incorporated, completed a three-way
business combination with SoftKey Software Products Inc. and Spinnaker Software
Corporation in which the Company changed its name to SoftKey International Inc.
In October 1996, the Company changed its name from SoftKey International Inc. to
The Learning Company, Inc. to reflect its expanded emphasis on educational
software. The Company's executive offices are located at One Athenaeum Street,
Cambridge, Massachusetts 02142. Its telephone number is (617) 494-1200, and its
internet web site is located at http:/www.learningco.com. "The Learning Company,
Inc." and all of the Company's logos and product names are trademarks of the
Company.
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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.
TAXABILITY OF THE EXCHANGE
Based on the tax laws as of the date of this Prospectus, the exchange of
Exchangeable Shares for Shares is generally a taxable event in Canada and the
United States. A holder's tax consequences can vary depending on a number of
factors, including the residency of the holder and the method of the exchange
(redemption or exchange) (see "Income Tax Considerations").
DIFFERENCES IN CANADA AND U.S. TRADING MARKETS
The outstanding Exchangeable Shares of SoftKey are listed on The Toronto
Stock Exchange (the "TSE") and the Common Stock is listed on the NYSE. The TSE
has conditionally approved the listing of the New Exchangeable Shares. There is
no current intention to list the Exchangeable Shares or Common Stock on any
other stock exchange in Canada or the United States. As a result of the
foregoing, the price at which the Exchangeable Shares will trade will be based
upon the market for such shares on the TSE and the price at which the shares of
Common Stock will trade will be based upon the market for such shares on the
NYSE. Although the Company believes that the market price of the Exchangeable
Shares on the TSE and the market price of the Common Stock on the NYSE will
reflect essentially equivalent values, there can be no assurances that the
market price of the Common Stock will be identical, or even similar, to the
market price of the Exchangeable Shares.
INTENSE COMPETITIVE ENVIRONMENT
The 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 competitors'
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
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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 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,
the Company 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. 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
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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
in-process research and development costs and short amortization periods for
acquired technology and other intangible assets acquired in the transaction.
Competition for suitable acquisitions, business combinations and strategic
alliances and the cost of these transactions have recently been increasing. The
future availability of desirable prospects for these transactions in the
computer software industry is uncertain. In addition, assuming that the Company
is able to identify appropriate transaction prospects, the execution and
implementation of acquisitions, business combinations and strategic alliances
involves a significant time commitment from senior management and can result in
large restructuring costs. There can be no assurance that suitable opportunities
will be identified, that transactions can be consummated or that assets,
businesses or relationships acquired in such transactions can be integrated
successfully into the Company's operations.
LEVERAGE
As of June 15, 1998, the Company had outstanding $190,995,000 principal
amount of 5 1/2% Senior Convertible Notes due 2000 (the "Notes"). The Notes will
be redeemable by the Company on or after November 2, 1998 at declining
redemption prices. If the holders of the Notes do not convert the Notes held by
them into Common Stock, there can be no assurance that the Company's operating
cash flow will be sufficient to meet its debt service requirements, or that the
Company will be able to repay the Notes at maturity or in accordance with their
respective terms or to refinance the Notes on favorable terms or at all.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES; KEY EMPLOYEES
The Company is currently experiencing a period of rapid growth that is
placing and will likely continue to place a strain on the Company's financial,
management and other resources in the future. The Company's ability to continue
to manage its growth effectively will require it, among other things, to
continue to improve its operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
employees. If the Company's management becomes unable to manage growth
effectively, the Company's business, operating results and financial condition
could be adversely affected. For example, over the past two years, the Company
has acquired The Former Learning Company, Compton's, Compton's Learning Company,
MECC, Learning Services, Skills Bank, Microsystems, TEC Direct, Mindscape and
PF. Magic, among other companies. Should certain key employees not be retained,
future operating results may be adversely affected.
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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.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The Company operates in a highly competitive and technology driven
environment. The consumer software industry is undergoing substantial change and
is subject to a high level of uncertainty. Software companies must continue to
develop or acquire new products or upgrade existing products on a timely basis
to sustain revenues and profitable operations. Factors contributing to the short
life span of PC software have included rapid technological change and an
expanded demand for content-rich products. Software companies must continue to
create or acquire innovative new products reflecting technological changes in
hardware and software and translate current products into newly accepted
hardware and software formats, in order to gain and maintain a viable market for
their products. PC hardware, in particular, is steadily advancing in power and
function, expanding the market for increasingly complex and flexible software
products. This has also resulted in longer periods necessary for research and
development of new products and a greater degree of unpredictability in the time
necessary to develop products. Furthermore, the rapid changes in the market and
the increasing number of new products available to consumers have increased the
degree of consumer acceptance risk with respect to any specific title that the
Company may publish. It is expected that this trend will continue and may become
more pronounced in the future.
Similarly, the Company's product-content focus and enhanced presence in
the educational and reference software market have required and will continue
to require the Company to evaluate and adopt appropriate development and
marketing strategies and methods, which may differ from those historically
employed by the Company and may subject the Company to the risks and
competitive pressures associated with those new strategies.
The Company's rights to license many of its software products are
non-exclusive and, generally, of limited duration, and there is no assurance the
Company will be able to continue to obtain new products from developers or to
maintain or expand its market share in the event that a competitor offers the
same or similar software products. If the Company is unable to develop or
acquire new products in a timely manner as revenues decrease from products
reaching the end of their natural life cycle, the Company's results of
operations will be adversely affected.
Certain of the Company's products, such as The American Girls Premiere and
the Sesame Street line of products, among others, include branded content
licensed from third parties. This content is licensed pursuant to agreements
with terms of finite duration and which may contain restrictions on the
Company's ability to develop future products without the consent of the
applicable licensor. If the Company is not able to develop future products under
these agreements or enter into alternative arrangements with the same or
additional licensors, the Company's operating results could be adversely
affected.
COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT
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Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
high-quality educational software products for adequate levels of shelf space
and promotional support from retailers. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The amounts paid to retailers by software publishers for preferred shelf space
are customarily determined by arms-length negotiations on a case by case basis,
and there is no general formula or industry standard for determining such fees.
There can be no assurance that such retailers will continue to purchase the
Company's products, provide the Company's products with adequate levels and
quality of shelf space or continue to participate with the Company in
cooperative advertising, promotional or market development arrangements. In
addition, the Company has implemented new promotional programs, including coupon
rebates and other various programs through print and television media. These
programs may increase the Company's cost of marketing and reduce operating
margins.
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
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confidentiality of those products protected by trade secret law. Consistent with
standard industry practice, the Company's products generally are licensed
pursuant to "shrink-wrap" licenses that are not signed by the licensee. The
enforceability of such licenses has not been conclusively determined. The
Company's products do not contain any mechanisms to prevent or inhibit
unauthorized copying.
The Company has registered numerous trademarks in the United States and
Canada, and a smaller number in other countries, for titles or components of its
products and has trademark registrations pending in the United States and other
countries for various new products.
Policing unauthorized use of a broadly disseminated product such as PC
software is very difficult. Software piracy can be expected to be a persistent
problem for the "shrink-wrap" software industry. These problems are particularly
acute in certain international markets such as South America, the Middle East,
the Pacific Rim and the Far East.
The Company periodically receives communications alleging or suggesting
that its products may incorporate material covered by the copyrights, trademarks
or other proprietary rights of third parties. With the increased use of music
and animation in CD-ROM products and the increased number of software products
on the market generally, the Company is likely to experience an increase in the
number of infringement claims asserted against it in the future. With respect to
licensed products, the Company is generally indemnified against liability on
these matters. The Company's policy is to investigate the factual basis of such
communications and to resolve such matters promptly by enforcing its rights,
negotiating licenses (if necessary) or taking other appropriate actions.
In certain circumstances, litigation may be necessary to enforce the
Company's proprietary rights, to protect copyrights, trademarks and trade
secrets and other intellectual property rights owned by the Company or its
licensors, to defend the Company against claimed infringements of the rights of
others and to determine the scope and validity of the proprietary rights of the
Company and others. Any such litigation, whether with or without merit, could be
costly and a diversion of management's attention, which could have an adverse
effect on the Company's business, operating results or financial condition.
Adverse determinations in litigation relating to any of the Company's products
could result in the loss of the Company's proprietary rights, subject the
Company to liabilities, require the Company to seek licenses from third parties
or prevent the Company from selling that product.
DEPENDENCE ON MAJOR SUPPLIER
In 1997, the production, assembly and distribution of the Company's North
American line of products was performed by two units of Bertelsmann AG
(collectively, "BMG"), (with the exception of school channel products and
certain OEM products). The Company believes that BMG's existing production
capacity is sufficient to handle anticipated increases in volume and titles into
the foreseeable future. Although the Company believes that suitable alternative
suppliers exist, there can be no assurance that any termination or modification
of the agreement with BMG would not result in a short-term business interruption
for the Company.
YEAR 2000 COMPLIANCE
The Company has initiated an internal study to ensure that its computer
systems and related applications are Year 2000 compliant. The Company has been
taking, and will continue to take, actions intended to resolve Year 2000 issues
through planned replacement or upgrades of its software systems. During the
execution of this project the Company has incurred, and may continue to incur,
internal staff costs as well as consulting and other expenses related to
enhancements necessary to prepare systems for the year 2000. Based on
information currently available to it, the Company believes it will be able to
modify or replace any affected systems in time to minimize any detrimental
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<PAGE> 16
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.
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
Because Shares will be issued on exchange or redemption of the New
Exchangeable Shares, the Company will receive no net cash proceeds on such
issuance. The Company will bear all costs, fees and expenses incurred in
effecting the registration of the Shares covered by this Prospectus, including,
without limitation, all registration and filing fees, exchange listing fees,
fees and expenses of
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counsel for the Company, fees and expenses of accountants for the Company,
printing expenses and blue sky fees and expenses.
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PLAN OF DISTRIBUTION
NEW EXCHANGEABLE SHARES
The New Exchangeable Shares are issuable upon exercise of the Warrants
offered and sold pursuant to Regulation S under the Securities Act. The
Warrants will be exercisable on the business day following the date that all
consents and approvals necessary to ensure that the rights and benefits of the
holders of the New Exchangeable Shares are substantially equivalent to the
rights and benefits of the holders of the outstanding Exchangeable Shares.
Notwithstanding the foregoing, if such consents and approvals are not obtained
by July 10, 1998 (or such later date that may be agreed upon by SoftKey and
Griffiths McBurney & Partners and First Marathon Securities Limited, the
underwriters for the sale of the Warrants), the Warrants thereafter will be
exercisable for 1.07 Exchangeable Shares. Any unexercised Special Warrants as
at 5:00 p.m. (Toronto time) on July 10, 1998 will be deemed to have been
exercised immediately prior to such time by the holder thereof without any
further action on the holder's part. The Company has outstanding one Voting
Share which has a number of votes equal to the number of Exchangeable Shares
outstanding. Each holder of Exchangeable Shares has the right (the "Voting
Right") to instruct the Trustee to exercise one of the votes attached to the
Voting Share for each Exchangeable Share held by the holder. The holder of the
Voting Share is not entitled to dividends and shall vote with the holders of
Common Stock as a single class. The Exchangeable Shares may be exchanged for
the Company's Common Stock on a one-for-one basis until February 4, 2005, at
which time all outstanding Exchangeable Shares of SoftKey shall be
automatically exchanged for shares of the Common Stock of the Company.
The following is a description of certain rights, privileges, restrictions
and conditions of the Exchangeable Shares as set forth in the articles of
arrangement and the plan of arrangement under Section 182 of the Business
Corporations Act (Ontario) dated February 4, 1994 (the "Plan of Arrangement")
providing for the combination of the Company (formerly known as Wordstar
International Incorporated ("Wordstar")), SoftKey and Spinnaker Software
Corporation ("Spinnaker"), and the Voting and Exchange Trust Agreement, dated
February 4, 1994 (the "Voting and Exchange Trust Agreement") among the Company,
SoftKey and R-M Trust Company, as trustee. The Plan of Arrangement and the
Voting and Exchange Trust Agreement were entered into in connection with the
three party combination (the "Three Party Combination") of the Company, SoftKey
and Spinnaker pursuant to the Amended and Restated Combination Agreement dated
as of August 17, 1993. The Plan of Arrangement and the Voting and Exchange Trust
Agreement are included as exhibits to the Registration Statement of which this
Prospectus is a part, and the following description is qualified in its entirety
by reference to the Plan of Arrangement and the Voting and Exchange Trust
Agreement.
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PROCEDURES FOR ISSUANCE OF COMMON STOCK
ELECTION BY HOLDERS TO EXCHANGE EXCHANGEABLE SHARES. Holders of
Exchangeable Shares have the right (the "Exchange Right") at any time with
certain limited exceptions to retract (i.e., require SoftKey to redeem) any or
all such Exchangeable Shares owned by them and to receive for each retracted
Exchangeable Share an amount equal to the Current Market Price (as defined
below) of the Company's Common Stock on the business day prior to the Retraction
Date (as defined below) (which amount shall be satisfied in full by delivery of
one share of Common Stock for each Exchangeable Share), plus an additional
amount equal to all declared and unpaid dividends on such Exchangeable Share
(the "Retraction Price"). Holders of Exchangeable Shares may effect such
retraction by presenting a certificate or certificates to SoftKey or its
transfer agent representing the number of Exchangeable Shares the holder desires
to retract, together with a written statement (the "Retraction Request")
specifying the number of Exchangeable Shares the holder wishes to retract and
the date the holder desires to have the Company redeem the Common Stock, which
must be between five and ten business days after such request is received by
SoftKey (the "Retraction Date"), and such other documents as may be required to
effect the retraction of the Exchangeable Shares. "Current Market Price" means,
in respect of a share of the Company's Common Stock on any date, the Canadian
dollar equivalent of the average of the closing bid and asked prices of the
Company's Common Stock during a period of 20 consecutive trading days ending
not more than five trading days before such date on the stock exchange or
automated quotation system on which the Company's Common Stock is listed or
quoted.
SoftKey must immediately notify the Company of any Retraction Request. The
Company will have two business days in which to advise SoftKey as to whether the
Company shall exercise its overriding right (the "Retraction Call Right") to
purchase all of the Exchangeable Shares specified in the Retraction Request by
delivery of the Retraction Price for each retracted share (a "Retracted Share")
to the transfer agent for payment to the holder on the Retraction Date. A holder
may revoke his or her Retraction Request at any time prior to the close of
business on the business day preceding the Retraction Date, in which case the
holder's Exchangeable Shares will neither be purchased by the Company nor
redeemed by SoftKey. If the holder does not revoke his or her Retraction
Request, on the Retraction Date each Exchangeable Share that the holder has
requested SoftKey to redeem will be acquired by the Company (assuming the
Company exercises its Retraction Call Right) or redeemed by SoftKey, as the case
may be, in each case for the purchase price per Retracted Share equal to the
Retraction Price.
SoftKey shall not be obligated to redeem Retracted Shares to the extent
that such redemption would be contrary to solvency requirements or other
provisions of applicable law. Retracted Shares not redeemed by SoftKey as a
result of solvency requirements or other provisions of applicable law will be
purchased by the Company on or about the Retraction Date in accordance with the
Voting and Exchange Trust Agreement for a purchase price per Retracted Share
equal to the Retraction Price.
REDEMPTION OF EXCHANGEABLE SHARES. Subject to applicable law and the
Redemption Call Right of the Company described below, on February 4, 2005 (the
eleventh anniversary of the effective date of the Three Party Combination) or
(i) such later date as specified by the SoftKey Board of Directors or (ii) such
earlier date as specified by the SoftKey Board of Directors, if at such date
there are less than 500,000 Exchangeable Shares outstanding (other than
Exchangeable Shares held by the Company and entities controlled by or under
common control with the Company and subject to necessary adjustments to such
number of shares to reflect permitted changes to Exchangeable Shares) (the
"Automatic Redemption Date"), SoftKey will redeem all but not less than all of
the then outstanding Exchangeable Shares for an amount per share equal to the
Retraction Price. SoftKey shall, at least 120 days prior to the Automatic
Redemption Date, provide the registered holders of the Exchangeable Shares with
written notice of the proposed redemption of the Exchangeable Shares.
Notwithstanding
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any proposed redemption of the Exchangeable Shares, the Company has an
overriding right (the "Redemption Call Right") to acquire on the Automatic
Redemption Date all but not less than all of the Exchangeable Shares then
outstanding in exchange for an amount per share equal to the Retraction Price.
LIQUIDATION OF SOFTKEY. Upon the liquidation, dissolution or winding up of
SoftKey or any other distribution of the assets of SoftKey among its
stockholders for purposes of winding up its affairs (a "SoftKey Liquidation
Event"), holders of the Exchangeable Shares have the right to receive from
SoftKey, before payment is made to any holder of any class of stock ranking on
liquidation junior to the Exchangeable Shares, for each Exchangeable Share an
amount equal to the Current Market Price of the Company's Common Stock on the
business day prior to the SoftKey Liquidation Event (which shall be satisfied in
full by delivery by the Company of one share of Common Stock for each
Exchangeable Share they hold), plus an additional amount equal to the full
amount of any declared and unpaid dividends on each such Exchangeable Share (the
"Liquidation Amount"). In the event of a proposed SoftKey Liquidation Event, the
Company has the right (the "Liquidation Call Right") to purchase all but not
less than all of the outstanding Exchangeable Shares from the holders thereof at
the effective time of any such SoftKey Liquidation even in exchange for the
Liquidation Amount.
On or after the effective date of a SoftKey Liquidation Event, and subject
to the exercise by the Company of its Liquidation Call Right to purchase the
Exchangeable Shares in exchange for the Liquidation Amount, a holder of
Exchangeable Shares may surrender certificates representing such Exchangeable
Shares, together with such other documents as may be required, to SoftKey's
registered office or the office of the transfer agent. Upon receipt of the
certificates and other documents, SoftKey will deliver the Liquidation Amount to
such holder at the address recorded in the securities register or by holding the
Liquidation Amount for pick up by the holder at SoftKey's registered office or
the office of the transfer agent, as specified by SoftKey in a notice to such
holder.
In a SoftKey Insolvency Event (as defined below), a holder may instruct
CIBC Mellon Trust Company (the "Trustee") to exercise its exchange right by
requiring the Company to purchase the Exchangeable Shares in exchange for the
Liquidation Amount. A "SoftKey Insolvency Event" means the institution by
SoftKey of any proceeding to be adjudicated as bankrupt or insolvent or to be
dissolved or wound up, or the consent of SoftKey to the institution of
bankruptcy, insolvency, dissolution or winding up proceedings against it, or the
filing of a petition, answer or consent seeking dissolution or winding up under
any bankruptcy, insolvency or analogous laws, and the failure by SoftKey to
contest in good faith any such proceedings commenced in respect of SoftKey
within 15 days of becoming aware thereof, or the consent by SoftKey to the
filing of any such petition or to the appointment of a receiver, or the making
by SoftKey of a general assignment for the benefit of creditors, or the
admission in writing by SoftKey of its inability to pay its debts generally as
they become due, or SoftKey not being permitted, pursuant to solvency
requirements of applicable law, to redeem any Exchangeable Shares.
LIQUIDATION OF THE COMPANY. Upon the occurrence of a Company Liquidation
Event (as defined below), in order for the holders of the Exchangeable Shares
(other than the Company, its subsidiaries and those controlled by or under
common control with the Company) to participate on a pro rata basis with the
holders of Common Stock, each holder of Exchangeable Shares will automatically
receive the Liquidation Amount upon surrender of Exchangeable Shares and such
instruments of transfer as the Company may reasonably require. A "Company
Liquidation Event" means (i) any determination by the Company's Board of
Directors to institute voluntary liquidation, dissolution, or winding-up
proceedings with respect to the Company or to effect any other distribution of
assets of the Company among its stockholders for the purpose of winding up its
affairs; or (ii) immediately upon the earlier of (A) receipt by the Company of
notice of, and (B) the Company
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becoming aware of any threatened or instituted claim, suit or proceedings with
respect to the involuntary liquidation, dissolution or winding-up of the Company
or to effect any other distribution of assets of the Company among its
stockholders for the purpose of winding up its affairs.
To effect the automatic exchange of Exchangeable Shares for shares of
Common Stock, the Company will be deemed to have purchased each Exchangeable
Share outstanding on the fifth business day prior to the effective date of the
Company Liquidation Event for the Liquidation Amount.
INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davies, Ward & Beck, Canadian tax counsel for SoftKey,
the following is a summary of the principal Canadian federal income tax
considerations generally applicable to a holder who acquires New Exchangeable
Shares as described under the heading "Plan of Distribution" (a "Holder") who,
for purposes of the Income Tax Act (Canada) (the "Canadian Tax Act"), holds his
or her New Exchangeable Shares and will hold his or her shares of Common Stock
as capital property and who deals at arm's length with SoftKey and the Company.
This summary does not apply to a Holder with respect to whom the Company is a
"foreign affiliate" within the meaning of the Canadian Tax Act.
This summary is based on the current provisions of the Canadian Tax Act,
the regulations thereunder, all specific proposals to amend the Canadian Tax Act
or the regulations publicly announced by the Minister of Finance (Canada) prior
to the date hereof (the "Tax Proposals"), and counsel's understanding of the
current administrative practices of Revenue Canada. The Canadian Tax Act
contains certain provisions relating to securities held by certain financial
institutions (the "Mark-to-Market Rules"). This summary does not take into
account these Mark-to-Market Rules, and Holders that are "financial
institutions" for purposes of such rules should consult their own tax advisors.
This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except for the Tax Proposals, does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the federal income tax considerations described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of shares of Common Stock, including
dividends, adjusted cost base and proceeds of disposition, must be converted
into Canadian dollars based on the prevailing United States dollar exchange rate
at the time such amounts arise.
HOLDERS RESIDENT IN CANADA
The following portion of the summary is applicable to Holders who, for
purposes of the Canadian Tax Act and any applicable tax treaty or convention,
are resident or deemed to be resident in Canada at all relevant times.
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Dividends - New Exchangeable Shares
Dividends received or deemed to be received on the New Exchangeable Shares
by a Holder who is an individual will be included in computing the Holder's
income, and will be subject to the gross-up and dividend tax credit rules
normally applicable to taxable dividends received from taxable Canadian
corporations.
The New Exchangeable Shares will be "taxable preferred shares" and
"short-term preferred shares" for purposes of the Canadian Tax Act. Accordingly,
SoftKey will be subject to a 66-2/3% tax under Part VI.1 of the Canadian Tax Act
on dividends paid or deemed to be paid on the New Exchangeable Shares. Dividends
received or deemed to be received by a Holder on New Exchangeable Shares will
not be subject to the 10% tax under Part IV.1 of the Canadian Tax Act applicable
to certain corporations.
Dividends received or deemed to be received on the New Exchangeable Shares
by a Holder that is a corporation, other than a "specified financial
institution" as defined in the Canadian Tax Act, will normally be deductible in
computing its taxable income if either:
(a) at and immediately before the time at which the dividend is paid or
deemed to be paid the Company is not a specified financial institution or a
specified person in relation to a specified financial institution for
purposes of the Canadian Tax Act; or
(b) at the time of receipt of the dividend, the New Exchangeable Shares are
listed on a prescribed stock exchange in Canada (which currently includes
the TSE) and the Holder, either alone or together with specified persons in
relation to the Holder, does not receive (or is not deemed to receive)
dividends in respect of more than 10% of the issued and outstanding New
Exchangeable Shares.
The Company has advised Canadian tax counsel that it is of the view that it
is a specified financial institution for purposes of the Canadian Tax Act at the
current time. This status may change in the future.
In the case of a Holder that is a specified financial institution, such a
dividend will normally be deductible in computing its taxable income if either:
(a) the specified financial institution did not acquire the New
Exchangeable Shares in the ordinary course of the business carried on by
the Holder, and at and immediately before the time at which the dividend is
paid or deemed to be paid the Company is not a specified financial
institution or a specified person in relation to a specified financial
institution for purposes of the Canadian Tax Act; or
(b) at the time of receipt of the dividend by the specified financial
institution, the New Exchangeable Shares are listed on a prescribed stock
exchange in Canada (which currently includes the TSE) and the specified
financial institution, either alone or together with persons with whom it
does not deal at arm's length, does not receive (or is not deemed to
receive) dividends in respect of more than 10% of the issued and
outstanding New Exchangeable Shares.
A Holder that is a "private corporation" or a "subject corporation" (as
defined in the Canadian Tax Act) may be liable under Part IV of the Canadian Tax
Act to pay a refundable tax of 33-1/3% on dividends received or deemed to be
received on the New Exchangeable Shares to the extent that such dividends are
deductible in computing the Holder's taxable income. A Holder that is throughout
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the relevant taxation year a "Canadian-controlled private corporation" (as
defined in the Canadian Tax Act) may be liable to pay an additional refundable
tax of 6- % on its "aggregate investment income" for the year which will include
dividends or deemed dividends that are not deductible in computing taxable
income.
Dividends - Common Stock
Dividends on Common Stock will be included in the recipient's income for
the purposes of the Canadian Tax Act. Such dividends received by a Holder who is
an individual will not be subject to the gross-up and dividend tax credit rules
in the Canadian Tax Act. A Holder that is a corporation will include such
dividends in computing its income and generally will not be entitled to deduct
the amount of such dividends in computing its taxable income. A Holder that is
throughout the relevant taxation year a "Canadian-controlled private
corporation" (as defined in the Canadian Tax Act) may be liable to pay an
additional refundable tax of 6- % on its "aggregate investment income" for the
year which will include such dividends. United States non-resident withholding
tax on such dividends will be eligible for foreign tax credit or deduction
treatment where applicable under the Canadian Tax Act.
Redemption or Exchange of New Exchangeable Shares
On the redemption (including a retraction) of a New Exchangeable Share by
SoftKey for a share of Common Stock, the Holder will be deemed to have received
a dividend equal to the amount, if any, by which the redemption proceeds (the
fair market value at the time of the redemption of the share of Common Stock
received by the Holder from SoftKey on the redemption plus the amount, if any,
of all unpaid dividends on the New Exchangeable Share) exceeds the paid-up
capital at that time of the New Exchangeable Share so redeemed. The amount of
any such deemed dividend will be subject to the tax treatment accorded to the
dividends described above under " - Canadian Federal Income Tax Considerations -
Shareholders Resident in Canada - Dividends - New Exchangeable Shares." On the
redemption, the Holder will also be considered to have disposed of the New
Exchangeable Share, but the amount of such deemed dividend will be excluded in
computing the Holder's proceeds of disposition for purposes of computing any
capital gain or capital loss arising on the disposition of the New Exchangeable
Share. In the case of a Holder that is a corporation, in some circumstances all
or a portion of the amount of any such deemed dividend may be treated as
proceeds of disposition and not as a dividend.
On the exchange of a New Exchangeable Share by a Holder with the Company
for a share of Common Stock, the Holder generally will realize a capital gain
(or a capital loss) equal to the amount by which the proceeds of disposition of
the New Exchangeable Share, net of any reasonable costs of disposition, exceed
(or are less than) the adjusted cost base of the New Exchangeable Share to the
Holder. For these purposes, the proceeds of disposition will be the value of the
share of Common Stock at the time of exchange plus the amount of all unpaid
dividends on the New Exchangeable Share.
The cost to a Holder of a share of Common Stock received on the retraction,
redemption or exchange of a New Exchangeable Share will be equal to the fair
market value of the share of Common Stock at the time of such event. Where the
share of Common Stock is capital property, its cost will be averaged with the
adjusted cost base of all such shares held by the Holder as capital property
immediately before the acquisition to determine the adjusted cost base of each
such share to the Holder.
BECAUSE OF THE EXISTENCE OF THE RETRACTION CALL RIGHT, A HOLDER EXERCISING
THE RIGHT OF RETRACTION IN RESPECT OF A NEW EXCHANGEABLE SHARE CANNOT CONTROL
WHETHER SUCH HOLDER WILL RECEIVE A SHARE OF COMMON
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<PAGE> 24
STOCK BY WAY OF REDEMPTION OF THE NEW EXCHANGEABLE SHARE BY SOFTKEY OR BY WAY OF
PURCHASE OF THE NEW EXCHANGEABLE SHARE BY THE COMPANY. AS DESCRIBED ABOVE, THE
CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF A REDEMPTION DIFFER FROM THOSE OF A
PURCHASE. HOWEVER, A HOLDER WHO EXERCISES THE RIGHT OF RETRACTION WILL BE
NOTIFIED IF THE RETRACTION CALL RIGHT WILL NOT BE EXERCISED BY THE COMPANY, AND
IF SUCH HOLDER DOES NOT WISH TO PROCEED, SUCH HOLDER MAY CANCEL THE NOTICE OF
RETRACTION AND RETAIN SUCH HOLDER'S NEW EXCHANGEABLE SHARE (SEE "PROCEDURES FOR
ISSUANCE OF COMMON STOCK - ELECTION BY HOLDERS TO EXCHANGE EXCHANGEABLE
SHARES").
Dispositions and Taxation of Capital Gains and Capital Losses
Upon a disposition (or a deemed disposition) of a New Exchangeable Share or
a share of Common Stock, including a sale, exchange or other disposition, a
Holder generally will realize a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition of the New Exchangeable Share or the
share of Common Stock, as applicable, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base of the New
Exchangeable Share or the share of Common Stock, as applicable, to the Holder.
Three-quarters of any such capital gain will be required to be included in
computing the Holder's income as a taxable capital gain. Three-quarters of any
such capital loss normally is deducted against taxable capital gains realized by
the Holder in the year of disposition and thereafter normally may be deducted by
the Holder against taxable capital gains realized in any of the three preceding
taxation years or any subsequent taxation year, subject to detailed rules
contained in the Canadian Tax Act in this regard.
The amount of any capital loss realized on the disposition or deemed
disposition of a New Exchangeable Share by a Holder that is a corporation may be
reduced by the amount of dividends received or deemed to have been received by
it on such share to the extent and in the circumstances prescribed by the
Canadian Tax Act. Similar rules may apply where a Holder that is a corporation
is a member of a partnership or beneficiary of a trust that owns New
Exchangeable Shares or that is itself a member of a partnership or a beneficiary
of a trust that owns New Exchangeable Shares.
A Holder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
also may be liable to pay an additional refundable tax of 6- % on its "aggregate
investment income" for the year which will include taxable capital gains.
Call Rights
SoftKey is of the view, and has advised counsel, that the Liquidation Call
Right, the Redemption Call Right and the Retraction Call Right each have nominal
value. On this basis, a Holder should not realize a gain at the time that any of
such Call Rights are granted to the Company. Such determinations of value are
not binding on Revenue Canada and counsel can express no opinion on matters of
factual determination such as this.
Foreign Property
The New Exchangeable Shares, if issued on the date hereof and listed on a
prescribed stock exchange in Canada (which currently includes the TSE), would
not, on the date hereof, be foreign property under the Canadian Tax Act for
trusts governed by registered pension plans, registered retirement savings
plans, registered retirement income funds and deferred profit sharing plans or
for certain other tax-exempt persons. The Voting Rights and the Exchange Rights
will be foreign property under the Canadian Tax Act. SoftKey has advised
Canadian tax counsel that SoftKey is of the view
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<PAGE> 25
that the fair market value of the Voting Rights and the Exchange Rights is
nominal. Common Stock will be foreign property under the Canadian Tax Act.
Qualified Investments
The New Exchangeable Shares, if issued on the date hereof, would be, on the
date hereof, a qualified investment under the Canadian Tax Act for trusts
governed by registered retirement savings plans, registered retirement income
funds and deferred profit sharing plans. Shares of Common Stock, if issued on
the date hereof and listed on a prescribed stock exchange (which currently
includes the NYSE) would be, on the date hereof, qualified investments for such
trusts. The Voting Rights and the Exchange Rights will not be qualified
investments under the Canadian Tax Act. As indicated above, SoftKey is of the
view that the fair market value of these rights is nominal.
Foreign Property Information Reporting
A Holder of Common Stock who is a "specified Canadian entity" for a
taxation year or a fiscal period and whose total cost amount of "specified
foreign property", including such shares, at any time in the year or fiscal
period exceeds Cdn. $100,000 will be required to file an information return for
the year or period disclosing prescribed information, including the Holder's
cost amount, any dividends received in the year, and any gains or losses
realized in the year, in respect of such property. With some exceptions,
generally, a taxpayer resident in Canada in the year will be a specified
Canadian entity. A Holder of Common Stock should consult its own advisors about
whether it must comply with these rules. On October 2, 1997, the Minister of
Finance (Canada) and the Minister of National Revenue announced that this
requirement to report such specified foreign property is suspended pending a
review and that the first filing date has been delayed until April 1999.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following summary is applicable to Holders who, for purposes of the
Canadian Tax Act, have not been and will not be resident in Canada at any time
while they hold New Exchangeable Shares or will hold shares of Common Stock, who
do not use or hold and are not deemed to use or hold such shares in the course
of carrying on a business in Canada, and to whom such shares are not taxable
Canadian property. Additional considerations, which are not discussed below, may
be relevant to a non-resident that is an insurer which carries on business in
Canada and elsewhere. Generally, the New Exchangeable Shares and shares of
Common Stock will not be taxable Canadian property provided that the Holder does
not use or hold, and is not deemed to use or hold, the New Exchangeable Shares
or the shares of Common Stock, as applicable, in connection with carrying on a
business in Canada and, in the case of the New Exchangeable Shares, the New
Exchangeable Shares are listed on a prescribed stock exchange for purposes of
the Canadian Tax Act and the Holder, persons with whom such holder does not deal
at arm's length, or the Holder and such persons, has not owned (or had under
option) 25% or more of the issued shares of any class or series of the capital
stock of SoftKey at any time within five years preceding the date in question.
Such a Holder of New Exchangeable Shares will not be subject to tax under
the Canadian Tax Act on capital gains arising on the exchange of a New
Exchangeable Share by the Company for a share of Common Stock, or on the sale or
other disposition of a New Exchangeable Share or a share of Common Stock. Such a
Holder may be subject to withholding tax under the Canadian Tax Act on a
redemption of New Exchangeable Shares, as described below.
Dividends paid on the New Exchangeable Shares are subject to non-resident
withholding tax under the Canadian Tax Act at the rate of 25%, although such
rate may be reduced under the provisions of an applicable income tax treaty.
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<PAGE> 26
A HOLDER WHOSE EXCHANGEABLE SHARES ARE REDEEMED (EITHER UNDER SOFTKEY'S
REDEMPTION RIGHT OR PURSUANT TO THE HOLDER'S RETRACTION RIGHTS) WILL BE DEEMED
TO RECEIVE A DIVIDEND AS DESCRIBED ABOVE UNDER " - CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS - SHAREHOLDERS RESIDENT IN CANADA - REDEMPTION OR EXCHANGE OF NEW
EXCHANGEABLE SHARES," WHICH DEEMED DIVIDEND WILL BE SUBJECT TO WITHHOLDING TAX
AS DESCRIBED IN THE PRECEDING PARAGRAPH.
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of the material United States federal income and
estate tax considerations relating to the exchange of New Exchangeable Shares
for Common Stock and the purchase, ownership and disposition of Common Stock,
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations promulgated or proposed thereunder ("Treasury Regulations"),
judicial authority and current administrative rulings and practice, all of which
are subject to change, possibly on a retroactive basis. This summary deals only
with holders that will hold Exchangeable Shares or Common Stock as "capital
assets" (within the meaning of Section 1221 of the Code) and does not address
tax considerations applicable to investors that may be subject to special tax
rules, such as banks, tax-exempt organizations, insurance companies, dealers in
securities or currencies, persons that will hold New Exchangeable Shares or
Common Stock as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes, or persons that have a "functional currency"
other than the U.S. dollar. The Company has not sought any ruling from the
Internal Revenue Service ("IRS") with respect to the statements made and the
conclusions reached in the following summary, and there can be no assurance that
the IRS will agree with such statements and conclusions. The summary represents
the opinion of Hale and Dorr LLP, United States counsel to the Company.
INVESTORS CONSIDERING THE EXCHANGE OF NEW EXCHANGEABLE SHARES FOR COMMON STOCK
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE
UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS
AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means a beneficial
owner of New Exchangeable Shares or Common Stock other than a beneficial owner
that for United States federal income tax purposes is (i) a citizen or resident
of the United States, (ii) treated as a domestic corporation or domestic
partnership, or (iii) an estate or trust that is subject to United States
federal income taxation on a net income basis in respect of New Exchangeable
Shares or Common Stock.
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<PAGE> 27
EXCHANGE OF NEW EXCHANGEABLE SHARES
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the exchange of New Exchangeable Shares
for shares of Common Stock unless (1) the gain is effectively connected with a
United States trade or business of the Non-United States Holder, (2) in the case
of a Non-United States Holder who is an individual, such Holder is present in
the United States for a period or periods aggregating 183 days or more during
the taxable year of the disposition or (3) the Holder is subject to tax pursuant
to the provisions of the Code applicable to certain United States expatriates.
DIVIDENDS
The amount of any distribution by the Company in respect of the Common
Stock will be equal to the amount of cash and the fair market value, on the date
of distribution, of any property distributed. Generally, distributions will be
treated as a dividend to the extent of the Company's current or accumulated
earnings and profits, then as a tax-free return of capital to the extent of the
Holder's tax basis in the Common Stock and thereafter as gain from the sale of
exchange of such stock. Distributions treated as dividends paid, excluding
dividends that are effectively connected with the conduct of a trade or business
in the United States by such Holder, will be subject to United States federal
withholding tax at a 30% rate (or lower rate provided under any applicable
income tax treaty). Except to the extent that an applicable tax treaty otherwise
provides, a Non-United States Holder will be taxed in the same manner as a
United States Holder on dividends paid that are effectively connected with the
conduct of a trade or business in the United States by the Non-United States
Holder. If such Non-United States Holder is a foreign corporation, it may also
be subject to a United States branch profits tax on such effectively connected
income at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty. Even though such effectively connected dividends are subject
to income tax, and may be subject to the branch profits tax, they will not be
subject to U.S. withholding tax if the Holder delivers IRS Form 4224 to the
payor.
Under current U.S. Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of U.S. Treasury
Regulations, for purposes of determining the applicability of a tax treaty rate.
Under recently issued U.S. Treasury Regulations, however, Non-U.S. Holders of
Common Stock who wish to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification requirements. The new U.S. Treasury
Regulations are effective for payments made after December 31, 1998.
SALE OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the sale or exchange of Common Stock
unless (1) the gain is effectively connected with a United States trade or
business of the Non-United States Holder, (2) in the case of a Non-United States
Holder who is an individual, such Holder is present in the United States for a
period or periods aggregating 183 days or more during the taxable year of the
disposition or (3) the Holder is subject to tax pursuant to the provisions of
the Code applicable to certain United States expatriates.
DEATH OF A NON-UNITED STATES HOLDER
Common Stock actually or beneficially held (other than through a foreign
corporation) by a Non-United States Holder at the time of his or her death (or
previously transferred subject to certain
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<PAGE> 28
retained rights or powers) will be subject to United States federal estate tax
unless otherwise provided by an applicable estate tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
will not apply to any exchange of New Exchangeable Shares or the payment of the
proceeds of the sale of Common Stock effected outside the United States by a
foreign office of a "broker" (as defined in applicable U.S. Treasury
Regulations); unless such broker (i) is a United States person, (ii) is a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (iii) is a
controlled foreign corporation for United States federal income tax purposes.
Payment of the proceeds of any such sale effected outside the United States by a
foreign office of any broker that is described in (i), (ii) or (iii) of the
preceding sentence will not be subject to backup withholding tax, but will be
subject to information reporting requirements unless such broker has documentary
evidence in its records that the beneficial owner is a Non-United States Holder
and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption. Payment of the proceeds of any such sale to or through
the United States office of a broker is subject to information reporting and
backup withholding requirements, unless the beneficial owner of Common Stock (a)
provides a Form W-8 (or a suitable substitute form) signed under penalties of
perjury that includes its name and address and certifies as to its non-United
States status, or (b) is a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business and provides a statement to the Company or its agent under
penalties of perjury in which it certifies that a Form W-8 (or a suitable
substitute) has been received by it from the Non-United States Holder or
qualifying intermediary and furnishes the Company or its agent with a copy
thereof.
If paid to an address outside the United States, dividends on Common Stock
held by a Non-United States Holder will generally not be subject to the
information reporting and backup withholding requirements described in this
section. However, under recently issued U.S. Treasury Regulations, dividend
payments will be subject to information reporting and backup withholding unless
applicable certification requirements are satisfied. The new U.S. Treasury
Regulations apply to dividend payments made after December 31, 1998.
UNITED STATES REAL PROPERTY HOLDING CORPORATIONS
The discussion of the United States taxation of Non-United States Holders
of Common Stock assumes that the Company is at no time a United States real
property holding corporation within the meaning of Section 897(c) of the Code.
Under present law, the Company would not be a United States real property
holding corporation so long as (a) the fair market value of its United Stated
real property interests is less than (b) 50% of the sum of the fair market value
of its United States real property interests, its interests in real property
located outside the United States, and its other assets which are used or held
or use in a trade or business. The Company believes that it is not a United
States real property holding corporation and does not expect to become such a
corporation.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means any beneficial owner
of Common Stock that is not a Non-United States Holder.
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<PAGE> 29
EXCHANGE OF NEW EXCHANGEABLE SHARES
A United States Holder will generally recognize capital gain or loss upon
the exchange of New Exchangeable Shares for shares of Common Stock equal to the
difference between the fair market value of shares of Common Stock received
(other than Common Stock received for declared but unpaid dividends) and such
Holder's basis in the New Exchangeable Shares surrendered. Under certain limited
circumstances, an exchange by a United States Holder of New Exchangeable Shares
for Common Stock may be characterized as a tax free exchange (except to the
extent of Common Stock received in exchange for declared, but unpaid,
dividends). It is not possible to predict whether or not all of the requirements
for a tax-free exchange will exist at the time of the exchange, because such
requirements are dependent upon future events. If the exchange qualifies as a
tax-free exchange, a United States Holder will not recognize gain or loss upon
the exchange, will have a basis in the Common Stock received in the exchange
equal to such Holder's basis in the New Exchangeable Shares, and will have a
holding period which includes the holding period in the New Exchangeable Shares.
Whether the exchange of New Exchangeable Shares is taxable or tax-free, a
United States Holder will recognize ordinary income to the extent of Common
Stock received in the exchange for declared, but unpaid, dividends on the New
Exchangeable Shares. A United States Holder's holding period in all shares of
Common Stock received in the exchange will begin on the day after the exchange.
Canadian tax, if any, imposed on the exchange may be available as a credit
against a United States Holder's United States federal income taxes, subject to
applicable limitations. A United States Holder who is not eligible for a credit
may be able to deduct the Canadian taxes paid, if any, in computing United
States federal income subject to tax.
PASSIVE FOREIGN INVESTMENT COMPANY
SoftKey may be classified as a passive foreign investment company ("PFIC")
for United States federal income tax purposes for any taxable year if either (i)
75% or more of its gross income is passive income or (ii) on average for the
taxable year, 50% or more of its assets (by value) produce or are held for the
production of passive income. While there can be no assurance, the Company and
SoftKey expect, based on the manner in which SoftKey intends to manage its
business and the projections of SoftKey's investments, income and assets, that
it will not be a PFIC. SoftKey will monitor its status and will notify holders
of New Exchangeable Shares if it believes that it is properly classified as a
PFIC for any taxable year.
If SoftKey were to be classified as a PFIC, the consequences to a United
States Holder will depend in part on whether the United States Holder has made a
"Mark-to-Market Election" or a "QEF Election" with respect to SoftKey. If
SoftKey is a PFIC during a United States Holder's holding period and the United
States Holder does not make a Mark-to-Market Election or a QEF Election, the
United States Holder will generally be required to pay a special United States
tax, in lieu of the United States tax that would otherwise apply, if such United
States Holder (a) realizes a gain upon the sale or exchange of New Exchangeable
Shares (including an exchange for Common Stock) or (b) receives an "excess
distribution" from SoftKey on the New Exchangeable Shares. If a United States
Holder makes a QEF Election or Mark-to-Market Election, it will generally be
required to include amounts in income, based upon SoftKey's income or the value
of the New Exchangeable Shares, even if SoftKey does not make actual
distributions to holders of New Exchangeable Shares.
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<PAGE> 30
If for any year SoftKey determines that it is properly classified as a
PFIC, SoftKey will comply with all reporting requirements necessary for a United
States Holder to make a QEF Election and will, promptly following the end of
such year and each year thereafter for which it is properly classified as a
PFIC, provide to United States Holders the information required by the QEF
Election.
DIVIDENDS
The amount of any distribution by the Company in respect of the Common
Stock will be equal to the amount of cash and the fair market value, on the date
of distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of the
Company's current or accumulated earnings and profits, then as a tax-free return
of capital to the extent of the Holder's tax basis in the Common Stock and
thereafter as gain from the sale of exchange of such stock.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the sale
or exchange and (ii) such Holder's adjusted tax basis in the Common Stock.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to (i) payments
of dividends on Common Stock and (ii) the exchange of New Exchangeable Shares
for Common Stock or payments of the proceeds of the sale of Common Stock by or
to certain noncorporate United States Holders. The payor will be required to
withhold backup withholding tax at the rate of 31% if the payee fails to furnish
certain information to the payor or the IRS notifies the payor that backup
withholding is required. Any amounts withheld under the backup withholding rules
from a payment to a United States Holder will be allowed as a credit against
such Holder's United States federal income tax and may entitle the Holder to a
refund, provided that the required information is furnished to the IRS.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
are being passed upon for the Company by Neal S. Winneg, General Counsel of the
Company. Mr. Winneg owns options to purchase on aggregate of 131,500 shares of
Common Stock, which are to become exercisable in periodic installments through
January, 1999. Certain federal U.S. and Canadian tax consequences have been
passed upon by Hale and Dorr LLP, Boston, Massachusetts, and by Davies, Ward &
Beck, Toronto, Ontario, respectively, as set forth under "Income Tax
Considerations."
EXPERTS
The consolidated balance sheets as of January 3, 1998 and January 4, 1997
and the consolidated statements of income, retained earnings, and cash flows for
each of the three year 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 the Mindscape Group, incorporated by reference in this Prospectus,
have been so incorporated in
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<PAGE> 31
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of authority of said firm as experts in auditing and
accounting.
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<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
================================================== =====================================================
No dealer, salesperson or other person has
been authorized to give any information or to make
any representations other than those contained in
this Prospectus and, if given or made, such
information or representations must not be relied
upon as having been authorized by the Company.
This Prospectus does not constitute an offer to
sell or a solicitation of any offer to buy to any THE LEARNING COMPANY, INC.
person in any jurisdiction in which such offeror
solicitation of an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus
nor any offer or sale hereunder shall, under any 8,687,500 Shares
circumstances, create any implication that there Common Stock
has been no change in the affairs of the Company
or that the information contained herein is
correct as of any date hereof.
--------------------
TABLE OF CONTENTS
Page
Available Information....................... 5 --------------------
Incorporation of Certain Documents
by Reference............................... 5 PROSPECTUS
Special Note Regarding Forward-
Looking Information...................... 6 --------------------
The Company................................. 7
Risk Factors................................ 8
Use of Proceeds.............................14
Plan of Distribution........................15
Income Tax Considerations...................18
Legal Matters...............................26
Experts.....................................26
June 19, 1998
--------------------
================================================== =====================================================
</TABLE>
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<PAGE> 33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in
connection with the offering of the securities being registered hereby, all of
which will be borne by the Company. All amounts shown are estimates except the
Securities and Exchange Commission registration fee.
Filing Fee - Securities and Exchange Commission $ 70,478
Legal fees and expenses of the Company $ 30,000
Accounting fees and expenses $ 10,000
Printing expenses $ 2,500
Miscellaneous expenses $ 7,022
Total Expenses $120,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at its request in such capacity in another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 8 of the Company's Restated Certificate of Incorporation, as
amended, provides for elimination of directors' personal liability and
indemnification as follows:
II-1
<PAGE> 34
"8. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
8.1 ELIMINATION OF CERTAIN LIABILITIES OF DIRECTORS. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the directors' duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after approval by the stockholders of this
Section to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of this Section by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
8.2 INDEMNIFICATION AND INSURANCE.
8.2.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee, or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to its fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability, and loss (including attorneys' fees,
judgments, fines, Employee Retirement Income Security Act of 1974, excise taxes
or penalties, and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith, and such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors, and
administrators; provided, however, that the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
8.2.2 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this
II-2
<PAGE> 35
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Restated Certificate,
Bylaw, agreement, vote of stockholders, or disinterested directors or otherwise.
8.2.3 INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee, or agent of the
Corporation or another corporation, partnership, joint venture, trust, or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability, or loss under the Delaware General Corporation Law."
The Company has purchased directors' and officers' liability insurance
which would indemnify the directors and officers of the Company against damages
arising out of certain kinds of claims which might be made against them based on
their negligent acts or omissions while acting in their capacity as such.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Restated Certificate of Incorporation, as amended
(Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 6, 1996.)
4.2 Bylaws of the Company, as amended (Incorporated by reference to
exhibits filed with the Company's Quarterly Report on Form 10-Q
for the quarterly period ended July 6, 1996.)
4.3 Voting and Exchange Trust Agreement, dated as of February 4, 1994,
between the Registrant, SoftKey Software Products Inc. and R-M
Trust Company, as Trustee. (Incorporated by reference to Exhibit
4.3 filed with Amendment No. 1 to the Company's Registration
Statement on Form S-3 (File No. 333-40549)).
4.4 Plan of Arrangement of SoftKey Software Products Inc. under
Section 182 of the Business Corporations Act (Ontario).
(Incorporated by reference to Exhibit 4.4 filed with Amendment
No. 1 to the Company's Registration Statement on Form S-3
(File No. 333-40549)).
5.1* Opinion of Neal S. Winneg, Esq.
8.1 Opinion of Hale and Dorr LLP regarding tax matters.
8.2 Opinion of Davies, Ward & Beck regarding tax matters.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent to Price Waterhouse LLP
23.3 Consent of Neal S. Winneg, Esq., included in Exhibit 5.1.
____________
* Previously filed.
II-3
<PAGE> 36
24.1 Power of Attorney.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
derivation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as
amended (the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 37
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has caused this Amendment No. 1 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Cambridge,
Commonwealth of Massachusetts, on this 19th day of June, 1998.
THE LEARNING COMPANY, INC.
By: /s/ Neal S. Winneg
----------------------------------
Neal S. Winneg
Senior Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 has been signed by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Perik* Chairman of the Board and Chief Executive Officer June 19, 1998
- ----------------------- (Principal Executive Officer)
Michael J. Perik
/s/ R. Scott Murray* Chief Financial Officer (Principal Financial and June 19, 1998
- ----------------------- Accounting Officer)
R. Scott Murray
</TABLE>
II-5
<PAGE> 38
/s/ Kevin O'Leary* President and Director June 19, 1998
- --------------------------
Kevin O'Leary
/s/ Lamar Alexander* Director June 19, 1998
- --------------------------
Lamar Alexander
/s/ Michael A. Bell* Director June 19, 1998
- --------------------------
Michael A. Bell
/s/ Robert Gagnon* Director June 19, 1998
- --------------------------
Robert Gagnon
Director June 19, 1998
- --------------------------
Carolynn N. Reid-Wallace
/s/ Robert A. Rubinoff* Director June 19, 1998
- --------------------------
Robert A. Rubinoff
/s/ Scott M. Sperling* Director June 19, 1998
- --------------------------
Scott M. Sperling
/s/ Anthony DiNovi* Director June 19, 1998
- --------------------------
Anthony DiNovi
/s/ Mark Nunnelly* Director June 19, 1998
- --------------------------
Mark Nunnelly
/s/ Paul J. Zepf* Director June 19, 1998
- --------------------------
Paul J. Zepf
By: /s/ Neal S. Winneg
----------------------
Neal S. Winneg
Attorney-in-Fact
II-6
<PAGE> 39
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Restated Certificate of Incorporation, as amended
(Incorporated by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 6, 1996.)
4.2 Bylaws of the Company, as amended (Incorporated by reference
to exhibits filed with the Company's Quarterly Report on
Form 10-Q for the quarterly period ended July 6, 1996.)
4.3 Voting and Exchange Trust Agreement, dated as of February 4,
1994, between the Registrant, SoftKey Software Products Inc.
and R-M Trust Company, as Trustee. (Incorporated by reference
to Exhibit 4.3 filed with Amendment No. 1 to the Company's
Registration Statement on Form S-3 (File No. 333-40549)).
4.4 Plan of Arrangement of SoftKey Software Products Inc. under
Section 182 of the Business Corporations Act (Ontario).
(Incorporated by reference to Exhibit 4.4 filed with Amendment
No. 1 to the Company's Registration Statement on Form S-3
(File No. 333-40549)).
5.1* Opinion of Neal S. Winneg, Esq.
8.1 Opinion of Hale and Dorr LLP regarding tax matters.
8.2 Opinion of Davies, Ward & Beck regarding tax matters.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Neal S. Winneg, Esq., included in Exhibit 5.1.
24.1 Power of Attorney.
___________
*Previously filed.
II-7
<PAGE> 1
EXHIBIT 8.1
[HALE AND DORR LLP LETTERHEAD]
June 19, 1998
The Learning Company, Inc.
One Athenaeum Street
Cambridge, MA 02142
Re: New Exchangeable Shares
-----------------------
Ladies and Gentlemen:
We have acted as counsel to The Learning Company, Inc. (the "Company") in
connection with the Registration Statement on Form S-3, as amended (File No.
333-56641) (the "Registration Statement"), relating to the shares of Common
Stock issuable to the holders of New Exchangeable Shares pursuant to the terms
of the New Exchangeable Shares. Unless otherwise indicated, capitalized terms
used herein shall have the meaning ascribed to them in the prospectus included
in the Registration Statement (the "Prospectus"). We hereby confirm that,
assuming that shares of Common Stock are issued to holders of New Exchangeable
Shares pursuant to the terms of the New Exchangeable Shares as described in the
Prospectus, the discussion under the caption "INCOME TAX CONSEQUENCES - United
States Federal Tax Consequences" in the Prospectus expresses our opinion
regarding the material United States Federal tax consequences to holders of New
Exchangeable Shares that receive Common Stock in exchange for such New
Exchangeable Shares pursuant to their terms, and the ownership and disposition
of Common Stock acquired in the exchange.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "INCOME TAX
CONSEQUENCES - United States Federal Tax Consequences" in the Prospectus. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
/s/ Hale and Dorr LLP
<PAGE> 1
EXHIBIT 8.2
[DAVIES, WARD & BECK LETTERHEAD]
June 19, 1998
The Learning Company, Inc.
1 Athenaeum Street
Cambridge, Massachusetts
U.S.A. 02142
Ladies and Gentlemen:
REGISTRATION STATEMENT ON FORM S-3
----------------------------------
We have acted as counsel to SoftKey Software Products Inc. ("SoftKey") in
connection with the Registration Statement (File No. 333-56641) on Form S-3 (the
"Registration Statement") initially filed with the Securities and Exchange
Commission (the "Commission") on June 11, 1998 for the purpose of registering
8,687,500 shares of common stock, par value U.S.$0.01 per share, of The Learning
Company, Inc.
We have aided in the preparation of the Registration Statement, including,
in particular the discussion under the heading "INCOME TAX CONSIDERATIONS --
Canadian Federal Income Tax Considerations" (the "Tax Summary").
We hereby confirm that, as of the date hereof, the Tax Summary is a fair and
accurate summary, in all material respects, of the matters addressed therein,
based upon the assumptions stated or referred to therein and based upon certain
representations of fact made by a senior officer of SoftKey. It is possible
that contrary positions may be taken by Revenue Canada and that a court may
agree with such contrary positions.
We assume no obligation to supplement our opinion if any applicable laws
change after the date of the Registration Statement or if we became aware after
the date of the Registration Statement of facts that might change the opinions
expressed therein.
This opinion is furnished to you solely for your benefit in connection with
the filing of the Registration Statement and, except as set forth below, is not
to be used, circulated, quoted or otherwise referred to for any other purpose or
relied upon by any other person for any purpose without our prior written
consent. We also consent to the use of our name in the Tax Summary and to the
filing of this opinion with the Commission as an exhibit to the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
SECURITIES ACT OF 1933, as amended, or the rules and regulations of the
Commission promulgated thereunder.
Yours Very Truly,
/s/ Davies, Ward & Beck
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3/A (File No. 333-56641) 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/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND, L.L.P.
Boston, Massachusetts
June 19, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of Amendment No.1 to Registration Statement on Form S-3 (File
No. 333-56641) 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 caption "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
June 19, 1998
