UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A

AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 4, 1997.

Commission file number: 0-13069

THE LEARNING COMPANY, INC.
--------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 94-2562108
-------- ----------
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)

ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
- ------------------------ -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (617) 494-1200
--------------

Securities registered pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------

Common Stock, $.01 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. ___

The aggregate market value of voting stock of the registrant held by
non-affiliates of the registrant as of March 1, 1997 was approximately
$427,917,345.63. As of March 1, 1997, 44,458,945 shares of the registrant's
common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

The Registrant hereby amends its Annual Report on Form 10-K for the fiscal year
ended January 4, 1997 to restate Part III, in its entirety, as follows:

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table lists, as of May 2, 1997, the directors and executive
officers of the Company:

Name Age Position
- ---- --- --------

Lamar Alexander 56 Director

Michael A. Bell 42 Director

James Dowdle 63 Director

Robert Gagnon 59 Director and Executive Vice
President, SoftKey Software
Products

Kevin O'Leary 42 Director and President

Charles L. Palmer 55 Director

Michael J. Perik 39 Chairman of the Board and
Chief Executive Officer

Robert Rubinoff 58 Director

Scott M. Sperling 39 Director

David E. Patrick 40 Executive Vice President,
Worldwide Sales

R. Scott Murray 33 Chief Financial Officer

Anthony J. Bordon 38 President, International

Diana L. James-Cairns 43 Senior Vice President,
Marketing

Martin P. Rice 59 Senior Vice President,
Research and Development

Mr. Alexander became a director of the Company in October 1996. He was
a co-founder and has been Vice Chairman of CorporateFamily Solutions, a manager
of worksite childcare centers, schools and family centers, since May 1996. Prior
thereto he was counsel to the law firm of Baker Donelson from January 1993 until
March 1995. Mr. Alexander served as U.S. Secretary of Education from 1991 until
1993, was President of the University of Tennessee from 1988 until 1991 and
served as Governor of Tennessee from 1979 until 1987. He chaired President
Reagan's Commission on American Outdoors from 1985 until 1987 and was awarded
the James Conant Award by the Education Commission of the States in 1988. In
1986 he chaired the National Governors' Association and its 50-state education
survey,

Time for Results. During 1996, Mr. Alexander was a candidate for President
of the United States. He is a member of the Audit and Compensation Committees.

Mr. Bell became a director of the Company in February 1994. He has been
a director and officer of Monitor Company, Inc., a management consulting firm,
and a group of affiliated companies since 1983.

Mr. Dowdle became a director of the Company in December 1995. He is
executive Vice President/Media Operations of Tribune Company, a media and
entertainment company, and has been a director of Tribune Company since 1985.

Mr. Gagnon became a director of the Company in February 1994 and has
been a director and Executive Vice President of SoftKey Software since February
1994. Prior to the Three-Party Combination, he had been a director of Former
SoftKey from 1991 and Vice President, Finance, of Informatrix 2000, Inc., a
Canadian predecessor of Former SoftKey, since 1987.

Mr. O'Leary became President and a director of the Company in February
1994. He is a founder of SoftKey Software and, prior to the Three-Party
Combination, had been President and a director of Former SoftKey and its
predecessors since 1984.

Mr. Palmer became a director of the Company in July 1996. Prior thereto
he had served as Chairman of the Board and a director of MECC from January 1991
until its acquisition by the Company in May 1996. Mr. Palmer has been President
and Principal of North American Business Development Company, III, L.L.C., the
general partner of North American Fund III L.P., a business development company,
since 1996. Mr. Palmer has been President and Principal of North American
Business Development Company, L.L.C., or its predecessor, the general partner of
North American Fund II, L.P., a business development company, since 1989, and
has been Managing General Partner of North American Company Ltd. since 1972.
North American Company Ltd. is an affiliate of North American Fund II, L.P.,
North American Business Development Company, L.L.C., North American Fund III and
North American Business Development Company III, L.L.C. Prior to joining North
American Company Ltd., Mr. Palmer was a founder, Vice President and subsequently
a Director of Heizer Corporation, a business development company. Mr. Palmer
serves on the boards of directors of Allied Capital Commercial Corporation and
SunBank of South Florida, N.A.

Mr. Perik became Chairman of the Board and Chief Executive Officer of
the Company in February 1994. He is also President and a director of SoftKey
Software. Prior to the Three-Party Combination, Mr. Perik had been Chief
Executive Officer and a director of Former SoftKey since 1991. From 1988 until
1991, he was Vice President of Investments of Denbridge Capital Corporation, a
Canadian investment company.

Mr. Rubinoff became a director of the Company in February 1994. Mr.
Rubinoff is also a director of SoftKey Software. Prior to the Three-Party
Combination he had been a director of Former SoftKey and its predecessors from
1987. Since 1986 and 1979, respectively, he has been the President of Inglewood
Holdings Inc. and Daray Holdings Ltd., each of which is a private Canadian
investment firm. Mr. Rubinoff is a director of National Fibretech, Inc., a
Canadian carpet manufacturer, and Place Resources Ltd., a Canadian oil and gas
company, and is also a director of several private corporations.

Mr. Sperling became a director of the Company in February 1994. He had
been a director of Spinnaker Software Corporation from 1987. Mr. Sperling has
been Managing Director of the Thomas H. Lee Company, a private investment
company, since September 1994. Prior thereto, he was Managing Partner of Aeneas
Group, Inc., an investment company and a wholly owned subsidiary of Harvard
Management Company, Inc., where he was an officer from 1984 to September 1994.
Mr. Sperling is also a director of Beacon Properties Corporation, a real estate
company, General Chemical

Group Inc., a chemical manufacturing company, Object Design Inc., a data
management systems company, and Livent, Inc. a theatre production company, and
is a director of several private corporations.

Mr. Patrick joined the Company in October 1990 as Vice President of
Marketing, Development and Strategic Planning. In May 1992, he became Executive
Vice President and in August 1993 he became Chief Operating Officer. In February
1994, he became Executive Vice President, Worldwide Sales and Marketing. In
August 1994, his office was renamed Executive Vice President, Worldwide Sales.
From February 1996 to January 1997 Mr. Patrick served as President,
International. Mr. Patrick became Executive Vice President, Worldwide Sales in
January 1997.

Mr. Murray became Chief Financial Officer in May 1994 after having
joined the Company in February 1994 as Vice President, Corporate Acquisitions.
Prior thereto, Mr. Murray was a manager with Arthur Andersen & Co., a public
accounting firm, from September 1985 until February 1994.

Mr. Bordon joined the Former SoftKey in December 1991 as Vice
President, Retail Sales and in June 1994 he became Senior Vice President, Retail
Sales of the Company. In January 1996 he became Senior Vice President, North
American Sales. Mr. Bordon became President, International in January 1997.

Ms. James-Cairns became an officer of the Company in connection with
the acquisition of the Former Learning Company. Ms. James-Cairns served as
Director of Operations of the Former Learning Company from September 1987 until
December 1990. From January 1991 until April 1994, Ms. James-Cairns served as
Product Marketing Director of the Former Learning Company. From May 1994 until
October 1995, Ms. James-Cairns served as Vice President, Product Marketing of
the Former Learning Company. From November 1995 until February 1996, Ms.
James-Cairns served as Business Unit Manager, Education of the Former Learning
Company. Ms. James-Cairns became Vice President, Marketing of the Company in
August 1996. In September 1996 her office was renamed Senior Vice President,
Marketing.

Dr. Rice became an officer of the Company in connection with the
acquisition of the Former Learning Company. Dr. Rice was a professor of Russian
Literature at the University of Tennessee, Knoxville from September 1968 until
July 1993. From July 1993 until February 1996, Dr. Rice served as Director of
Product Development of HyperGlot Software Company, Inc., which he founded in
October 1988 and which was acquired by the Former Learning Company in July 1993.
In February 1996 Dr. Rice became Vice President, Research and Development of the
Company. In September 1996 his office was renamed Senior Vice President,
Research and Development.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC") and
to furnish the Company with copies of all such forms they file. Based solely on
its review of the copies of such forms received by it or written representations
from certain reporting persons, the Company believes that during fiscal 1996
each of its directors, executive officers and greater than ten percent
stockholders complied with all applicable Section 16(a) filing requirements,
except that James C. Dowdle filed late one report of one transaction involving a
stock purchase.

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

The following table sets forth compensation paid to the Chief Executive
Officer and the four other most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers") for each of the 1996,
1995 and 1994 fiscal years for services rendered in all capacities to the
Company. Information is furnished for each fiscal period during which such
persons were executive officers.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
-----------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------------------------------------------
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS (#) COMPENSATION
- -------------------------------- ---------- ------------- -------------- ----------------- --------------- -------------------

Michael J. Perik 1996 $ 400,000 $ 312,125 --- 1,000,000 ---
Chairman of the Board and 1995 300,000 --- --- 475,000 $ 33,847(1)
Chief Executive Officer 1994 200,000 --- --- 535,000 98,059(2)

Kevin O'Leary 1996 $ 400,000 $ 312,125 --- 1,000,000 ---
President 1995 300,000 --- --- 475,000 $ 4,574(3)
1994 200,000 --- --- 1,152 41,796(4)

Scott Murray 1996 $ 250,000 $ 125,000 --- 100,000 ---
Chief Financial Officer 1995 230,000 30,000 --- 100,000 $ 37,260(5)
1994 123,264 17,000 --- 70,000 45,683(6)

Martin Rice, Ph.D. 1996 $ 166,266 $ 97,500(7) --- 100,000 $ 56,333(8)
Executive Vice President,
Research & Development

Anthony Bordon 1996 $ 150,000 $ 141,413(9) --- 115,000 ---
President,
International

(1) Represents amounts paid to reimburse Mr. Perik for income taxes
incurred as a result of payments for rent and moving expenses which are
described below.

(2) Includes $57,600 for rent of Mr. Perik's apartment in Boston and
certain moving expenses, and $40,459 to reimburse Mr. Perik for income
taxes incurred as a result of such payments for rent and moving
expenses.

(3) Represents amounts paid to reimburse Mr. O'Leary for income taxes
incurred as a result of payments for rent and moving expenses which are
described below.

(4) Includes $27,239 for expenses incurred by Mr. O'Leary in connection
with moving to the Boston area, and $14,557 to reimburse Mr. O'Leary
for income taxes incurred as a result of such payments for moving
expenses.

(5) Represents amounts paid to reimburse Mr. Murray for income taxes
incurred as a result of payments for rent and moving expenses which are
described below.

(6) Includes $34,091 paid to reimburse Mr. Murray for expenses incurred in
connection with moving to the Boston area and $11,592 in fees paid for
consulting services provided by Mr. Murray prior to his becoming an
employee of the Company.

(7) Includes $50,000 paid to Dr. Rice under a non-competition agreement
between Dr. Rice and the Former Learning Company in connection with the
Former Learning Company's acquisition of HyperGlot Software Company,
Inc. in July 1993.

(8) Includes $36,250 for expenses incurred by Dr. Rice in connection with
moving to the San Francisco Bay area, and $20,083 to reimburse Dr. Rice
for income taxes incurred as a result of such payments for moving
expenses.

(9) Represents commissions.

STOCK OPTIONS GRANTED IN 1996

The following table provides information concerning stock options
granted in 1996 to the Named Executive Officers. No SARs were granted to
executive officers in 1996.

Potential
Individual Grants Realizable Value
------------------------------------------------------ at Assumed Annual
Number of % of Total Rates of Stock
Securities Options Exercise Price Appreciation
Underlying Granted to or Base for Option Term
Options Granted Employees Price Expiration 5% ($) 10% ($)
(# of shares)(1) in 1996 ($/Sh) Date -------------------
---------------- ---------- -------- ----------- ---------- --------

Michael J. Perik 1,000,000(2) 12.41% 16.0625 2/5/2006 10,101,620 25,599,488
Kevin O'Leary 1,000,000(2) 12.41% 16.0625 2/5/2006 10,101,620 25,599,488
R. Scott Murray 100,000(3) 1.24% 16.0625 2/5/2006 1,010,162 2,559,949
Martin Rice 50,000 0.62% 16.0625 2/5/2006 505,081 1,279,974
25,000 0.31% 24.0000 6/3/2006 377,337 956,245
25,000 0.31% 18.3750 7/8/2006 288,898 732,125
Anthony Bordon 65,000 0.81% 16.0625 2/5/2006 656,605 1,663,967
50,000 0.62% 16.0625 6/2/2005 462,424 1,149,351

(1) All options granted under the Company's 1990 Long Term Equity Incentive
Plan (the "LTIP") at fair market value on the date of grant.

(2) Option vests on February 6, 2002, subject to acceleration based on the
following conditions: after $300 million of the Company's outstanding
convertible or convertible/exchangeable notes is repaid under certain
circumstances, as to one-tenth of the shares at such time that the
closing price of the Company's common stock reaches $43 per share for a
specified period, as to an additional one-tenth of the shares at such
time that the closing price of the Company's common stock reaches $45,
$47, $49 and $51 per share, respectively, for a specified period, and
as to the remaining one-half of the shares at such time that the
closing price of the Company's common stock reaches $53 per share for a
specified period.

(3) Option vests as to one-third of the shares quarterly over a three-year
period. Option vests as to the remaining two-thirds of the shares on
February 6, 2002, subject to acceleration on the same terms set forth
in note 2, above.

OPTION EXERCISES AND VALUES FOR 1996

The following table provides information concerning the number and
value of all unexercised options held by the Named Executive Officers as of
December 31, 1996. No Named Executive Officer currently holds any SARs.

AGGREGATED OPTION/SAR EXERCISES IN 1996
AND FY-END OPTION/SAR VALUES

Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)

Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- ---- --------------- --- ------------- -------------

Michael J. Perik 0 0 812,280 / 1,137,500 1,945,657 / 0
Kevin O'Leary 0 0 362,999 / 1,137,500 53,420 / 0
R. Scott Murray 0 0 79,998 / 150,002 97,500 / 0
Martin Rice 43,272 750,466 144,487 / 0 349,890 / 0
Anthony Bordon 5,000 100,250 49,602 / 73,748 49,056 / 0

LONG-TERM INCENTIVE PLAN

The Company did not make any awards during 1996 to any of the Named
Executive Officers under any long-term incentive plan providing compensation
intended to serve as incentive for performance to occur over a period longer
than one fiscal year, excluding stock options.

COMPENSATION OF DIRECTORS

Directors receive no fees for their service as directors of the
Company. Until February 1996 each director who was not an employee of the
Company or any of its affiliates and was not designated for nomination or
appointment to the Board by, or by agreement or arrangement with, any person or
entity (an "Eligible Director") received, under the Company's 1994 Non-Employee
Director Stock Option Plan (the "1994 Plan"), a one-time automatic grant of an
option to purchase 20,000 shares of Common Stock and received continuation
grants of options to purchase 100,000 shares and 26,666 shares of Common Stock.
The initial grant under the 1994 Plan vested immediately, and the continuation
grants vest quarterly over a three-year period. The exercise prices of all such
options were equal to 100% of the fair market value per share on the date of
grant. The 1994 Plan was terminated effective February 6, 1996.

In accordance with the Company's 1996 Non-Employee Stock Option Plan,
which is to be submitted for approval by the stockholders of the Company at the
next meeting of stockholders, each Eligible Director who became a director after
May 16, 1996 receives, at the time he or she first becomes a director, an option
to purchase 50,000 shares of Common Stock, and at the time he or she is elected
or appointed to a committee of the Board, an option to purchase an additional
25,000 shares of Common Stock. The options described in this paragraph vest
quarterly over a two-year period, and the exercise prices of all such options
are equal to 100% of the fair market value per share on the date of grant.

In addition, in recognition of their substantial efforts on behalf of
the Company during 1996, Messrs. Bell, Sperling and Rubinoff were granted
options to purchase 23,333 shares of Common Stock in

October 1996. Those options vest quarterly over a three-year period, and the
exercise prices are equal to 100% of the fair market value per share on the date
of grant.

EMPLOYMENT AND SEVERANCE ARRANGEMENTS

On February 1, 1994, Mr. Murray entered into a three-year employment
agreement with the Company as a Vice President, which was amended as of March 1,
1995. Mr. Murray's employment agreement provides for, among other things, an
annual base salary of not less than $170,000, and the grant to Mr. Murray of an
option to purchase 35,000 shares of Common Stock at $10.375 (the fair market
value of the Common Stock on April 26, 1994, the date of grant). The agreement
also provides for a relocation allowance of C$45,000 (which amount is to be
adjusted to compensate Mr. Murray for any income taxes related to such
allowance), as well as the reimbursement of certain travel and hotel expenses
related to Mr. Murray's relocation to the Company's headquarters in Cambridge,
Massachusetts. Mr. Murray's employment agreement also provides that if the
Company terminates Mr. Murray's employment with the Company other than for just
cause, Mr. Murray will be entitled to severance payments (in addition to accrued
and unpaid salary) in an aggregate amount equal to two times his annual base
salary then in effect, plus the maximum annual bonus payable under the
employment agreement, if any.

As of March 1, 1994, Mr. Gagnon entered into a three-year employment
agreement with SoftKey Software and the Company as President of what was then
known as the Company's Tax Division. The agreement was amended in March 1996.
The agreement provides for, among other things, an annual base salary of not
less than C$225,000 and an annual cash bonus, at the discretion of the Company's
Compensation Committee, of up to C$100,000 based on specified performance
criteria. Mr. Gagnon's employment agreement also provides that if his employment
is terminated by the Company without cause, the Company will continue to pay Mr.
Gagnon's salary and provide benefits for a 30 month period. Mr. Gagnon is also
entitled under the terms of his employment agreement to an automobile allowance.

On March 5, 1997, Mr. Bordon entered into a two-year employment
agreement with the Company as President, International. The agreement provides
for, among other things, an annual base salary of not less than $200,000 and
eligibility for a target cash bonus of up to $165,000 per year payable on a
quarterly basis based upon a plan agreed upon with the Chief Executive Officer
of the Company for each employment year. The agreement also provides that if Mr.
Bordon's employment with the Company is terminated by the Company other than for
just cause or by Mr. Bordon for good reason, the Company will make severance
payments to Mr. Bordon over a two-year period in an aggregate amount equal to
two times the then-current annual base salary plus two times the amount of all
bonuses paid or accrued under the agreement with respect to the twelve month
period immediately preceding such termination.

On April 7, 1997, Dr. Rice entered into a two-year employment agreement
with the Company as Senior Vice President, Development. The agreement provides
for, among other things, an annual base salary of not less than $150,000 and
eligibility for a target cash bonus of up to 75% of the annual base salary per
year payable on a quarterly basis based upon a plan agreed upon with the Chief
Executive Officer of the Company for each employment year. The agreement also
provides that if Dr. Rice's employment with the Company is terminated by the
Company other than for just cause or by Dr. Rice for good reason, the Company
will make severance payments to Dr. Rice over a one-year period in an aggregate
amount equal to the then-current annual base salary plus the amount of all
bonuses paid or accrued under the agreement with respect to the twelve month
period immediately preceding such termination.

On April 9, 1997, Messrs. Perik and O'Leary each entered into
three-year employment agreements with the Company providing for their continued
employment by the Company in their present capacities. Each of the agreements
provides for, among other things, an annual base salary of not less than
$400,000 and eligibility for a target cash bonus of up to $300,000 per year
payable on a quarterly basis based upon performance objectives approved by the
Company's Compensation Committee. Each of the agreements also provides that if
the executive's employment with the Company is terminated by the

Company other than for just cause or by the executive for good reason, the
Company will make severance payments to the executive over a three-year period
(the "Continuation Period") in an aggregate amount equal to three times the
then-current annual base salary plus three times the amount of all bonuses paid
or accrued under the agreement with respect to the twelve month period
immediately preceding such termination. Each of the agreements also provides
that under those circumstances the Company will provide the executive, during
the Continuation Period, with life, disability, accident and health insurance
benefits and a monthly automobile allowance identical or substantially similar
to those which the executive received immediately prior to such termination. In
addition, each of the agreements provides that under those circumstances, during
the Continuation Period all of the executive's then outstanding options for the
purchase of capital stock of the Company will continue to vest and remain
exercisable in accordance with the terms of the applicable stock option
agreements as if the employment of the executive were not terminated until the
last day of the Continuation Period.

Under each of the agreements, the Company has agreed that if any of
severance payments provided for by the agreements will be subject to tax (the
"Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company will pay to the executive an additional
payment (a "Gross-up Payment") such that the net amount retained by the
executive, after deduction of any Excise Tax and any other tax on such payments
and the Gross-up Payment, will be equal to original severance payments. The
Gross-up Payments will only apply to severance payments if the event that causes
the severance payments to be subject to the Excise Tax occurs during the
three-year term of the agreement. The Company has also agreed to enter into a
security arrangement reasonably acceptable to each of Messrs. Perik and O'Leary
to secure the severance payments under each of the agreements.

OPTION/SAR REPRICINGS

TEN-YEAR OPTION/SAR REPRICINGS

Length of
Number of Market Price Exercise Original
Options/ of Stock at Price at Option Term
SARs Time of Time of Remaining
Repriced or Repricing or Repricing or New at Date of
Amended Amendment Amendment Exercise Repricing or
Name Date (#) ($) ($) Price ($) Amendment
- ---- ---- --- --- --- --------- ---------

Anthony Bordon 2/5/96 50,000 16.0625 22.7500 16.0625 9 years, 117 days

COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS

In February 1996, the Compensation Committee approved the repricing of
certain options granted to employees pursuant to the LTIP.

Because of the decline in the market value of the Company's common
stock, certain outstanding options in February 1996 were exercisable at prices
that exceeded the market value of the common stock. In view of this decline and
in keeping with the Company's philosophy of utilizing equity incentives to
motivate and retain qualified employees, the Compensation Committee felt that it
was important to regain for eight key employees the incentive intended to be
provided by options to purchase shares of the Company's common stock.

Pursuant to the terms of the repricing, eight option holders were
issued new options having an exercise price of $16.0625 per share, the market
price of the Company's common stock on the date of the date of the repricing
(the "New Options"). None of the eight option holders was an executive officer
at the time of the repricing. Subsequent to the repricing, one of the option
holders became an executive officer. The New Options modify the exercise price
of the Existing Options to which each relates and are governed by the Company's
1996 Stock Option Plan. The option agreements for the New Options contain
substantially the same terms as the option agreements for the Existing Options
that they replace, including continuation of the same vesting schedules.

COMPENSATION COMMITTEE

Lamar Alexander
Michael A. Bell
Robert Rubinoff
Scott M. Sperling

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee are Lamar Alexander, Michael
A. Bell, Robert Rubinoff and Scott M. Sperling, none of whom is an employee of
the Company or has any direct or indirect material interest in or relationship
to the Company, other than their receipt of stock options described above in
"Compensation of Directors" or, in the case of Mr. Rubinoff, options granted
prior to 1994 under a stock option plan of Former SoftKey. None of the executive
officers of the Company has served on the Board of Directors or compensation
committee of any other entity, any of whose officers served either on the
Company's Board of Directors or the Compensation Committee.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors is furnishing the
following report on the compensation policies applicable to the Company's
executive officers with respect to compensation reported for the year ended
December 31, 1996.

Executive Officer Compensation

The objective of the Company's executive compensation program is to
attract and retain key executives critical to the success of the Company. To
closely align the interests of such executives with those of the Company's
stockholders, the Company relies on the use of stock-based compensation plans to
comprise a high proportion of executive officers' total compensation. In
addition, the Company uses discretionary bonuses to ensure that an individual's
compensation is directly related to the Company's financial and other goals.

Base Salary. Salaries paid to executive officers, other than the
President and Chief Executive Officer, are reviewed by the Chief Executive
Officer based upon his assessment of the nature of the position, and the
contribution, experience and tenure of the executive officer. At the request of
the Chief Executive Officer, the Compensation Committee reviews any
recommendations of the Chief Executive Officer resulting from such review. The
Compensation Committee is responsible for determining the salaries of the
President and Chief Executive Officer.

Discretionary Bonus. Periodically during the year, the Chief Executive
Officer may grant or recommend the payment of discretionary bonuses to executive
officers (other than himself and the President) based upon his evaluation of
such executive officer's tangible and direct contribution to the Company's
performance. In fiscal 1996 the Committee established an overall Company
performance target based on cash flow per share to be met before any bonuses
would be payable to the Company's

10
11

Chief Executive Officer and President which was also applicable to the Company's
Chief Financial Officer and Chief Operating Officer (the latter of whom resigned
in August 1996).

Stock Options. The Company believes that the most effective way to
align the interests of executives with those of the Company's stockholders is to
ensure that executive officers hold equity stakes in the Company. Accordingly,
the Compensation Committee and management have determined that continued use of
stock options is an important mechanism for long-term incentive compensation of
executive officers. The Compensation Committee administers the LTIP, under which
options are granted to executive officers as well as other employees of the
Company. Generally, option grants are approved by the Compensation Committee
upon the recommendation of the Chief Executive Officer, who determines the
amount of such grants based upon factors similar to those used to determine
salary and any bonus. Options are granted at fair market value on the date of
grant, have ten year terms and generally have vesting periods of three years. In
fiscal 1996 the Committee granted options to the Company's Chief Financial
Officer, Chief Operating Officer and President, International that were in whole
or in part subject to a vesting schedule and certain other performance measures
identical to those imposed on the Chief Executive Officer and President and
described below under Chief Executive and President Compensation.

Chief Executive and President Compensation

As a result of its acquisitions of the Former Learning Company and
Compton's in the closing days of 1995 and of MECC in May 1996, the Company was
significantly larger and more complex than previously and faced significant
operational challenges in integrating all of its constituent parts in 1996. The
Compensation Committee recognized in early 1996 the significant efforts that
would be required of the Company's executives to achieve the Company's goals,
and sought to implement an executive compensation program that would reward
executive's successful efforts while aligning their interests with those of the
Company's stockholders.

Michael J. Perik and Kevin O'Leary, the Chief Executive Officer and
President of the Company, respectively, are compensated pursuant to employment
agreements. See the discussion under "Employment and Severance Arrangements"
above. The terms of such agreements were approved by the Compensation Committee.
The base salaries and annual bonus targets under those agreements are subject to
review by the Compensation Committee annually. In February 1996, the
Compensation Committee established an overall Company performance target to be
met before any bonuses would be payable for fiscal 1996. This performance target
related to the attainment of a specified level of after-tax cash flow per share,
which after the end of the year the Committee determined was satisfied. Also in
February 1996 the Compensation Committee granted to each of Mr. Perik and Mr.
O'Leary options under the Company's stock option plans to purchase 1,000,000
shares of Common Stock. The options will not vest for six years unless the
market price of the Company's common stock attains certain prices between $43
and $53 per share and the Company eliminates a substantial portion of its
outstanding long-term debt. The Compensation Committee granted these options in
recognition of Messrs. Perik's and O'Leary's important contributions to the
Company's success and the achievement of its goals in 1995 and to further align
their interests with those of the Company's stockholders. The option awards were
designed to incorporate a number of features to lessen their immediate value and
appeal, while providing a large potential gain if significant stockholder value
is created.

Compliance with Internal Revenue Code Section 162(m)

Section 162(m) of the Code generally disallows a tax deduction to
public companies for compensation over $1 million paid to the corporation's
Chief Executive Officer and four other most highly compensated executive
officers. The Committee believes that it is in the best interests of the
Company's stockholders to comply with the new tax law while still maintaining
the goals of the Company's executive compensation program, thereby maximizing
the deductibility of the Company's

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executive compensation payments. The Company currently intends to structure
grants under future stock option plans in a manner that complies with this
section of the Code.

COMPENSATION COMMITTEE

Lamar Alexander
Michael A. Bell
Robert Rubinoff
Scott M. Sperling

COMPARATIVE STOCK PERFORMANCE

The following graph compares the performance of the Company's common
stock with the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index") and an industry index (the "Industry Index") over
the period from December 31, 1991 through December 31, 1996. The graph assumes
that $100 was invested on December 31, 1991 in each of the Common Stock, the
S&P 500 Index and the Industry Index, and that all dividends were reinvested.
The Industry Index includes all companies listed on the Nasdaq National Market
with the standard industrial code 7372 (Computer and Data Processing Services).
The performance shown in the graph is not necessarily indicative of future
performance.

[STOCK PERFORMANCE GRAPH]

Index 6/28/91 6/30/92 6/30/93 1/7/94 1/6/95 1/5/96 1/3/97
----- ------- ------- ------- ------ ------ ------ ------

The Learning Company, Inc. $100.00 89.80 49.00 43.90 78.80 75.50 51.40

S&P 500 Index $100.00 113.30 128.70 135.90 137.20 188.60 234.20

Industry Index $100.00 137.60 175.30 183.80 212.10 309.50 412.70

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

MANAGEMENT'S STOCK OWNERSHIP

The following table sets forth as of March 1, 1997 information
concerning the beneficial ownership of the Company's common stock held by each
director and Named Executive Officer and by all directors and executive officers
as a group.

Shares Beneficially Owned (1)
-----------------------------

Amount of Percentage of
--------- -------------
Beneficial Common Stock
---------- ------------
Name Ownership Outstanding
- ---- --------- -----------

Lamar Alexander 25,000 *
Michael A. Bell 76,664 *
Anthony Bordon 68,603 *
James C. Dowdle 23,000 *
Robert Gagnon 254,789 (2) *
R. Scott Murray 189,191 (3) *
Kevin O'Leary 1,643,907 (4) 3.6%
Charles L. Palmer 1,700,231 (5) 3.8%
Michael J. Perik 1,816,651 (6) 3.9%
Martin Rice 44,487 *
Robert Rubinoff 131,664 (7) *
Scott M. Sperling 76,664 *

All executive officers and directors as a group (14 persons) 6,304,655 12.8%

* Represents less than 1% of the outstanding shares of the Company's
common stock.

(1) Unless otherwise noted, the nature of beneficial ownership is sole
voting and/or investment power, except to the extent authority is
shared by spouses under applicable law. Shares of the Company's common
stock not outstanding but deemed beneficially owned by virtue of the
right of a person or group to acquire them within 60 days are treated
as outstanding only for purposes of determining the number and percent
of shares of the Company's common stock owned by such person or group.

(2) Includes 240,485 shares of the Company's common stock issuable upon
exchange of Exchangeable Shares owned of record by a corporation wholly
owned by Mr. Gagnon.

(3) Includes 860 shares of the Company's common stock issuable upon
exchange of Exchangeable Shares owned of record by Mr. Murray. Includes
100,000 shares of the Company's common stock subject to options that
could become excercisable within 60 days if the market price of the
Company's common stock reaches certain levels and if a specified
portion of the Company's outstanding indebtedness is repaid.

(4) Includes 212,158 shares of the Company's common stock issuable upon
exchange of Exchangeable Shares owned of record by a corporation wholly
owned by Mr. O'Leary. Includes 1,000,000 shares of the Company's common
stock subject to options that could become excercisable within 60 days
if the market price of the Company's common stock reaches certain
levels and if a specified portion of the Company outstanding
indebtedness is repaid.

(5) All shares shown as beneficially owned by Charles L. Palmer (except for
17,412 shares of the Company's common stock that Mr. Palmer owns
directly and 12,500 shares of the Company's

common stock subject to options that will become excercisable within 60
days) are owned of record by North American Fund II, L.P., a Delaware
limited partnership. Mr. Palmer is President and a member of North
American Business Development Company, L.L.C., a Delaware limited
liability company, which is the general partner of North American Fund
II, L.P. Mr. Palmer is the managing general partner of North American
Company Ltd., a Florida limited partnership, which is a member of North
American Business Development Company, L.L.C., and which is a limited
partner of North American Fund II, L.P. As a result of the foregoing,
Mr. Palmer could be deemed to have sole voting and investment power
with respect to all shares shown as beneficially owned by him.

(6) Includes 3,121 shares of the Company's common stock issuable upon
exchange of Exchangeable Shares owned of record by Mr. Perik. Includes
1,000,000 shares of the Company's common stock subject to options that
could become exercisable within 60 days if the market price of the
Company's common stock reaches certain levels and if a specified
portion of the Company's outstanding indebtedness is repaid.

(7) Includes 55,000 shares of the Company's common stock issuable upon
exchange of Exchangeable Shares owned by a corporation over which Mr.
Rubinoff exercises investment and voting power.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information as to the beneficial ownership
of each person known to the Company to own more than five percent of the
Company's outstanding common stock as of March 1, 1997.

Shares Beneficially
Owned(1)
--------

Percentage of
-------------
Name and Address Of Common Stock
- ------------------- ------------
Beneficial Owner Number Outstanding
- ---------------- ------ -----------

FMR Corp.
82 Devonshire Street
Boston, MA 02109..............................................3,146,439(2) 7.1%
State Street Global Advisors
225 Franklin Street
Boston, MA 02110.............................................3,523,727(3) 7.9%
Tribune Company
435 North Michigan Avenue
Chicago, IL 60611.............................................8,040,984(4) 18.1%

(1) Unless otherwise noted, the nature of beneficial ownership is sole voting
and/or investment power, except to the extent authority is shared by
spouses under applicable law. Shares of the Company's common stock not
outstanding but deemed beneficially owned by virtue of the right of a
person or group to acquire them within 60 days are treated as outstanding
only for purposes of determining the number and percent of shares of the
Company's common stock owned by such person or group.

(2) Based upon information contained in a Schedule 13G dated October 15, 1996
filed jointly with the SEC by FMR Corp., Fidelity Management & Research
Company, Edward C. Johnson 3rd, (Chairman of FMR Corp.) and Abigail P.
Johnson, FMR Corp. has reported that it has sole voting power over 226,966
shares of the Company's common stock and sole dispositive power over
3,146,439 shares of the Company's common stock.

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(3) Based upon information contained in a Schedule 13G dated February 14, 1997
filed with the SEC by State Street Global Advisors ("State Street"). State
Street has sole voting power with respect to 2,507,127 shares of the
Company's common stock, sole dispositive power with respect to 3,523,127
shares of the Company's common stock and shared dispositive power with
respect to 600 shares of the Company's common stock.

(4) Based upon information contained in Amendment No. 2 to Schedule 13D dated
April 16, 1996 filed with the SEC by Tribune Company. Includes 2,830,188
shares issuable to Tribune Company upon conversion of the Tribune Notes.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Helen Wright, former Director of Investment Relations for the Company
and Mr. Perik's sister, is indebted to the Company under a loan agreement
entered into on June 30, 1991 between Former SoftKey and Ms. Wright pursuant to
which Former SoftKey loaned Ms. Wright C$267,000 to assist Ms. Wright in paying
the exercise price of certain employee stock options. As of January 5, 1997, the
aggregate principal amount of the loan outstanding was $203,000. In addition, as
of January 5, 1997, Ms. Wright was also indebted to the Company in the principal
amount of C$77,500 pursuant to a loan by Former SoftKey to Ms. Wright for the
purchase of common shares of Former SoftKey. Both loans are interest-free and
payable on demand.

On April 5, 1996, the Company issued 158,099 shares of common stock to
Tribune Company in payment of a $3,000,000 promissory note and all interest
accrued thereon. James C. Dowdle, a director of the Company, is a director of
Tribune Company.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto authorized.

THE LEARNING COMPANY, INC.

By:
----------------------------------
Michael J. Perik
Chief Executive Officer

Dated: May 2, 1997