-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WAK7y+q5x6cp76OFtP2yYV6K56qmIw/2Z5H6tGBnUJk4B9MxL/BUl1vzAOj4Y/JP RC01j+mCDFi7ZD8oCs0xHQ== 0000950135-95-002269.txt : 19951031 0000950135-95-002269.hdr.sgml : 19951031 ACCESSION NUMBER: 0000950135-95-002269 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951030 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19951030 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOFTKEY INTERNATIONAL INC CENTRAL INDEX KEY: 0000719612 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942562108 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13069 FILM NUMBER: 95585635 BUSINESS ADDRESS: STREET 1: ONE ATHENAEUM ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6174941200 MAIL ADDRESS: STREET 1: ONE ATHENAEUM ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 FORMER COMPANY: FORMER CONFORMED NAME: WORDSTAR INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MICROPRO INTERNATIONAL CORP DATE OF NAME CHANGE: 19890618 8-K 1 FORM 8-K FOR SOFTKEY INTERNATIONAL, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): October 30, 1995 SOFTKEY INTERNATIONAL INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) Delaware 0-13069 94-2562108 - -------------------------------------------------------------------------------- (STATE OR OTHER (COMMISSION (IRS EMPLOYER JURISDICTION OF FILE NUMBER) IDENTIFICATION NO.) INCORPORATION) One Athenaeum Street, Cambridge, Massachusetts 02142 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (617) 494-1200 N/A - -------------------------------------------------------------------------------- (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT Total Number of Pages: Exhibit Index Appears on Page 6 2 Item 5. Other Events. - ---------------------- MERGER AGREEMENT. On October 31, 1995, SoftKey International Inc. ("SoftKey") and Minnesota Educational Computing Corporation (MECC) ("MECC") announced the execution of a definitive merger agreement under which SoftKey will acquire MECC, a publisher and distributor of high-quality educational software for children, in a tax-free, stock-for-stock transaction valued at a total of approximately $370 million. The transaction, which has been unanimously approved by both Boards of Directors, will be accounted for on a purchase accounting basis and is expected to be accretive to SoftKey on an operating cash flow per share basis. In the proposed transaction, each outstanding share of MECC common stock will be exchanged for a number of shares (the "Exchange Ratio") of SoftKey common stock determined by dividing $40.00 by the volume-weighted average price for SoftKey Common Stock on the Nasdaq National Market ("NNM") for the 20 trading days ending three trading days prior to the effective time of the acquisition; provided, however, that in no event will the Exchange Ratio be greater than 1.14286 or less than .88889. The transaction is subject to certain conditions, including stockholder approvals, the effectiveness of a registration statement under federal securities laws relating to the SoftKey common stock to be issued in the merger, the listing of such SoftKey shares on the NNM and the expiration of applicable waiting periods under pre-merger notification regulations. The shares of SoftKey common stock will be offered to MECC stockholders only through a prospectus forming part of a registration statement which will be filed with the Securities and Exchange Commission. A copy of the press release announcing the merger agreement is filed as Exhibit 99.1 hereto and incorporated by reference herein. TENDER OFFER/MERGER PROPOSAL. On October 30, 1995, SoftKey also announced that it was commencing a cash tender offer, through a wholly owned subsidiary, at 2 3 a price of $65 per share for 4,642,507 shares of common stock of The Learning Company, representing a majority of the shares of The Learning Company common stock on a fully diluted basis. The offer is the first step in a proposed two-step acquisition of The Learning Company by SoftKey. In the second step, the remaining shares of The Learning Company common stock outstanding and not owned by SoftKey would be acquired in a merger for SoftKey common stock. Each share of The Learning Company common stock would be converted into SoftKey common stock having the value, based on trading prices shortly prior to the merger, of $65 per share, subject to a maximum exchange ratio of 1.8571 SoftKey shares per share of The Learning Company common stock. The tender offer and second-step merger are subject to a number of conditions, including redemption or inapplicability of The Learning Company's poison pill rights plan. A copy of the press release announcing the tender offer and merger proposal is filed as Exhibit 99.2 hereto and incorporated by reference herein. PRO FORMA FINANCIAL STATEMENTS. In connection with the tender offer, SoftKey released certain unaudited pro forma financial information giving effect to the transactions contemplated by the Merger Agreement between SoftKey and MECC. A copy of the pro forma financial information is filed as Exhibit 99.3 hereto and incorporated by reference herein. 3 4 Item 7. (c) Exhibits. --------- 99.1 Press release dated October 30, 1995 relating to the merger agreement between SoftKey International Inc. and Minnesota Educational Computing Corporation (MECC) 99.2 Press release dated October 30, 1995 relating to the cash tender offer by SoftKey International Inc. for a majority of The Learning Company common stock at $65 per share as the first step in a two-part merger proposal 99.3 Pro forma combined condensed consolidated financial information at and for the nine months ended September 30, 1995 and at and for the year ended December 31, 1994 4 5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOFTKEY INTERNATIONAL INC. -------------------------- (Registrant) By: /s/ Neal S. Winneg --------------------- Neal S. Winneg Vice President October 30, 1995 - ---------------- (Date) 5 6 Exhibit Index -------------
Exhibit Sequential No. Exhibit Description Page No. ------- ------------------- ----------- 99.1 Press release dated October 30, 1995 relating to the merger agreement between SoftKey International Inc. and Minnesota Educational Computing Corporation (MECC) 99.2 Press release dated October 30, 1995 relating to the cash tender offer by SoftKey International Inc. for a majority of The Learning Company common stock at $65 per share as the first step in a two-part merger proposal 99.3 Pro forma combined condensed consolidated financial information at and for the nine months ended September 30, 1995 and at and for the year ended December 31, 1994
6 EX-99.1 2 PRESS RELEASE - MINNESOTA EDUCATIONAL COMPUTING 1 EXHIBIT 99.1 FOR IMMEDIATE RELEASE CONTACTS: John Suske SoftKey International, Inc. 617/494-5816 Donald W. Anderson MECC 612/569-1513 Joele Frank/Chuck Burgess Abernathy MacGregor Scanlon 212/371-5999 SOFTKEY INTERNATIONAL AND MINNESOTA EDUCATIONAL COMPUTING CORP. ANNOUNCE MERGER AGREEMENT -------------------------------------------------- CAMBRIDGE, MASS (October 30, 1995) -- SoftKey International Inc. (NASDAQ: SKEY; Toronto Stock Exchange: SSK) and Minnesota Educational Computing Corporation (MECC) (NASDAQ: MECC) today announced they have entered into a definitive merger agreement in which SoftKey will acquire MECC, a publisher and distributor of high-quality educational software for children, in a tax-free, stock-for-stock transaction valued at a total of approximately $370 million. The transaction, which has been unanimously approved by both Boards of Directors, will be accounted for on a purchase accounting basis and is expected to be accretive to SoftKey on an operating cash flow per share basis. In the proposed transaction, each outstanding share of MECC common stock will be exchanged for $40.00 of SoftKey common stock as long as the volume-weighted average price for SoftKey for the 20 trading days three trading days prior to closing is between $35.00 and $45.00. The exchange ratio is fixed below $35.00 and above $45.00. Using Friday, October 27, 1995, close of market prices for MECC and SoftKey, the exchange ratio would be 1.049 shares of SoftKey for each share of MECC. Michael Perik, SoftKey's Chief Executive Officer said, "MECC is a leading developer in the educational software market with over 190 titles such as Oregon Trail II. It will be a great asset for SoftKey. SoftKey's extensive distribution in the retail, direct mail, international and OEM markets will allow us to increase significantly MECC's share in the home education market. -more- 2 -2- Kevin O'Leary, SoftKey's President, said, "There is no overlap in the MECC product mix with SoftKey's. This further enhances SoftKey's shelf space in retail with proprietary brand name educational titles in math, social studies, language arts and science. Also, MECC's 22 year old franchise in the creation of educational software for schools provides SoftKey with proven development talent in the educational market. We will be applying our proven strategy of brand line extension, so that we can provide great educational software at great prices for all people." Dale E. LaFrenz, MECC's President/CEO, said, "This merger provides MECC with very significant opportunities to leverage its position in both the school and home educational software markets. MECC's outstanding products have been well received in both markets and they will benefit greatly from SoftKey's powerful distribution. The combination of SoftKey's powerful and effective retail distribution and MECC's well-established direct-to-school distribution will establish a new and improved model for the educational software industry." Charles L. Palmer, Chairman of the Board of MECC, and President and Principal of North American Business Development Company, L.L.C., the general partner of North American Fund II, L.P., reported that North American Fund II, L.P. has agreed to vote 9.9% of the outstanding stock of MECC in favor of the merger. Both Mr. Palmer and Mr. LaFrenz will join SoftKey's Board of Directors. The transaction is subject to certain conditions, including stockholder approvals, the effectiveness of a registration statement under federal securities laws relating to the SoftKey common stock to be issued in the merger, and the expiration of applicable waiting periods under pre-merger notification regulations. Bear, Stearns & Co. Inc. is acting as financial advisor to SoftKey. Allen & Company Incorporated is acting as financial advisor to MECC. Minnesota Educational Computing Corporation publishes and distributes a number of retail software titles including The Oregon Trail, Word Munchers, Number Munchers and Storybook Weaver. MECC's software content is concentrated on math and problem solving, language arts and reading, writing and creativity, social studies and history, and science and interdisciplinary products. SoftKey International Inc. is ranked as one of the world's largest consumer software publishers by the 1995 Soft-Letter 100. SoftKey develops, publishes and markets over 300 consumer software titles targeted at the home user in the productivity, 'edutainment' and lifestyle categories in North America and distributes additional products internationally. SoftKey's products are sold in more than 19,000 stores in more than 40 countries in the retail, direct mail and OEM sales channels. -more- 3 -3- SoftKey's products offerings include popular titles such as Calendar Creator Plus(TM), BodyWorks(TM) 4.0, The American Heritage(R) Talking Dictionary, SPORTS ILLUSTRATED Swimsuit Calendar, Infopedia(TM), KeyCAD Complete(TM), Mosby's Medical Encyclopedia, Time Almanac and the Platinum(TM) jewel case, KeyKids(TM) and PowerPak(TM) lines. The shares of SoftKey common stock will be offered to MECC stockholders only through a prospectus forming part of a registration statement which will be filed with the Securities and Exchange Commission. # # # 4 -5- SoftKey International Inc. is ranked as one of the world's largest consumer software publishers by the 1995 Soft-Letter 100. SoftKey develops, publishes and markets over 300 consumer software titles targeted at the home user in the edutainment, lifestyle and productivity categories in North America and distributes additional products internationally. SoftKey's product offerings include popular titles such as Calendar Creator Plus(TM), BodyWorks(TM) 4.0, The American Heritage(R) Talking Dictionary, SPORTS ILLUSTRATED Swimsuit Calendar, Infopedia(TM), KeyCAD Complete(TM), Mosby's Medical Encyclopedia, Time Almanac and the Platinum(TM) jewel case, KeyKids(TM) and PowerPak(TM) lines. The participants in the planned proxy solicitation will include SoftKey and the following directors and executive officers of SoftKey: Michael A. Bell (Director), Robert Gagnon (Director), Kevin O'Leary (Director, President), Michael J. Perik (Chairman of the Board, Chief Executive Officer), Robert Rubinoff (Director), Scott M. Sperling (Director) and R. Scott Murray (Chief Financial Officer). SoftKey is the beneficial owner of 100 shares of the common stock of The Learning Company purchased on August 9, 1995 for $56.50 per share in open market transactions executed on the NASDAQ National Market System and of 17,500 shares of the common stock of The Learning Company purchased on October 27, 1995, for an average weighted price of $55.48 per share in an open market transaction executed on the NASDAQ National Market System. No directors or executive officers of SoftKey own any shares of The Learning Company common stock. Certain other representatives of SoftKey who may become participants are: John Suske (Consultant), Michael J. Urfirer (Bear Stearns, Senior Managing Director), Edward M. Rimland (Bear Stearns, Associate Director), David P. Baxt (Bear Stearns, Associate). None of such individuals own any shares of The Learning Company common stock. In the normal course of its business, Bear, Stearns, & Co. Inc. may trade the debt and equity securities of The Learning Company for its own account and the account of its customers and, accordingly, may at any time hold a long or short position in such securities. As of October 27, 1995, Bear, Stearns, & Co. Inc. held a net long position of 172,682 shares of The Learning Company common stock, and had discretionary authority over accounts with 17,462 shares of The Learning Company common stock (of which 886 shares were held in benefit plans for the benefit of Bear, Stearns, & Co. Inc. employees). # # # EX-99.2 3 PRESS RELEASE CASH TENDER OFFER 1 EXHIBIT 99.2 SOFTKEY(LOGO) - -------------------------------------------------------------------------------- FOR IMMEDIATE RELEASE CONTACTS: John Suske SoftKey International 617/494-5816 Joele Frank/Chuck Burgess Abernathy MacGregor Scanlon 212/371-5999 SOFTKEY TO COMMENCE CASH TENDER OFFER FOR MAJORITY OF THE LEARNING COMPANY COMMON STOCK AT $65 PER SHARE AS FIRST STEP IN TWO-PART MERGER PROPOSAL TRANSACTION OFFERS 17% PREMIUM TO THE LEARNING COMPANY'S PREVIOUSLY ANNOUNCED MERGER WITH BRODERBUND ------------------------------------- CAMBRIDGE, MASS (October 30, 1995) - SoftKey International Inc. (NASDAQ: SKEY; Toronto Stock Exchange: SSK) today announced that, through its wholly owned subsidiary, it is commencing a cash tender offer at a price of $65 per share for 4,642,507 shares of The Learning Company (NASDAQ: LRNG) common stock, representing a majority of the shares of The Learning Company common stock on a fully diluted basis. The offer is the first step in a proposed two-step acquisition of The Learning Company by SoftKey. In the second step, the remaining shares of The Learning Company common stock outstanding and not owned by SoftKey would be acquired in a merger for SoftKey common stock. Each share of The Learning Company common stock would be converted into SoftKey common stock having the value, based on trading prices shortly prior to the merger, of $65 per share, subject to a maximum exchange ratio of 1.8571 SoftKey shares per share of The Learning Company common stock. If the applicable trading value of SoftKey stock for purposes of the second-step merger was the same as its $38.125 closing price on Friday, October 27, 1995, each share of The Learning Company would be converted into 1.7049 shares of SoftKey common stock. The Learning Company has approximately 9.3 million shares outstanding on a fully diluted basis, giving the transaction a total value of approximately $606 million. SoftKey's offer represents approximately a 17% premium over the current value of the consideration offered to The Learning Company's stockholders in its proposed merger with Broderbund Software, Inc. (NASDAQ: BROD). -more- 2 -2- SoftKey today is filing a complaint against The Learning Company, members of The Learning Company's Board of Directors, and Broderbund in the Chancery Court of Delaware. The complaint seeks injunctive relief requiring The Learning Company Board of Directors to redeem its stockholder rights plan, a so-called "poison pill," and to correct false and misleading statements in its Proxy Statement for the merger with Broderbund. SoftKey is also filing preliminary proxy materials in connection with its solicitation of The Learning Company stockholders to vote against the merger with Broderbund. SoftKey also intends to seek to call a special meeting to remove and replace The Learning Company's Board of Directors. The tender offer and second-step merger are subject to a number of conditions, including redemption or inapplicability of The Learning Company's poison pill rights plan. Bear, Stearns & Co. Inc. is acting as financial advisor to SoftKey and dealer manager for the tender offer. Following is the full text of the letter from SoftKey Chairman and Chief Executive Officer, Michael Perik, and SoftKey President, Kevin O'Leary, to The Learning Company Board of Directors. Board of Directors The Learning Company 6493 Kaiser Drive Fremont, CA 94555 Gentlemen: After careful consideration, the Board of Directors of SoftKey International Inc. has authorized us to propose a two-step transaction in which SoftKey would acquire The Learning Company. Our $65 per share proposal to acquire The Learning Company for cash and SoftKey stock is significantly more favorable to your stockholders than the proposed transaction with Broderbund Software, Inc. -- representing a premium of approximately 17% over the current value of that transaction. Moreover, we are announcing today a stock-for-stock acquisition of Minnesota Educational Computing Corporation (MECC) by SoftKey. The strategic combination of these three companies -- SoftKey, The Learning Company and MECC -- will create a true powerhouse in the consumer software industry, with a broad selection of educational and lifestyle titles and a distribution system in retail, OEM, international and direct mail unmatched by any competitor. -more- 3 -3- Here is why. This combination will bring together The Learning Company's high-quality educational programs with SoftKey's extensive line of productivity, 'edutainment' and lifestyle programs to offer customers a full range of products and services. There is virtually no overlap in the MECC product mix with SoftKey. This significantly enhances SoftKey's shelf space in retail with proprietary brand name educational titles in math, social studies, geography, arts and science. Also, MECC has 22 years of experience in the creation of high quality educational software for schools which will provide SoftKey with proven development talent. The Learning Company's product mix will further expand and complement SoftKey's and MECC's educational titles with powerful branded products in the reading, writing and language categories. We will be applying our proven strategy of brand line extension so that we can provide exceptional educational software at affordable prices to a mass home audience worldwide. We expect to achieve significant operating synergies and cost savings by combining SoftKey, MECC and The Learning Company. Specifically, we will reduce selling costs and general and administrative expenses, while research and development costs will remain in tact, if not grow. We expect each transaction to be immediately accretive to SoftKey on an operating cash flow per share basis. As to The Learning Company, we propose that SoftKey acquire The Learning Company in a two-step transaction, on the terms set forth in the enclosed merger agreement. In the first step of the transaction, Kidsco Inc., a wholly owned subsidiary of SoftKey, will commence a tender offer in which it is offering your stockholders $65 per share of The Learning Company's common stock, net in cash. In the second-step merger, stockholders of The Learning Company will receive SoftKey common stock having a value of $65 (based on the volume-weighted average of the closing prices of SoftKey common stock on the Nasdaq National Market for the 20 trading days ending three trading days prior to the stockholder meeting relating to the merger agreement), but not more than 1.8571 shares of SoftKey common stock, for each of the remaining outstanding shares of The Learning Company. Although we are offering terms similar to those contained in The Learning Company's merger agreement with Broderbund, we are offering significantly more favorable financial terms and a transaction structure that provides your stockholders with cash for a portion of their shares in The Learning Company at the earliest possible time. We have considered with our advisers all legal and other requirements, and we do not foresee any difficulties in completing the prompt acquisition of The Learning Company. The acquisition of MECC and our proposal to you today are independent transactions, and neither is conditioned on the other. -more- 4 -4- SoftKey plans to finance the cash tender offer portion of its proposal with its available cash. As structured, the tender offer will provide immediate and substantial value for those of your stockholders who prefer it. In addition, your stockholders who receive SoftKey stock not only receive a substantial premium but will also be in a position to participate in the future of an exciting new company -- one of the largest consumer software companies in the world. Because of numerous and burdensome measures which The Learning Company has adopted, which discourage a more favorable bid, including a poison pill rights plan, the tender offer we are commencing is subject to several conditions relating to the elimination of impediments to SoftKey's superior proposal. As you will note from the enclosed form of merger agreement, we are prepared to drop certain conditions from our tender offer upon your execution of the merger agreement. SoftKey today is filing a complaint against The Learning Company, members of The Learning Company's Board of Directors and Broderbund in the Court of Chancery of the State of Delaware. The complaint seeks injunctive relief requiring The Learning Company's Board of Directors to redeem its stockholder rights plan and to correct false and misleading statements made in its Proxy Statement relating to the proposed Broderbund merger. SoftKey is also filing preliminary proxy materials in connection with its solicitation of stockholders of The Learning Company to vote against the merger with Broderbund at its special stockholders' meeting. SoftKey also intends to seek to call a special meeting of The Learning Company's stockholders to remove and replace The Learning Company's Board of Directors. In view of the importance to your stockholders of receiving the highest value for their shares and the need for adequate time for the Board of Directors to evaluate the two competing proposals, we believe it is essential that you take prompt action to postpone the November 9 Special Meeting of Stockholders. As you can appreciate, with a proposal of this type, time is of the essence. Please call us later today so that we can schedule a meeting with representatives of The Learning Company to discuss our proposal. Very truly yours, /s/ Michael J. Perik Chairman and Chief Executive Officer /s/ Kevin O'Leary President -more- EX-99.3 4 PRO FORMA FINANCIALS 1 EXHIBIT 99.3 SOFTKEY INTERNATIONAL INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1995 (IN THOUSANDS) (UNAUDITED)
PRO FORMA SOFTKEY MECC ADJUSTMENTS PRO FORMA -------- ------- ----------- --------- ASSETS Current assets: Cash and cash equivalents................. $ 87,103 $21,300 $338,375(c) $446,778 Accounts receivable, net.................. 28,410 5,886 -- 34,296 Inventories............................... 13,732 2,083 -- 15,815 Other current assets...................... 12,176 811 -- 12,987 -------- ------- -------- 141,421 30,080 338,375 509,876 Property and equipment, net.................... 14,181 3,251 -- 17,432 Goodwill and other assets, net................. 62,817 580 352,004(a)(c) 415,401 -------- ------- -------- $218,419 $33,911 $690,379 $942,709 ======== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities............................. $ 31,139 $ 3,054 20,080(a) $ 54,273 Current portion of long-term obligations............................. 7,214 702 -- 7,916 -------- ------- -------- 38,353 3,756 20,080 62,189 Long-term obligations.......................... 4,378 534 350,000(c) 354,912 Deferred income taxes.......................... 4,339 -- -- 4,339 -------- ------- -------- 47,070 4,290 370,080 421,440 STOCKHOLDERS' EQUITY........................... 171,349 29,621 320,299(a) 521,269 -------- ------- -------- $218,419 $33,911 $690,379 $942,709 ======== ======= ========
The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. III-1 2 SOFTKEY INTERNATIONAL INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
PRO FORMA SOFTKEY MECC ADJUSTMENTS PRO FORMA ---------- ------- ----------- ---------- REVENUES...................................... $ 119,408 $22,163 $ -- $ 141,571 COST OF REVENUES.............................. 38,563 4,164 -- 42,727 ---------- ------- ----------- ---------- GROSS MARGIN.................................. 80,845 17,999 -- 98,844 OPERATING EXPENSES: Sales, marketing and support............. 27,570 7,890 -- 35,460 General and administrative............... 15,979 2,100 -- 18,079 Amortization of Goodwill................. 2,305 -- 85,095(b) 87,400 Research and development................. 8,764 4,772 -- 13,536 ---------- ------- ----------- ---------- 54,618 14,762 85,095 154,475 ---------- ------- ----------- ---------- OPERATING INCOME (LOSS)....................... 26,227 3,237 (85,095) (55,631) INTEREST INCOME (EXPENSE), net................ 517 674 -- 1,191 ---------- ------- ----------- ---------- INCOME (LOSS) BEFORE TAXES.................... 26,744 3,911 (85,095) (54,440) PROVISION FOR INCOME TAXES.................... 3,906 1,099 -- 5,005 ---------- ------- ----------- ---------- NET INCOME (LOSS)............................. $ 22,838 $ 2,812 $ (85,095) $ (59,445) ========== ======= ========== ========== NET INCOME (LOSS) PER SHARE -- FULLY DILUTED..................................... $ 0.83 $ (1.71) ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING -- FULLY DILUTED:.................................... 27,447,000 7,370,000 (d) 34,817,000 ========== ========= ==========
The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. III-2 3 SOFTKEY INTERNATIONAL INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1994 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
PRO FORMA SOFTKEY MECC ADJUSTMENTS PRO FORMA ---------- ------- ----------- ---------- REVENUES..................................... $ 90,123 $16,136 $ -- $ 106,259 COST OF REVENUES............................. 30,065 3,254 -- 33,319 ---------- ------- ----------- ---------- GROSS MARGIN................................. 60,058 12,882 -- 72,940 OPERATING EXPENSES: Sales, marketing and support............ 19,794 5,947 -- 25,741 General and administrative.............. 16,160 1,645 -- 17,805 Amortization of Goodwill................ 527 -- 85,095(b) 85,622 Research and development................ 4,916 4,053 -- 8,969 ---------- ------- ----------- ---------- 41,397 11,645 85,095 138,137 ---------- ------- ----------- ---------- OPERATING INCOME (LOSS)...................... 18,661 1,237 (85,095) (65,197) INTEREST INCOME (EXPENSE), net............... (313) 196 -- (117) ---------- ------- ----------- ---------- INCOME (LOSS) BEFORE TAXES................... 18,348 1,433 (85,095) (65,314) PROVISION FOR INCOME TAXES................... 4,061 638 -- 4,699 ---------- ------- ----------- ---------- NET INCOME (LOSS)............................ $ 14,287 $ 795 $ (85,095) $ (70,013) ========== ======= ========= ========== NET INCOME (LOSS) PER SHARE -- FULLY DILUTED.................................... $ 0.74 $ (2.49) ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING -- FULLY DILUTED:................................... 20,355,000 7,416,000(d) 27,771,000 ========== ========= ==========
The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. III-3 4 SOFTKEY INTERNATIONAL INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
FOR THE YEAR ENDED --------------------- DECEMBER MARCH 31, 31, 1994 1995 ---------- ------- PRO FORMA SOFTKEY MECC ADJUSTMENTS PRO FORMA ---------- ------- ----------- ---------- REVENUES...................................... $ 121,287 $28,046 $ -- $ 149,333 COST OF REVENUES.............................. 39,085 5,685 -- 44,770 --------- ------- --------- --------- GROSS MARGIN.................................. 82,202 22,361 -- 104,563 OPERATING EXPENSES; Sales, marketing and support............. 27,274 9,665 -- 36,939 General and administrative............... 21,306 2,728 -- 24,034 Amortization of Goodwill................. 1,185 -- 113,460(b) 114,645 Research and development................. 6,696 5,478 -- 12,174 --------- ------- --------- --------- 56,461 17,871 113,460 187,792 --------- ------- --------- --------- OPERATING INCOME (LOSS)....................... 25,741 4,490 (113,460) (83,229) INTEREST INCOME (EXPENSES), net............... (535) 575 -- 40 --------- ------- --------- ---------- INCOME (LOSS) BEFORE TAXES.................... 25,206 5,065 (113,460) (83,189) PROVISION FOR INCOME TAXES.................... 4,061 1,270 -- 5,331 ---------- ------- --------- ---------- NET INCOME (LOSS)............................. $ 21,145 $ 3,795 $(113,460) $ (88,520) ========== ======= ========= ========== NET INCOME (LOSS) PER SHARE -- FULLY DILUTED..................................... $ 1.04 $ (3.28) ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING -- FULLY DILUTED:.................................... 21,115,000 5,618,000(d) 26,733,000 ========== ========= ==========
The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. III-4 5 SOFTKEY INTERNATIONAL INC. NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS On October 30, 1995, SoftKey International Inc. (the "Company" or "SoftKey") entered into a definitive merger agreement with the Minnesota Educational Computing Corporation ("MECC"), a publisher and distributor of high quality educational software for children, in exchange for approximately 8,000,000 shares of common stock and other consideration and costs with a total estimated purchase price of approximately $370,000. The ultimate purchase price will be conditional upon the number of shares issued to acquire MECC, which will be in the range of approximately 7,100,000 to 9,200,000 shares dependent upon the 20 day weighted average trading price of SoftKey Common Stock prior to closing. The transaction will be accounted for as a purchase. The pro forma combined condensed consolidated balance sheet includes the financial statements of SoftKey and MECC at September 30, 1995, as if the acquisition had occurred on September 30, 1995. The pro forma combined condensed consolidated statements of operations set forth the results of operations for the nine month periods ended September 30, 1995 and 1994 as if the acquisition of MECC by the Company had occurred at the beginning of each period. The pro forma combined condensed consolidated statement of operations for the year ended December 31, 1994 includes the results of SoftKey for the year ended December 31, 1994 and the results of MECC for the year ended March 31, 1995. The pro forma combined condensed consolidated financial statements are intended for information purposes and are not necessarily indicative of the future consolidated financial position or future results of operations of the combined entity. These combined condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, Form 10-Q for the six month period ended June 30, 1995 and MECC's Annual Report on Form 10-K for the year ended March 31, 1995 and Form 10-Q for the three month period ended June 30, 1995. B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (a) The pro forma combined condensed consolidated balance sheet reflects the purchase of MECC as if the transaction had occurred on September 30, 1995. The pro forma adjustment to reflect the excess purchase price over the estimated fair value of net assets of $340,379 is reflected in goodwill and other assets. The ultimate allocation of the purchase price to the net assets acquired, goodwill, other intangible assets and a charge for incomplete technology is subject to final determination of their respective fair value. (b) The pro forma combined condensed consolidated statements of operations have been prepared assuming the acquisition of MECC was consummated at the beginning of the fiscal year ended December 31, 1994 and the beginning of the nine month interim periods ended September 30, 1995 and 1994. Pro forma adjustments reflect the amortization of the excess purchase price over the estimated fair value of the net assets acquired over the estimated useful life of three years on a straight-line basis. Any allocation of the purchase price to the fair value of incomplete technology could result in a material charge to operations at consummation of the transaction and a corresponding reduction in the amounts to be amortized. There were no intercorporate transactions that required elimination. (c) The pro forma combined condensed consolidated balance sheet reflects the Company's issuance of $350,000 5 1/2 Senior Convertible Notes Due 2000 on October 23, 1995 as if the issuance occurred on September 30, 1995. Transaction related costs of $11,625 for investment banker fees, accounting and legal fees, and other various deal costs have been included in other long-term assets. III-5 6 (d) The pro forma combined condensed consolidated statements of operations for the year ended December 31, 1994 and for the nine month interim periods ended September 30, 1995 and 1994 include an adjustment to add back the common stock equivalents in the fully diluted earnings per share computation as the combined entity is in a loss position, and therefore the inclusion of common stock equivalents would be antidilutive. III-6 -----END PRIVACY-ENHANCED MESSAGE-----