<PAGE>
As filed with the Securities and Exchange Commission on July 1, 1999
Registration No. 333-78481
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
Amendment No. 2
To
FORM F-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
CREO PRODUCTS INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Canada 3555 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3700 Gilmore Way, Burnaby, British Columbia, Canada, V5G 4M1, (604) 451-2700
---------------
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
CT Corporation System
1633 Broadway, New York, New York 10019, (212) 664-1666
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Douglas H. Collom, Esq. Robert B. Knauss, Esq.
Christopher J. Ozburn, Esq. Lisa M. Wiens-Sinko, Esq.
Jon P. Layman, Esq. MUNGER, TOLLES & OLSON LLP
Priya Cherian Huskins, Esq. 355 South Grand Avenue
WILSON SONSINI GOODRICH & ROSATI 35th Floor
Professional Corporation Los Angeles, California 90071
650 Page Mill Road (213) 683-9100
Palo Alto, California 94304
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration
statement.
---------------
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,
please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Proposed Maximum Aggregate
Title of Each Class of Securities to Amount to be Offering Price Offering Amount of
be Registered Registered(1) Per Share(2) Price(1)(2) Registration Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shares, without par value... 5,750,000 shares $15.00 86,250,000 $23,978(3)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes (A) common shares that are to be offered and sold in the United
States, (B) common shares that are to be offered and sold outside the
United States in transactions that are not subject to registration under
the Securities Act of 1933, as amended, but that may be resold from time
to time in the United States during the distribution, and (C) an aggregate
of 750,000 common shares that the underwriters have the option to purchase
from the selling shareholders to cover over-allotments, if any.
(2) Estimated solely to calculate the amount of the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(3) Previously paid. ---------------
The Registrant hereby amends this registration statement on the date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on the date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
EXPLANATORY NOTE
The prospectus relating to common shares registered hereby to be offered in
the United States (U.S. Prospectus) is set forth following this page. The
prospectus relating to common shares registered hereby to be offered in Canada
(Canadian Prospectus) will consist of certain alternate pages to pages in the
U.S. Prospectus and the balance of the pages included in the U.S. Prospectus
for which no alternate page is provided. The U.S. Prospectus and the Canadian
Prospectus are substantially identical except that they contain different front
and back cover pages and the Canadian Prospectus contains additional sections
under the captions "Summary--Risk Factors," "Eligibility for Investment,"
"Material Contracts," "Prior Sales of Common Shares," "Purchasers' Statutory
Rights," "Certificate of Creo Products Inc." and "Certificate of the
Underwriters" and does not contain the sections included in the U.S. prospectus
under the captions "Taxation," "Exchange Controls," "Where You Can Find More
Information" and "Risk Factors - Since Creo is a Canadian company and most of
our assets and key personnel are located in Canada, you may not be able to
enforce any U.S. judgment for claims you may bring against us, our assets or
our key personnel." In addition, there are variations in sequence of particular
sections.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 1, 1999
PROSPECTUS
5,000,000 Shares
[LOGO OF CREO PRODUCTS INC.]
Creo Products Inc.
Common Shares
--------
Creo Products Inc. is selling 4,000,000 common shares and the selling
shareholders named in this prospectus are selling 1,000,000 common shares. Creo
will not receive any proceeds from the sale of the shares by the selling
shareholders. The underwriters named in this prospectus have the option to
purchase up to 750,000 additional common shares from the selling shareholders
to cover over-allotments.
This is an initial public offering of common shares. Creo currently expects
the initial public offering price to be between $13.00 and $15.00 per share,
and has applied to have the common shares included for quotation on the Nasdaq
National Market under the symbol "CREO" and listed on the Toronto Stock
Exchange under the symbol "CEC".
--------
Investing in the common shares involves risks. See "Risk Factors" beginning
on page 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price.............................................. $ $
Underwriting Discount.............................................. $ $
Proceeds to Creo (before expenses)................................. $ $
Proceeds to the Selling Shareholders (before expenses)............. $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about , 1999.
--------
Salomon Smith Barney
Merrill Lynch & Co.
RBC Dominion Securities Corporation
, 1999
<PAGE>
[Description of Inside Front Cover]
The top half of the inside front cover features a large circle encapsulating a
smaller circle. The two concentric circles contain four photos of people and
printing processes. A pair of lines forming cross-hares divides the circles at
an angle and extends to divide the page. Below and curving around the bottom
portion of the large circle runs a caption reading, "It is important to us that
Creo be recognized as a company that cares about customer success." Below this
caption and circle are eight line of text reading: "Creo Products Inc. is a
leading developer, manufacturer, and distributor of advanced digital systems
that transfer computer files directly onto printing plates. Our solutions are
designed to enable commercial printers to operate their presses more profitably
and to respond to increasing customer demands for tighter deadlines, higher
color quality and shorter print runs." Centered near the bottom of the page is
the CREO logo.
<PAGE>
[Description of the Gate]
Centered in the top half of the lefthand page of the gate are three
paragraphs of text. The first paragraph states: "In 1994, Creo delivered the
first commercial computer-to-plate (CTP) system for plate production. Our
digital prepress solutions include a comprehensive line of precision imaging
equipment and workflow management software systems." The second paragraph
reads: "Creo CTP technology accepts digitized text, graphic images and line
artwork directly from desktop publishing and scanning systems. It transfers
this data directly onto proofing media and printing plates without the need for
intermediate films." The third paragraph reads: "In 1997, Creo established a
joint venture with Heidelberger Druckmaschinen AG, the world's largest press
manufacturer, effectively broadening our presence into over 160 countries
worldwide." Below this text is an box labeled "Creo Computer-to-Plate (CTP)
Solution". Below the label, the caption "Digitization of legacy film"
accompanies a small icon representing a scanner. Immediately below this caption
and icon, the caption "Original digital pages" accompanies an icon of a
computer. An arrow between the two icons points from left to right toward a
second icon of a computer captioned "Digital Prepress." A similar arrow points
to an icon resembling a desktop printer encaptioned "Digital Proofing". Another
arrow continues the progression to a similar icon encaptioned "Digital Plating."
Immediately to the right of this icon is a vertical dotted line with a final
arrow pointing to an icon representing a printing press encaptioned "Printing"
The top half of the righthand page of the gate features a large circle
encapsulating a smaller circle and four photos of people using computers. A
pair of lines forming cross-hares divides the circles at an angle and extends to
divide entire gate spread. Below and curving around the bottom portion of the
large circle runs a caption reading "Creo advanced workflow management software
is designed for maximum versatility and productivity." Seven small photophraphs
of Creo products with captions follow the outside curve of the large circle. At
the top left, the caption "Renaissance copydot scanning system" accompanies a
photograph of that product. Below that, the caption "Trendsetter Spectrum
digital halftone proofing system" appears below a photograph of that product.
Below this and to the right, the caption "Trendsetter semi-automatic platemaking
system" accompanies a photograph of that product. Below this and further to the
right, the caption "Very Large Format Trendsetter" appears below that product.
Nearing the bottom of the circle, the caption "Platesetter 3244 fully automated
platemaking system" accompanies that product." To the right appears the caption
"ThermoFlex flexographic platemaking system" with its corresponding product
image. Finally and furthest right, the caption "Very Large Format Platesetter"
appears below a photograph of this product. Centered in the gate near the
bottom of the spread is the CREO logo.
<PAGE>
You should rely only on the information contained in this prospectus. Creo
has not authorized anyone to provide you with different information. Creo is
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date of this prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 5
Risk Factors............................................................... 9
Forward-Looking Statements................................................. 16
Use of Proceeds............................................................ 16
Dividend Policy............................................................ 16
Additional Information About Creo.......................................... 16
Capitalization............................................................. 17
Dilution................................................................... 18
Selected Consolidated Financial Data....................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................................ 21
Business................................................................... 33
Management................................................................. 45
Interests of Management and Others in Certain
Material Transactions..................................................... 53
Principal and Selling Shareholders......................................... 54
Description of Share Capital............................................... 58
Taxation................................................................... 60
Exchange Controls.......................................................... 63
Underwriting............................................................... 64
Shares Eligible for Future Sale............................................ 67
Legal Matters.............................................................. 69
Experts.................................................................... 69
Where You Can Find More Information........................................ 70
Index to Financial Statements.............................................. F-1
</TABLE>
Until , 1999, all dealers that buy, sell or trade the common shares,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all of the information that
you should consider before buying shares in this offering. You should read the
entire prospectus carefully.
Please also note that, except where otherwise indicated:
. The capitalization information in this prospectus is based upon
information as of March 31, 1999.
. The information in this prospectus takes into account a 2-for-1 stock
split effected in May 1999.
. The information in this prospectus assumes no exercise of the
underwriters' over-allotment option.
. In this prospectus, "Creo," "we," "us," and "our" refer to Creo Products
Inc. and its subsidiaries.
All dollar amounts in this prospectus are stated in U.S. dollars unless
stated otherwise. At March 31, 1999, the noon buying rate in New York City for
cable transfers in Canadian dollars was US$1.00=C$1.5092 as certified for
customs purposes by the Federal Reserve Bank of New York.
Creo Products Inc.
Creo is a leading developer, manufacturer and distributor of comprehensive
"computer-to-plate" (CTP) digital solutions that automate the prepress phase of
commercial printing, in which master printing plates are created prior to
actual printing. Our CTP technology transfers digitized text, graphic images
and line artwork from desktop publishing computer systems directly onto
printing plates, eliminating labor-intensive, complex and costly preparatory
steps required by the conventional prepress process. We offer a comprehensive
line of precision imaging equipment, including scanners, proofing devices and
output devices, as well as workflow management software. The principal features
of our solutions are:
. End-to-End Prepress Solutions. Our solutions integrate a complete range
of Creo products that address the entire prepress process.
. Open Architecture and Connectivity. Our solutions support industry-
standard file formats, accommodate a wide variety of input media and are
adaptable to emerging file formats.
. Modularity and Versatility. The components of our solutions are modular
and can be used separately or assembled in a variety of configurations
to meet the needs of customers with varying print volumes and press
sizes.
. Knowledgeable and Comprehensive Customer Support. We offer comprehensive
pre-sale evaluation, installation, system integration, training and
post-sale support through what we believe is the most knowledgeable and
experienced field service organization in our industry.
Our CTP technologies enable printers to use printing presses more profitably,
while improving their ability to meet customer demands for tighter deadlines,
better and more consistent color quality, shorter print runs, and greater
customization of print jobs.
Since 1994, more than 900 of our CTP imaging systems have been installed in
29 countries. This is more than twice the number of installed systems of any of
our competitors. Nine of the ten largest commercial printers in North America
are adopting Creo systems as their CTP solution. Creo systems are currently
used in the production of high-circulation glossy magazines, including Glamour,
Newsweek, Scientific American, Sports Illustrated and Time, as well as other
documents such as color brochures and catalogs.
Although many of the largest commercial printers have begun to adopt CTP
solutions, we believe the market is still developing. We believe that less than
20% of commercial printers in the world currently use CTP solutions. According
to a June 1999 report prepared for Creo by Cloud Information Services, an
industry research group, CTP unit shipments worldwide are expected to grow at a
compound annual growth rate of over 25% from 1999 through 2003.
5
<PAGE>
We are a leader in developing innovative prepress technology. We were the
first to commercialize a fully integrated high-speed CTP solution, and our
innovations have established thermal imaging as the industry standard for CTP.
We are at the forefront of research and development of next-generation digital
prepress technology, including digital offset press products, which transfer
digital data directly onto a printing press. As of March 31, 1999, we held 30
U.S. and foreign patents, and had 39 U.S. and foreign patent applications
pending.
Our Strategy
Our objective is to maintain our position as a leading developer and supplier
of innovative digital prepress products and technologies. We plan to:
. Expand Our Technology Leadership. We intend to continue to make
significant investments in the research and development of innovative,
next-generation, market-leading technologies such as digital offset
press technology, as well as to apply our existing technologies to new
markets such as packaging printing.
. Focus on Customer Success. We will continue to offer world-class service
and support while working closely with our customers to ensure that our
systems generate clear economic benefits.
. Expand and Leverage Strategic Business Alliances. We will continue our
strategy of establishing collaborative relationships with leading
commercial printers, printing press manufacturers, plate suppliers and
others in the commercial printing industry in order to broaden our
distribution, product development and manufacturing capabilities.
. Expand Our Global Market Presence. We intend to expand our market
penetration geographically, with a focus on small to mid-size commercial
printers.
An important part of our growth strategy has been establishing strategic
alliances with major industry participants. In October 1997, we formed a joint
venture with Heidelberger Druckmaschinen AG, to develop, manufacture, market
and distribute our CTP solutions worldwide. Heidelberg is the world's largest
press manufacturer, with offices in more than 160 countries. Heidelberg has
substantial international marketing and distribution channels for commercial
printing presses and prepress equipment, and an extensive customer support and
service organization. In the six months ended March 31, 1999, our product
revenue from the joint venture was $27.1 million, which represented 34.8% of
our total revenue. We have also entered into a separate agreement with
Heidelberg to collaborate on the development of digital offset press
technology.
Our principal office is located at 3700 Gilmore Way, Burnaby, British
Columbia, Canada, V5G 4M1, and our telephone number is (604) 451-2700. This
prospectus contains trademarks and registered trademarks of Creo and of other
companies.
6
<PAGE>
The Offering
<TABLE>
<C> <S>
Common shares offered by Creo................... 4,000,000 shares
Common shares offered by the selling
shareholders................................... 1,000,000 shares
Total........................................ 5,000,000 shares
Common shares to be outstanding after the
offering....................................... 32,027,854 shares
Use of proceeds................................. We intend to use the proceeds
of this offering for working
capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol.......... CREO
Proposed Toronto Stock Exchange symbol.......... CEC
</TABLE>
We are obligated to issue common shares upon exercise of outstanding options
and warrants in addition to the common shares to be outstanding after the
offering. If and when these options and warrants are exercised, the percentage
of common shares you own will be diluted. The following is a summary of the
additional issuable common shares:
. 4,595,232 common shares issuable upon exercise of outstanding options,
which have a weighted average exercise price of C$11.75 per share; and
. 24,598 common shares issuable upon exercise of outstanding warrants,
which have a weighted average exercise price of $9.38.
7
<PAGE>
Summary Selected Financial Data
Our consolidated financial statements were prepared in accordance with
Canadian GAAP, which differs from United States GAAP. The "As Adjusted" numbers
in the table below reflect the sale of the 4,000,000 common shares offered by
Creo at the assumed initial public offering price of $14.00 per share and the
receipt of net proceeds from this offering.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts under Canadian
GAAP
Statement of Operations
Data:
Total revenue........... $ 6,089 $19,835 $47,938 $95,583 $128,848 $ 59,249 $ 78,057
Gross profit............ 1,500 4,968 16,172 41,949 57,631 26,060 37,369
Earnings (loss) from
operations............. (3,312) (8,074) (7,360) 8,287 19,346 8,847 13,715
Net earnings (loss)..... (2,560) (5,323) (7,243) 5,837 11,090 5,126 7,631
Basic earnings (loss)
per share.............. $ (0.17) $ (0.30) $ (0.34) $ 0.26 $ 0.44 $ 0.21 $ 0.28
======= ======= ======= ======= ======== ======== ========
Fully diluted earnings
(loss) per share....... $ (0.17) $ (0.30) $ (0.34) $ 0.24 $ 0.41 $ 0.19 $ 0.25
======= ======= ======= ======= ======== ======== ========
Shares used in per share
calculation
Basic.................. 15,075 17,848 21,209 22,769 25,025 24,998 27,276
Fully diluted.......... 15,075 17,848 21,209 30,428 30,502 30,499 32,648
<CAPTION>
As at
March 31, 1999
-----------------
As
Actual Adjusted
-------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................................ $ 37,150 $ 88,380
Working capital.................................................. 59,039 110,269
Total assets..................................................... 136,890 188,120
Shareholders' equity............................................. 89,742 140,972
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts under U.S. GAAP
Net earnings (loss)..... $(2,469) $(5,231) $(6,938) $ 6,081 $ 10,358 $ 4,394 $ 7,631
Basic earnings (loss)
per share............. $ (0.16) $ (0.29) $ (0.33) $ 0.27 $ 0.41 $ 0.18 $ 0.28
======= ======= ======= ======= ======== ======== ========
Diluted earnings (loss)
per share............. $ (0.16) $ (0.29) $ (0.33) $ 0.25 $ 0.38 $ 0.16 $ 0.27
======= ======= ======= ======= ======== ======== ========
Shares used in per share
calculation
Basic.................. 15,075 17,848 21,209 22,769 25,025 24,998 27,276
Diluted................ 15,075 17,848 21,209 24,191 27,036 27,424 28,067
</TABLE>
8
<PAGE>
RISK FACTORS
Investing in our common shares involves a high degree of risk. You should
carefully consider the risks described below as well as all the other
information in this prospectus--including our financial statements and related
notes--before investing in our common shares. Our business, operating results
and financial condition could be seriously harmed due to any of the following
risks. The trading price of our common shares could decline due to any of these
risks, and you could lose all or part of your investment.
If our CTP solutions do not gain broad market acceptance among small and mid-
size printers, our revenues will be flat or will decline.
Adoption of CTP technology requires commercial printers to make significant
and costly changes to their prepress operations. To date, our CTP solutions
have been adopted principally by large, multi-plant commercial printers. Small
and mid-size printers may be slower to adopt our CTP solutions because of the
cost or because of the reluctance of these printers to interfere with existing
relationships with other suppliers of prepress equipment. If these small and
mid-size printers do not adopt our CTP solutions, our revenues will be flat or
will decline.
If our joint venture with Heidelberg is unsuccessful or is terminated and we
are not able to rechannel our resources fast enough, our operating results will
suffer.
Our operating and financial performance depends substantially on our joint
venture with Heidelberg. Since we have a relationship with Heidelberg, we have
not developed for ourselves the manufacturing, marketing, distribution and
customer service and support capabilities that Heidelberg contributes to the
joint venture. For example, we depend on Heidelberg's:
. manufacturing capabilities for most of our 4-page and 8-page CTP output
devices;
. worldwide marketing and distribution networks for the sale of our
products under the joint venture;
. worldwide service and customer support organization for service support
outside North America; and
. product development funding for products to be commercialized by the
joint venture.
If the joint venture were to terminate, we would be forced to develop for
ourselves additional manufacturing, marketing, distribution and customer
service and support capabilities. Developing these capabilities would increase
our operating costs and, if we were unable to develop them quickly enough, our
revenues would decline.
For more information about our joint venture with Heidelberg, see "Business--
Our Joint Venture with Heidelberg."
We must continue to overcome significant and increasing competition in the
digital prepress market in order to continue our growth and profitability.
Direct competition among providers of digital prepress solutions is likely to
increase as the demand for solutions of this type expands. We face intense
direct competition from other manufacturers of CTP products including Scitex
Corporation Ltd., Agfa-Gevaert N.V., Dainippon Screen Mfg. Co. Ltd., Barco N.V.
and Cymbolic Sciences International, Inc.
Many of our competitors are substantially larger than we are and have
significantly greater financial, sales and marketing, technical, manufacturing
and other resources and more established distribution channels. These
competitors may be able to respond more rapidly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than we can. Furthermore,
some of our competitors may make strategic acquisitions or establish
cooperative relationships
9
<PAGE>
among themselves or with third parties in the industry, such as plate suppliers
and press manufacturers, to increase their ability to rapidly gain market share
by addressing the needs of our prospective customers.
We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies as industry
standards and customer requirements evolve that may supplant or provide lower
cost alternatives to our products. Successful new product introductions or
enhancements by our competitors could reduce the sales or market acceptance of
our products and services, perpetuate intense price competition or make our
products obsolete. To be competitive, we must continue to invest significant
resources in research and development, sales and marketing and customer
support. We cannot be sure that we will have sufficient resources to make such
investments or that we will be able to make the technological advances
necessary to be competitive. As a result, we may not be able to compete
effectively against our competitors.
Increased competition is likely to result in price reductions, reduced gross
margins, longer sales cycles and loss of market share, any of which would
seriously harm our business and results of operations. We cannot be certain
that we will be able to compete successfully against current or future
competitors or that competitive pressures will not seriously harm our business.
You should not rely on our past results to predict our future performance
because, for many reasons, our operating results may fluctuate.
Our revenue growth rates may not be sustainable. In addition, our operating
expenses, which include product development, sales and marketing and general
and administration expenses, are relatively fixed in the short term. If our
revenue is lower than we expect because we sell fewer CTP products than we
anticipate or if there is a delay in the release of new products, we may not be
able to quickly reduce our spending in response. Our operating results could be
affected in particular by:
. changes in the capital budgets of our customers, which may cause
seasonal or other fluctuations in the volume and timing of orders for
our products;
. the length of our product sales cycle, especially for our higher priced
and more complex products; and
. fluctuations in the performance of the Heidelberg joint venture, which
could make it difficult for us to predict and control our expenses
associated with the joint venture operations.
If we are unable to maintain our relationships with the limited number of
companies that supply key components of our products, we will not be able to
deliver our products to our customers on a timely basis.
We depend on other companies for some of the key components of our products.
There is a limited number of potential suppliers of the components. Therefore,
it may be difficult for us to find qualified suppliers. Lead times for these
components can vary significantly and, as a result, it may be difficult to
replenish our inventory. A failure to maintain a reliable supply of key
components could cause our operating results to suffer.
Our products may have unforeseen defects, which could harm our reputation,
impede market acceptance of our products and negatively impact our operating
results.
Our products and some of the key components supplied to us by other companies
incorporate complex imaging technology, software and hardware. Despite rigorous
testing, undetected errors, defects or bugs may cause failures at any time. We
may not be able to sell our products if they have reliability, quality or
compatibility problems. Moreover, errors, defects or bugs can result in
additional development costs, diversion of technical and other resources from
our other development efforts, warranty claims by our customers or others
against us, or the loss of credibility with our current and prospective
customers.
In late 1997, a number of the thermal imaging heads installed in our CTP
output devices failed as a result of environmental conditions prevailing at
some of our customers' sites. This resulted in a design change to all
10
<PAGE>
of our thermal heads and delayed the shipment of our CTP output devices for
three months. Although this particular incident did not result in material
losses for Creo, a similar incident in the future might hurt our business
because of the loss of customer sales if we were unable to correct the problem.
Our agreements with our customers typically contain provisions designed to
limit our product liability exposure, but these may not be effective in all
circumstances. We carry product liability insurance that we consider adequate,
but a successful claim against us for an amount exceeding our policy limits
would force us to use our working capital to pay the claim, which would result
in an increase in our expenses and would negatively affect our results of
operations.
If we are not able to establish and maintain necessary relationships with plate
suppliers and press manufacturers, our ability to grow our business would
suffer.
Plate suppliers and press manufacturers assist us in developing our
technology, facilitating broad market acceptance of our products, and enhancing
our sales, marketing and distribution capabilities. Our business strategy
depends in part on our ability to maintain and enhance these relationships and
to develop others.
If we are unable to adapt to rapid changes in technology and customer
preferences, we will not remain competitive.
The market for our products is characterized by rapid technological change,
evolving industry standards, frequent new product introductions and
enhancements, and changing customer demands. Accordingly, our future success
will depend on our ability to invest significantly in research and development,
to develop, introduce and support new products and enhancements on a timely
basis and to gain market acceptance of our products. New products can require
significant time and investment to achieve profitability. Our efforts to
introduce new products or services may not be successful or profitable. In
addition, a number of companies, including us, are currently working with press
manufacturers to develop products that use next generation digital offset
printing technology as a digital prepress solution. Although the number of
digital offset printing products currently available is limited, it is likely
that new digital offset printing products will be introduced. Although we
expect that various digital prepress technologies, including CTP, will co-exist
for the foreseeable future, digital offset printing products could in time
replace or provide lower-cost alternatives to our existing CTP solutions,
causing them to become obsolete. In addition, recent innovations in xerography,
the printing process used in most office copiers, could make it a more economic
alternative to offset printing for short print runs.
Although our products are designed to be compatible with most major media
sources, file formats, computing platforms, operating systems and databases,
future enhancements or upgrades of these formats or systems could result in
incompatibility with our products. If this were to happen, we would have to
redesign and reconfigure our products to ensure continuing compatibility, which
could delay product introductions or increase our costs.
If outside funding of our research and product development activities were to
decline, we would be forced to reduce those activities or to use our own
working capital to fund them.
Our investment in research and development has been subsidized in part by
funding received from plate suppliers, press manufacturers and our customers in
connection with specific product development initiatives they requested us to
undertake. We also receive investment tax credits for our research and
development activities. During fiscal 1998, Heidelberg, other press and plate
suppliers and Canadian Government investment tax credits provided research and
development funding equal to 21.5%, 22.8% and 19.5% of our gross research and
development expenditure for the period. If these outside funding sources were
to reduce or eliminate the amount of funding available to us, we would be
required to use our own working capital to fund our research and development
activities, or we would be required to reduce those activities.
11
<PAGE>
If we are not able to retain our Chief Executive Officer, Amos Michelson, our
President and chief technologist, Daniel Gelbart, and other key personnel, our
business would suffer.
Our ability to maintain our competitive position depends to a significant
extent on the efforts and abilities of our senior management, particularly Amos
Michelson, our Chief Executive Officer, and Dan Gelbart, our President and
chief technologist. We do not have employment agreements with either of these
individuals or any other key executives. The loss of their services would
jeopardize our ability to maintain our competitive position. In addition, we do
not have "key person" life insurance policies covering any of our employees.
If we are unable to attract and retain highly skilled employees, our operations
and financial results would suffer.
Our ability to maintain our competitive position also depends on our ability
to attract, retain and motivate highly skilled technical, sales and marketing
and other personnel. While we have so far been successful in doing this, there
is a limited number of people with the necessary technical skills and
understanding, and competition for their services is intense. If we fail to
recruit or retain these personnel, our ability to develop new products, obtain
new customers and provide an acceptable level of customer service could suffer.
If we are unable to protect our intellectual property and proprietary
technology, we may lose the competitive advantage that they currently provide.
Our success and ability to compete depend to a significant extent on our
proprietary technology. We currently rely on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures, contractual
provisions and patents to protect our proprietary technology. In order to
protect our intellectual property rights, we may have to engage in costly and
time-consuming litigation. Despite our efforts, our intellectual property
rights, particularly our existing or future patents, may be invalidated,
circumvented, challenged, infringed or required to be licensed to others.
Furthermore, others may develop technologies that are similar or superior to
our technology, duplicate or reverse engineer our technology or design around
the patents owned or licensed by us. We cannot be sure that steps taken by us
to protect our technology will prevent misappropriation or infringement.
If others claim that our products infringe upon their intellectual property
rights, we may be forced to seek expensive licenses, reengineer our products,
engage in expensive and time-consuming litigation or stop marketing the
challenged products.
We may from time to time receive notifications of claims that we may be
infringing upon patents or other intellectual property rights owned by third
parties. If it is necessary or desirable, we may seek to license the relevant
patents or intellectual property rights which could be expensive. If we fail to
obtain a license, we could incur substantial liabilities and be forced to
suspend the marketing of the challenged products. Litigation could result in
significant expenses to us, adversely affect sales of the challenged product or
technology and divert the efforts of our management and technical personnel.
If we are not able to manage our growth effectively, we may not be able to
maintain or improve our current level of profitability.
We have experienced rapid growth, which places a significant strain on our
personnel and other resources. To manage our expanded operations effectively,
we will need to further improve our operational, financial and management
systems and successfully hire, train, motivate and manage our employees. We may
not be able to manage our growth effectively, which would have a negative
effect on our profitability.
Our efforts to increase our presence in markets outside of North America may
result in losses and may fail altogether.
The proportion of our revenue derived from operations outside North America
has grown from
approximately 28.0% during the year ended September 30, 1996 to approximately
41.7% during the year ended
12
<PAGE>
September 30, 1998. In the six months ended March 31, 1999, foreign operations
accounted for approximately 32.9% of our revenue. We are attempting to increase
our presence in markets outside North America. This requires considerable
management time and attention, and a commitment of financial resources. Our
efforts may not be successful to the degree that we expect. Additionally, our
international operations are influenced by numerous inherent potential risks,
including:
. unexpected changes in regulatory requirements;
. export restrictions, tariffs and other trade barriers;
. changes in local tax rates or rulings by local tax authorities;
. challenges in staffing and managing foreign operations, differing
technology standards, employment laws and practices in foreign
countries;
. less favorable intellectual property laws;
. longer accounts receivable payment cycles and difficulties in collecting
payments;
. political and economic instability; and
. fluctuations in currency exchange rates and the imposition of currency
exchange controls.
Any of these factors could harm our international operations and negatively
affect our financial performance. For example, sales in Japan for the year
ended September 30, 1997 were $9.9 million. Due primarily to the economic
downturn in Japan, sales in Japan dropped to $5.3 million for the year ended
September 30, 1998. Our business would suffer if similar economic conditions
were to occur again, in Japan or elsewhere.
Fluctuations in the values of Canadian dollars and Belgian francs will cause
translation gains and losses. These fluctuations may cause our expenses to
increase to levels greater than we anticipate.
Although substantially all of our revenue is received in U.S. dollars, a
significant portion of our expenses are incurred in Canadian dollars and
Belgian francs. Appreciation in the value of these currencies relative to the
U.S. dollar will adversely affect our operating results. For example, we
suffered a $1,142,000 loss attributable to foreign currency translation losses
during the six months ended March 31, 1999. Foreign currency translation gains
and losses arising from normal business operations are credited to or charged
against other income for the period incurred. To date, we have not established
any currency hedging to minimize the effect of these gains or losses. As a
result, fluctuations in the value of Canadian dollars and Belgian francs
relative to U.S. dollars have caused and will continue to cause currency
translation gains and losses.
If our products or the products upon which we depend malfunction because of
"Year 2000" problems, we may be subject to warranty claims and product
liability claims or our operations may be interrupted.
We depend on our computer software programs and operating systems in
operating our business. We also depend on proper functioning of computer
systems of outside parties such as suppliers and customers. Any computer
systems or components that have date-sensitive software may recognize a date
using "00" as the year 1900 instead of the year 2000. There can be no assurance
that our internal systems or those of our suppliers will function adequately.
If they do not, the result could be a system failure or miscalculation causing
disruptions of our operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in our similar
normal business activities.
If our systems experience "Year 2000" problems, we may be subject to warranty
claims or claims for service interruptions and other damages related to the
malfunctioning of our systems. Our product liability insurance may not be
adequate to cover this possibility. If our products are adversely affected by
Year 2000 problems in our customers' hardware or software with which our
products interact, our customers or their end users may mistakenly believe that
these problems were caused by our products. These customers and end users could
react by demanding extensive technical support from us or by filing suit
against us, either of which could increase our costs and divert our management
resources.
13
<PAGE>
Our principal shareholders and management own a majority of our common shares
and will be able to exercise significant influence over our affairs.
Following the completion of this offering, our directors, officers and their
respective affiliates will beneficially own approximately 52.2% of our
outstanding common shares. If these shareholders were to act together, they
would be able to control all matters requiring approval by our shareholders,
including the election of directors and the approval of mergers or other
business combinations. The concentration of ownership could make it more
difficult for a third party to acquire control of Creo. This could prevent our
shareholders from realizing a premium over the market prices for their common
shares or effecting a change in management.
There may be no active trading market in our common shares after this offering,
which may make it difficult for you to resell your common shares.
There has been no public trading market for our common shares prior to this
offering, and we cannot be sure that an active trading market will develop upon
completion of the offering or, if one does develop, that it will be sustained.
The market value of your investment in our common shares may be volatile.
The market price of our common shares may be volatile and as a result you may
not be able to resell your common shares at or above the initial public
offering price. Although the market price of our common shares will in part be
based on our operating and financial performance and on conditions in the
printing and prepress equipment industry, it may also be based on factors
beyond our control. In particular, the market prices of the shares of many
companies in the technology and emerging growth sectors have experienced wide
fluctuations that have often been unrelated to their operating performance.
A total of 27,027,854, or 84.4%, of our outstanding shares are restricted from
immediate resale but may be sold into our public trading market following the
completion of this offering. This could cause the market price of our common
shares to drop significantly, even if our business is doing well.
After this offering, we will have 32,027,854 common shares outstanding, not
including common shares issuable upon exercise of options and warrants. This
consists of:
. the 4,000,000 common shares we are selling in this offering, which may
be resold in the public market immediately;
. the 1,000,000 common shares being sold by our current shareholders in
this offering, which may be resold in the public market immediately; and
. the remaining 84.4%, or 27,027,854 common shares, of our total
outstanding shares, which will become available for resale in the public
market as shown in the chart below.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them.
<TABLE>
<CAPTION>
Number of shares / % of Date of availability for resale into public
total outstanding market
----------------------- -------------------------------------------------
<C> <S>
26,594,952 / 83.0% 181 days after the date of this prospectus due to
(1) statutory restrictions on resale of common
shares by Canadian residents, assuming we are
successful in obtaining the discretionary relief
for which we are applying, and (2) an agreement
non-Canadian shareholders have with the
underwriters. The underwriters may waive the
restrictions in this agreement and allow these
shareholders to sell their shares at any time.
432,902 / 1.4% After the 181st day after the date of this
prospectus due to the requirements of U.S.
securities laws.
</TABLE>
For a more detailed description, see "Shares Eligible for Future Sale."
14
<PAGE>
Any acquisitions that we make could adversely affect our operations or
financial results.
As part of our business strategy, we expect to review acquisition prospects
that would complement our existing product offerings, improve market coverage
or enhance our technological capabilities. Since we have not made any
acquisitions in the past, we are not certain that we will be able to
successfully integrate any businesses, products, technologies or personnel that
we may acquire in the future. In addition, any acquisition could have a
dilutive effect on our earnings per share.
Since Creo is a Canadian company and most of our assets and key personnel are
located in Canada, you may not be able to enforce any U.S. judgment for claims
you may bring against us, our assets or our key personnel.
We are organized under the federal laws of Canada, our headquarters are in
Canada, most of our directors and officers and some of the experts named in
this prospectus are residents of Canada, and a substantial portion of our
assets and assets of those persons are located outside the United States. As a
result, we believe it will be more difficult for you to initiate a lawsuit
within the United States against these non-U.S. residents or us, or to enforce
any judgment obtained in the United States against us or any of those persons
than if we were a corporation organized under United States law and most of our
assets and key personnel were located in the United States. We cannot assure
you that Canadian courts would enforce:
. liabilities predicated on U.S. federal securities laws determined in
original actions in the Province of British Columbia; or
. judgments of U.S. courts obtained in actions based upon the civil
liability provisions of U.S. federal securities laws in the courts of the
Province of British Columbia.
Moreover, no treaty exists between the United States and Canada for the
reciprocal enforcement of foreign court judgments. Consequently, we believe you
may be prevented from pursuing remedies under U.S. federal securities laws
against us or them.
Our board of directors could dilute your investment by issuing preferred shares
or common shares. This could also deter an unsolicited proposal to acquire
Creo.
Under our articles of incorporation, our board of directors has the authority
to issue an unlimited number of common shares and an unlimited number of
preferred shares. It also has the authority, without further vote or action by
the shareholders, to determine the price, rights, preferences, privileges and
restrictions, including voting and conversion rights, of the preferred shares,
and to determine to whom they shall be issued. The rights of holders of common
shares will be junior to, and may be adversely affected by, the rights of the
holders of any preferred shares that may be issued in the future. The issuance
of preferred shares also could make it more difficult for a third party to
acquire control of Creo.
Your rights as a shareholder could be modified by a vote of less than a
majority of the outstanding common shares.
Under our by-laws, a quorum for a meeting of shareholders is at least two
shareholders physically present or represented by proxy who between them hold
not less than 20% of the outstanding common shares. In addition, under the
Canada Business Corporations Act, which governs us, and our by-laws, the
majority required for approval of any action by our shareholders is expressed
as a percentage of those who actually vote at a meeting. It is therefore
possible for the rights of holders of our common shares to be modified by the
affirmative vote of the holders of less than a majority of outstanding common
shares.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions. We have identified these statements by the use of
words such as "expects," "anticipates," "intends," "plans" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to these differences include,
but are not limited to, those discussed above and elsewhere in this prospectus.
USE OF PROCEEDS
Based on an assumed initial public offering price of $14.00 per share, the
net proceeds to Creo from the sale of the 4,000,000 common shares that we are
offering will be approximately $51,230,000, after deducting underwriting
commissions and discounts and Creo's estimated expenses in connection with this
offering. We will not receive any proceeds from the sale of common shares by
the selling shareholders.
The principal purposes of this offering are to increase our working capital,
to create a public market for our common shares, to facilitate future access by
Creo to public equity markets and to provide us with increased visibility and
credibility. We intend to use the net proceeds primarily for general corporate
purposes, including working capital. If the opportunity arises, we may use a
portion of the net proceeds to acquire or invest in related businesses,
products and technologies. We have no commitments or agreements for any
material acquisition of, or investment in, any third party, other than our
right to purchase a substantial majority of the capital stock of Creo Ltd., a
former subsidiary, for approximately $18.0 million. We have not currently
decided whether to exercise this option. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." Pending any use of the net proceeds for the above purposes,
we intend to invest the funds in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently expect to retain any future earnings for developing and expanding our
business, and therefore we do not currently expect to pay cash dividends in the
foreseeable future.
ADDITIONAL INFORMATION ABOUT CREO
Creo was incorporated under the Canada Business Corporations Act on May 30,
1985. We have two operating subsidiaries: Creo Inc., incorporated under the
laws of the State of Washington, through which we conduct sales, marketing and
service functions in the United States; and Creo Products N.V., incorporated
under the laws of Belgium, which performs similar functions for us in Europe.
We also have two non-operating subsidiaries: Creo Products ULC, an unlimited
liability company incorporated under the laws of Nova Scotia, Canada; and Creo
SRL, a Society with Restricted Liability organized under the laws of Barbados.
16
<PAGE>
CAPITALIZATION
The following table presents (1) the actual capitalization of Creo as at
March 31, 1999 and (2) the capitalization on an "As Adjusted" basis, which
reflects the sale of the 4,000,000 common shares offered by Creo at an assumed
initial public offering price of $14.00 per share, and the receipt of net
proceeds from this offering.
<TABLE>
<CAPTION>
As at March 31,
1999
-------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Long-term debt, less current portion....................... $ 6,512 $ 6,512
------- --------
Shareholders' equity:
Common shares: unlimited voting common shares, without
par value, 28,027,854 shares issued and outstanding,
actual; 32,027,854 shares issued and outstanding, as
adjusted................................................ 78,917 130,147
Preferred shares: unlimited preferred shares, no shares
issued and outstanding, actual and as adjusted.......... -- --
Retained earnings.......................................... 10,825 10,825
------- --------
Total shareholders' equity............................... 89,742 140,972
------- --------
Total capitalization..................................... $96,254 $147,484
======= ========
</TABLE>
The outstanding share information in the table above excludes:
. 4,595,232 common shares issuable upon the exercise of options
outstanding as at March 31, 1999, at a weighted average exercise price
of C$11.75 per share; and
. 24,598 common shares issuable upon the exercise of warrants outstanding
as at March 31, 1999, at an exercise price of $9.38 per share.
17
<PAGE>
DILUTION
If you invest in our common shares, your interest will be diluted by an
amount equal to the difference between the public offering price per common
share and the net tangible book value per common share after this offering. We
calculate net tangible book value per common share by dividing the net tangible
book value (total assets less intangible assets and total liabilities) by the
number of outstanding common shares.
The net tangible book value of Creo as at March 31, 1999 was $89.7 million or
approximately $3.20 per common share. After the sale of the 4,000,000 common
shares offered by Creo under this prospectus, at an assumed initial public
offering price per common share of $14.00, and after deducting underwriting
commissions and discounts and Creo's estimated expenses in connection with this
offering, the net tangible book value of Creo as at March 31, 1999 would have
been $141.0 million or approximately $4.40 per common share. This represents an
immediate increase in net tangible book value of $1.20 per common share to
existing shareholders and an immediate dilution of $9.60 per common share to
new investors. The following table illustrates this dilution on a per common
share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per common share........... $14.00
Net tangible book value per common share at March 31, 1999..... $3.20
Increase in net tangible book value per common share
attributable to new investors................................. 1.20
-----
Net tangible book value per common share after the offering...... 4.40
------
Dilution in net tangible book value per common share to new
investors....................................................... $ 9.60
======
Dilution as a percentage of offering price....................... 68.6%
======
</TABLE>
The following table summarizes on a pro forma basis as at March 31, 1999 the
differences between the number of common shares purchased from Creo, the total
consideration paid and the average price per share paid by existing
shareholders and by the new investors in the offering, before deducting the
underwriting discounts and commissions and estimated offering expenses payable
by Creo, at an assumed initial public offering price of $14.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders......... 28,027,854 88% $ 78,917,000 58% $ 2.82
New investors................. 4,000,000 12% 56,000,000 42% $14.00
---------- --- ------------ ---
Total....................... 32,027,854 100% $134,917,000 100% $ 4.21
========== === ============ ===
</TABLE>
Sales of common shares in the offering by the selling shareholders will
reduce the number of shares held by existing shareholders as at March 31, 1999,
to 27,027,854 shares or 84.4% of the total number of common shares outstanding
after the offering (26,277,854 shares or 82.0% if the underwriters' over-
allotment option is exercised in full) and will increase the number of shares
held by new investors to 5,000,000 shares or 15.6% of the total number of
common shares outstanding after the offering (5,750,000 shares or 18.0% if the
underwriters' over-allotment option is exercised in full). See "Principal and
Selling Shareholders."
The foregoing discussion and tables assume no exercise of any options or
warrants after March 31, 1999. As at March 31, 1999, an aggregate of 4,595,232
common shares were issuable upon the exercise of outstanding options at a
weighted average exercise price of C$11.75 per share and an aggregate of 24,598
common shares were issuable upon exercise of outstanding warrants at a weighted
average exercise price of $9.38. If all options and warrants outstanding as at
March 31, 1999 were exercised, the pro forma net tangible book value per share
immediately after completion of the offering would be $4.83. This represents an
immediate dilution in net tangible book value of $9.17 per share to purchasers
of common shares in the offering.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements, including the related
notes, included elsewhere in this prospectus. The statement of operations data
for the years ended September 30, 1996, 1997 and 1998 and the balance sheet
data as at September 30, 1997 and 1998 are derived from the audited
consolidated financial statements included elsewhere in this prospectus. The
statement of operations data for the years ended September 30, 1994 and 1995
and the balance sheet data as at September 30, 1994, 1995 and 1996 are derived
from audited financial statements not included in this prospectus. The
consolidated financial data as at and for the six months ended March 31, 1998
and 1999 is unaudited.
Our consolidated financial statements are prepared in accordance with
Canadian GAAP. These principles conform in all material respects with U.S.
GAAP, except as described in note 14 to the consolidated financial statements.
All dollar amounts are expressed in United States dollars.
<TABLE>
<CAPTION>
Six Months
Year Ended September 30, Ended March 31,
------------------------------------------- ----------------
Statement of Operations 1994 1995 1996 1997 1998 1998 1999
Data: ------- ------- ------- ------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts under Canadian
GAAP
Revenue:
Product revenue........ $ 6,089 $19,821 $46,210 $91,669 $114,652 $53,220 $64,894
Service revenue........ -- 14 1,728 3,914 14,196 6,029 13,163
------- ------- ------- ------- -------- ------- -------
Total revenue.......... 6,089 19,835 47,938 95,583 128,848 59,249 78,057
Cost of sales........... 4,589 14,867 31,766 53,634 71,217 33,189 40,688
------- ------- ------- ------- -------- ------- -------
Gross profit............ 1,500 4,968 16,172 41,949 57,631 26,060 37,369
Research and
development, net....... 2,187 5,920 10,683 12,772 6,931 3,233 5,275
Sales and marketing..... 1,387 4,620 8,757 14,619 22,417 10,101 14,396
General and
administration......... 1,238 2,502 4,092 6,271 8,937 3,879 3,983
------- ------- ------- ------- -------- ------- -------
Earnings (loss) from
operations............. (3,312) (8,074) (7,360) 8,287 19,346 8,847 13,715
Other income (expense).. 249 424 5 48 (1,580) (799) (593)
------- ------- ------- ------- -------- ------- -------
Earnings (loss) before
income taxes........... (3,063) (7,650) (7,355) 8,335 17,766 8,048 13,122
Income tax expense
(recovery)............. (566) (1,090) (112) 2,498 6,676 2,922 5,491
Earnings (loss) from
discontinued
operations............. (63) 1,237 -- -- -- -- --
------- ------- ------- ------- -------- ------- -------
Net earnings (loss)..... $(2,560) $(5,323) $(7,243) $ 5,837 $ 11,090 $ 5,126 $ 7,631
======= ======= ======= ======= ======== ======= =======
Basic earnings (loss)
per share.............. $ (0.17) $ (0.30) $ (0.34) $ 0.26 $ 0.44 $ 0.21 $ 0.28
======= ======= ======= ======= ======== ======= =======
Fully diluted earnings
(loss) per share....... $ (0.17) $ (0.30) $ (0.34) $ 0.24 $ 0.41 $ 0.19 $ 0.25
======= ======= ======= ======= ======== ======= =======
Shares used in per share
calculation:
Basic.................. 15,075 17,848 21,209 22,769 25,025 24,998 27,276
Fully diluted.......... 15,075 17,848 21,209 30,428 30,502 30,499 32,648
Other Financial Data:
Research and
development, gross.... $ 5,584 $ 9,238 $14,698 $14,877 $ 19,123 $ 8,962 $13,256
Research and
development, funding.. 3,397 3,318 4,015 2,105 12,192 5,729 7,981
------- ------- ------- ------- -------- ------- -------
Research and
development, net...... $ 2,187 $ 5,920 $10,683 $12,772 $ 6,931 $ 3,233 $ 5,275
======= ======= ======= ======= ======== ======= =======
Amounts under U.S. GAAP
Net earnings (loss) from
continuing operations.. $(2,406) $(6,468) $(6,938) $ 6,081 $ 10,358 $ 4,394 $ 7,631
Net earnings (loss)..... $(2,469) $(5,231) $(6,938) $ 6,081 $ 10,358 $ 4,394 $ 7,631
Basic earnings (loss)
per share from
continuing operations.. $ (0.16) $ (0.36) $ (0.33) $ 0.27 $ 0.41 $ 0.18 $ 0.28
======= ======= ======= ======= ======== ======= =======
Basic earnings (loss)
per share.............. $ (0.16) $ (0.29) $ (0.33) $ 0.27 $ 0.41 $ 0.18 $ 0.28
======= ======= ======= ======= ======== ======= =======
Diluted earnings (loss)
per share.............. $ (0.16) $ (0.29) $ (0.33) $ 0.25 $ 0.38 $ 0.16 $ 0.27
======= ======= ======= ======= ======== ======= =======
Shares used in per share
calculation:
Basic.................. 15,075 17,848 21,209 22,769 25,025 24,998 27,276
Diluted................ 15,075 17,848 21,209 24,191 27,036 27,424 28,067
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
As at September 30, As at March 31,
---------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
Balance Sheet Data: ------- ------- ------- ------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts under Canadian
GAAP
Cash and cash
equivalents............ $ 3,283 $10,102 $10,937 $30,652 $ 16,224 $22,563 $ 37,150
Working capital......... 4,880 2,249 13,243 40,683 34,562 43,441 59,039
Total assets............ 16,974 39,524 59,592 94,464 102,118 96,298 136,890
Long-term debt,
excluding current
portion................ 2,807 6,405 7,849 6,956 6,660 6,956 6,512
Shareholders' equity.... 6,009 7,086 20,282 50,475 62,048 55,704 89,742
Amounts under U.S. GAAP
Cash and cash
equivalents............ $ 3,283 $10,102 $10,937 $30,652 $ 16,224 $22,563 $ 37,150
Working capital......... 4,821 2,132 12,931 40,215 34,562 43,441 59,039
Total assets............ 17,124 39,707 60,080 95,196 102,118 96,298 136,890
Long-term debt,
excluding current
portion................ 2,807 6,405 7,849 6,956 6,660 6,956 6,512
Shareholders' equity.... 6,100 7,269 20,770 51,207 62,048 55,704 89,742
</TABLE>
The following information should be noted in connection with the selected
consolidated financial data presented above:
. ""Other income (expense)" includes foreign exchange gain and loss,
interest income and interest expense; and
. the "discontinued operations" referred to in the table are the operations
of our data storage business, which we sold in 1994.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are a leading developer, manufacturer and distributor of comprehensive
digital solutions that automate the prepress phase of commercial printing. Our
solutions enable commercial printers to use their installed base of printing
presses more profitably while improving their ability to meet customer demands
for tighter deadlines, better and more consistent color quality, shorter print
runs and greater customization of print jobs.
Revenue. Our revenue is derived from sales of our CTP products to direct
customers and distributors and from fees for service of equipment. Product
revenue is derived from the sale of equipment and software, and includes
revenue earned from installation, training and warranty maintenance services.
Product revenue from sales made directly to end customers is recognized when
title passes to the customer or upon customer acceptance. Customer acceptance
is used as the criterion for revenue recognition when the product sold does not
have an established sales history to allow management to reasonably estimate
returns. Product revenue from sales to distributors is recognized upon shipment
to the distributor. The joint venture with Heidelberg is considered to be a
distributor for purposes of revenue recognition.
Service revenue is derived from customer support agreements entered into in
connection with product sales and renewals. A substantial majority of our
customers contract for service. Service revenue is recorded as deferred revenue
when billed to the customer and is recognized ratably over the term of the
support agreement, which generally is three to twelve months. Creo provides
service support on non-joint venture products on a worldwide basis, and on
joint venture products only in countries who are signatories to the North
American Free Trade Agreement. Creo does not derive any service revenue through
the joint venture.
Joint Venture. Our joint venture with Heidelberg commenced operations on
October 1, 1997. We each have a 50% economic interest in the joint venture
which was established to develop, manufacture, market and distribute designated
CTP and related workflow products and consumables. The joint venture is co-
managed and does not own any material assets, maintain any employees or operate
any manufacturing or other operating facilities. We share equally revenue and
expenses related to the CTP products, workflow products and consummables
designated as part of the joint venture and generally provide goods and
services for the joint venture at cost.
Under Canadian GAAP, operations of the joint venture are accounted for using
proportionate consolidation, which requires that we include in our consolidated
statement of operations one-half of the related revenue and expenses of the
joint venture. This treatment differs from the equity method required by U.S.
GAAP, under which we would be required to record one-half of the net earnings
of the joint venture as a single line item on our consolidated statement of
operations.
Unit sales of CTP products have increased since the commencement of the joint
venture; however, our product revenue growth rate has decreased compared to
prior periods. This decrease is due to the transfer to the joint venture of the
right to sell some of our products. As a result, using proportionate
consolidation, Creo now records only one-half of the revenues resulting from
the sale of joint venture products. If the joint venture is successful, Creo
expects to realize a number of benefits, including access to Heidelberg's
worldwide customer base and marketing and distribution network, access to its
service and customer support organization outside North America, product
development funding, and improved cost efficiencies for the manufacture of some
products. Creo believes that the realization of these benefits over time will
result in increased market penetration for its CTP products and corresponding
improvements in Creo's product revenue growth.
Creo's business and results of operation are dependent upon the success of
the joint venture with Heidelberg. Our share of joint venture revenue accounted
for 27.6% of our total revenue for the fiscal year ended September 30, 1998 and
34.8% of our total revenue for the six months ended March 31, 1999. If our
joint venture were to terminate or fail to achieve the benefits that we expect
to occur, our business, results of
21
<PAGE>
operations and financial condition would be materially adversely affected. See
"Risk Factors--If our joint venture with Heidelberg is unsuccessful or is
terminated and we are not able to rechannel our resources fast enough, our
operating results will suffer."
Research and Development. Since our inception, we have invested heavily in
research and development. This investment has been subsidized in part by
funding received from plate and film suppliers, press manufacturers and our
customers in connection with specific product development initiatives
undertaken by us at their request. We have also received funding from the
Canadian government through investment tax credits. The Canadian government
funds up to 20% of our investment in research and development carried out in
Canada as investment tax credits. These credits are recorded as a reduction in
research and development expense, and are available to reduce income taxes
payable. The research and development funding received from third parties has
resulted in a significant reduction in our total expenditures for research and
development activities. Our joint venture with Heidelberg in particular has
been an important source of this funding. For the 18 months ended March 31,
1999, Heidelberg has provided $7.3 million in research and development funding,
representing 22.4% of our gross research and development expenses for the
period.
Sales and Marketing. Sales and marketing expenses are primarily attributable
to the salaries, commissions, travel costs, office expenses and support staff
associated with our sales staff. In addition, the costs of trade shows,
advertising and marketing are also included in sales and marketing expenses.
Due to the growth of our business primarily in North America and Europe, we
intend to continue to invest in the expansion of our sales force. Because of
the competitive nature of our business, we do not expect our sales and
marketing expenses to decrease as a percentage of our revenue.
Foreign Exchange. Substantially all of our revenue is received in U.S.
dollars. A significant portion of our expenses are incurred in Canadian dollars
and Belgian francs. As a result, appreciation in the value of these currencies
relative to the U.S. dollar could adversely affect our operating results.
Foreign currency translation gains and losses arising from normal business
operations are credited to or charged against other income for the period
incurred. To date, we have not done any currency hedging to minimize the effect
of these gains or losses. As a result, fluctuations in the value of Canadian
dollars and Belgian francs relative to U.S. dollars have caused and will
continue to cause currency translation gains and losses.
Our consolidated financial statements are prepared in accordance with
Canadian GAAP. These principles conform in all material respects with U.S.
GAAP, except as disclosed in note 14 to the consolidated financial statements.
22
<PAGE>
Results of Operations
The following table summarizes historical results of operations as a
percentage of revenue for the periods shown.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
Amounts under Canadian GAAP -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
As a Percentage of Revenue:
Revenue:
Product revenue.......... 96.4% 95.9% 89.0% 89.8% 83.1%
Service revenue.......... 3.6 4.1 11.0 10.2 16.9
-------- -------- -------- -------- --------
Total revenue............ 100.0 100.0 100.0 100.0 100.0
Cost of sales.............. 66.3 56.1 55.3 56.0 52.1
-------- -------- -------- -------- --------
Gross margin............... 33.7 43.9 44.7 44.0 47.9
Research and development,
net....................... 22.3 13.4 5.4 5.5 6.8
Sales and marketing........ 18.3 15.3 17.4 17.0 18.4
General and
administration............ 8.5 6.5 6.9 6.6 5.1
-------- -------- -------- -------- --------
Earnings (loss) from
operations................ (15.4) 8.7 15.0 14.9 17.6
Other income (expense)..... 0.1 0.0 (1.2) (1.3) (0.8)
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes.............. (15.3) 8.7 13.8 13.6 16.8
Income tax expense
(recovery)................ (0.2) 2.6 5.2 4.9 7.0
-------- -------- -------- -------- --------
Net earnings (loss)........ (15.1)% 6.1% 8.6% 8.7% 9.8%
======== ======== ======== ======== ========
Research and Development
Data:
Research and development,
gross..................... 30.7% 15.6% 14.8% 15.1% 17.0%
Research and development,
net....................... 22.3 13.4 5.4 5.5 6.8
</TABLE>
Six months ended March 31, 1999 compared to six months ended March 31, 1998
Revenue. Total revenue increased 31.7% to $78.1 million for the six months
ended March 31, 1999 from $59.2 million for the six months ended March 31,
1998.
Product revenue increased 21.9% to $64.9 million for the six months ended
March 31, 1999 from $53.2 million for the six months ended March 31, 1998. This
increase in product revenue was due to higher unit sales, at relatively
constant prices, of CTP products both by Creo through direct sales and by the
joint venture. Product revenue from direct sales increased 2.4% from $37.8
million for the six months ended March 31, 1998 from $36.9 million for the six
months ended March 31, 1999. Product revenue from the joint venture increased
66.1% to $27.1 million for the six months ended March 31, 1999 from $16.3
million for the six months ended March 31, 1998. This increase was primarily
due to increased sales activity on the part of Heidelberg.
Service revenue increased 118.3% to $13.2 million for the six months ended
March 31, 1999 from $6.0 million for the six months ended March 31, 1998. This
increase in service revenue was due to fees generated from additional customer
support agreements entered into in connection with new product sales.
Revenue from our North American customers accounted for $52.4 million, or
67.1% of total revenue for the six months ended March 31, 1999, compared to
$36.5 million, or 61.7% of total revenue, for the six months ended March 31,
1998. Revenue from our European customers accounted for $22.1 million, or 28.4%
of total revenue the six months ended March 31, 1999, compared to $15.5
million, or 26.2% of total revenue, for the six months ended March 31, 1998.
Revenue from our Japanese customers accounted for $1.1 million, or 1.4% of
total revenue, for the six months ended March 31, 1999, compared to $2.8
million, or 4.7% of total revenue,
23
<PAGE>
for the six months ended March 31, 1998. The decrease in Japanese sales is
primarily due to depressed economic conditions in the region.
Cost of Sales. Cost of sales consists of the cost of materials, salaries,
benefits and related overhead costs associated with the generation of revenue,
and includes costs of sales attributable to the joint venture. Cost of sales
increased 22.6% to $40.7 million for the six months ended March 31, 1999 from
$33.2 million for the six months ended March 31, 1998. This increase was
primarily due to a 25.5% increase in the number of production and customer
service staff as well as increased subassembly and component costs and overhead
expenses associated with the increase in both our product sales and our
installed customer base. Cost of sales decreased as a percentage of total
revenue to 52.1% for the six months ended March 31, 1999 from 56.0% for the six
months ended March 31, 1998. This decrease was primarily due to lower per-unit
labor, subassembly and component costs, increased plant capacity utilization
and increased efficiencies in our service department.
Research and Development. Gross research and development expenses consist of
salaries, benefits and related overhead costs associated with personnel engaged
in research and product development activities, and include research and
development costs attributable to the joint venture. Gross research and
development expenses increased 47.9% to $13.3 million for the six months ended
March 31, 1999 from $9.0 million for the six months ended March 31, 1998. This
increase was primarily due to a 46.0% increase in the number of research and
development personnel. Gross research and development expenses increased as a
percentage of total revenue to 17.0% for the six months ended March 31, 1999
from 15.1% for the six months ended March 31, 1998.
Outside funding of our research and product development activities increased
39.3% to $8.0 million for the six months ended March 31, 1999 from $5.7 million
for the six months ended March 31, 1998. The $8.0 million in outside funding
included $3.2 million received from the joint venture, $2.7 million received
from media suppliers, press manufacturers and our customers, and $2.1 million
in investment tax credits. The $5.7 million in outside funding received for the
six months ended March 31, 1998 included $1.3 million received from the joint
venture, $2.7 million received from other third parties, and $1.7 million in
investment tax credits.
As a result of these factors affecting gross research and development
expenses and research and development funding, net research and development
expenses, which represent gross research and development expenses less outside
funding, increased 63.2% to $5.3 million for the six months ended March 31,
1999 from $3.2 million for the six months ended March 31, 1998. Net research
and development expenses increased as a percentage of total revenue to 6.8% for
the six months ended March 31, 1999 from 5.5% for the six months ended March
31, 1998.
Sales and Marketing. Sales and marketing expenses consist of salaries,
commissions, benefits and related overhead costs associated with sales
personnel, and costs associated with marketing and promotional activities.
Sales and marketing expenses increased 42.5% to $14.4 million, or 18.4% of
total revenue, for the six months ended March 31, 1999 from $10.1 million, or
17.0% of total revenue, for the six months ended March 31, 1998. This increase
was primarily due to a 49.1% increase in the number of sales and marketing
staff in North America and Europe to support the sale of non-joint venture
products.
General and Administration. General and administration expenses consist of
salaries, benefits and related overhead costs associated with management,
accounting, legal and human resources personnel, as well as professional fees.
General and administration expenses increased 2.7% to $4.0 million, or 5.1% of
total revenue, for the six months ended March 31, 1999 from $3.9 million, or
6.6% of total revenue, for the six months ended March 31, 1998. This increase
was primarily due to the growth of our business.
Income Taxes. Income tax expense increased to $5.5 million for the six months
ended March 31, 1999 from $2.9 million for the six months ended March 31, 1998.
This increase was primarily due to the increase in our profitability. Our
effective tax rate of 41.8% for the six months ended March 31, 1999 was below
the statutory rate of 45.6% due to Canadian manufacturing and processing tax
credits and the fact that a portion of
24
<PAGE>
our profits were earned in foreign jurisdictions with tax rates lower than
those in Canada. See note 9 to our consolidated financial statements.
Year ended September 30, 1998 compared to year ended September 30, 1997
The joint venture with Heidelberg commenced operations on October 1, 1997.
During the joint venture's first full year of operations our revenue growth
decreased compared to prior periods, even though unit sales of our CTP products
increased. This decrease was expected because prior to the start-up of the
joint venture, all of the revenue from sales by us of the CTP products now sold
by the joint venture was recorded in our income statement, whereas now only
one-half of the revenue arising from sales through the joint venture is for our
account. The following comparison of results of operations for the years ended
September 30, 1998 and 1997 should accordingly be read with this development in
mind.
Revenue. Total revenue increased 34.8% to $128.8 million for the year ended
September 30, 1998 from $95.6 million for the year ended September 30, 1997.
Product revenue increased 25.1% to $114.7 million for the year ended
September 30, 1998 from $91.7 million for the year ended September 30, 1997.
This increase was due to higher unit sales of CTP products by us through direct
sales and by the joint venture. Product revenue from the joint venture
represented 31.0% of our total product revenue for the year ended September 30,
1998.
Service revenue increased 262.7% to $14.2 million for the year ended
September 30, 1998 from $3.9 million for the year ended September 30, 1997. As
substantially all of our customers contract for service support, this increase
in service revenue was due to the substantial increase in the installed base of
our equipment.
Revenue from our North American customers accounted for $75.1 million, or
58.3% of total revenue, for the year ended September 30, 1998, compared to
$65.6 million, or 68.6% of total revenue, for the year ended September 30,
1997. Revenue from our European customers accounted for $41.7 million, or 32.3%
of total revenue, for the year ended September 30, 1998, compared to $15.7
million, or 16.4% of total revenue, for the year ended September 30, 1997. The
decrease in North American sales as a percentage of total sales and the
corresponding increase in European sales are primarily due to the commencement
of operations of the joint venture, which recorded 34.6% of its sales during
the period in Europe. Revenue from our Japanese customers accounted for $5.3
million, or 4.1% of total revenue, for the year ended September 30, 1998,
compared to $9.9 million, or 10.4% of total revenue, for the year ended
September 30, 1997. The decrease in Japanese sales is primarily due to
depressed economic conditions in the region.
Cost of Sales. Cost of sales increased 32.8% to $71.2 million for the year
ended September 30, 1998 from $53.6 million for the year ended September 30,
1997. This increase was primarily due to a 28.5% increase in the number of
production and customer service staff as well as increased subassembly and
component costs and overhead expenses associated with the increase in both our
product sales and our installed customer base. Cost of sales decreased slightly
as a percentage of total revenue to 55.3% for the year ended September 30, 1998
from 56.1% for the year ended September 30, 1997. This decrease was primarily
due to lower per-unit labor, subassembly and component costs, and increased
plant capacity utilization, offset by increased costs of service related to the
hiring of additional service personnel.
Research and Development. Gross research and development expenses increased
28.5% to $19.1 million for the year ended September 30, 1998 from $14.9 million
for the year ended September 30, 1997. This increase was primarily due to a
35.8% increase in the number of research and development personnel. Gross
research and development expenses decreased as a percentage of total revenue to
14.8% for the year ended September 30, 1998 from 15.6% for the year ended
September 30, 1997. This decrease was due to the growth in our revenue base.
Outside funding of our research and product development activities increased
479.2% to $12.2 million for the year ended September 30, 1998 from $2.1 million
for the year ended September 30, 1997. The
25
<PAGE>
$12.2 million in outside funding received during the year ended September 30,
1998 included $4.4 million received from media suppliers and press
manufacturers, $4.1 million received from the joint venture and $3.7 million in
investment tax credits. The $2.1 million in third-party funding received during
the year ended September 30, 1997 included $1.4 million received from outside
parties and $ 0.7 million received in investment tax credits.
As a result of these factors affecting gross research expenses and
development and research and development funding, net research and development
expenses decreased 45.7% to $6.9 million for the year ended September 30, 1998
from $12.8 million for the year ended September 30, 1997. Net research and
development expenses decreased as a percentage of total revenue to 5.4% for the
year ended September 30, 1998 from 13.4% for the year ended September 30, 1997.
Sales and Marketing. Sales and marketing expenses increased 53.3% to $22.4
million, or 17.4% of total revenue for the year ended September 30, 1998 from
$14.6 million, or 15.3% of total revenue for the year ended September 30, 1997.
This increase was primarily due to a 44.7% increase in the number of sales and
marketing staff in North America and Europe to support the expansion of our
operations, including the start-up of the joint venture.
General and Administration. General and administration expenses increased
42.5% to $8.9 million, or 6.9% of total revenue for the year ended September
30, 1998 from $6.3 million, or 6.5% of total revenue for the year ended
September 30, 1997. This increase was primarily due to the growth of our
business and the addition of new facilities at 4225 Kincaid Street in Burnaby,
Canada. These facilities were acquired to allow for the future expansion of our
thermal head development and manufacturing capacity.
Income Taxes. Income tax expense increased to $6.7 million for the year ended
September 30, 1998 from $2.5 million for the year ended September 30, 1997.
This increase was primarily due to the increase in our profitability. Our
effective tax rate of 37.6% for the year ended September 30, 1998 was below the
statutory rate of 45.6% due to Canadian manufacturing and processing tax
credits and the fact that a portion of our profits were earned in foreign
jurisdictions with tax rates lower than those of Canada. See note 9 to our
consolidated financial statements.
Year ended September 30, 1997 compared to year ended September 30, 1996
Revenue. Total revenue increased 99.4% to $95.6 million for the year ended
September 30, 1997 from $47.9 million for the year ended September 30, 1996.
Product revenue increased 98.3% to $91.7 million for the year ended September
30, 1997 from $46.2 million for the year ended September 30, 1996. This
increase was due to higher unit sales of our CTP products through our direct
sales force.
Service revenue increased 126.5% to $3.9 million for the year ended September
30, 1997 from $1.7 million for the year ended September 30, 1996. This increase
was due to fees generated from additional customer support agreements entered
into in connection with new product sales.
Revenue from our North American customers accounted for $65.6 million, or
68.6% of total revenue, for the year ended September 30, 1997, compared to
$34.5 million, or 72.0% of total revenue, for the year ended September 30,
1996. Revenue from our European customers accounted for $15.7 million, or 16.4%
of total revenue, for the year ended September 30, 1997, compared to $4.5
million, or 9.3% of total revenue, for the year ended September 30, 1996.
Revenue from our Japanese customers accounted for $9.9 million, or 10.4% of
total revenue, for the year ended September 30, 1997, compared to $7.0 million,
or 14.6% of total revenue, for the year ended September 30, 1996.
Cost of Sales. Cost of sales increased 68.8% to $53.6 million for the year
ended September 30, 1997 from $31.8 million for the year ended September 30,
1996. This increase was primarily due to a 45.8% increase in
26
<PAGE>
the number of production and customer service staff as well as increased
subassembly and component costs and overhead expenses associated with the
increase in both our product sales and our installed customer base. Cost of
sales decreased as a percentage of total revenue to 56.1% for the year ended
September 30, 1997 from 66.3% for the year ended September 30, 1996. This
decrease was primarily due to product mix, improvements in manufacturing
efficiencies, lower per-unit labor, subassembly and component costs, and
increased plant capacity utilization.
Research and Development. Gross research and development expenses increased
1.2% to $14.9 million for the year ended September 30, 1997 from $14.7 million
for the year ended September 30, 1996. This increase was primarily due to a
29.0% increase in the number of research and development staff, offset by
decreased prototyping material costs as our research and development focus
shifted from new product development to product enhancement. Gross research and
development expenses decreased as a percentage of total revenue to 15.6% for
the year ended September 30, 1997 from 30.7% for the year ended September 30,
1996. This decrease was primarily due to the growth in our revenue base.
Outside funding of our research and product development activities decreased
47.6% to $2.1 million for the year ended September 30, 1997 from $4.0 million
for the year ended September 30, 1996. The $2.1 million in outside funding
received during the year ended September 30, 1997 included $0.7 million in
investment tax credits and $1.4 million received from outside parties.
As a result of these factors affecting gross research and development
expenses and research and development funding, net research and development
expenses increased 19.6% to $12.8 million for the year ended September 30, 1997
from $10.7 million for the year ended September 30, 1996. Net research and
development expenses decreased as a percentage of total revenue to 13.4% for
the year ended September 30, 1997 from 22.3% for the year ended September 30,
1996.
Sales and Marketing. Sales and marketing expenses increased 66.9% to $14.6
million for the year ended September 30, 1997 from $8.8 million for the year
ended September 30, 1996. This increase was primarily due to the 55.1% increase
in the number of sales and marketing personnel in North America and Europe.
Sales and marketing expenses decreased as a percentage of total revenue to
15.3% for the year ended September 30, 1997 from 18.3% for the year ended
September 30, 1996. This decrease was primarily due to increased productivity
among sales personnel.
General and Administration. General and administration expenses increased
53.3% to $6.3 million for the year ended September 30, 1997 from $4.1 million
for the year ended September 30, 1996. This increase was primarily due to the
hiring of additional personnel. General and administration expenses decreased
as a percentage of total revenues to 6.5% for the year ended September 30, 1997
from 8.5% for the year ended September 30, 1996. This decrease was primarily
due to the growth in our revenue base.
Income Taxes. Income tax expense increased to $2.5 million for the year ended
September 30, 1997 from a recovery of $0.1 million for the year ended September
30, 1996. This increase was primarily due to the increase in our profitability.
Our effective tax rate of 30.0% for the year ended September 30, 1997 was below
the statutory rate of 45.6% due to the availability of loss carryforwards,
Canadian manufacturing and processing tax credits and the fact that a portion
of our profits were earned in foreign jurisdictions with tax rates lower than
those of Canada. See note 9 to our consolidated financial statements.
27
<PAGE>
Quarterly Results of Operations
The following tables summarize selected quarterly financial information for
our ten most recent fiscal quarters, as well as the percentage of our revenue
represented by each item. This information is unaudited, but reflects all
adjustments of a normal, recurring nature which are, in the opinion of our
management, necessary to present a fair statement of our financial position and
results of operations for the periods presented. Quarter-to-quarter comparisons
of our financial results are not necessarily meaningful and should not be
relied upon as an indication of future performance.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31,
1996 1997 1997 1997 1997 1998 1998 1998 1998 1999
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts under Canadian GAAP
Revenue:
Product revenue............ $13,557 $19,355 $26,637 $32,120 $22,557 $30,663 $30,835 $30,597 $31,065 $33,829
Service revenue............ 837 897 1,066 1,114 2,354 3,675 3,037 5,130 5,484 7,679
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue.............. 14,394 20,252 27,703 33,234 24,911 34,338 33,872 35,727 36,549 41,508
Cost of sales............... 10,258 11,734 14,073 17,569 14,575 18,614 18,325 19,703 19,471 21,217
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................ 4,136 8,518 13,630 15,665 10,336 15,724 15,547 16,024 17,078 20,291
Research and development,
net........................ 1,505 3,146 3,575 4,546 2,098 1,135 1,611 2,087 2,033 3,242
Sales and marketing......... 2,026 2,936 4,531 5,126 4,532 5,569 5,723 6,593 6,785 7,611
General and administration.. 1,175 1,248 1,493 2,355 1,680 2,199 2,189 2,869 2,035 1,948
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations................. (570) 1,188 4,031 3,638 2,026 6,821 6,024 4,475 6,225 7,490
Other income (expense)...... 365 (438) (158) 279 (504) (295) (278) (503) (332) (261)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes............... (205) 750 3,873 3,917 1,522 6,526 5,746 3,972 5,893 7,229
Income tax expense
(recovery)................. (16) 158 1,243 1,113 552 2,370 2,219 1,535 2,523 2,968
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)......... $ (189) $ 592 $ 2,630 $ 2,804 $ 970 $ 4,156 $ 3,527 $ 2,437 $ 3,370 $ 4,261
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31,
1996 1997 1997 1997 1997 1998 1998 1998 1998 1999
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Revenue:
Revenue:
Product revenue............ 94.2 % 95.6% 96.2% 96.6% 90.6% 89.3% 91.0% 85.6% 85.0% 81.5%
Service revenue............ 5.8 4.4 3.8 3.4 9.4 10.7 9.0 14.4 15.0 18.5
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue.............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales............... 71.3 57.9 50.8 52.9 58.5 54.2 54.1 55.1 53.3 51.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin................ 28.7 42.1 49.2 47.1 41.5 45.8 45.9 44.9 46.7 48.9
Research and development,
net........................ 10.4 15.5 12.9 13.7 8.4 3.3 4.7 5.8 5.5 7.8
Sales and marketing......... 14.1 14.5 16.3 15.4 18.2 16.2 16.9 18.5 18.6 18.3
General and administration.. 8.1 6.2 5.4 7.1 6.8 6.4 6.5 8.1 5.6 4.7
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations................. (3.9) 5.9 14.6 10.9 8.1 19.9 17.8 12.5 17.0 18.1
Other income (expense)...... 2.5 (2.2) (0.6) 0.8 (2.0) (0.9) (0.8) (1.4) (0.9) (0.6)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes............... (1.4) 3.7 14.0 11.7 6.1 19.0 17.0 11.1 16.1 17.5
Income tax expense
(recovery)................. (0.1) 0.8 4.5 3.3 2.2 6.9 6.6 4.3 6.9 7.2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)......... (1.3)% 2.9% 9.5% 8.4% 3.9% 12.1% 10.4% 6.8% 9.2% 10.3%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE>
Revenue. Total revenue increased in each quarter during the period October 1,
1996 to September 30, 1997. The increases during this period were primarily due
to higher unit sales of our CTP products. Product revenue for the three months
ended September 30, 1997 included $3.1 million in sales of CTP output devices
to Heidelberg to install in their showrooms in anticipation of the launch of
the joint venture.
The joint venture with Heidelberg commenced operations on October 1, 1997.
The decrease in product revenue from $32.1 million for the three months ended
September 30, 1997 to $22.6 million for the three months ended December 31,
1997 was due to the revenue sharing arrangements implemented in connection with
the joint venture, as well as a delay in the shipment of product due to a
design change required on the thermal head.
Product revenue for the three months ended March 31, 1998 returned to
approximately the level achieved during the three months ended September 30,
1997, excluding the $3.1 million in showroom sales to Heidelberg during the
prior period. Product revenue remained consistent during the quarters ended
June 30, 1998 and September 30, 1998, and increased during the quarters ended
December 31, 1998 and March 31, 1999 to $31.1 million and $33.8 million,
respectively. The increase in product revenue for the six months ended March
31, 1999 reflects the increased market penetration for our CTP products made
possible by Heidelberg's worldwide marketing and distribution network.
Service revenue has generally increased at a steady rate over the ten
quarters ended March 31, 1999, reflecting an increase in fees generated from
customer support agreements. A substantial majority of our customers contract
for service.
Cost of Sales. Cost of sales has generally increased over the ten quarters
ended March 31, 1999, reflecting the growth in our CTP product sales. We expect
that cost of sales will continue to increase as sales of our CTP products grow.
Research and Development. The commencement of operations of the joint venture
on October 1, 1997 resulted in a substantial decrease in net research and
development expense in each of the six quarters ended prior to March 31, 1999
compared to the three months ended September 30, 1997. This decrease reflects
the funding contribution of Heidelberg to research and development initiatives
undertaken by us in connection with CTP products sold by the joint venture. The
increase in net research and development expense in each of the four quarters
ended March 31, 1999 reflects the hiring of additional research and development
personnel. We expect that net research and development expenses will continue
to increase as we introduce new products and enhance existing equipment and
software.
Sales and Marketing. Sales and marketing expenses increased over the ten
quarters, reflecting the growth in our CTP product sales. We expect that our
sales and marketing expenses will continue to increase as sales of our CTP
products grow.
General and Administration. General and administrative expenses increased
during the eight quarters ended September 30, 1998 as we expanded our
infrastructure to accommodate the growth in our CTP product sales. General and
administration expenses decreased during the two quarters ended March 31, 1999,
as the cost of our internal software system had been fully amortized. We expect
that general and administration expenses will continue to increase as sales of
our CTP products grow.
Liquidity and Capital Resources
Since we commercialized our first CTP product in October 1994, we have
financed our operations through a combination of private sales of equity
securities and cash generated by operations. As at March 31, 1999, we had $59.0
million in working capital and $37.2 million in cash and short term deposits.
Our operations used cash of $0.7 million for the year ended September 30, 1997,
and generated cash of $11.6 million for the year ended September 30, 1998 and
$7.3 million for the six months ended March 31, 1999.
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<PAGE>
Our inventory and accounts payable have remained relatively flat from
September 30, 1997 to September 30, 1998, because the increase in production of
CTP systems during this period was done by Heidelberg through the joint
venture. Inventory increased 7.6% during the six months ended March 31, 1999
due to the increase in the volume of CTP's that we produced. Our accounts
receivable have increased from September 30, 1997 to March 31, 1999 due to the
increase in our sales volumes. Our days receivables outstanding has decreased
slightly during the period due to an increase in our collection efforts.
As at March 31, 1999, we had deferred revenues and deposits of $20.8 million,
and total borrowings of $6.8 million which are secured by a first mortgage on
our Canadian office and production facilities. We also have $15.0 million
available through a credit facility with a Canadian chartered bank. The credit
facility is repayable on demand and bears interest at LIBOR plus 1%. As at
March 31, 1999, there were no borrowings outstanding under the credit facility.
Our net capital expenditures for the year ended September 30, 1998 were $23.5
million, compared to $4.2 million for the year ended September 30, 1997. Our
net capital expenditures for the six months ended March 31, 1999 were $5.8
million, compared to $5.6 million during the six months ended March 31, 1998.
Our capital expenditures over the past eighteen months have related primarily
to the purchase of land for engineering, production and service support
facilities. Total capital expenditures in 1999 are expected to be less than
$14.0 million. Of this amount, $5.8 million was spent during the six months
ended March 31, 1999. We have committed $2.3 million in 1999 for the expansion
of our thermal head development and manufacturing facilities located at 4225
Kincaid Street in Burnaby, British Columbia during the last six months of 1999.
In addition, we expect to spend up to $5.9 million on other capital
expenditures during the last six months of 1999, but no specific expenditures
have been committed.
In 1994, we formed Creo Ltd. under the laws of Israel to carry on research
and development work relating to our imaging technologies. In 1997, Creo Ltd.
began to focus on developing applications of our technologies to the printed
circuit board industry. In 1998, our Board of Directors decided that we should
focus our energies and resources on our core graphic arts business. As a
result, additional shares of Creo Ltd. were sold to outside investors, leaving
us with a small minority interest. We also have an option to re-acquire up to
an additional 5,280,000 shares, representing an 88% interest in Creo Ltd. This
option is exercisable at any time up to March 12, 2000, at a price of $2.00 per
share, plus a premium ranging from 10% to a maximum of 28% per annum, depending
upon when the option is exercised. We have not currently decided whether to
exercise this option. We are not represented on Creo Ltd.'s board of directors,
and have no role in its management.
We believe that the net proceeds from the sale of the common shares in this
offering, together with existing cash balances, cash generated by our
operations and funds available under our credit facility will be sufficient to
meet our anticipated working capital and capital expenditure requirements for
the next two years.
Year 2000 Readiness Disclosure
State of Readiness. We initiated a Year 2000 compliance program for our
products in the summer of 1998. The program focused on two areas:
. the components of Creo products that are provided by sub-contractors; and
. the components of Creo products that we produce ourselves.
We have completed our tests on the product components that could be affected
by Year 2000 issues and, based on our tests, we believe that all of these
components are Year 2000 compliant. Although we have received written
warranties or other representations from substantially all of our sub-
contractors that their products are Year 2000 compliant, we have no other Year
2000 related contractual commitments. Moreover, if we were to make a warranty
claim against one of our sub-contractors because of a malfunction related to
the Year 2000, there can be no assurance that the subcontractor would actually
pay our warranty claim.
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<PAGE>
We use a number of computer software programs and operating systems across
our entire organization, including applications used in financial business
systems and various administrative functions. At this time, we have completed
the process of identifying and remediating information technology systems that
were not Year 2000 compliant. As a result, we believe that none of our
information technology systems currently contain source code that is unable to
appropriately interpret Year 2000 data.
Despite our Year 2000 compliance program, there is a possibility that one or
more of our products is not Year 2000 compliant. In the event of a failure of
one of our products at a customer site, our normal protocols for customer
support would be followed.
Heidelberg believes that the products it produces for our joint venture are
Year 2000 compliant apart from a few exceptions that are currently being
addressed.
Costs of Addressing Year 2000 Issues. Given the extent of our systems'
compliance, we do not expect Year 2000 compliance costs to have any material
adverse impact on our business. The total costs for the Year 2000 compliance
assessment and remediation undertaken by us have not been significant and are
included in general and administrative expenses.
Risks of Year 2000 Issues. In light of our assessment and remediation efforts
to date, we believe that any residual Year 2000 risk is limited to non-critical
business applications and support hardware. We have no assurance that the
outside manufacturers who supply components to us will be Year 2000 compliant
with their internal systems. A reduction in the supply of product from these
suppliers could have a material adverse effect on our business.
Contingency Plans. To address the possibility of a product failure at one or
more of our customer sites as a result of a Year 2000 issue, we will have
additional customer service and support personnel on hand in our Response
Center during the beginning of the Year 2000 to handle any unusual increase in
customer requirements.
Impact of Recently Issued Accounting Standards
In addition to the U.S. GAAP differences referred to in note 14 to our
consolidated financial statements, the Financial Accounting Standards (FAS)
Board in the United States has issued FAS 133, "Accounting for Derivative
Instruments and for Hedging Activities." FAS 133 provides comprehensive and
consistent standards for the recognition and measurement of derivatives and
hedging activities. Generally, FAS 133 requires all derivatives to be recorded
on the balance sheet at fair value and establishes new accounting requirements
for different types of hedging activities. FAS 133 is effective for fiscal
years beginning after June 15, 1999.
To date, we have not engaged in any hedging activities other than the
interest rate swap described below. Our management continues to assess the
implications of FAS 133, but does not believe its adoption will materially
affect our historical results of operations or shareholders' equity when
reconciled to U.S. GAAP as set out in our consolidated financial statements.
Quantitative and Qualitative Disclosures about Market Risk
We have used an interest rate swap to manage our risk with regards to
interest rate changes. As a result, floating rate debt has been converted to
fixed rate debt. The swap results in our paying an interest rate of 8.05% and
receiving an interest rate of LIBOR + 1.5% for the duration of the long-term
debt. The fair value of the interest rate swap as at September 30, 1998 is
$341,000 in favor of the counterparty.
We have not engaged in any currency hedging to minimize the effect of
exchange gains or losses. We are exposed to foreign currency fluctuations on
our monetary asset and liability balances denominated in Canadian dollars and
Belgian francs.
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<PAGE>
The table below presents the principal cash flows that exist by maturity date
of our long-term debt and details of our interest rate swap as at September 30,
1998.
<TABLE>
<CAPTION>
1999 2000 2001 2002 Total
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Fixed rate U.S.$ debt.................... 647 -- -- -- 647
Average rate........................... 0% -- -- -- 0%
Floating rate U.S.$ debt................. 296 296 296 6,068 6,956
Average rate........................... 7.2% 7.2% 7.2% 7.2% 7.2%
Interest Rate Swaps
U.S.$ pay fixed--U.S.$ receive
variable................................ 296 296 296 6,068 6,956
Average pay rate....................... 6.6% 6.6% 6.6% 6.6% 6.6%
Average receive rate................... 5.7 5.7 5.7 5.7 5.7
</TABLE>
32
<PAGE>
BUSINESS
Overview
Creo is a leading developer, manufacturer and distributor of comprehensive
"computer-to-plate" (CTP) digital solutions that automate the prepress phase of
commercial printing. "Prepress" refers to the process by which master printing
plates are created prior to actual printing. Our CTP technology transfers
digitized text, graphic images and line artwork from desktop publishing
computer systems directly onto printing plates, eliminating labor-intensive,
complex and costly preparatory steps required by the conventional prepress
process. We offer a comprehensive line of precision imaging equipment,
including scanners, proofing devices and output devices, as well as workflow
management software. Our systems are based on our patented and proprietary
thermal imaging and related technologies. These technologies enable printers to
use their printing presses more profitably, while improving their ability to
meet customer demands for tighter deadlines, better and more consistent color
quality, shorter print runs and greater customization of print jobs.
We were the first to develop and commercialize a fully integrated high-speed
CTP solution and our innovations have established thermal imaging as the
industry standard for CTP. Since 1994, more than 900 of our CTP imaging systems
have been installed in 29 countries. This is more than twice the number of
installations of any of our competitors. Nine of the ten largest commercial
printers in North America are adopting Creo systems as their CTP solution. Creo
systems are currently used in the production of high-circulation glossy
magazines, including Glamour, Newsweek, Scientific American, Sports Illustrated
and Time, as well as other documents such as color brochures and catalogs.
We are a leader in developing innovative prepress technology. In 1994, we
delivered the first commercial CTP system, which used visible light to create
the image on the plate. In 1995, we commercialized the first thermal CTP
system. In 1996, we introduced the first digital proofing device that allows
printers to produce accurate, high-quality digital proofs with the same imaging
equipment used to image plates. We have been awarded four Graphic Arts
Technology Foundation InterTech Technology Awards, which are given for products
predicted to have a major effect on the graphic communications industry. The
Graphic Arts Technology Foundation is a member-supported, nonprofit technical
and educational organization serving the graphic communications industries.
We are at the forefront of research and development of digital prepress
technology, including digital offset press products. We believe that digital
offset press technology, which images digital data directly onto a printing
press, will become the next generation of prepress for short-run offset
printing. We currently have 371 people involved in research and development
and, in the year ended September 30, 1998, our total research and development
expenditures were $19.1 million. As of March 31,1999, we held 30 United States
and foreign patents and had 39 United States and foreign patent applications
pending.
An important part of our growth strategy has been establishing strategic
alliances with major industry participants. For example, in October 1997, we
established a joint venture with Heidelberg, the largest press manufacturer in
the world, to develop, manufacture, market and distribute our CTP solutions
worldwide.
Industry Background
Commercial printing is the largest segment of the printing industry and
commercial printers are the largest purchasers of prepress capital equipment.
Commercial printers use high speed lithographic offset printing presses, which
require a set of master printing plates, to produce multiple copies of high-
quality color materials such as magazines, catalogs and corporate annual
reports. In lithographic offset printing, the images to be printed are formed
on printing plates and the plates are then mounted onto the printing press
cylinders. On the press, only the imaged areas of the plates accept ink. The
inked images are then transferred onto the rubber-covered surface of another
cylinder, and from that surface onto roll or sheet-fed paper. Lithographic
offset printing produces large volumes of high-quality copies at high speed and
low variable cost. According to an
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<PAGE>
industry study prepared in July 1998 by Strategies for Management, Inc., an
independent consulting firm, United States revenues of commercial printers in
1997 exceeded $70 billion. In a report prepared for us in January 1998, Pira
International, an independent center for printing research, estimated the non-
United States commercial printing market to be approximately 2.25 times larger
than in the United States.
The commercial printing industry is mature, fragmented and highly
competitive, and is therefore characterized by narrow profit margins. In
addition, printers face increasing demands from customers for tighter
deadlines, better and more consistent color quality, shorter print runs and
greater customization of print jobs. For example, publishers of magazines and
catalogs increasingly wish to customize their publications to appeal more
effectively to target audiences in different geographic regions or market
segments, and to make last-minute changes in response to late-breaking
developments.
Our CTP solutions address the prepress needs of commercial printers. In a
report prepared for us in November 1997, State Street Consultants, Inc., an
independent consulting firm, estimated the worldwide market for prepress
imaging equipment to exceed $3 billion in 1995. Although many of the largest
commercial printers have begun to adopt CTP solutions, we believe the market is
still developing. We believe that less than 20% of commercial printers in the
world currently use CTP solutions. According to a June 1999 report prepared for
Creo by Cloud Information Services, an industry research group, CTP unit
shipments worldwide are expected to grow at a compound annual growth rate of
over 25% from 1999 to 2003.
The Conventional Prepress Process
Conventional prepress requires highly skilled workers to perform a series of
complex, time-consuming and labor-intensive manual tasks to create each
printing plate.
In conventional prepress, digital pages consisting of text, graphic images
and line artwork are created on a computer with word processing and desktop
publishing software. These digital pages are converted into a series of dots
which are then used to create printing plates. After the multi-colored digital
document has been separated into its base component colors (cyan, magenta,
yellow and black), a device called an imagesetter uses light or heat to image
the series of dots onto single or double page films, or separations. Four films
are produced for each page--one for each of the four component colors. Each
film is then developed, much like a photographic negative, to make the latent
image visible.
Proofs are then made by exposing light-sensitive proofing media (usually
coated paper) to the films, in the same sequence that will be used on the
press, similar to the way in which photographic prints are made. The resulting
composite proof simulates the pages that will be finally output from the press,
and any required adjustments can be made to the original files and new films
produced before the printing plates are imaged.
After the pages are proofed, the single or double page films are manually
assembled into 2-page, 4-page, 8-page or 16-page "flats," depending on the
press size, with each of the four colors requiring a separate flat. A proof is
then made of the assembled flats to verify that the individual pages are in the
proper order and that the alignment of the assembled films is accurate. For
high quality color printing, the alignment of the assembled films must be
accurate to within two thousandths of an inch. As a result, alignment is prone
to error and frequently requires rework.
Once the proofs have been approved, each flat is used to expose a light-
sensitive printing plate, similar to the way in which the proofing media were
exposed, creating a positive image on the plate. Each exposed plate is
processed to develop the image, and then manually mounted on the press in the
correct color sequence. After mounting, further adjustment of the plates is
required to ensure the accuracy of the final printed product. Each plate is
then inked with one of the four component colors, and the printing process can
begin. During printing, the four plates will impress the paper sequentially,
and the final composite printed product will look like the original digital
page.
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<PAGE>
The following diagram illustrates the conventional prepress process:
[Description Conventional Prepress Diagram under "The Conventional Prepress
Process"]
A rectangle, labeled "Convential Prepress," contains 10 small icons in a
horizontal line. Except for the last icon, each icon is connected on its left
side pointing to the icon on its right. Starting from the left and moving
right, the icons are labeled "Create digital pages," "Image film separations,"
"Develop films," "Film," "Proof Pages," "Assemble film flats," "Proof flats,"
"Image printing plates," "Develop plates" and "Mount plates on press."
Conventional prepress is a complex and expensive process with many
shortcomings. For example, the large manual component of the conventional
prepress process can lead to inconsistent results, and the conventional process
requires the use of costly films and hazardous chemicals. Moreover, the
frequency of rework results in idle time for expensive commercial presses.
Despite these constraints, printers' customers are increasingly demanding
tighter deadlines, better and more consistent color quality, shorter print runs
and greater customization of print jobs. To meet these demands, printers must
incur additional costs, but cannot readily pass on these costs to their
customers. As a result of the shortcomings of the conventional prepress
process, printers are limited in their ability to meet the needs of their
customers on a cost-effective basis, and have therefore experienced reduced
operating margins.
The Creo Solution
Our CTP solutions consist of a comprehensive range of products that transfer
computer-generated images and text directly onto printing plates, eliminating
numerous steps from the conventional prepress process, including the creation
and processing of film. Our solutions integrate:
. input devices, which digitize film separations;
. workflow software, which manages the flow of data as it is processed and
prepared for output;
. proofing systems, which are used to check color and layout by creating a
digital simulated copy of what the final printed job will look like; and
. output devices, which transfer data onto plates for use on a printing
press.
In the streamlined Creo solution, the digital pages are processed and
separated into their four component colors and the resulting series of dots is
imaged by the Creo output device directly onto thermal printing plates,
eliminating the entire film- and flat-creation process. The plates are then
developed and mounted on the press for printing. The following diagram
illustrates the prepress process using the Creo solution.
[Description of Creo Solution Diagram under "The Creo Solution"]
A rectangle, labeled "Creo Solution," contains 5 small icons in a horizontal
line. Except for the last icon, each icon is connected on its left side
pointing to the icon on its right. Starting from the left and moving right, the
icons are labeled "Create digital pages," "Workflow management," "Image thermal
plates and proofing media," "Develop plates," and "Mount plates on press."
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<PAGE>
The key component of our solution is our patented thermal imaging head that
uses laser beams to precisely imprint heat-sensitive printing plates and
proofing materials. Our thermal head splits the output of a single high-power
laser into 240 separate beams. In contrast, most competing CTP systems use
fewer beams for imaging because they require a separate laser to produce each
beam. This significantly increases their cost and complexity. In 1996, the
Graphic Arts Technology Foundation awarded Creo an InterTech Technology Award
for the innovation of our thermal imaging head technology.
We were the first to offer a commercial CTP system that transfers data onto
plates wrapped around the outside of a rotating drum, known as external drum
architecture, rather than onto a plate fixed to the inside of a stationary
drum, known as internal drum architecture. Since the imaging head can be
positioned closer to a plate mounted on an external drum, we believe that
external drum technology produces a higher quality image on the plate,
particularly in larger formats. Many imaging systems on the market now use
external drum architecture. Moreover, since all offset presses are external
drum devices, external drum architecture is uniquely suited for on-press
imaging applications using digital offset press technology. Our solution is
unique because it combines external drum architecture with our multi-beam
thermal imaging head. This combination increases imaging throughput while at
the same time allowing the drum to rotate more slowly than is possible with
systems having fewer beams, thus reducing vibration and the need for precision
balancing, enhancing overall plate quality.
In comparison with other commercially available CTP systems, we believe that
our unique combination of technologies delivers:
. more accurate images;
. greater color consistency;
. improved prepress reliability; and
. faster throughput.
The Creo solution allows printers to respond more quickly and cost-
effectively to demands from their customers for tighter deadlines, better and
more consistent color quality, shorter print runs, and greater customization of
print jobs. At the same time they can benefit from reduced print cycle times
and more flexible scheduling of presses.
The principal features of our CTP solutions are:
End-to-End Prepress Solutions
Our solutions integrate a complete range of Creo products that address the
entire prepress process. Our scanners, workflow management software, proofing
devices, and output devices together comprise a complete and fully integrated
digital prepress system. We do not believe any competitor offers a product
range comparable in breadth, versatility and performance.
Open Architecture and Connectivity
Our solutions support industry-standard file formats, accommodate a wide
variety of input media and are adaptable to emerging file formats. Our
equipment is designed to be compatible with printers' existing prepress
equipment, thus avoiding waste and making our customers' investment decisions
easier. For example, our output devices can image film, for the printers that
require this capability.
Modularity and Versatility
The components of our CTP solutions are modular and can be used separately or
assembled in a variety of configurations to meet the needs of customers with
varying print volumes and press sizes. For example, printers
36
<PAGE>
can add different components to increase functionality, and can add more of the
same components to increase capacity. In addition, our output devices can
accommodate the full range of plate sizes, throughput requirements and
automation levels.
Knowledgeable and Comprehensive Customer Support
We offer comprehensive pre-sale evaluation, installation, system integration,
training and post-sale support through what we believe is the most
knowledgeable and experienced field service organization in our industry. We
believe that our service and support organization, which maintains the
reliability and performance of our systems and improves the productivity of our
customers, differentiates us from our competitors.
Our Business Strategy
Our objective is to maintain our position as a leading developer and supplier
of innovative digital prepress products and technologies. Our business strategy
consists of the following key elements:
Expand Our Technology Leadership
We intend to continue to make significant investments in research and the
development of innovative, next-generation, market-leading technologies such as
digital offset press technology, as well as to apply our existing technologies
to new markets such as packaging printing. We will continue to broaden the
range of our product offerings as well as enhance the features, reliability and
price/performance of our existing CTP products. Our focus on technology
leadership has been critical in building our customer base, and our close co-
operation with key customers, press manufacturers and leading industry
suppliers has been invaluable in the design process by permitting us to
understand and respond to market needs. We are continuing to strengthen our
brand image, which we believe is synonymous with market-leading CTP technology.
Focus on Customer Success
We will continue to work closely with our customers to ensure that our
systems generate clear economic benefits for them. We work with our customers
during the design process to evaluate the productivity, output quality,
reliability and ease of use of our systems. We also maintain service and
support relationships with almost all of our customers, and we will continue to
expand our customer service capabilities by hiring additional service personnel
to be located close to our customers.
Expand and Leverage Strategic Business Alliances
Our success to date has been due in part to our strategy of establishing
collaborative relationships with leading commercial printers, manufacturers of
printing presses, plates and consumables and others in the commercial printing
industry. Our strategy is to continue to develop and expand these collaborative
relationships to broaden our distribution, product development and
manufacturing capabilities. We believe these strategic relationships allow us
to anticipate market needs, develop products to work optimally with new product
offerings of press and plate manufacturers and enhance market acceptance of our
products.
Expand Our Global Market Presence
We intend to expand our market penetration geographically, with a focus on
small to mid-size commercial printers, which generally use 4-page and 8-page
presses. We intend to devote considerable resources to enhancing our
penetration of the 4-page and 8-page market, primarily through our relationship
with Heidelberg. We also intend to expand our presence in the international
market for large-format CTP systems by augmenting our direct sales force and
entering into distribution arrangements with leading vendors of thermal plates.
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<PAGE>
Products
We provide end-to-end digital solutions for prepress automation, which
include input devices, prepress workflow management systems and a variety of
proofing and output devices:
[Description of Creo Solution Diagram under "Products"]
In the upper left corner of a rectangle, there are two small icons. The top
icon is labeled "Digital Files." The icon under the Digital Files Icon is
labeled "Renaissance Scanner." These two icons are connected by a bracket to
their right. An arrow protrudes from the middle of this bracket. The arrow
points right to a rectangle that has the words "Workflow Management Systems"
inside of it. An arrow protrudes from the bottom of the Workflow Management
Systems diagram and points to a bracket labeled "Digital Proofing." The left
prong of the Digital Proofing Bracket points to a small icon labeled "Virtual
Proofing Station." The right prong of the Digital Proofing Bracket points to a
small icon labeled "Proofsetter Spectrum TM." An arrow also protrudes from the
right side of the Workflow Management Systems rectangle. This arrow points to a
four-pronged bracket. Each of these prongs points to a small graphic. Starting
from the top, the four graphics are labeled "Trendsetter TM," "VLF
Trendsetter," "Platesetter," and "VLF Platesetter."
Digital Input Devices
Our Renaissance scanners enable printers to convert archived film, customer-
supplied film and reflective copy into digital data, allowing them to obtain
the benefits of digital workflow management. All Renaissance scanners include
Creo software tools for alignment and editing. In 1997, the Graphics Arts
Technology Foundation awarded us its InterTech Technology Award for our
Renaissance scanner. The list prices of our scanners generally range from
$225,000 to $345,000, depending on configuration and options.
Workflow Management Systems
Creo's digital workflow management systems incorporate both our proprietary
software and third-party software and hardware whose performance we enhance.
Our workflow management systems process and archive the vast amounts of data
used by printers to create plates and proofs. By reducing the number of
repetitive manual tasks and efficiently integrating all aspects of prepress,
these systems enhance both productivity and output quality. Our workflow
management systems can be configured for varying prepress workflow needs, and
for both high-volume and low-volume printers. The list prices of our workflow
systems range from $75,000 to $300,000, depending on configuration and options.
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Digital Proofing Devices
Our Virtual Proofing Station creates an on-screen digital simulated copy of
what a final printed job will look like, permitting confirmation of accuracy
and color quality. Our Proofsetter Spectrum, which creates a hard copy of the
digital proof, is available both as a stand-alone product and as an optional
addition to our Trendsetter output devices. The list price of the Proofsetter
Spectrum is $235,000.
CTP Output Devices
Our CTP output devices are available in several formats capable of handling
virtually all plate types and sizes. All of our output devices currently use
the same thermal imaging technology and multi-channel thermal imaging head.
Platesetter. The fully automatic Platesetter is designed for high-quality,
high-volume commercial printers exposing up to 450 plates daily. It enables a
single operator to load up to 600 plates of up to six different sizes at a time
without removing the plates from their shipping cartons. In 1994, the Graphics
Arts Technology Foundation awarded us an InterTech Technology Award for the
Platesetter 3244. In 1996, we introduced the VLF Platesetter (very large
format) to respond to printers' needs for larger CTP plates designed for wide
web presses that use rolls of paper, rather than individual sheets. The list
prices of the Platesetter generally range from $390,000 for the Platesetter
3244 to $860,000 for the VLF Platesetter, depending on configuration and
options.
Trendsetter. The semi-automatic Trendsetter is designed for high-quality,
commercial printers exposing up to 300 plates daily. These printers have less
need for the full automation of the Platesetter since they use fewer plates.
Upgrades to the basic Trendsetter are available to provide automatic plate
handling and to permit proofing with our Proofsetter Spectrum option. The
versatility and multi-function capability of the Trendsetter makes it
particularly attractive to small and mid-size commercial printers since it
provides proofing capabilities at a modest increase in capital expense. For
many printers, the multi-use Trendsetter can meet all requirements for plates,
proofs and film, where required. Larger printers can use the Trendsetter
primarily to image proofs and to provide peak-period plate-making capacity and
backup for their primary Platesetter. The list prices for Trendsetter output
devices generally range from $135,000 for the Trendsetter 3230 to $550,000 for
the VLF Trendsetter, depending on configuration and options.
Research and Product Development
Our research and product development activities are performed in-house by a
group of engineers and scientists with expertise in a variety of fields,
including software, electronics, mechanics, optics, physics and chemistry.
Product development is organized around core teams with representatives from
all areas of our company. Each core team has the authority to manage all
aspects of its products and projects, including product architecture, core
technology, functionality and testing.
In the fiscal years ended September 30, 1996, 1997 and 1998, our total
research and product development expenditures were $14.7 million, $14.9 million
and $19.1 million, respectively. For the six months ended March 31, 1999, our
total research and product development expenditures were $13.3 million. We have
received funding for our research and development work from media suppliers,
press manufacturers and our customers in connection with specific product
development initiatives which they have asked us to undertake. We have also
received funding from the Canadian government through investment tax credits.
From October 1, 1995 through March 31, 1999, we received an aggregate of $26.3
million in research and development funding from these sources.
Our current research and product development efforts are focused on improving
our current product line, including enhancements to our thermal imaging head
technology, developing next generation workflow and output devices, including a
line of digital offset press products, and applying our core technologies to
new printing markets and methods such as packaging printing and flexography.
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Workflow Systems
Creo and Heidelberg are co-developing a state-of-the-art family of workflow
and related products to manage the prepress operation. The new system is
designed to fully automate the prepress process by providing intelligent
scheduling and workflow optimization through an open standard, multi-user
architecture that can be adapted to fit the needs of any size printer. It is
device-independent and extremely flexible, and integrates easily with most
output devices. It is designed for medium and large commercial printers, is
adaptable to both black and white and color printing and can accommodate growth
in printers' prepress operations.
Digital Offset Press
We are working with the leading manufacturers of printing presses to develop
advanced digital offset press systems. A digital offset press imaging system
images digital data directly onto the press. The digital offset press
technology that we are currently introducing through Heidelberg uses a plate
that is similar to standard CTP plates, which is fixed to the press before
being imaged, but which must be replaced each time the image changes. We also
have under development a new generation of digital offset press technology in
which the plate cylinder is coated with a polymer and imaged. After the job has
been printed, the plate cylinder is "erased" and a new coating of polymer is
applied, allowing new data to be imaged for the next job. Digital offset press
technology is expected to further reduce the total cost of prepress and press
set-up for offset printers. This should allow printers to compete more
effectively with alternative printing technologies that have low set-up costs
and are generally used for short print runs.
Flexography
We have begun applying our knowledge of prepress to the second largest
segment of the printing industry, packaging printing. Package printers use a
variety of printing processes, the most common of which is flexographic
printing. Rather than using the metal plates traditionally used by commercial
printers, flexographic printers primarily use more expensive rubber plates for
printing onto a wide variety of materials including plastic, film, paper,
cardboard and metal. According to a 1996 study prepared by Strategies for
Management, Inc., an industry group, the estimated size of the packaging market
at $55 billion and flexography represented approximately 60% of that market.
In 1998, we introduced several prototype units of our Thermoflex digital
flexographic platesetter for packaging printers. This device has high
productivity and incorporates plate handling features that minimize damage to
the expensive plate material. It can image flexographic plates of any size and
thickness without any reduction in processing speed. Digital flexographic
plates offer significantly higher quality than conventional flexographic
plates, and allow flexographic printers to compete more effectively with other
printing methods.
The Thermoflex can also image processless thermal film using a proprietary
process which improves the performance of less expensive flexographic plates.
In March 1999, the Flexographic Pre-Press Platemakers Association awarded Creo
its Technological Innovator of the Year Award for the Thermoflex. The list
price of the Thermoflex is expected to be in the range of $400,000 to $495,000,
depending on configuration and options.
Our Joint Venture with Heidelberg
In October 1997, we established a joint venture with Heidelberg to develop,
manufacture, market and distribute our 4-page and 8-page CTP and related
workflow management products and consumables worldwide, and to develop
additional prepress products. Heidelberg is the largest manufacturer of
printing presses in the world and the leading supplier of the 4-page and 8-page
sheet-fed printing presses. The 4-page and 8-page printing presses are the type
most commonly used by small and mid-size commercial printers. For the year
ended March 31, 1998, Heidelberg reported total revenues in excess of $3.5
billion, of which approximately $2.3 billion was attributable to sales of these
presses. For the six months ended March 31, 1998, Heidelberg's
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revenue associated with the joint venture was $16.3 million. With offices in
more than 160 countries, Heidelberg has substantial international marketing and
distribution channels for commercial printing presses and prepress equipment,
and an extensive customer support and service organization. We expect to
realize significant benefits from the joint venture with Heidelberg. These
include:
. access to Heidelberg's worldwide customer base of small and mid-size
commercial printers, through its established marketing and distribution
network;
. access to Heidelberg's extensive service and customer support
organization outside North America;
. shared funding of some of our research and development projects relating
to joint venture CTP products; and
. cost-effective manufacture of some CTP products by Heidelberg at its
manufacturing facilities in Kiel, Germany.
Under the agreement with Heidelberg:
. each party provides goods and services to the joint venture at cost, as
defined in the agreement;
. in general, costs and profits are shared equally;
. Heidelberg is the principal manufacturer of our 4-page and 8-page
Trendsetter output devices, although we continue to manufacture a limited
quantity of these products at our facilities in British Columbia;
. Creo has the right to be the sole supplier of thermal imaging heads for
use with joint venture CTP products;
. North American marketing and distribution of most joint venture products
is done jointly, although Creo has reserved some key North American
accounts for itself; elsewhere, marketing and distribution is done
through Heidelberg's distribution channels;
. prices for joint venture products are established jointly;
. Heidelberg may not sell CTP products of other manufacturers as long as it
markets and distributes joint venture products, and we may not use third
parties to market our CTP products that are not covered by the joint
venture, such as the VLF Trendsetter, without first offering marketing
and distribution rights to Heidelberg;
. in North America, Creo provides customer service and support for our 4-
page and 8-page CTP products; in the rest of the world these functions
are generally performed by Heidelberg. Neither the costs nor the revenues
associated with customer service and support are shared;
. we are the exclusive provider of research and development for joint
venture CTP products and related consumables, and we work jointly with
Heidelberg on research and development relating to workflow products; and
. in general, intellectual property developed in connection with the joint
venture remains the property of the party that developed it, but is
licensed to the joint venture without charge.
The joint venture is co-managed. It does not own any material assets,
maintain any employees or operate its own manufacturing or other operating
facilities. Disputes concerning most financial matters will be submitted to the
joint binding determination of our respective independent auditors. Disputes
over the interpretation of the joint venture agreement may, as a last resort,
be submitted to binding arbitration. If a dispute arises concerning the
operation or management of the joint venture and the parties cannot reach
agreement on the matter, either party may terminate the joint venture if it
considers that resolution of the disagreement is necessary to the continuation
of the joint venture.
Our agreement with Heidelberg grants broad termination rights to both
parties. For example, either party may terminate the joint venture if the joint
venture fails to achieve, for any rolling 12-month period after
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March 31, 1999, the highest revenue levels in both Europe and North America of
any seller of CTP products that are competitive with the CTP products sold by
the joint venture. Each party also has the right to terminate in certain other
defined events, including:
. the other party becoming bankrupt;
. a 25% or greater ownership interest in the other party being acquired by
another seller of CTP products;
. the other party failing to commit appropriate resources to achieving the
objectives of the joint venture; and
. the other party committing a breach of a material obligation under the
joint venture agreement and, having been given notice of the breach,
failing to remedy it within 45 days.
If the joint venture is terminated, the agreement provides that the parties
will cooperate to ensure that each party still has access to the products, the
manufacturing facilities and the service organization and distribution channels
formerly provided by the other through the joint venture, so that each party
can independently develop the business capabilities previously available
through the joint venture. Specifically:
. we will license Heidelberg to manufacture and distribute our CTP
products, at fair original equipment manufacturer prices, for two years;
. each party will grant the other license for up to three years, relating
to workflow products and components for which it owns the intellectual
property rights, at fair original equipment manufacturer prices; and
. we will complete, on an equal cost-sharing basis, any research and
development obligations undertaken prior to termination.
Sales and Marketing
We sell and support our products through both direct and indirect sales
organizations, including the joint venture with Heidelberg. Our direct sales
organization consists of over 100 people located at our headquarters in
Burnaby, British Columbia; in regional sales offices in various locations in
the United States, including Boston, Chicago, Los Angeles and San Francisco; in
Brussels, Belgium; and in Sydney, Australia.
Our direct sales organization is responsible for sales worldwide (except in
Japan) of all products not included in the joint venture with Heidelberg. Both
Creo and Heidelberg sell joint venture products in North America. Outside of
North America, Heidelberg is the exclusive marketer and distributor of joint
venture products. In Japan, we sell our CTP products through Dainippon Screen
Mfg. Co. Ltd. and Heidelberg.
Production and Assembly
We produce and assemble our Renaissance scanners, Platesetter 3244, VLF
Platesetter and VLF Trendsetter output devices, and all thermal imaging heads,
in our three production facilities in British Columbia. We also produce a
limited number of 4-page and 8-page CTP output devices for distribution in
North America. We perform electro-optical assembly, precision mechanics and
electro-mechanical assembly, as well as testing and systems integration at
these facilities. In order to maintain flexibility and reduce costs, we sub-
contract the manufacture and assembly of some of the components of our output
devices. All of our output devices are designed to use the same imaging heads,
resulting in reduced inventory requirements and increased manufacturing and
servicing efficiencies.
The majority of the 4-page and 8-page Trendsetter output devices to be
distributed by the joint venture worldwide are currently assembled at
Heidelberg's manufacturing facility in Kiel, Germany. The joint venture
agreement contemplates periodic reviews of the cost competitiveness of each
manufacturing facility and, based on these reviews, manufacturing
responsibility can be reassigned. Nevertheless, a party with manufacturing
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responsibilities can retain them, even if it is not cost competitive, so long
as it agrees to subsidize the joint venture for the incremental cost of
manufacturing at its facility.
We manufacture products based on customer orders, although we purchase some
subassemblies and components prior to receipt of customer orders. Lead times
for the materials and components that we order vary significantly, depending on
factors such as the specific supplier, contract terms and the demand for a
component at a given time.
Customers and Customer Support
More than 900 of our CTP systems have been installed at over 480 customer
sites in 29 countries. Many of the largest commercial printers in North America
have installed our systems at multiple sites. About half of our current
customers are small and mid-size commercial printers, principally in North
America. We expect to expand our penetration of the worldwide small and mid-
size printing market, principally through our joint venture with Heidelberg. We
also intend to increase sales of our large format systems worldwide,
principally through our own direct sales force. In the six months ended March
31, 1999 and in fiscal 1998 no customer accounted for more than 10% of our
revenue. In fiscal 1997, only one customer accounted for more than 10% of our
total revenue.
We provide comprehensive services to our customers including on-site and 24 x
7 on-line service and support. Upon delivery of one of our systems, a team
performs the installation and initial testing procedures and supports the site
until the customer has accepted the system. Our field operations team and
strategically located service representatives provide same-day or next-day on-
site service under support contracts. We also have experienced engineers
connected by modem with each of our systems in North America to provide
immediate remote-line diagnostics and troubleshooting. We also provide
instruction to customers in the use of all of our products, both at their sites
and at our training centers located at our headquarters and at a software
training center near Chicago. Technical news and updates, as well as software
upgrades, are posted on our web site for easy remote access. Heidelberg's
extensive international customer service and support organization supports
sales by the joint venture outside North America.
Intellectual Property
Our success and ability to compete are dependent in part on our ability to
develop and protect our proprietary technology. We file United States and,
where appropriate, foreign patent applications to protect technology,
inventions and improvements important to the development of our business. We
also rely on a combination of copyright, trademark and trade secret rights,
confidentiality agreements and licensing arrangements.
As of March 31, 1999, we held 24 issued United States patents and 6 issued
foreign patents and had 30 United States and 9 foreign patent applications
pending. These issued and pending patents cover various aspects of our products
and processes. The expiration dates of our issued patents range from January
2003 to January 2017.
Our confidentiality and proprietary information agreements with our senior
management, other employees and others generally provide that all confidential
information developed or made known to these individuals by us during the
course of a relationship with us is to be kept confidential and not disclosed
to third parties, except in specific circumstances. The agreements also
generally provide that all inventions developed by the individual in the course
of rendering service to us belong exclusively to us.
Competition
The market for digital prepress equipment and systems is highly competitive.
It is changing rapidly and is affected by changes in customer requirements, new
product introductions and other market activities of industry participants. We
face direct competition from other manufacturers of prepress input and output
systems. Our
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principal direct competitors in the prepress automation systems market are
Scitex Corporation Ltd., Agfa-Gevaert N.V., Dainippon Screen Mfg. Co. Ltd.,
Barco N.V. and Cymbolic Sciences International, Inc. Other companies offer
equipment that competes with specific products or product capabilities within
our product line.
The principal competitive factors affecting sales of our solutions are price
relative to performance and customer service. Potential customers typically
weigh price against throughput of systems, quality, reliability and cost of
operation. They demand a high level of training, support and service, and
adaptability to their specific requirements and existing equipment.
We also face potential indirect competition from other printing methods,
principally xerography. Xerography is the printing process used in most
ordinary office copiers, in which an electrostatic image is developed with a
dry powder toner and then transferred to paper. Xerography has benefited from
recent technological innovations that could make it an economic alternative to
offset printing for low volume print runs. Xerography enables different images
to be printed on successive pages and is sometimes described as "on-demand"
printing. If recent innovations in xerographic technology enable higher quality
color images to be reproduced xerographically in larger volumes and with lower
variable costs, xerography could present an alternative to lithographic
printing at relatively low print volumes. We expect that for the foreseeable
future the cost per page of xerography will continue to be higher than that of
offset lithography, and that these devices will be used primarily to provide
highly variable or extremely short run printing. At the same time, we believe
that the emergence of a mature digital offset press technology has the
potential to transform the lithographic offset press into a press that can be
used for short print runs and that can compete with recent innovations in
xerographic technology, wherever page-to-page variation is not required.
Employees
As at March 31, 1999, we employed 1,237 people full-time. Of these, 371 are
engaged in research and product development, 339 in manufacturing, 298 in
customer support activities, 127 in marketing and sales and 102 in
administration.
We believe we have developed a unique corporate culture that attracts highly
qualified and motivated employees. We emphasize teamwork, flexibility, local
decision making and the free flow of information. Employee turnover is low, and
most of our employees hold either common shares or options to acquire common
shares. We have never had a work stoppage and no employees are covered by
collective bargaining agreements. We believe our employee relations are
excellent.
Facilities
Our headquarters are located in Burnaby, near Vancouver, in British Columbia,
Canada. We own two adjacent facilities totaling 213,000 square feet housing our
executive and administrative offices, our product development group, a
demonstration facility, customer support response center, customer training
facility, and a thermal head production facility. We also own a 140,000 square
foot production facility in Delta, British Columbia, which includes a modern
assembly area, cleanrooms for integration and product testing and a precision
machine shop with computer controlled equipment. The Delta facility and one of
the two Burnaby facilities are mortgaged to a Canadian chartered bank. The
mortgage matures on February 4, 2002. We have regional sales and service
offices in leased premises in various locations throughout the United States.
Our European sales, service and training operations are headquartered in
Brussels, Belgium, under a lease expiring in December 2005.
Legal Proceedings
We are involved from time to time in legal proceedings in the ordinary course
of our business, including actions relating to our intellectual property
rights. We do not believe that the outcome of any present litigation will have
a material adverse effect on our business, operations or financial condition.
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MANAGEMENT
Directors and Executive Officers
The following table presents information about our directors and executive
officers, as of March 31, 1999:
<TABLE>
<CAPTION>
Name and Municipality of Residence
Principal Occupation (other than Creo) Age Position with Creo
-------------------------------------- --- ------------------------------
<C> <C> <S>
46 Chief Executive Officer and
Amos Michelson (1)......................... Director
Vancouver, British Columbia
Daniel Gelbart............................. 52 President and Director
Vancouver, British Columbia
37 Vice President, Sales and
Michael D. Ball............................ Support of Creo Products N.V.
Brussels, Belgium
44 Vice President, Business
N. David Brown............................. Strategy
Vancouver, British Columbia
35 Vice President and Chief
Mark N. Dance.............................. Operating Officer
Vancouver, British Columbia
Philippe H. Favreau........................ 36 Vice President, Manufacturing
Vancouver, British Columbia
33 Vice President, Sales of Creo
Kevin M. Joyce............................. Inc.
Boston, Massachusetts
47 Vice President, Finance, Chief
Thomas A. Kordyback........................ Financial Officer and
Vancouver, British Columbia Secretary
40 Vice President, Business
Robert J. Mielcarski....................... Systems and Technology
Delta, British Columbia
40 General Manager of Creo
Boudewijn P. Neijens....................... Products N.V.
Brussels, Belgium
45 Vice President, Human
B. Darcy O'Grady........................... Resources
Vancouver, British Columbia
37 Vice President, Customer
Michael Rolant............................. Support
Vancouver, British Columbia
51 Chair of the Board and
Raphael H. Amit, Ph.D. (1)(2).............. Director
Vancouver, British Columbia
Professor, University of British Columbia
David A. Bennett (2)....................... 58 Director
Vancouver, British Columbia
Managing Director,
Business Development Bank of Canada
Thomas D. Berman (1)(3).................... 41 Director
Winnetka, Illinois
Executive Director, Brinson Partners, Inc.
John J. Bu (1)(3).......................... 35 Director
Short Hills, New Jersey
Vice President, Goldman, Sachs & Co.
Douglas H. Richardson...................... 37 Director
Vancouver, British Columbia
Kenneth A. Spencer, Ph.D. (1)(2)........... 55 Director
Vancouver, British Columbia
Corporate Director
</TABLE>
- --------
(1) Member of the Compensation, Nominating and Corporate Governance Committee.
(2) Member of the Audit Committee.
(3) Member of the Finance Committee.
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The following is a brief biography of each of Creo's directors, executive
officers and key employees:
Amos Michelson has been our Chief Executive Officer since June 1995 and a
director since March 1992. From August 1991 to June 1995, he was our Vice
President, Business Strategy. For approximately ten years prior to joining us
in 1991, he held various positions with Optrotech Ltd., an Israeli developer
and manufacturer of optical and imaging systems for the printed circuit board
industry, most recently Chief Operating Officer. Mr. Michelson holds a B.Sc. in
electrical engineering from the Technion in Israel and an M.B.A. from the
Stanford Graduate School of Business in the United States.
Daniel Gelbart has been the President of Creo since February 1991 and a
director since our formation in 1985, except for the period from February 1997
to February 1998. From May 1985 until February 1991, Mr. Gelbart was Creo's
Vice President. Mr. Gelbart holds a B.Sc. and an M.Sc. in electrical
engineering from the Technion in Israel.
Michael D. Ball has been Vice-President, Sales and Support, Creo Products
N.V., since May 1998. He joined us in April 1997 and, prior to his appointment
as Vice President, Sales and Support, Creo Products N.V., he was Director,
Sales and Support, of Creo Products, Inc. From June 1994 to April 1997, he
worked in Canada as an independent business and technical support consultant.
From June 1985 to June 1994, he held various sales and management positions
with Digital Equipment of Canada, a manufacturer of computer systems, most
recently as Sales Manager. Mr. Ball holds a B.Comm. from the University of
British Columbia in Canada.
N. David Brown has been our Vice President, Business Strategy since June
1995. He joined Creo in November 1990 and, prior to his appointment as Vice
President, Business Strategy, held various positions, including Vice President,
Product Development from September 1994 until June 1995, Director of Imaging
Products from January 1993 until September 1994, Project Manager from May 1991
until January 1993, and Design Engineer from November 1990 until May 1991.
Prior to joining Creo, Mr. Brown was a co-founder and served as Director of
Product Development with TIR Systems, Inc., a Vancouver, British Columbia-based
manufacturer of lighting systems. Mr. Brown holds a B.A.Sc. in automation
engineering from Simon Fraser University in Canada.
Mark N. Dance became our Chief Operating Officer in October 1997. He joined
us in May 1994, and prior to his appointment as Chief Operating Officer, he
held a variety of positions including Vice President, Operations from January
1997 until October 1997, Vice President, Product Development from June 1995
until December 1996, Product Manager for all CTP products from November 1994
until May 1995, and Project Manager from May 1994 until October 1994. From
April 1986 to May 1994, he worked in Canada for Andronic Devices Ltd., a
developer of surgical and medical automation devices, first as a Senior Project
Engineer and later as the Director of New Product Development. Mr. Dance holds
a B.Sc. in mechanical engineering from the University of British Columbia.
Philippe H. Favreau has been our Vice President, Manufacturing since June
1996, having previously been Operations Manager since October 1995. From
September 1992 until September 1995, Mr. Favreau worked in France for Schneider
Electrical S.A., a supplier of electrical components. Mr. Favreau is a graduate
in engineering physics from Ecole Polytechnique of Grenoble in France, and
holds an M.Sc. in nuclear sciences from Ecole Polytechnique of Montreal in
Canada and an M.B.A. from the University of Paris in France.
Kevin M. Joyce was appointed Creo's Vice President, Sales for North America
in March 1997. From February 1994 to March 1997, he was Creo's Director, Sales
for the Eastern Region. Between 1989 and January 1994, Mr. Joyce worked in the
U.S. for Optrotech Ltd. Most recently, Mr. Joyce was the Sales Manager of
Optrotech's Graphic Arts Division from July 1993 to January 1994. Mr. Joyce
holds a B.A. in American Studies from St. Michael's College in the United
States.
Thomas A. Kordyback became Creo's Vice President, Finance, Chief Financial
Officer and Secretary in July 1995. From May 1993 until July 1995, he served as
Chief Financial Officer of Telelink Communications
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Corp., a Canadian paging systems company. Prior to May 1993, Mr. Kordyback
worked in Canada as an independent business consultant. He holds a B.A. in
economics from the University of Victoria in Canada and holds the Chartered
Accountant designation.
Robert J. Mielcarski has been Creo's Vice President, Business Systems and
Technology since January 1999. He joined Creo in November 1995 and, prior to
his current appointment, he held various positions including Vice President,
Product Development from November 1996 to January 1999, and Product Manager for
DOP from November 1995 to November 1996. From November 1990 until November
1995, Mr. Mielcarski served as Vice President, Research and Development for
Dynapro Systems, Inc., a Canadian developer and manufacturer of industrial
automation systems. Mr. Mielcarski holds a B.Sc. and an M.Sc. in electrical
engineering from the University of British Columbia.
Boudewijn P. Neijens has been the General Manager of our Belgian subsidiary,
Creo Products N.V., since joining us in October 1994. From July 1992 until
September 1994, he was the European Sales and Marketing Director of Optrotech
Ltd. From February 1989 to July 1991, Mr. Neijens served as Desktop Products
Group Manager of Crosfield Electronics Ltd., an English manufacturer of
electronic prepress systems. From March 1983 to January 1989, Mr. Neijens
worked in Belgium for Brepols N.V., Belgium's largest commercial printer, as
the manager of its prepress production department. Mr. Neijens holds an M.A. in
mechanical engineering from the University of Brussels in Belgium and an M.B.A.
from the Institut Superieur d'Etudes Administratives in France.
B. Darcy O'Grady has been our Vice President, Human Resources since June
1996. He joined us in November 1994 and, prior to his appointment as Vice
President, Human Resources, he served as Director, Human Resources. From 1986
to June 1994, Mr. O'Grady was Director, Human Resources of MacDonald Dettwiler
& Associates, a systems engineering company based in Richmond, British
Columbia. Mr. O'Grady holds a B.A. in Economics from Simon Fraser University.
Michael Rolant has been Creo's Vice President, Customer Support since June
1996, having previously served as Creo's Worldwide Customer Service Manager
since he joined us in October 1995. From September 1989 until October 1995, Mr.
Rolant held various positions in Israel and the United States with Orbotech
Ltd., a developer and manufacturer of automated inspection machinery for the
printed circuit board industry, including Regional Operations Manager from
February 1995 to October 1995, Customer Support Co-ordinator from June 1993 to
February 1995, and Senior Systems Specialist from November 1991 to June 1993.
Mr. Rolant holds a B.Sc. in electrical engineering from Tel Aviv University in
Israel and an M.Sc. in management from Lesley College in the United States.
Raphael H. Amit has been the Chair of the Board and has served as one of our
directors since January 1996. Since August 1990, he has been a professor at the
University of British Columbia. In addition, since July 1994, he has been the
Peter Wall Distinguished Professor of Entrepreneurship and Venture Capital at
the University of British Columbia. Dr. Amit holds a B.A. and an M.A. in
economics from Hebrew University in Israel, and a Ph.D. in Managerial Economics
from the J.L. Kellogg Graduate School of Management at Northwestern University
in the United States.
David A. Bennett has served as one of our directors since April 1994. Since
June 1992, Mr. Bennett has been a Managing Director of the venture capital
division of the Business Development Bank of Canada. Mr. Bennett holds the
Chartered Accountant designation.
Thomas D. Berman has served as one of our directors since June 1998. Since
September 1990, he has been with Brinson Partners, Inc., an investment
management firm, where he is currently Executive Director in the Private
Markets Group. Mr. Berman holds a S.B. in Electrical Engineering from the
Massachusetts Institute of Technology and an S.M. from the M.I.T. Sloan School
of Management in the United States.
John J. Bu has served as one of our directors since January 1997. Since
August 1991, he has been with Goldman, Sachs & Co., an investment banking firm,
where he is a Vice President in the Principal Investments
47
<PAGE>
Area. Mr. Bu holds a B.A. in History and a B.S. in Finance from the University
of Pennsylvania in the United States, and a J.D. from Harvard University in the
United States.
Douglas H. Richardson has served as one of Creo's directors since January
1999 on the nomination of our employees. Mr. Richardson has been the Thermal
Imaging Product Manager since October 1997. Since joining Creo in October 1991
as a Systems Engineer, he has held various positions, including Project Manager
of DOP and Thermal Imaging from September 1993 to July 1995, and Product
Manager of all CTP devices from July 1995 to October 1997. Mr. Richardson holds
a B.Sc. in engineering physics and an M.Sc. in mechanical engineering from the
University of British Columbia.
Kenneth A. Spencer co-founded Creo and has been a director since our
formation in 1985, except for the period from January 1996 to January 1997.
From May 1985 to June 1995, he was our Chief Executive Officer, and from May
1985 to January 1996, he also served as the Chair of our board of directors.
Mr. Spencer is a member of the board of directors of Spectrum Signal
Processing, Inc., a publicly traded company specializing in digital signal
processing. Dr. Spencer holds a B.Sc. and Ph.D. in electrical engineering from
the University of British Columbia and an M.B.A. from Simon Fraser University.
Executive officers are appointed annually by the board of directors and serve
until their successors are appointed and qualified. There are no family
relationships among any of our officers or directors.
Creo does not have employment agreements with its executive officers.
However, we have entered into post-termination two-year non-competition
agreements with Messrs. Brown, Dance, Gelbart, Kordyback and Michelson.
Creo's board of directors
Creo's directors are elected at our annual meeting of shareholders and serve
until their successors are elected or appointed, unless they resign or are
removed earlier. Our articles of incorporation provide for a board of directors
of a minimum of two and a maximum of nine directors. The board currently
consists of eight directors. Under the Canada Business Corporations Act, a
majority of our directors and any committee of the board of directors must be
composed of resident Canadians.
Messrs. Amit, Bennett, Berman, Bu, Gelbart, Michelson, Richardson and Spencer
were elected to the board of directors in accordance with the provisions of the
Shareholders Agreement among Creo and certain of its principal shareholders.
These provisions of the Shareholders Agreement will terminate upon completion
of this offering.
Committees of the board of directors
Creo's board of directors has established three committees:
The Compensation, Nominating and Corporate Governance Committee is
responsible for reviewing the terms of employment and compensation arrangements
for our senior executives, succession planning, awards under our 1996 Stock
Option Plan and our Employee Profit Sharing Plan, maintaining a continuous
review of board and committee effectiveness and making recommendations for
nominees to be elected or appointed as directors.
The Audit Committee is responsible for reviewing and making recommendations
to Creo about independent auditors, the annual audit of our financial
statements and our internal accounting practices and policies.
The Finance Committee is responsible for reviewing and making recommendations
to Creo's board of directors concerning the terms and conditions of financings,
risk management and transactions which could materially affect our financial or
corporate structure.
48
<PAGE>
Director Compensation
Our directors are not compensated for serving as directors. Our directors are
eligible to participate in our 1996 Stock Option Plan.
Indemnification of Directors and Executive Officers and Limitation of Liability
Creo's by-laws provide that we will indemnify any of our directors, former
directors, officers and former officers, and other parties specified by the by-
laws, against all costs reasonably incurred by them for any civil, criminal or
administrative action or proceeding to which they are or may be made a party by
reason of having been a director or officer of Creo. The indemnity covers
amounts paid to settle actions or to satisfy judgments. However, Creo may only
indemnify one of these persons, if that person acted honestly and in good faith
with a view to the best interests of Creo, and, in the case of a criminal or
administrative action or proceeding, if the person had reasonable grounds for
believing that his or her conduct was lawful. The Canada Business Corporations
Act provides that court approval is required for the payment of any indemnity
in connection with an action brought by or on behalf of Creo. Creo has entered
into indemnification agreements with each director and executive officer. We
have been informed that, in the opinion of the U.S. Securities and Exchange
Commission, the indemnification of directors, officers or persons controlling
Creo for liabilities arising under the United States Securities Act of 1933 is
against the public policy position expressed by the Act and is therefore
unenforceable.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation, Nominating and Corporate Governance
Committee are currently directors Michelson, Amit, Berman, Bu and Spencer. None
of Dr. Amit, Mr. Berman or Mr. Bu has at any time been an officer or employee
of Creo.
Executive Compensation
In fiscal 1998, Creo paid an aggregate $1,058,472 in cash compensation to the
directors and officers named under the caption "Directors and Executive
Officers," as a group (18 persons).
At March 31, 1999, our directors and officers, as a group, held options to
purchase a total of 847,378 common shares, at exercise prices ranging from
C$3.75 to C$17.50 per common share. These options are scheduled to expire on
various dates between August 31, 2000 and January 4, 2004.
49
<PAGE>
Summary Compensation Table
The following table presents information concerning compensation earned for
services rendered during each of our last three fiscal years by our Chief
Executive Officer and our other four most highly compensated executive
officers. Except as noted below, there were no long term compensation awards
paid to these five officers during the fiscal years. The annual compensation
presented below excludes perquisites and other personal benefits because these
benefits did not exceed 10% of the total annual salary and bonus for any of
these five officers.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ -------------
Securities
Other Annual Under Options
Name and Principal Position Year Salary Bonus Compensation Granted (#)
- --------------------------- ---- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Amos Michelson............. 1998 $ 94,435 $179,897 $ 4,551 --
Chief Executive Officer 1997 93,782 128,682 4,343 --
1996 86,591 -- 4,359 --
Daniel Gelbart............. 1998 94,435 179,897 4,551 --
President 1997 93,782 128,682 4,343 --
1996 86,591 -- 4,359 --
Kevin Joyce................ 1998 145,444 -- 7,929 186
Vice President, Sales of
Creo Inc. 1997 243,198 -- 12,000 7,334
1996 104,422 -- 12,000 113,200
Michael Ball............... 1998 115,047 -- -- 6,094
Vice President, Sales 1997 85,287 -- -- 4,000
and Support of Creo
Products N.V. 1996 33,936 -- -- --
Boudewijn Neijens.......... 1998 82,414 -- 7,254 8,186
General Manager of 1997 86,301 -- 7,377 13,000
Creo Products N.V. 1996 96,140 -- 6,504 12,500(1)
</TABLE>
- --------
(1) Indicates common shares awarded to Mr. Neijens.
Option Grants in 1998 Fiscal Year
The table below shows information regarding grants of stock options made to
our Chief Executive Officer and our other four most highly compensated
executive officers.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
% of Total Market Value Price
Securities Options of Securities Appreciation for
Under Granted to Underlying Option Term
Options Employees in Exercise Price Options on the -----------------
Name Granted (#) Financial Year (C$/Share) Date of Grant 5% 10% Expiration Date
- ---- ----------- -------------- -------------- -------------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin Joyce............. 186 0.02% C$17.50 C$17.50 C$899 C$1,987 January 1, 2003
Michael Ball............ 6,094 0.73% C$17.50 C$17.50 C$29,464 C$65,108 January 1, 2003
Boudewijn Neijens....... 8,186 0.98% C$17.50 C$17.50 C$39,579 C$87,459 January 1, 2003
</TABLE>
50
<PAGE>
Fiscal Year-End Option Values
The following table shows information relating to unexercised options held as
of September 30, 1998 by our Chief Executive Officer and our other four most
highly compensated executive officers. No options were exercised by these
officers during fiscal 1998.
<TABLE>
<CAPTION>
Value of Unexercised In-the-Money
Unexercised Options as at September 30, 1998 (#) Options at September 30, 1998
Name Exercisable/ Unexercisable Exercisable/ Unexercisable*
- ---- ----------------------------------------------- ---------------------------------
<S> <C> <C>
Kevin Joyce............. 31,696 / 81,066 C$243,046 / C$607,995
Michael Ball............ 12,378 / 0 C$44,511 / C$0
Boudewijn Neijens....... 22,186 / 0 C$97,500 / C$0
</TABLE>
- --------
* The value of unexercised in-the-money options has been determined based on
the fair market value of the common shares as determined by Creo's board of
directors on the date of option grant.
Employee Benefit Plans
1996 Stock Option Plan
Our 1996 Stock Option Plan provides for the grant of incentive stock options
to employees and nonstatutory stock options to employees and consultants. The
purposes of the plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentives to
employees and consultants and to promote the success of our business.
The plan was approved by our board of directors in November 1995 and by our
shareholders in January 1996. The plan will terminate in November 2005,
although the board of directors may terminate it earlier. We have reserved
8,000,000 common shares for issuance under the plan. As of March 31, 1999,
options to purchase 4,595,232 common shares were outstanding, 60,428 common
shares had been issued on exercise of options granted, and 3,344,340 common
shares remained available for future grant. The outstanding options are
exercisable at prices between C$3.75 and C$17.50 per share. They expire on
various dates between January 31, 2001 and January 4, 2004. Between January 1,
2000 and January 4, 2001, 201,588 of the outstanding options vest at various
rates. The remaining outstanding options are fully vested. Options granted
under the plan are generally fully vested at the time of grant.
The plan is administered by our board of directors, which acts on the
recommendation of its compensation committee. Options may be awarded both as a
form of compensation and as an incentive. The board determines the terms of
options granted under the plan, including the number of common shares that may
be purchased and the exercise price. The exercise price of incentive stock
options must be at least 100% of the fair market value of the common shares on
the date of grant. However, the exercise price of options granted to an
employee who holds more than 10% of the total voting power of all classes of
our share capital must be at least 110% of the fair market value of the common
shares at the date of grant. The exercise price of nonstatutory stock options
granted under the plan is determined by the board of directors. Payment of the
exercise price may be made in cash or other forms of consideration approved by
the board.
The term of options may not generally exceed ten years. In the case of an
option granted to a holder of more than 10% of the total voting power of all
classes of our share capital, the maximum term is 5 years. Our practice to date
has been to grant options with five-year terms.
The plan provides that options generally must be exercised within 30 days
after the termination of the optionee's status as an employee or consultant.
There are, however, exceptions. All of our outstanding options provide that if
termination occurred before we completed our initial public offering, the
option must be exercised within 30 days of completion of the offering. As of
March 31, 1999, former employees held options to purchase up to 421,700 common
shares, and these options will expire 30 days after completion of this
51
<PAGE>
offering. The plan further provides that the options of an optionee whose
employment or consulting relationship terminates because of death must be
exercised no later than 12 months after termination. It also provides that the
options owned by an optionee whose employment terminates because of disability
must be exercised within six months after termination. All options expire in
any event on the expiration of their term.
If we merge with or into another corporation, the successor corporation may
agree to assume the outstanding options or substitute equivalent options. If
the successor corporation does not agree to do so the options will terminate on
the completion of the merger.
The board of directors has the authority to amend or terminate the plan. Creo
will seek shareholder approval of amendments to the plan if required by law to
do so. No amendment will affect options already granted without the holder's
consent. Shareholder approval is required to increase the number of shares
reserved under the plan and to change the designation of the class of persons
eligible to be granted options under the plan.
Employee Profit Sharing Plan
Creo maintains a profit sharing plan for eligible employees. Under the plan a
certain percentage of annual profits may be set aside for distribution among
our eligible employees. Employees become eligible to participate in the profit
sharing plan after three months of continuous service. The amount set aside
under the plan is determined by the compensation committee of our board of
directors. In any fiscal year, that amount may not be greater than 12% of base
earnings. Base earnings are defined as net income before taxes and profit
sharing, less 12% of average shareholders' equity during the year. Three
quarters of any amount set aside is shared equally among all eligible
employees. The remaining quarter may be distributed at the discretion of the
board of directors. An aggregate of $1,079,381 was distributed under the plan
for the fiscal year ended September 30, 1998. Amos Michelson, our Chief
Executive Officer, and Daniel Gelbart, our President, do not participate in the
profit sharing plan.
401(k) Plan for U.S. resident employees
Creo maintains a 401(k) plan to provide eligible employees who are residents
of the United States with a tax preferential savings and investment program.
Employees become eligible to participate in the 401(k) plan on the first day of
the month following the completion of three months of continuous service.
Employees may elect to reduce their current compensation up to the lesser of
15% of eligible compensation or the statutorily prescribed annual limit and
have the reduction contributed to the 401(k) plan. The 401(k) plan permits, but
does not require, Creo to make additional matching contributions to the 401(k)
plan on behalf of the eligible participants, subject to a maximum of 5% of the
participant's current compensation. The contributions made by and on behalf of
employees may not exceed the maximum contribution limitation currently equal to
the lesser of 25% of their compensation or $30,000 per year. In the fiscal year
ended September 30, 1998, Creo made an aggregate of $228,062 in matching
contributions to the 401(k) plan. Contributions by employees or by Creo to the
401(k) plan and income earned on plan contributions, are generally not taxable
to the employees until withdrawn, and contributions by Creo are generally
deductible by Creo when made. At the direction of each participant, the trustee
of the 401(k) plan invests the assets of the 401(k) plan in selected investment
options.
Registered Retirement Savings Plans for Canadian resident employees
Each year Creo contributes an amount equal to 5% of the gross salary of
Canadian resident employees to their individual tax-deferred registered
retirement savings plans. In the fiscal year ended September 30, 1998, the
aggregate amount of these contributions was $1,151,624. Contributions by Creo
are deductible by Creo when made.
52
<PAGE>
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN MATERIAL TRANSACTIONS
The following are the only material transactions Creo has entered into since
October 1, 1995 in which any of our directors or executive officers or any
holder of 5% or more of our common shares, or any of their respective
associates or affiliates, has had any material interest:
In November 1995, entities affiliated with Goldman, Sachs & Co. (the GS
Group) purchased an aggregate of 2,962,962 units from Creo at a purchase price
of $6.75 per unit. Each unit consisted of one common share and a warrant to
purchase one common share at an exercise price of $6.75. In November 1998, the
GS Group exercised all of the warrants by paying the exercise price in cash. GS
Group is a holder of more than 5% of our common shares and John Bu, a Vice
President of Goldman, Sachs & Co., is a member of our board of directors.
In January 1998, Creo granted an option to purchase 10,000 common shares to
Raphael Amit, the Chair of the Board of Directors. The option is exercisable at
C$17.50 per common share and expires on January 1, 2003. In November 1997, we
issued 6,334 common shares to Dr. Amit in consideration for consulting services
rendered to Creo valued at C$110,845.
In May 1997, entities for which Brinson Partners, Inc. acts as investment
adviser (the Brinson Group) purchased an aggregate of 1,595,800 common shares
from Creo at a purchase price of $7.50 per share and an aggregate of 670,868
common shares from Creo shareholders at the same purchase price. The Brinson
Group is a holder of more than 5% of our common shares and Thomas D. Berman, an
Executive Director of Brinson Partners, Inc., is a member of our board of
directors.
In May 1997, Creo sold 13,334 common shares for cash at a price of $7.50 per
share to Arie Rosenfeld, who at the time was a member of Creo's board of
directors. In April 1997, we granted Mr. Rosenfeld an option to purchase 12,000
common shares. The option is exercisable at $7.50 per share and expires on
April 30, 2002. Mr. Rosenfeld resigned as a director in March 1999.
We have entered into indemnification agreements with our officers and
directors which are described in "Management--Indemnification of Directors and
Executive Officers and Limitation of Liability."
Investment Banking Services Agreement
In November 1995, Creo entered into an Investment Banking Services Agreement
with Goldman, Sachs & Co. (Goldman), which provides Goldman a right of first
refusal to provide Creo with any investment banking services we may require.
The right of first refusal expires in November 2000. If Goldman declines to
exercise its right or if we cannot reach agreement concerning the terms of its
engagement, we may engage another investment bank on terms no less favorable to
us than those last offered by Goldman. Any agreement Creo enters into with
another investment bank must contain a provision giving Goldman the right to be
appointed a co-managing dealer in connection with any offering of securities by
Creo. Goldman has waived both its right of first refusal and its right to be
appointed a co-managing dealer for this offering.
Registration Rights
Some of our shareholders have the right to require us to register their
shares under the Securities Act. See "Description of Share Capital--
Registration Rights."
53
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table presents information regarding the beneficial ownership
of our common shares as of March 31, 1999, and as adjusted to reflect the sale
of common shares in this offering, by:
. persons or groups of affiliated persons known by us to own more than 5%
of our common shares;
. our directors;
. our Chief Executive Officer and our other four most highly compensated
executive officers;
. all of our directors and executive officers as a group; and
. all Creo shareholders selling common shares in this offering.
Percentage of ownership is calculated as required by Commission Rule 13(d)-
3(d)(1). To our knowledge and except as otherwise indicated or provided by
community property laws, the persons named in the table have sole voting and
investment power over all common shares held by them. Unless otherwise
indicated, the address of each of the persons named below is the address of our
principal office, 3700 Gilmore Way, Burnaby, British Columbia, Canada V5G 4M1.
As of March 31, 1999, there were 28,027,854 common shares outstanding.
"Beneficial ownership," as used in the table below, means sole or shared
power to vote or direct the voting of Creo common shares, or the sole or shared
power to dispose, or direct a disposition, of Creo common shares. In this
table, a person who has the right to acquire a common share within 60 days of
March 31, 1999, has "beneficial ownership" of that common share. The shares
that are acquirable by a person within 60 days of March 31, 1999 are deemed
outstanding when computing the percentage ownership of that person, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
This Offering This Offering
------------------- Number of -------------------
Number of Shares Number of
Shares Offered in this Shares
Beneficial Owner Outstanding Percent Offering Outstanding Percent
- ---------------- ----------- ------- --------------- ----------- -------
5% Shareholders
- ---------------
<S> <C> <C> <C> <C> <C>
Entities affiliated
with (1).............. 5,925,924 21.1% 349,479 5,576,445 17.4%
The Goldman Sachs
Group, Inc.
85 Broad Street
New York, New York
10004
Entities using as their
investment
advisor (2)........... 2,266,668 8.1% -- 2,266,668 7.1%
Brinson Partners, Inc.
209 South LaSalle
Street
Chicago, Illinois
60604-1295
Business Development
Bank of Canada (3).... 1,750,594 6.2% 103,240 1,647,354 5.1%
505 Burrard Street
Vancouver, British
Columbia
Canada V7X 1V3
Entities affiliated
with (4).............. 1,535,490 5.5% 90,554 1,444,936 4.5%
Star Ventures
c/o SVM STAR Ventures
Management GmbH
Nr. 3, Possartstr. 9
Munich, Germany
Meir Barel (4)......... 1,535,490 5.5% 90,554 1,444,936 4.5%
c/o SVM STAR Ventures
Management GmbH
Nr. 3, Possartstr. 9
Munich, Germany
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
This Offering This Offering
------------------- Number of -------------------
Number of Shares Number of
Shares Offered in this Shares
Beneficial Owner Outstanding Percent Offering Outstanding Percent
- ---------------- ----------- ------- --------------- ----------- -------
5% Shareholders
(continued)
- ---------------
<S> <C> <C> <C> <C> <C>
Entities affiliated
with (5)............... 1,490,682 5.3% 85,659 1,405,023 4.4%
Evergreen Canada Israel
Investments Ltd.
<CAPTION>
Executive Officers and
Directors
- ----------------------
<S> <C> <C> <C> <C> <C>
Amos Michelson.......... 1,846,658 6.6% -- 1,846,658 5.8%
Daniel Gelbart (6)...... 3,459,332 12.3% 204,012 3,255,320 10.2%
Raphael Amit (7)........ 63,000 * -- 63,000 *
David A. Bennett (3).... 1,750,594 6.2% 103,240 1,647,354 5.1%
Thomas D. Berman (2).... 2,266,668 8.1% -- 2,266,668 7.1%
John Bu (1)............. 5,925,924 21.1% 349,479 5,576,445 17.4%
Douglas H. Richardson
(8).................... 52,238 * -- 52,238 *
Kenneth A. Spencer (9).. 1,720,074 6.1% 101,441 1,618,633 5.1%
Michael D. Ball (10).... 27,584 * -- 27,584 *
Kevin M. Joyce (11)..... 38,762 * -- 38,762 *
Boudewijn P. Neijens
(12)................... 50,802 * -- 50,802 *
All directors and
officers as a group
(18 individuals) (13).. 17,816,244 62.1% 758,172 17,058,072 52.2%
<CAPTION>
Other
- -----
<S> <C> <C> <C> <C> <C>
The Gilde IT Fund
B.V. .................. 866,942 3.1% 51,127 815,815 2.5%
Newtenlaan 91
3508 AB Utrecht
The Netherlands
HarbourVest
International Private
Equity
Partners II--Direct
Fund L.P. ............. 747,014 2.7% -- 747,014 2.3%
One Financial Centre,
44th Floor
Boston, Massachusetts
02111
Entities affiliated
with (14).............. 545,456 1.9% -- 545,456 1.7%
Technology Crossover
Ventures
575 High Street, Ste.
400
Palo Alto, California
94301
David Pritchard (14).... 154,518 * 9,113 145,405 *
1119 Lenora Road
Bowen Island, British
Columbia
Canada VON 1D0
Rachel Mayer (9)........ 145,200 * 8,563 136,637 *
Unicycle Trading
Company, L.P........... 73,616 * 4,342 69,274 *
11 Galgaley Haplada
Street
P.O. Box 12600
Herzlia, Pituach
Israel 46733
Interstock Anstalt fur
Vermogens und Trust
Verwaltungen........... 17,516 * 1,033 16,483 *
Herrengasse 21
Postfach 339
9470 Vaduz
Lichtenstein
</TABLE>
55
<PAGE>
- --------
* less than 1%.
(1) Shares outstanding prior to this offering consist of
. 3,718,096 common shares beneficially owned by GS Capital Partners II,
L.P.;
. 1,478,096 common shares held by GS Capital Partners II Offshore, L.P.;
. 137,140 common shares held by Goldman, Sachs & Co. Verwaltungs GmbH;
. 313,764 common shares held by Bridge Street Fund 1995, L.P.; and
. 278,828 common shares held by Stone Street Fund 1995, L.P.
John Bu, a director of Creo, is a Vice President of Goldman, Sachs & Co.
Mr. Bu disclaims any beneficial interest in these common shares.
(2) Brinson Partners, Inc. is the investment adviser to the Virginia
Retirement System, which beneficially owns 2,000,000 common shares, BVCF
III L.P., which beneficially owns 229,276 common shares and the Brinson
MAP Venture Capital Fund III, which beneficially owns 37,392 Common
Shares. Brinson Partners, Inc. disclaims any beneficial interest in these
common shares. Thomas D. Berman, a director of Creo, is an Executive
Director of Brinson Partners, Inc. Mr. Berman disclaims any beneficial
interest in these common shares.
(3) David A. Bennett, a director of Creo, is a Managing Director of the
Business Development Bank of Canada. Mr. Bennett disclaims any beneficial
interest in these common shares.
(4) Shares outstanding prior to this offering include
. 275,374 common shares held by SVE STAR Ventures Enterprises No. II, a
German Civil Law Partnership (with limitation of liability) (SVE II);
. 738,954 common shares held by SVE STAR Ventures Enterprises No. III, a
German Civil Law Partnership (with limitation of liability) (SVE III);
. 61,214 common shares held by SVE STAR Ventures Enterprises No. IIIA, a
German Civil Law Partnership (with limitation of liability) (SVE IIIA);
. and 130,614 common shares held by SVM STAR Ventures Management GmbH Nr.
3 (STAR Germany). STAR Germany has the sole power to vote or direct the
vote, and the sole power to dispose or direct the disposition of, the
common shares held by SVE II, SVE III and SVE IIIA. Also includes
. 197,600 common shares held by D.G. Dan-Gal Ltd. (Dan-Gal); and
. 131,734 common shares owned by STAR Management of Investments (1993)
Limited Partnership (STAR Israel Partnership).
SVM STAR Ventures Capital Management Ltd. (STAR Israel) has the sole power
to vote or direct the vote, and the sole power to dispose or direct the
disposition of the common shares held by Dan-Gal and STAR Israel
Partnership. Meir Barel has the sole power to direct the actions of STAR
Germany and STAR Israel. Dr. Barel disclaims beneficial ownership of the
common shares held by any of the entities mentioned, except for any
pecuniary interest in the common shares.
(5) Shares outstanding prior to this offering consist of
. 524,630 common shares and 14,100 common shares issuable upon exercise
of options exercisable within 60 days after March 31, 1999 beneficially
owned by Evergreen International Investments N.V.;
. 227,862 common shares and 9,404 common shares issuable upon exercise of
options exercisable within 60 days after March 31, 1999 beneficially
owned by Evergreen Capital Markets Ltd.;
. 159,200 common shares beneficially owned by Periscope I Fund LP;
. 40,800 common shares beneficially owned by AB Shaked Lavan Ltd.;
. 24,866 common shares and 594 common shares issuable upon exercise of
options exercisable within 60 days after March 31, 1999 beneficially
owned by Evergreen Canada-Israel Management Ltd.; and
56
<PAGE>
. 475,126 common shares and 14,100 common shares issuable upon exercise
of options exercisable within 60 days after March 31, 1999 beneficially
owned by Yarok AZ Ltd.
The shares of Evergreen Canada Israel Investments Ltd. are publicly traded
on the Tel Aviv Stock Exchange. Evergreen Canada Israel Investments Ltd.
disclaims any beneficial interest in the common shares owned by Yarok AZ
Ltd., Evergreen Capital Markets Ltd., and Periscope I Fund LP.
(6) Shares outstanding prior to this offering include 3,174,800 common shares
owned directly and 139,332 common shares owned indirectly by Mr. Gelbart,
and 145,200 common shares held by Rachel Mayer, over which Mr. Gelbart
exercises voting power. Mr. Gelbart disclaims beneficial interest in the
145,200 common shares held by Rachel Mayer.
(7) Includes 20,000 common shares issuable upon exercise of options
exercisable within 60 days after March 31, 1999.
(8) Includes 35,404 common shares issuable upon exercise of options
exercisable within 60 days after March 31, 1999.
(9) Shares outstanding prior to this offering consist of 439,780 common shares
held directly and 1,280,294 common shares held indirectly by Mr. Spencer.
(10) Includes 25,184 common shares issuable upon exercise of options
exercisable within 60 days after March 31, 1999.
(11) Consists of 38,762 common shares issuable upon exercise of options
exercisable within 60 days after March 31, 1999.
(12) Includes 36,302 common shares issuable upon exercise of options
exercisable within 60 days after March 31, 1999.
(13) Includes 675,378 common shares issuable upon exercise of options
exercisable within 60 days after March 31, 1999.
(14) Consists of
. 505,430 common shares held by Technology Crossover Ventures, L.P. and
. 40,026 shares held by Technology Crossover Ventures, C.V.
(collectively, the "TCV Funds").
Jay C. Hoag and Richard H. Kimball are the sole managing members of
Technology Crossover Management, L.L.C. ("TCM"), the general partner of
each of the TCV Funds. Consequently, TCM and Messrs. Hoag and Kimball may
each be beneficial owners under U.S. securities laws of all of the shares
held by the TCV Funds. TCM and Messrs. Hoag and Kimball each disclaim
beneficial ownership of these common shares, except for their respective
pecuniary interests in these shares.
(15) From April 1989 to July 1995, Mr. Pritchard was Creo's Chief Financial
Officer and from July 1995 to December 1996 was Creo's Chief Operating
Officer.
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<PAGE>
DESCRIPTION OF SHARE CAPITAL
Creo is authorized to issue an unlimited number of common shares without par
value and an unlimited number of preferred shares, without par value. The
following is a summary of the principal characteristics of the common shares
and the preferred shares. It is not complete and may not contain all the
information you should consider before investing in our common shares. You
should read our articles of incorporation and by-laws carefully. They are
included as an exhibit to the registration statement of which this prospectus
is a part.
Common Shares
At March 31, 1999, there were 441 holders of record of the 28,027,854
outstanding common shares. Each common share carries one vote on all matters to
be voted on by shareholders. There are no limitations on the rights of non-
resident or foreign owners of our common shares to hold or vote their shares.
After satisfying any preferences conferred on the holders of any outstanding
preferred shares, the holders of common shares are entitled to share ratably
in:
. any dividends declared by our board of directors; and
. all assets remaining after our liabilities have been discharged, if Creo
is liquidated, dissolved or wound up.
Our common shares do not carry pre-emptive rights or rights of conversion
into any other securities. All outstanding common shares are fully paid and
non-assessable, and the common shares to be issued in this offering will also
be fully paid and non-assessable.
Preferred Shares
Creo's board of directors is authorized, without further action by the
shareholders, to issue preferred shares in one or more series. The preferred
shares as a class are entitled to priority over the common shares if:
. our board of directors decides to pay any dividends; and
. Creo is dissolved, liquidated or wound up, and capital is returned to
the shareholders.
If a series of preferred shares is to be issued, the board of directors has
broad discretion to determine the rights to be attached to the shares in the
series. For example, it can decide:
. the number of shares in the series;
. whether those shares are to have voting rights, and if so, whether the
voting rights are to be full or limited voting rights;
. what dividends are to be paid on those shares and whether those
dividends are to be cumulative; and
. whether the shares in the series are to be convertible into or
exchangeable for other securities and, if so, what the conversion terms
will be.
The net tangible book value of our common shares could be diluted if we issue
further common shares or preferred shares, and the voting power of the existing
holders of our common shares would be diluted if we were to issue additional
common shares or preferred shares having the right to vote.
We have not issued preferred shares in the past and we have no current plan
to issue any.
Modifications, Subdivisions and Consolidations
Under the Canada Business Corporations Act, amendment of the rights of
holders of a class of shares, including common shares, requires the approval of
not less than two-thirds of the votes cast by the holders of
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<PAGE>
those shares voting separately as a class at a special meeting. The Canada
Business Corporations Act also gives these holders the right to dissent from
the amendment and to require us to pay them the then fair value of their
shares.
Warrants
In May 1997 we issued warrants to purchase 24,598 common shares at an
exercise price of $9.38 per share. These warrants expire on June 2, 2002. They
are exercisable for common shares on a net exercise basis without tender of
cash.
Registration Rights
Creo is party to a shareholders agreement with shareholders who together hold
an aggregate of 24,824,238 common shares. The shareholders agreement provides
that if Creo proposes to register any of its securities for distribution to the
public under the securities laws of the United States or Canada, these
shareholders may demand the right to "piggy-back" onto Creo's registration a
proportion of their common shares. Creo must use reasonable commercial efforts
to register common shares of each shareholder who makes this demand. Creo must
pay all offering expenses (excluding underwriting fees and commissions payable
in connection with the sale of these shareholders' shares) in connection with
the "piggy-back" registration.
In addition to the "piggy-back" registration rights described above, parties
to the shareholders agreement who hold at least 3% of the outstanding common
shares, may demand that Creo register all or a part of the shares provided that
they have a market value of at least C$5,000,000. If a demand of this kind is
made, Creo must notify the other parties to the shareholders agreement and use
reasonable commercial efforts to register the common shares held by each party
who makes such a demand. Creo must pay all offering expenses (excluding
underwriting fees and commissions payable in connection with the sale of these
shareholders' shares) in connection with the registration. These demand
registration rights may be exercised at any time up to the sixth anniversary of
our initial public offering.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common shares in Canada is Montreal
Trust Company of Canada at its principal offices in Toronto, Ontario and
Vancouver, British Columbia, and in the United States is the American
Securities Transfer & Trust, Inc. at its principal office in Denver, Colorado.
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TAXATION
The following is a summary of the material anticipated tax consequences of an
investment in the common shares under U.S. federal income tax laws and, for an
investment by an investor not resident in Canada, under Canadian tax laws.
The discussion of U.S. federal income tax considerations does not deal with
all possible tax consequences relating to an investment in our common shares.
In particular, it does not address either the tax consequences under state,
local and other (e.g., non-U.S.) tax laws, or special circumstances that may
apply to any individual investor. In addition, the U.S. tax summary applies
only to investors who hold the common shares as a capital asset within the
meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, and does not
address the tax consequences that may be relevant to investors in special tax
situations. Investors who may be in special tax situations include, for
example, foreign persons, insurance companies, tax-exempt organizations,
dealers in securities or currencies, banks or other financial institutions,
investors that hold our common shares as part of a hedge, straddle or
conversion transaction, or investors who own, directly or indirectly, ten
percent or more of our outstanding common shares. Further, the U.S. tax summary
does not address the alternative minimum tax consequences of an investment in
our common shares or the indirect consequences to investors of equity interests
in investors in our common shares. Accordingly, investors in our common shares
are urged to consult their own tax advisers as to the specific tax consequences
to them of an investment in, or the sale of, our common shares, including the
applicable federal, state, local, and foreign tax consequences and any
associated information reporting requirements. The following discussion of U.S.
federal income tax considerations is based upon an analysis of the U.S.
Internal Revenue Code, relevant regulations, current case law and published
rulings, all of which are subject to prospective and retroactive changes.
The discussion of Canadian federal income considerations is not exhaustive of
all possible Canadian federal income tax considerations and does not take into
account provincial, territorial or foreign tax considerations. It is not
intended to be, nor should it be construed to be, legal or tax advice to any
particular holder of common shares. Prospective purchasers of our common
shares, including non-resident insurers carrying on business in Canada, are
advised to consult with their advisors about the income tax consequences to
them of an acquisition of common shares. The discussion of Canadian federal
income considerations assumes that holders of common shares hold their common
shares as capital property, deal at arm's length with us, are not "financial
institutions" as defined in the Income Tax Act (Canada), and do not use or hold
their common shares in, or in the course of, carrying on a business in Canada.
The discussion of Canadian federal income considerations is based on the
current provisions of the Income Tax Act and the regulations under the Income
Tax Act, all proposed amendments to the Income Tax Act and the Income Tax Act
regulations announced by the Minister of Finance, Canada and the provisions of
the Canada-U.S. Income Tax Treaty (1980). It has been assumed that any proposed
amendments to the Income Tax Act and the Income Tax Act regulations will be
enacted in substantially their present form.
The anticipated tax consequences may change, and any change may be
retroactively effective. If so, this summary may be affected and may not be
relied upon. Further, any variation or difference from the facts or
representations recited here, for any reason, might affect the following
discussion, perhaps in an adverse manner, and make this summary inapplicable.
In addition, neither our U.S. counsel nor our Canadian tax advisor has
undertaken any obligation to update this discussion for changes in facts or
laws occurring subsequent to the date of this offering.
For purposes of this discussion, a "U.S. holder" is a holder of our Common
Shares who is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any state of the United States or the District of Columbia or
an estate, on whose income United States federal income tax must be paid
regardless of its source. The term "non-U.S. holder" refers to any holder of
our common shares other than a U.S. holder. The summary of Canadian tax
consequences is based upon the advice of Thorsteinssons, Tax Lawyers, Creo's
Canadian tax counsel. The summary of U.S.
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<PAGE>
federal income tax consequences is based upon the advice of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Creo's U.S. tax counsel.
The summary represents solely the views of our U.S. and Canadian tax advisors
as to the interpretation of existing law and, accordingly, no assurance can be
given that the tax authorities or courts in the U.S. or Canada will agree with
the summary.
Canadian Federal Income Tax Considerations
In the opinion of Thorsteinssons, our Canadian tax counsel, the following is
at the date of this prospectus a summary of the material anticipated
consequences arising under the Income Tax Act to an investor who acquires our
common shares through this offering.
Dividends on Our Common Shares
Under the Income Tax Act, amounts paid or credited on account or instead of
payment of, or in satisfaction of, dividends, including stock dividends, to
holders of our common shares that are resident in a country other than Canada
will be reduced by withholding tax of 25% of the amount of the dividend. The
rate of withholding tax may be reduced in accordance with the terms of a
bilateral income tax treaty between Canada and the country in which a holder of
common shares is resident.
Under the Canada-U.S. Income Tax Treaty, when the recipient of a dividend on
the common shares is
. the beneficial owner of the dividend,
. does not have a "permanent establishment" or "fixed base" in Canada, and
. is considered to be a resident of the United States under the Canada-U.S.
Income Tax Treaty,
the rate of Canadian withholding tax on the dividends will generally be reduced
to 15% of the amount of the dividends or, if the recipient is a corporation
which owns at least 10% of the voting stock of Creo, to 5% of the amount of the
dividends. Dividends paid or credited to a holder that is a United States tax-
exempt organization, as described in Article XXI of the Canada-U.S. Income Tax
Treaty, will not have to pay the Canadian withholding tax.
Disposition of Our Common Shares
A holder of common shares will not be required to pay tax for a capital gain
on the disposition of a common share unless the common share is "taxable
Canadian property" of the holder as defined by the Income Tax Act, and no
relief is afforded under the Canada-U.S. Income Tax Treaty. A common share will
generally not be taxable Canadian property to a holder provided that the common
share is listed on a prescribed stock exchange within the meaning of the Income
Tax Act on the date of disposition, and provided the holder, or persons with
whom the holder did not deal at arm's length (within the meaning of the Income
Tax Act), or any combination of these parties, did not own 25% or more of the
issued shares of any of our classes or series of shares at any time within five
years immediately preceding the date of disposition. Where a common share is
taxable Canadian property to the holder, the Treaty will generally exempt the
holder from tax on the disposition of the common share provided its value is
not, at the time of the disposition, derived principally from real property
situated in Canada. This relief under the Canada-U.S. Income Tax Treaty may not
be available to a holder who had a "permanent establishment" or "fixed base"
available in Canada during the 12 months immediately preceding the disposition
of the common share.
Under the Income Tax Act, the disposition of a common share by a holder may
occur in a number of circumstances including on a sale or gift of the share or
upon the death of the holder. There are no Canadian federal estate or gift
taxes on the purchase or ownership of the common shares.
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<PAGE>
Repurchase of Our Common Shares by Us
If we repurchase our common shares from a holder of our common shares (other
than a purchase of our common shares by us on the open market in a manner in
which shares would be purchased by any member of the public in the open market)
the amount paid by Creo that exceeds the "paid-up capital" of the shares
purchased will be deemed by the Income Tax Act to be a dividend paid by us to
the holder of our common shares. The paid-up capital of our common shares may
be less than the holder's cost of our common shares. The tax treatment of any
dividend received by a holder of our common shares has been described above
under "Dividends on Our Common Shares."
A holder of our common shares will also be considered to have disposed of our
common shares purchased by us for proceeds of disposition equal to the amount
received or receivable by the holder on the purchase, less the amount of any
dividend as described above. As a result, this holder of our common shares will
generally realize a capital gain (or capital loss) equal to the amount by which
the proceeds of disposition, net of any costs of disposition, exceed (or are
exceeded by) the adjusted cost base of these shares. The tax treatment of any
capital gain or capital loss has been described above under "Disposition of Our
Common Shares."
Other Considerations
There may be other income tax considerations that are relevant to a purchaser
of our common shares who, under the Income Tax Act, is not a resident in
Canada, and under the Canada-U.S. Income Tax Treaty, is not a resident of the
United States. Prospective purchasers of our common shares should consult their
own tax advisors.
United States Federal Income Tax Considerations
In the opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
our U.S. tax advisors, the following is at the date of this prospectus a
summary of the material United States federal income tax considerations arising
under the U.S. Internal Revenue Code, and the regulations promulgated under the
U.S. Internal Revenue Code, to an investor who acquires common shares under
this Offering.
Taxation of Dividends
Distributions received from us will constitute dividends for U.S. federal
income tax purposes and are taxable in the United States as ordinary income
except for distributions in excess of current or accumulated earnings and
profits which will be treated first as a non-taxable return of capital,
reducing the U.S. holder's tax basis in the common shares, thus increasing the
amount of gain (or reducing the amount of any loss) which might be realized by
the U.S. holder upon the sale or exchange of the common shares. Any non-
dividend distributions in excess of a U.S. holder's tax basis in the common
shares will be treated as capital gain to the U.S. holder, and will be either
long-term or short-term capital gain, depending upon the U.S. holder's federal
income tax holding period for the common shares. Dividends paid by Creo are not
eligible for the dividends received deduction otherwise allowed to U.S.
corporate shareholders on dividends from U.S. domestic corporations. The amount
of any dividend paid in Canadian dollars will be equal to the U.S. dollar value
of the Canadian dollars on the date of receipt, regardless of whether the U.S.
holder converts the payment into U.S. dollars. A U.S. holder should not
recognize any foreign currency gain or loss from receiving the dividend in
Canadian dollars if the foreign currency is converted into U.S. dollars on the
day received. If a U.S. holder does not convert the foreign currency into U.S.
dollars on the date of receipt, however, the holder may recognize gain or loss
upon a subsequent sale or other disposition of the foreign currency (including
an exchange of the foreign currency for U.S. dollars). Gain or loss, if any,
recognized by a U.S. holder on the sale or disposition of Canadian dollars will
be U.S. source ordinary income or loss. A U.S. holder may elect annually either
to deduct Canadian withholding tax (see "--Canadian Federal Income Tax
Considerations") against its income or to credit the withholding taxes as a
credit against its U.S. tax liability up to the amount specified by U.S. law.
Shareholders should consult with their own tax advisers with regard to the
availability of a U.S. foreign tax credit and the applicability of the U.S.
foreign tax credit limitations to their particular situations.
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Taxation of Capital Gains
A U.S. holder of common shares will recognize gain or loss for U.S. federal
income tax purposes upon the sale, exchange or other disposition of common
shares in an amount equal to the difference between the amount realized from
the sale, exchange or other disposition and the U.S. holder's tax basis for the
common shares. In most cases, the gain or loss will be capital gain or loss,
and will be long-term capital gain or loss if such U.S. holder's holding period
for the common shares is more than one year. It is expected that any capital
gain or loss will generally be treated as United States source income or loss,
as the case may be, for United States foreign tax credit purposes. The
deductibility of capital losses is restricted and may only be used to reduce
capital gains, except that individual taxpayers may deduct annually $3,000 of
capital losses in excess of their capital gains.
U.S. Information Reporting and Backup Withholding
Distributions made by us with respect to the common shares and gross proceeds
received from the disposition of the common shares may be subject to certain
information reporting requirements to the Internal Revenue Service and to a 31%
backup withholding tax. However, backup withholding generally will not apply to
payments made to certain recipients such as a corporation or financial
institution or to a U.S. holder who furnishes a correct taxpayer identification
number or provides a certificate of foreign status and provides other required
information. If backup withholding applies, the amount withheld is not an
additional tax, but is credited against the U.S. holder's United States federal
income tax liability.
EXCHANGE CONTROLS
Canada has no foreign exchange restrictions on the export or import of
capital or on the remittance of dividends, interest or other payments to a non-
resident holder of our common shares, other than the withholding tax
requirements described under "Taxation--Canadian Federal Income Tax
Considerations."
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UNDERWRITING
Under the terms and conditions stated in the underwriting agreement dated the
date of this prospectus, each of the underwriters named below has agreed to
purchase, and Creo and the selling shareholders have agreed to sell to these
underwriters the respective number of common shares listed opposite the name of
the underwriter below:
<TABLE>
<CAPTION>
Number of
Name Common Shares
---- -------------
<S> <C>
Salomon Smith Barney Inc. .....................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.............
RBC Dominion Securities Inc....................................
---------
Total........................................................ 5,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are not required to
purchase the common shares included in this offering without the approval of
legal matters by counsel and the fulfillment of other conditions specified in
the underwriting agreement. The underwriters are obligated to purchase all of
the common shares offered in this offering (other than those covered by the
over-allotment option described below) if they purchase any common shares.
The offering is being made concurrently in the Canadian provinces of British
Columbia and Ontario and in the United States. Each of the underwriters that is
not registered as a broker-dealer under the U.S. Securities Exchange Act has
agreed that, in connection with the offering of the common shares and with
specific exceptions, it will not offer or sell any common shares in, or to
persons who are nationals or residents of, the United States other than through
one of its United States registered broker-dealer affiliates. Offers and sales
in Canada or to Canadian persons will be made by the underwriters or their
affiliates that are investment dealers or brokers duly registered under the
applicable laws of the province of Canada in which the offer or sale is made
through or with a prospectus filed with the applicable Canadian securities
regulatory authorities.
In the United States offering, the underwriters, represented by Salomon Smith
Barney Inc., Merrill Lynch & Co., and RBC Dominion Securities Corporation,
initially propose to offer some of the common shares directly to the public at
the public offering price indicated on the cover page of this prospectus, and
some of the common shares to securities dealers at the public offering price
less a concession not exceeding $ per common share. The underwriters may
allow, and the securities dealers may reallow, a concession not exceeding
$ per common share to brokers and dealers. After the initial offering of
the common shares to the public, the public offering price and other selling
terms may from time to time be varied by the representatives. The
representatives have advised Creo and the selling shareholders that the
underwriters do not intend to confirm any sales to any accounts over which they
exercise discretionary authority.
The selling shareholders have granted the underwriters an option, exercisable
for 30 days after the date of this prospectus, to purchase up to an aggregate
of 750,000 additional common shares at the public offering
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price, less the underwriting discount. The underwriters may exercise this
option solely to cover over-allotments, if any, in connection with this
offering. If the underwriters exercise the option, each of them will be
obligated to purchase a number of additional shares approximately proportionate
to the underwriter's initial commitment unless released from doing so by the
terms of the underwriting agreement.
Creo, each of its officers and directors, and holders of significant amounts
of Creo common shares and substantially all of the non-Canadian holders of its
common shares have agreed that for a period of 180 days after the date of this
prospectus, they will not, without the prior written consent of Salomon Smith
Barney Inc., sell, dispose of or hedge any common shares or any securities of
Creo convertible into or exchangeable for common shares. Salomon Smith Barney
Inc. may, in its sole discretion, release any of the securities bound by the
lock-up agreements at any time without notice.
At Creo's request, the underwriters have reserved up to 250,000 common shares
for sale, at the initial public offering price, to employees, directors and
other persons associated with Creo. The number of common shares available for
sale to the general public in the offering will be reduced as these persons
purchase the reserved shares. Creo has agreed to indemnify the underwriters
against liabilities and expenses arising in connection with the sales of these
reserved common shares.
Prior to this offering, there has been no public market for the common
shares. Consequently, the initial public offering price for the common shares
will be determined by negotiations between Creo, the selling shareholders and
the representatives. Among the factors to be considered in determining the
initial public offering price will be Creo's record of operations, its current
financial condition, its future prospects, its markets, the economic conditions
in and future prospects for the industry in which Creo competes, Creo's
management, and currently prevailing general conditions in the equity
securities markets, including current market valuations of publicly traded
companies considered comparable to Creo. Creo cannot assure you, however, that
the prices at which the common shares will sell in the public market after this
offering will not be lower than the price at which they are sold by the
underwriters or that an active trading market in the common shares will develop
and continue after the offering. The estimated offering price range set forth
on the cover page of the preliminary prospectus may change as a result of
market condition and other factors.
Creo has applied to have the common shares included for quotation on the
Nasdaq National Market under the symbol "CREO" and listed on The Toronto Stock
Exchange under the symbol "CEC."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Creo and the selling shareholders in connection
with this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional common shares.
<TABLE>
<CAPTION>
Paid by Selling
Paid by Creo Shareholders
---------------------- ----------------------
No No
Exercise Full Exercise Exercise Full Exercise
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Per share...................... $ $ $ $
Total.......................... $ $ $ $
</TABLE>
The expenses of this offering, estimated to be $850,000, will be paid by Creo
on its own behalf and on behalf of the selling shareholders.
In connection with the offering, Salomon Smith Barney Inc. on behalf of the
underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of common shares in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common shares in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of bids or
purchases of common shares made to prevent or retard a decline in the market
price of the common shares while the offering is in progress. Penalty bids
permit the underwriters to reclaim a selling concession from a syndicate member
when Salomon Smith Barney Inc., in
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covering syndicate short positions or making stabilizing purchases, repurchases
shares originally sold by that syndicate member. These activities may cause the
price of the common shares to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. These
transactions may be effected on the Nasdaq National Market or in the over-the-
counter market, or otherwise and, if commenced, may be discontinued at any
time.
In accordance with a policy statement of the Ontario Securities Commission,
the underwriters in Canada may not, throughout the period of distribution, bid
for or purchase common shares. Exceptions, however, exist where the bid or
purchase is not made to create the appearance of active trading in, or raising
the price of, the common shares. These exceptions include a bid or purchase
permitted under the by-laws and rules of The Toronto Stock Exchange relating to
market stabilization and passive market making activities and a bid or purchase
made for and on behalf of a customer where the order was not solicited during
the period of distribution. Creo has been advised that in connection with the
offering and pursuant to the first exception mentioned above, the underwriters
may over-allot or effect transactions which stabilize or maintain the market
price of the common shares at levels other than those which might otherwise
prevail on the open market. These transactions, if commenced, may be
discontinued at any time.
Creo and the selling shareholders have agreed to indemnify the underwriters
against the liabilities and expenses listed in the underwriting agreement,
including liabilities under the Securities Act and Canadian provincial
securities legislation, or to contribute to payments the underwriters may be
required to make for any of those liabilities.
Initial sales of the common shares offered in the United States will be
settled in U.S. dollars and initial sales of common shares offered in Canada
will be settled in Canadian dollars. Subsequent trading of common shares
effected on the Nasdaq National Market will be settled in U.S. dollars and
subsequent trading of common shares effected on The Toronto Stock Exchange will
be settled in Canadian dollars, in each case in accordance with the normal
settlement practices of those markets.
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SHARES ELIGIBLE FOR FUTURE SALE
The sale of substantial numbers of common shares in the public market, or the
possibility of this sale, could adversely affect prevailing market prices for
our common shares.
Upon completion of the offering based on information as of March 31, 1999:
. a total of 32,027,854 of our common shares will be outstanding; and
. options to purchase a total of 4,595,232 common shares and warrants to
purchase a total of 24,598 common shares will be outstanding.
All of the 5,000,000 common shares sold in the offering in the United States
and Canada will be freely tradable without restriction under either the
Securities Act (except by "affiliates" as defined in Rule 144 under the
Securities Act) or applicable Canadian securities laws (except by "control
persons" as defined under these laws).
For the reasons given below, and subject to the restrictions set forth below,
we believe that the following restricted common shares and common shares
issuable upon exercise of options or warrants will be eligible for resale in
the public market at the following times and by the following persons:
<TABLE>
<CAPTION>
Eligibility for Sale
in the Public Market
----------------------
Shares
Underlying
Restricted Options and
Shares Warrants
---------- -----------
<S> <C> <C>
On the date of this prospectus........................... 0 0
181 days after the date of this prospectus............... 26,594,952 4,608,834
After 181 days after the date of this prospectus......... 432,902 10,996
</TABLE>
Each of our officers and directors and holders of significant amounts of Creo
common shares and substantially all of the non-Canadian holders of our common
shares have agreed with Salomon Smith Barney Inc. that they will not dispose of
or hedge any common shares for 180 days following the date of this prospectus.
The information contained in this section assumes that all these shareholders
will enter into such 180-day lock-up agreements.
Canadian Resale Restrictions
Under applicable Canadian securities laws, all of the common shares or common
shares issuable upon exercise of options held by Canadian residents may not be
sold or otherwise disposed of for value, except through or with a prospectus, a
discretionary exemption or a statutory exemption available only in specific
limited circumstances, until Creo has been a reporting issuer for at least 12
months in the province in which the shareholder or optionee resides. Creo will
become a reporting issuer in the provinces of British Columbia and Ontario when
it files this prospectus with the securities regulatory authorities of those
provinces and when those authorities issue receipts for the prospectus. We
expect that the receipts will be issued on or about the date of this
prospectus. We are applying to these regulatory authorities for a discretionary
exemption that would permit sales of our common shares by residents of these
provinces after Creo has been a reporting issuer for six months. If this
discretionary exemption is not granted, we intend to take other steps to allow
the common shares to be sold after Creo has been a reporting issuer for six
months.
If the discretionary exemption is not granted or other steps taken to allow
the sale of our common shares are unsuccessful, 12,251,377 common shares will
be eligible for resale one year after the date of this prospectus.
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Other Resale Restrictions
As a result of the lock-up agreements and the provisions of Rule 144 under
the Securities Act, common shares and common shares issuable upon exercise of
options held by non-Canadian residents will be available for sale in the public
market in the United States, subject in some cases to Rule 144 volume
limitations.
In general, under Rule 144, as in effect on the date of this prospectus, any
person (including an affiliate of Creo) who has beneficially owned common
shares for at least one year will be entitled to sell, in any three-month
period, a number of shares that (together with common shares with which the
person's shares must be aggregated) does not exceed the greater of:
. 1% of the then outstanding common shares (approximately 320,279 shares
immediately after the offering); and
. the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks immediately preceding the
date on which the sale is made.
Sales of restricted securities under Rule 144 must also satisfy requirements
relating to manner of sale, notice and availability of current public
information about Creo. Affiliates of Creo must also comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell common shares which are not restricted
securities.
We intend to file with the SEC a registration statement on Form S-8/S-3
within approximately 180 days after the date of this prospectus. The S-8/S-3
registration statement will allow holders of common shares who are residents of
the United States and countries other than Canada to resell common shares
issued under equity incentive arrangements, common shares issued in connection
with option exercises and common shares issued under our 1996 Stock Option
Plan.
68
<PAGE>
LEGAL MATTERS
Legal matters relating to Canadian law, the offering and the validity of the
common shares offered in this offering are being passed upon for us by Getz
Prince Wells, Vancouver, British Columbia. Legal matters relating to U.S. law
and the offering are being passed upon for us by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. Legal matters relating
to Canadian law and the offering are being passed upon for the underwriters by
Osler, Hoskin & Harcourt, Calgary, Alberta. Legal matters relating to U.S. law
and the offering are being passed upon for the underwriters by Munger, Tolles &
Olson LLP, Los Angeles, California. Legal matters related to United States and
Canadian tax laws are being passed upon for us by our Canadian tax advisors
Thorsteinssons, Tax Lawyers, of Vancouver, British Columbia and by our United
States tax advisors, Wilson Sonsini Goodrich & Rosati, Professional
Corporation. An investment partnership controlled by the partners of Getz
Prince Wells holds 3,200 of our common shares.
EXPERTS
Our auditors are KPMG LLP, Chartered Accountants, of Suite 900, 777 Dunsmuir
Street, Vancouver, British Columbia, Canada V7Y 1K3. Prior to June 1998, our
auditors were Price Waterhouse, Chartered Accountants, 601 West Hastings
Street, Vancouver, British Columbia, Canada V6B 5A5. Our consolidated financial
statements as at and for the year ended September 30, 1998 have been included
in this prospectus and in the registration statement in reliance upon the
report of KPMG LLP, independent chartered accountants, and upon the authority
of KPMG LLP as experts in accounting and auditing.
Our financial statements as at and for the years ended September 30, 1997 and
1996, prior to the restatement for the change in amortization policy and
recording of the incentive shares as described in Note 1(l) of the financial
statements were audited by Price Waterhouse, Chartered Accountants, as set
forth in its report, and are included in this prospectus in reliance upon the
authority of Price Waterhouse as experts in accounting and auditing. Price
Waterhouse has not been associated with any of our financial statements
subsequent to September 30, 1997. The change in independent chartered
accountants was effective for fiscal 1998, was approved by Creo's board of
directors and was not due to any disagreement between Creo and Price
Waterhouse. During the period preceding the change in independent auditors,
there were no disagreements with Price Waterhouse on any matter of accounting
principles or practices, financial statement disclosures, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Price
Waterhouse would have caused Price Waterhouse to make reference to them in
their report on the financial statements for the relevant periods. The audit
reports of Price Waterhouse as of and for the years ended September 30, 1997
and 1996 did not contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope or accounting
principles.
69
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC 450 Fifth Street, N.W., Washington, D.C. 20549, a
registration statement on Form F-1 under the Securities Act for the common
shares offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information included in the
registration statement. Some information is omitted and you should refer to the
registration statement and its exhibits.
Any statement in this prospectus about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to the registration statement, the contract or document modifies the
description contained in this prospectus. You must review the exhibits
themselves for a complete description of the contract or document.
You may review a copy of the registration statement, including exhibits and
schedules filed with it, as well as any reports, statements or other
information we file with the SEC at the SEC's public reference facilities in
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549,
and at the regional offices of the SEC located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies
of these materials from the Public Reference Section of the SEC, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed
rates. You may call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. The SEC maintains a web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants such as Creo, that file electronically with the SEC.
These SEC filings are also available to the public from commercial document
retrieval services.
Prior to this offering, we have not been required to file reports under the
U.S. Securities Exchange Act. Following consummation of the offering, we will
be required to file reports and other information with the SEC under the
Securities Exchange Act and with the Securities Commissions of the Canadian
Provinces of British Columbia and Ontario. You are invited to read and copy any
reports, statements or other information that we file with the Canadian
Commissions at their respective public reference rooms. These filings are also
electronically available from the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) (http://www.sedar.com), the Canadian equivalent
of the SEC's Electronic Document Gathering And Retrieval (EDGAR) system.
Reports and other information about us should also be available for inspection
at the offices of The Toronto Stock Exchange.
As a "foreign private issuer" under the Securities Exchange Act, we intend to
provide to our shareholders proxy statements and annual reports prepared in
accordance with applicable Canadian law. Our annual reports will be available
within 140 days of the end of each fiscal year and will contain our audited
consolidated financial statements. We will also make available quarterly
reports containing unaudited summary consolidated financial information for
each of the first three fiscal quarters of each fiscal year. Our quarterly
reports will be filed within 60 days of the end of each of the three fiscal
quarters. We intend to prepare these financial statements in accordance with
Canadian GAAP and to include a reconciliation to U.S. GAAP in the notes to the
annual consolidated financial statements. We will be exempt from provisions of
that Act which require us to provide proxy statements in prescribed form to
shareholders and which relate to short swing profit reporting and liability.
70
<PAGE>
CREO PRODUCTS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of KPMG LLP, Independent Auditors.................................. F-2
Report of Price Waterhouse, Independent Auditors.......................... F-3
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Operations and Retained Earnings (Deficit)..... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors of
Creo Products Inc.
We have audited the consolidated balance sheet of Creo Products Inc. as at
September 30, 1998 and the consolidated statements of operations and retained
earnings (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at September 30,
1998 and the results of its operations and its cash flows for the year then
ended in accordance with generally accepted accounting principles in Canada.
The consolidated financial statements as at September 30, 1997 and for the year
then ended, prior to restatement for the change in amortization policy and
recording of incentive shares as described in note 1(l), were audited by other
auditors who expressed an opinion without reservation on those statements in
their report dated November 20, 1997. We have examined the adjustments that
were applied to restate the 1997 consolidated financial statements and in our
opinion, such adjustments are appropriate and have been properly applied.
Significant differences between Canadian and United States accounting
principles are explained and quantified in note 14 to the consolidated
financial statements.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
November 23, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors of
Creo Products Inc.
We have audited the consolidated balance sheet of Creo Products Inc. as at
September 30, 1997 and the consolidated statements of operations and (deficit)
and cash flows for the years ended September 30, 1997 and 1996 prior to the
restatement for the change in amortization policy and recording of the
incentive shares as described in note1(l). The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion the consolidated financial statements, prior to the restatement
for the change in amortization policy and recording of the incentive shares, as
described in note1(l), present fairly, in all material respects, the financial
position of the Company as at September 30, 1997 and the results of its
operations and its cash flows for the years ended 1997 and 1996 in accordance
with generally accepted accounting principles in Canada.
/s/ Price Waterhouse
Chartered Accountants
Vancouver, Canada
November 20, 1997
F-3
<PAGE>
Creo Products Inc.
Consolidated Balance Sheets
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
September 30,
-------------------- March 31,
1997 1998 1999
----------- -------- -----------
Restated (unaudited)
(Note 1(l))
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $30,652 $ 16,224 $ 37,150
Accounts receivable......................... 20,295 24,385 31,923
Inventories (note 3)........................ 24,313 25,151 27,061
Prepaid expenses............................ 1,764 2,212 3,421
Future income taxes (note 9)................ 692 -- 120
------- -------- --------
Total current assets........................ 77,716 67,972 99,675
Capital assets (note 4)....................... 16,748 34,146 37,215
------- -------- --------
$94,464 $102,118 $136,890
======= ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities
(note 5)................................... $16,661 $ 17,878 $ 17,481
Income taxes payable........................ 1,046 825 2,072
Future income taxes (note 9)................ -- 87 --
Deferred revenue and deposits............... 14,646 13,677 20,787
Current portion of long-term debt (note 6).. 4,680 943 296
------- -------- --------
Total current liabilities................... 37,033 33,410 40,636
Long-term debt (note 6)....................... 6,956 6,660 6,512
------- -------- --------
Total liabilities........................... 43,989 40,070 47,148
Shareholders' equity:
Share capital (note 7)...................... 58,371 58,854 78,917
Retained earnings (deficit)................. (7,896) 3,194 10,825
------- -------- --------
Total shareholders' equity.................. 50,475 62,048 89,742
------- -------- --------
$94,464 $102,118 $136,890
======= ======== ========
Commitments and contingencies (note 12)
Subsequent event (note 15)
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
(Signed) Raphael Amit
_________________________ (Signed) David A. Bennett
Director _________________________
Director
F-4
<PAGE>
Creo Products Inc.
Consolidated Statements of Operations and Retained Earnings (Deficit)
(In thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended September 30, March 31,
---------------------------- -----------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- -------
Restated Restated
(note (note
1(l)) 1(l)) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Product revenue........... $ 46,210 $ 91,669 $114,652 $53,220 $64,894
Service revenue........... 1,728 3,914 14,196 6,029 13,163
-------- -------- -------- ------- -------
Total revenue............. 47,938 95,583 128,848 59,249 78,057
Cost of sales............... 31,766 53,634 71,217 33,189 40,688
-------- -------- -------- ------- -------
Gross profit................ 16,172 41,949 57,631 26,060 37,369
-------- -------- -------- ------- -------
Operating expenses:
Research and development,
net (note 8)............. 10,683 12,772 6,931 3,233 5,275
Sales and marketing....... 8,757 14,619 22,417 10,101 14,396
General and
administration........... 4,092 6,271 8,937 3,879 3,983
-------- -------- -------- ------- -------
Total operating expenses.. 23,532 33,662 38,285 17,213 23,654
-------- -------- -------- ------- -------
Earnings (loss) from
operations................. (7,360) 8,287 19,346 8,847 13,715
Other income (expense)...... 5 48 (1,580) (799) (593)
-------- -------- -------- ------- -------
Earnings (loss) before
income taxes............... (7,355) 8,335 17,766 8,048 13,122
Income tax expense
(recovery) (note 9)........ (112) 2,498 6,676 2,922 5,491
-------- -------- -------- ------- -------
Net earnings (loss)......... $ (7,243) $ 5,837 $ 11,090 $ 5,126 $ 7,631
======== ======== ======== ======= =======
Earnings (loss) per common
share (note 10):
Basic..................... $ (0.34) $ 0.26 $ 0.44 $ 0.21 $ 0.28
======== ======== ======== ======= =======
Fully diluted............. $ (0.34) $ 0.24 $ 0.41 $ 0.19 $ 0.25
======== ======== ======== ======= =======
Retained earnings (deficit),
beginning of period
as restated (note 1(l)).. $ (6,490) $(13,733) $ (7,896) $(7,896) $ 3,194
Net earnings (loss)......... (7,243) 5,837 11,090 5,126 7,631
-------- -------- -------- ------- -------
Retained earnings (deficit),
end of period.............. $(13,733) $ (7,896) $ 3,194 $(2,770) $10,825
======== ======== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Creo Products Inc.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Six Months
Years Ended September 30, Ended March 31,
---------------------------------- ----------------
1996 1997 1998 1998 1999
----------- ----------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Restated Restated (unaudited)
(note 1(l)) (note 1(l))
Cash provided by (used
in) operations:
Net earnings (loss).... $ (7,243) $ 5,837 $ 11,090 $ 5,126 $ 7,631
Items not affecting
cash:
Amortization.......... 2,687 3,673 4,996 2,169 2,598
Future income taxes... (195) (380) 779 (99) (207)
Incentive shares
issued............... 521 102 78 78 --
Loss (gain) on
disposal of capital
assets............... 32 46 1 10 (36)
----------- ----------- -------- ------- -------
(4,198) 9,278 16,944 7,284 9,986
Changes in non-cash
working capital:
Accounts receivable... (6,725) (8,760) (4,090) (6,267) (7,538)
Inventories........... (9,419) (5,805) (838) (113) (1,910)
Prepaid expenses...... (132) (634) (448) (973) (1,209)
Accounts payable and
accrued liabilities.. 5,085 6,179 1,217 (903) (397)
Income taxes payable.. 1,245 1,912 (221) 178 1,247
Deferred revenue and
deposits............. (2,216) (2,864) (969) (344) 7,110
----------- ----------- -------- ------- -------
(12,162) (9,972) (5,349) (8,422) (2,697)
----------- ----------- -------- ------- -------
(16,360) (694) 11,595 (1,138) 7,289
Cash provided by (used
in) investing:
Purchase of capital
assets............... (6,772) (4,220) (23,537) (5,602) (5,844)
Proceeds from sale of
capital assets....... 46 57 1,142 952 213
----------- ----------- -------- ------- -------
(6,726) (4,163) (22,395) (4,650) (5,631)
Cash provided by (used
in) financing:
Proceeds from share
issues............... 19,918 24,254 405 25 20,063
Increase in long-term
debt................. 4,901 7,400 -- -- --
Repayment of long-term
debt................. (898) (7,082) (4,033) (2,326) (795)
----------- ----------- -------- ------- -------
23,921 24,572 (3,628) (2,301) 19,268
----------- ----------- -------- ------- -------
Increase (decrease) in
cash and cash
equivalents............ 835 19,715 (14,428) (8,089) 20,926
Cash and cash
equivalents, beginning
of period.............. 10,102 10,937 30,652 30,652 16,224
----------- ----------- -------- ------- -------
Cash and cash
equivalents, end of
period................. $ 10,937 $ 30,652 $ 16,224 $22,563 $37,150
=========== =========== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
Creo Products Inc. (the Company) was incorporated under the laws of
Canada and its principal business activities include the development,
manufacture and distribution of digital prepress equipment for the printing
industry. The Company's principal customers are in the United States,
Europe and Japan.
1. Significant accounting policies
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada, which, in the case of the Company,
materially conform with those established in the United States except as
explained in note 14.
(a) Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, Creo Products N.V., Creo Inc., and Creo Ltd. (to
March 12, 1998, the date of disposal), all of which have been wholly-owned.
Creo Ltd. was disposed of at its carrying value to an unrelated party. All
material intercompany balances and transactions have been eliminated.
Interests in joint ventures are recognized in the Company's consolidated
financial statements using the proportionate consolidation method.
(b) Unaudited financial information
The financial information as at March 31, 1999 and for the six months
ended March 31, 1999 and 1998 is unaudited; however, such financial
information reflects all adjustments (consisting solely of normal recurring
adjustments) required for a fair presentation of the financial information
for the interim periods presented.
(c) Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and notes thereto. A significant area of estimate
relates to the provision for potential retrofits on installed equipment.
Actual results could differ from those estimated.
(d) Cash and cash equivalents
Cash equivalents include short-term deposits, which are all liquid
securities with a term to maturity of three months or less when acquired.
(e) Inventories
Inventories are valued at the lower of cost and net realizable value.
Costs of materials are determined on a weighted average basis. Work-in-
progress and finished goods inventories include materials, direct labor and
production overhead. Inventories are recorded net of any obsolescence
provisions.
(f) Capital assets
Capital assets are stated at cost less applicable tax credits and non-
repayable government grants.
Amortization of capital assets is recorded on a declining-balance basis
at the following annual rates:
<TABLE>
<S> <C>
Building............................ 4%
Equipment........................... 20%
Computer software................... 100%
Furniture and fixtures.............. 20%
</TABLE>
F-7
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
1. Significant accounting policies (continued)
Computer and demo equipment are amortized on a straight-line basis over
three years. Building improvements are amortized on a straight-line basis
over five years.
The Company monitors the recoverability of long-lived assets, based on
factors such as current market value, future asset utilization, business
climate and future undiscounted cash flows expected to result from the use
of the related assets. The Company's policy is to record an impairment loss
in the period when it is determined that the carrying amount of the asset
may not be recoverable. The impairment loss is calculated as the amount by
which the carrying amount of the asset exceeds the undiscounted estimate of
future cash flows from the asset. To March 31, 1999, no impairment losses
have been recorded.
(g) Research and development
Research costs are expensed as incurred. Development costs are expensed
as incurred unless they meet certain criteria under generally accepted
accounting principles for deferral and amortization. The Company has
determined that none of the development costs have met these criteria.
Research and development costs are offset by funding from related
development contracts. The Company has no obligation to repay the funds
under these contracts. Development contracts involve the planning,
development and installation of a product to meet a customer's needs.
Funding from development contracts is recognized on the percentage of
completion basis.
(h) Foreign currency translation
The consolidated financial statements of the Company are presented in
United States (U.S.) dollars. To the extent that the Company generates
funds or incurs costs in other currencies, these transactions are
translated into U.S. dollars at rates which are representative of the
underlying transaction. Accordingly, monetary assets and liabilities are
translated at the rate prevailing at the balance sheet date. Non-monetary
assets and liabilities are recorded at the rate prevailing at the date of
the transaction. Revenues and expenses are translated at an average rate
during the year. Exchange gains and losses are included in income. The
exchange loss for the six months ended March 31, 1999 is $1,142 (six months
ended March 31, 1998 - $861; fiscal 1998 - $1,776; fiscal 1997 - $194;
fiscal 1996 - $516).
(i) Revenue recognition
Revenue from product sales is recognized when title passes to the
customer or upon customer acceptance. Customer acceptance is used as the
criterion for revenue recognition when the product sold does not have an
established sales history to allow management to reasonably estimate
returns and future provisions.
Revenue from service contracts is recognized as the services are
provided.
(j) Investment tax credits
Investment tax credits are accounted for using the cost reduction method
whereby such credits are deducted from the expenditures or assets to which
they relate.
(k) Income taxes
The Company recognizes and measures, as assets and liabilities, income
taxes currently payable or recoverable as well as future taxes which will
arise from the realization of assets or settlement of liabilities at their
carrying amounts, which differ from their tax bases. Future tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which such temporary differences are
expected to be recovered or settled.
F-8
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
1. Significant accounting policies (continued)
(l) Comparative figures
The Company's deficit has been restated for retroactive changes to
capital assets and share capital as outlined in notes 4 and 7(b),
respectively.
<TABLE>
<CAPTION>
Six Months
Years Ended September Ended March
30, 31,
-------------------------- ---------------
1996 1997 1998 1998 1999
------- -------- ------- ------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Deficit, beginning of period
as previously reported...... $(2,083) $ (8,500) $(2,317) $(2,317) $3,194
Adjustment of prior periods'
earnings (note 4)........... (183) (488) (732) (732) -
Adjustment of prior periods'
earnings (note 7(b))........ (4,224) (4,745) (4,847) (4,847) -
------- -------- ------- ------- ------
Deficit, beginning of period
as restated................. $(6,490) $(13,733) $(7,896) $(7,896) $3,194
======= ======== ======= ======= ======
</TABLE>
Certain comparative figures have been reclassified to conform with the
basis of presentation adopted in the current period.
(m) Advertising costs
The Company expenses advertising costs as incurred.
2. Joint Venture
Effective October 1, 1997, the Company entered into a 50% owned
unincorporated joint venture with Heidelberger Druckmaschinen AG
(Heidelberg) with respect to the design, manufacture and marketing of
certain digital prepress equipment. The joint venture has no assets or
liabilities. The consolidated financial statements include the following
amounts representing the Company's proportionate share of the operations of
the joint venture:
<TABLE>
<CAPTION>
Years Ended Six Months
September 30, Ended March 31,
----------------- ---------------
1996 1997 1998 1998 1999
---- ---- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations
Revenues................................ $ - $ - $35,542 $16,344 $27,140
Cost of sales........................... - - 17,896 8,403 12,804
---- ---- ------- ------- -------
Gross profit............................ - - 17,646 7,941 14,336
Research and development................ - - 4,109 1,338 3,157
---- ---- ------- ------- -------
Net income.............................. $ - $ - $13,537 $ 6,603 $11,179
==== ==== ======= ======= =======
<CAPTION>
Years Ended Six Months
September 30, Ended March 31,
----------------- ---------------
1996 1997 1998 1998 1999
---- ---- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Cash Flows
Cash provided by operating activities... $ - $ - $13,537 $ 6,603 $11,179
==== ==== ======= ======= =======
</TABLE>
F-9
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
3. Inventories
<TABLE>
<CAPTION>
September 30,
----------------- March 31,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Materials................................... $12,227 $ 11,722 $ 11,343
Work-in-progress............................ 7,505 7,240 8,111
Finished goods.............................. 4,581 6,189 7,607
------- -------- --------
$24,313 $ 25,151 $ 27,061
======= ======== ========
4. Capital Assets
<CAPTION>
September 30,
----------------- March 31,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Land........................................ $ 3,403 $ 9,453 $ 9,453
Building.................................... 4,643 11,934 12,393
Building improvements....................... 3,939 5,268 6,281
Equipment................................... 2,889 4,357 4,915
Computer and demo equipment................. 7,795 10,994 13,101
Computer software........................... 1,545 3,347 4,248
Furniture and fixtures...................... 2,278 2,716 3,263
------- -------- --------
26,492 48,069 53,654
Less: accumulated amortization.............. (9,744) (13,923) (16,439)
------- -------- --------
Net book value.............................. $16,748 $ 34,146 $ 37,215
======= ======== ========
During 1998, the Company retroactively adopted the straight-line method
of amortizing its computer and demo equipment, which were previously
amortized on a declining balance basis, in order to better reflect the
utilization of the underlying assets.
As a result of this change, retained earnings at October 1, 1995 have
been reduced by $183, net of future income taxes of $117.
The effect of this change on the six months ended March 31, 1999 is an
increase in accumulated amortization of $nil (six months ended March 31,
1998 - $250; fiscal 1998 - $532; fiscal 1997 - $400; fiscal 1996 - $500)
and a reduction in net earnings for the six months ended March 31, 1999 of
$nil (six months ended March 31, 1998 - $150; fiscal 1998 - $325; fiscal
1997 - $244; fiscal 1996 - $305), net of future income taxes of $nil (six
months ended March 31, 1998 - $100; fiscal 1998 - $207; fiscal 1997 -$156;
fiscal 1996 - $195).
5. Accounts payable and accrued liabilities
<CAPTION>
September 30,
----------------- March 31,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Trade payables.............................. $ 9,033 $ 7,561 $ 7,739
Wages and benefits.......................... 3,420 6,118 6,216
Retrofit liabilities........................ 3,286 3,278 2,730
Royalties................................... 922 921 796
------- -------- --------
$16,661 $ 17,878 $ 17,481
======= ======== ========
</TABLE>
F-10
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
6. Long-term debt
<TABLE>
<CAPTION>
September 30,
-------------- March 31,
1997 1998 1999
------- ------ -----------
(unaudited)
<S> <C> <C> <C>
Western Economic Diversification
Unsecured, interest-free loan repayable in
quarterly installments of $250................ $ 749 $ - $ -
Royal Bank of Canada
First mortgage secured by properties in Delta
and
Burnaby, B.C. Interest at 8.05% per annum
maturing February 4, 2002..................... 7,252 6,956 6,808
Eastman Kodak Company
Unsecured, interest-free loan repayable in
installments on or before September 30, 2006.. 3,635 647 -
------- ------ ------
11,636 7,603 6,808
Less: current portion.......................... 4,680 943 296
------- ------ ------
$ 6,956 $6,660 $6,512
======= ====== ======
</TABLE>
As at March 31, 1999, minimum principal repayments of long-term debt in
the next five fiscal years are approximately as follows (unaudited):
<TABLE>
<S> <C>
1999............................................ $ 148
2000............................................ 296
2001............................................ 296
2002............................................ 6,068
2003............................................ -
------
$6,808
======
</TABLE>
The Company currently has $15 million available through a credit facility
with Royal Bank of Canada at LIBOR plus 1% which has not been drawn upon at
March 31, 1999.
The Company has entered into an interest rate swap agreement with Royal
Bank of Canada which converted the first mortgage floating rate debt at
LIBOR plus 1.5% into debt which has a fixed rate of 8.05% until February 4,
2002. As at March 31, 1999, the swap has an estimated fair market value of
$195 (fiscal 1998 - $341; fiscal 1997 - $78) in favor of Royal Bank of
Canada.
In the six months ended March 31, 1999, the Company incurred interest
expense on long-term debt of $186 (six months ended March 31, 1998 - $270;
fiscal 1998 - $525; fiscal 1997 - $408; fiscal 1996 - $416) which was
charged to operations. In the six months ended March 31, 1999, the Company
paid interest on long-term debt of $263 (six months ended March 31, 1998 -
$274; fiscal 1998 - $605; fiscal 1997 - $338; fiscal 1996 - $416).
F-11
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
7. Share capital
A two-for-one share split of common shares took effect on May 4, 1999.
All information relating to common shares reflects retroactively this share
split.
(a) Authorized
The authorized capital of the Company consists of unlimited voting
common shares without par value and an unlimited number of preferred
shares issuable in series.
(b) Issued and outstanding
There have been no preferred shares issued. Common shares issued and
outstanding are as follows:
<TABLE>
<CAPTION>
Number of
Common Stated
Shares Values
---------- -------
<S> <C> <C>
Outstanding, September 30, 1995...................... 18,550,364 $13,576
Issued as incentives to employees................... 98,166 521
Issued for cash..................................... 2,962,962 19,918
---------- -------
Outstanding, September 30, 1996...................... 21,611,492 34,015
Issued as incentives to employees................... 15,500 102
Issued for cash..................................... 3,371,264 24,254
---------- -------
Outstanding, September 30, 1997...................... 24,998,256 58,371
Issued as incentives to employees................... 6,208 78
Issued for cash from share options.................. 47,698 158
Tax benefit of share issue costs.................... - 247
---------- -------
Outstanding, September 30, 1998...................... 25,052,162 58,854
Issued for cash (unaudited)......................... 2,962,962 20,000
Issued for cash from share options (unaudited)...... 12,730 63
---------- -------
Outstanding, March 31, 1999 (unaudited).............. 28,027,854 $78,917
========== =======
</TABLE>
Prior to the 1998 fiscal year, no value was assigned to shares issued
as incentives to employees for no cash consideration. In 1998, the
Company retroactively valued such shares at their estimated fair value
on the date of issue. As a result, the prior years' financial
statements of the Company have been restated to include as compensation
expense, the value of incentive shares issued in each year. The impact
of the restatement is to decrease retained earnings and increase share
capital as at October 1, 1995 by $4,224.
F-12
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
7. Share capital (continued)
(c) Share option plan
The Company has reserved 8,000,000 shares under the 1996 Stock Option
Plan. The plan provides for the granting of share options at the fair
market value of the Company's shares at the grant date. Options
generally vest immediately and have a five year term. Share option
activity for fiscal years 1996, 1997 and 1998 and for the six months
ended March 31, 1999 is presented below:
<TABLE>
<CAPTION>
Weighted
Number of Average
Common Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding, September 30, 1995...................... - -
Granted............................................. 789,608 $4.80
---------
Outstanding, September 30, 1996...................... 789,608 4.80
Granted............................................. 1,677,518 6.25
---------
Outstanding, September 30, 1997...................... 2,467,126 5.78
Granted............................................. 832,744 11.29
Exercised........................................... (47,698) 3.12
---------
Outstanding, September 30, 1998...................... 3,252,172 7.23
Granted (unaudited)................................. 1,355,790 9.10
Exercised (unaudited)............................... (12,730) 4.98
---------
Outstanding, March 31, 1999 (unaudited).............. 4,595,232 7.79
=========
</TABLE>
<TABLE>
<CAPTION>
Number of
Common
Shares
---------
<S> <C>
Exercisable at:
September 30, 1996............................................ 676,022
September 30, 1997............................................ 2,044,140
September 30, 1998............................................ 2,957,406
March 31, 1999 (unaudited).................................... 4,393,644
</TABLE>
The options outstanding at March 31, 1999 expire between May 31, 1999
and January 4, 2004.
The following table summarizes information about the Company's share
options outstanding at March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number
Outstanding Remaining Average Exercisable Weighted
at March 31, Contractual Exercise at March 31, Average
Range of Exercise Price 1999 Life Price 1999 Exercise Price
------------------------ ------------ ----------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.48.................. 89,584 1.3 $ 2.48 89,584 $ 2.48
$ 2.49 - $ 5.00......... 863,708 1.8 4.80 863,708 4.80
$ 5.01 - $ 7.50......... 1,495,238 3.0 6.63 1,323,238 6.63
$ 7.51 - $10.00......... 1,363,438 4.8 9.11 1,341,418 9.11
$10.01 - $12.50......... 783,264 3.8 11.60 775,696 11.60
--------- ---------
4,595,232 3.4 7.79 4,393,644 7.82
========= =========
</TABLE>
F-13
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
7. Share capital (continued)
(d) Warrants
The Company issued warrants to purchase 24,598 shares on or before
June 2, 2002 as consideration for raising capital in 1997. The exercise
price of each warrant is $9.38.
8. Research and development
<TABLE>
<CAPTION>
Years Ended September Six Months
30, Ended March 31,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Research and development
expenses.................. $14,698 $14,877 $19,123 $ 8,962 $13,256
Research and development
funding
Development contract
revenue.................. (2,904) (1,405) (8,464) (4,017) (5,928)
Investment tax credits.... (1,111) (700) (3,728) (1,712) (2,053)
------- ------- ------- ------- -------
Research and development,
net....................... $10,683 $12,772 $ 6,931 $ 3,233 $ 5,275
======= ======= ======= ======= =======
</TABLE>
9. Income taxes
Earnings (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
Six Months
Years Ended September Ended March
30, 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------- ------ ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Canada......................... $(4,958) $7,010 $12,891 $5,934 $10,966
Foreign........................ (2,397) 1,325 4,875 2,114 2,156
------- ------ ------- ------ -------
Total.......................... $(7,355) $8,335 $17,766 $8,048 $13,122
======= ====== ======= ====== =======
The provision for (recovery of) income taxes consists of the following:
<CAPTION>
Six Months
Years Ended September Ended March
30, 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------- ------ ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Canada......................... $ 69 $1,375 $ 5,369 $2,844 $ 4,913
Foreign........................ 14 1,503 528 177 785
------- ------ ------- ------ -------
Total current.................. $ 83 $2,878 $ 5,897 $3,021 $ 5,698
------- ------ ------- ------ -------
Future:
Canada......................... $ (179) $ (21) $ 1,071 $ (86) $ (219)
Foreign........................ (16) (359) (292) (13) 12
------- ------ ------- ------ -------
Total future................... $ (195) $ (380) $ 779 $ (99) $ (207)
------- ------ ------- ------ -------
Total income tax provision..... $ (112) $2,498 $ 6,676 $2,922 $ 5,491
======= ====== ======= ====== =======
</TABLE>
F-14
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
9. Income taxes (continued)
Income tax rate:
<TABLE>
<CAPTION>
Six Months
Years Ended Ended March
September 30, 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------ ------- ------ ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Combined Canadian
federal/provincial tax rate.. 45.6% 45.6% 45.6% 45.6% 45.6%
Increased (reduced) by:
Manufacturing and processing
credits..................... - (1.3) (5.4) (5.9) (5.8)
Foreign exchange translation
not deducted for tax........ - - 6.5 4.6 1.1
Foreign losses (utilized) not
recognized.................. (17.2) 7.3 (6.5) (4.0) -
Future income tax assets not
recognized.................. (26.6) (21.6) - - -
Foreign tax rate reduction... - (2.7) (1.8) (2.5) (1.0)
Other........................ (3.3) 2.7 (0.8) (1.5) 1.9
------ ------- ------ ------ -------
Effective rate................ (1.5)% 30.0% 37.6% 36.3% 41.8%
====== ======= ====== ====== =======
Temporary differences that give rise to the net future income tax benefit
are as follows:
<CAPTION>
September 30, March 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------ ------- ------ ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current future income tax
benefit:
Investment tax credit
revenue..................... $ - $ (329) $ (998) $ (575) $(1,266)
Revenue recognition.......... - 134 31 78 733
Retrofit liability and
other....................... - 899 933 1,521 933
------ ------- ------ ------ -------
Total current future income
tax.......................... $ - $ 704 $ (34) $1,024 $ 400
====== ======= ====== ====== =======
<CAPTION>
September 30, March 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------ ------- ------ ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Long-term future income tax
benefit:
Capital assets............... $ 312 $ (12) $ (412) $ (233) $ (583)
Financing costs.............. - - 359 - 303
Operating losses............. - 1,500 - - -
Valuation allowance
Canada....................... - - - - -
Foreign...................... - (1,500) - - -
------ ------- ------ ------ -------
Total long-term future income
tax.......................... $ 312 $ (12) $ (53) $ (233) $ (280)
====== ======= ====== ====== =======
Net future income tax
benefit...................... $ 312 $ 692 $ (87) $ 791 $ 120
====== ======= ====== ====== =======
</TABLE>
In the six months ended March 31, 1999, the Company paid income taxes of
$1,980 (six months ended March 31, 1998 - $975; fiscal 1998 - $1,683;
fiscal 1997 - $270; fiscal 1996 - $115).
F-15
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
9. Income taxes (continued)
As at March 31, 1999, the Company has unused investment tax credits
totaling approximately $5,100 available to reduce future Canadian federal
income taxes. These tax credits expire in varying amounts to 2009.
10. Earnings per common share
Basic earnings per common share is calculated by dividing the earnings
for the period by the weighted average number of common shares outstanding
during the period: six months ended March 31, 1999 - 27,275,538 (six months
ended March 31, 1998 - 24,998,256; fiscal 1998 - 25,024,788; fiscal 1997 -
22,769,212; fiscal 1996 - 21,209,172).
Fully diluted earnings per share is based on the assumptions that all
outstanding options and warrants in note 7 were exercised at the beginning
of the period and that the funds derived therefrom had been invested to
produce an annual return of 3%, after income taxes, for the six months
ended March 31, 1999 (six months ended March 31, 1998 - 4%; fiscal 1999 -
3%; fiscal 1998 - 4%; fiscal 1997 - 3%). The amounts of income imputed,
after income taxes, were $619 for the six months ended March 31, 1999
(six months ended March 31, 1998 - $668; fiscal 1998 - $1,329; fiscal
1997 - $1,559). Fully diluted net loss per share for the 1996 fiscal year
is not shown as it would be anti-dilutive.
11. Financial instruments
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate their fair value due
to their short-term maturities. Based on borrowing rates currently
available to the Company for loans with similar terms, the carrying value
of its long-term debt approximates fair value. The fair value of the
interest rate swap is disclosed in Note 6.
Significant amounts of the Company's expenditures are denominated in
Canadian dollars. Fluctuations in the exchange rate between Canadian and
U.S. dollars could have a material effect on the Company's business,
financial condition and results of operations. The Company has not entered
into foreign currency contracts or other instruments to mitigate this risk.
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily accounts receivable (note 13).
The Company performs ongoing credit evaluations of its customers' financial
conditions and requires letters of credit or other guarantees whenever
deemed necessary.
12. Commitments and contingencies
The Company is party to certain operating leases under which the future
minimum lease payments as at March 31, 1999 are approximately as follows
(unaudited):
<TABLE>
<S> <C>
1999.............................. $ 752
2000.............................. 1,098
2001.............................. 640
2002.............................. 462
2003.............................. 263
Thereafter........................ 270
------
$3,485
======
</TABLE>
F-16
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
12. Commitments and contingencies (continued)
Total rent expense for the six months ended March 31, 1999 was $736 (six
months ended March 31, 1998 - $408; fiscal 1998 - $843; fiscal 1997 - $803;
fiscal 1996 - $425).
The Company has letters of guarantee with the Royal Bank of Canada
totaling $750 expiring in March 2000.
Year 2000 issues arise because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems, which use certain dates in 1999 to
represent something other than a date. The effects of year 2000 issues may
be experienced before, on, or after January 1, 2000, and, if not addressed,
the impact on operations and financial reporting may range from minor
errors to significant systems failure, which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of year 2000 issues affecting the Company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
13. Segmented financial information
The Company operates in a single reportable operating segment relating to
digital prepress equipment. The Company generated revenue from the
development and sale of digital prepress equipment to customers in the
following geographic segments:
<TABLE>
<CAPTION>
Six Months
Years Ended September 30, Ended March 31,
-------------------------- ---------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Canada.......................... $ 1,810 $ 3,134 $ 3,193 $ 591 $ 1,820
U.S. ........................... 32,715 62,441 71,927 35,942 50,544
Europe.......................... 4,501 15,718 41,655 15,547 22,140
Japan........................... 7,020 9,936 5,316 2,786 1,100
Other........................... 1,892 4,354 6,757 4,383 2,453
-------- -------- -------- ------- -------
$ 47,938 $ 95,583 $128,848 $59,249 $78,057
======== ======== ======== ======= =======
</TABLE>
There were no customers representing 10% or more of total revenue in the
six months ended March 31, 1999, the six months ended March 31, 1998, or
the 1998 fiscal year. There was one customer in 1997 representing
approximately 10% of total revenue. In the 1996 fiscal year, there were
four customers representing approximately 51% (18%, 12%, 11% and 10%
individually) of total revenue.
The Company has capital assets located in:
<TABLE>
<CAPTION>
September 30,
--------------- March 31,
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Canada....................................... $14,883 $31,914 $34,820
Other........................................ 1,865 2,232 2,395
------- ------- -------
$16,748 $34,146 $37,215
======= ======= =======
</TABLE>
F-17
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
14. Differences between Canadian and United States accounting principles and
practices
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada (Canadian GAAP)
which differ in certain respects from those principles and practices that
the Company would have followed had its consolidated financial statement
been prepared in accordance with generally accepted accounting principles
in the United States (U.S. GAAP).
(a) Change in accounting policy
Under U.S. GAAP, the change in accounting policy described in note 4,
relating to amortization of capital assets, would be accounted for
prospectively from October 1, 1997 and the cumulative effect of the change
would be disclosed as a separate item in the determination of net earnings.
Since the change disclosed in note 7(b), relating to the issuance of
incentive shares, results in consistency between Canadian GAAP and U.S.
GAAP, no adjustment is required for purposes of this reconciliation.
The effect of these differences would be:
<TABLE>
<CAPTION>
Years Ended September Six Months
30, Ended March 31,
-------------------------- ----------------
1996 1997 1998 1998 1999
-------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings (loss) under
Canadian GAAP............... $ (7,243) $ 5,837 $11,090 $ 5,126 $ 7,631
Reverse retroactive impact of
change in accounting
policy...................... 305 244 - - -
-------- ------- ------- ------- -------
Earnings (loss) before
cumulative effect of change
in accounting policy under
U.S. GAAP................... (6,938) 6,081 11,090 5,126 7,631
Cumulative effect of change
in accounting policy........ - - (732) (732) -
-------- ------- ------- ------- -------
Net earnings (loss) under
U.S. GAAP................... (6,938) 6,081 10,358 4,394 7,631
Retained earnings (deficit),
beginning of year under U.S.
GAAP........................ (6,307) (13,245) (7,164) (7,164) 3,194
-------- ------- ------- ------- -------
Retained earnings (deficit),
end of year under U.S.
GAAP........................ $(13,245) $(7,164) $ 3,194 $(2,770) $10,825
======== ======= ======= ======= =======
Earnings (loss) per share
Basic earnings per share.... $ (0.33) $ 0.27 $ 0.41 $ 0.18 $ 0.28
======== ======= ======= ======= =======
Diluted earnings per share.. $ (0.33) $ 0.25 $ 0.38 $ 0.16 $ 0.27
======== ======= ======= ======= =======
</TABLE>
The cumulative effect of the change in accounting policy reduced basic
earnings per share for the six months ended March 31, 1998 by $0.03 (fiscal
1998--$0.03) and diluted earnings per share for the six months ended March
31, 1998 by $0.03 (fiscal 1998--$0.03).
Comprehensive earnings (loss) is the same as net earnings (loss) under
U.S. GAAP for all periods presented.
F-18
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
14. Differences between Canadian and United States accounting principles and
practices (continued)
(b) Earnings per share
During 1997, the Company adopted Statement of Financial Accounting
Standard No. 128 (FAS 128), Earnings Per Share for U.S. GAAP purposes.
Diluted earnings per share under U.S. GAAP is based on the weighted average
number of Common Shares outstanding which considers the dilutive effect of
share options and warrants by applying the Treasury Stock method.
Under Canadian GAAP, net income is adjusted for the impact of fully
diluted earnings per share by adding to net income the impact of imputed
income that is assumed to result from earnings on the proceeds from the
exercise of outstanding options and warrants. Under U.S. GAAP, no such
adjustment is made to net income in calculating diluted earnings per share.
In addition, under U.S. GAAP, for purposes of determining the weighted
average number of shares outstanding in this calculation the proceeds
deemed to be received on exercise of outstanding dilutive securities are
considered to be applied towards the repurchase of issued common shares.
The following weighted average number of shares was used for the
computation of diluted earnings per share.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended September 30, March 31,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average shares
used in computation of
basic earnings per
share.................. 21,209,172 22,769,212 25,024,788 24,998,256 27,275,538
Weighted average shares
from assumed conversion
of dilutive options.... - 1,422,132 2,011,202 2,425,437 791,297
---------- ---------- ---------- ---------- ----------
Weighted average shares
used in computation of
diluted earnings per
share.................. 21,209,172 24,191,344 27,035,990 27,423,693 28,066,835
========== ========== ========== ========== ==========
</TABLE>
(c) Statement of cash flows
Under U.S. GAAP, no subtotal would be provided in the operating section
of the statement of cash flows.
(d) Impairment of long-lived assets
Under Canadian GAAP, an impairment loss is calculated as the amount by
which the carrying amount of the asset exceeds the undiscounted estimate of
future cash flows from the asset. Under U.S. GAAP, an impairment loss is
calculated as the amount by which the carrying amount of the asset exceeds
the fair value of the asset. To March 31, 1999, no impairment losses have
been recorded under Canadian and U.S. GAAP and, accordingly, no material
differences due to these policies have arisen.
F-19
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
14. Differences between Canadian and United States accounting principles and
practices (continued)
(e) Joint venture
The accounts of the Company's joint venture investment were
proportionately consolidated (see note 2). Under U.S. GAAP, proportionate
consolidation is not permitted. However, under rules promulgated by the
United States Securities and Exchange Commission (SEC), a foreign
registrant may, subject to the provision of additional information which is
set out in Note 2, continue to apply proportionate consolidation for
purposes of registration and other filings, notwithstanding the departure
from U.S. GAAP. Accordingly, the financial statements have not been
adjusted to restate the accounting under U.S. GAAP.
(f) Stock based compensation
The Company has elected to continue to apply the guidance set out in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting for its
employee share options. Under APB 25, because the exercise price of the
Company's employee share option equals the estimated fair value of the
underlying share on the date of grant, no compensation cost is recognized.
Pro forma information regarding net earnings (loss) and earnings (loss)
per share is required by Statement of Financial Accounting Standards No.
123 (FAS 123), Accounting for Stock-Based Compensation, for U.S. GAAP. Had
compensation cost for the Company's share option plan been determined based
on the fair value at the grant date for awards under those plans consistent
with the measurement provisions of FAS 123, the Company's net earnings
(loss) and earnings (loss) per share under U.S. GAAP would have been
adjusted as follows:
<TABLE>
<CAPTION>
Years Ended September Six Months
30, Ended March 31,
------------------------ ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings (loss) - pro
forma......................... $(8,901) $ 1,246 $ 4,906 $ (805) $ 1,206
Basic earnings (loss) per
share - pro forma............. $ (0.42) $ 0.05 $ 0.20 $ (0.03) $ 0.04
Diluted earnings (loss) per
share - pro forma............. $ (0.42) $ 0.05 $ 0.18 $ (0.03) $ 0.04
</TABLE>
Pro forma amounts reflect options granted after the 1995 fiscal year.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option valuation model with the following
assumptions:
<TABLE>
<CAPTION>
Years Ended September Six Months
30, Ended March 31,
----------------------- ---------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Expected dividend yield........... 0% 0% 0% 0% 0%
Expected stock price volatility... 45 51 50 50 49
Risk-free interest rate........... 7.8% 5.0% 5.5% 5.5% 6.0%
Expected life of options.......... 5 years 5 years 5 years 5 years 5 years
</TABLE>
F-20
<PAGE>
Creo Products Inc.
Notes to Consolidated Financial Statements--(Continued)
Information as at March 31, 1999 and for the six months ended March 31, 1999
and March 31, 1998 is unaudited
(Amounts in thousands of U.S. dollars, except per share amounts)
14. Differences between Canadian and United States accounting principles and
practices (continued)
The fair value of the options granted is $6,425 for the six months ended
March 31, 1999 (six months ended March 31, 1998 - $5,199; fiscal 1998 -
$5,452; fiscal 1997 - $4,835; fiscal 1996 - $1,963;).
For purposes of pro-forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period on a
straight-line basis.
(g) Supplementary information: allowance for doubtful accounts
Accounts receivable are disclosed net of allowance for doubtful accounts
as follows:
<TABLE>
<CAPTION>
Years Ended Six Months Ended
September 30, March 31,
-------------------- -------------------
1996 1997 1998 1998 1999
------ ------ ------ -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Charged to expenses............... $ 1 $426 $ 51 $ (45) $ 25
Balance, end of period............ $50 $391 $180 $ 365 $ 362
</TABLE>
15. Subsequent event (unaudited)
The Company has filed a preliminary prospectus and a Registration
Statement on Form F-1 with securities regulatory authorities in the
provinces of British Columbia and Ontario Canada and the United States,
respectively, relating to an issue and sale of the Company's common shares.
F-21
<PAGE>
[Description of Inside Back Cover]
The top half of the inside back cover features a large circle
encapsulating a smaller circle and three photos of groups of people. A pair of
lines forming cross-hares divides the circles at an angle and extends to divide
the page. Below and curving around the bottom portion of the large circle runs
a caption reading "The Creo team is a diverse and highly skilled group, drawn
together by a common passion for technological innovation and a shared focus on
customer success." Below the caption five lines of horizontal text read, "We
believe Creo has the most knowledgeable and experienced CTP customer support
organization in the industry. Our people are committed to building Creo's
reputation as an industry leader that puts customers first." Centered near the
bottom of the page is the CREO logo.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 Shares
Creo Products Inc.
Common Shares
[LOGO OF CREO PRODUCTS INC.]
--------
PROSPECTUS
, 1999
--------
Salomon Smith Barney
Merrill Lynch & Co.
RBC Dominion Securities Corporation
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table lists all expenses, other than the underwriting
discounts and commissions, payable by Creo in connection with the sale of the
common shares being registered. All of the amounts shown are estimates except
for the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 23,978
NASD Filing Fee.................................................. 9,125
Nasdaq National Market Listing Fee............................... 95,000
The Toronto Stock Exchange Listing Fee........................... 45,000
Blue Sky Qualification Fees and Expenses......................... 5,000
Printing and Engraving Expenses.................................. 150,000
Legal Fees and Expenses.......................................... 350,000
Accounting Fees and Expenses..................................... 125,000
Transfer Agent and Registrar Fees................................ 20,000
Miscellaneous.................................................... 26,897
--------
Total.......................................................... $850,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 124 of the Canada Business Corporations Act provides as follows:
(1) Indemnification. Except with respect to an action by or on behalf of the
corporation or body corporate to procure a judgment in its favor, a
corporation may indemnify a director or officer of the corporation, a
former director or officer of the corporation or a person who acts or
acted at the corporation's request as a director or officer of a body
corporate of which the corporation is or was a shareholder or creditor,
and his heirs and legal representatives, against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him with respect to any civil, criminal
or administrative action or proceeding to which he is made a party by
reason of being or having been a director or officer of such corporation
or body corporate, if
(a) he acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
(2) Indemnification in derivative actions. A corporation may with the approval
of a court indemnify a person referred to in sub-section (1) with respect
to an action by or on behalf of the corporation or body corporate to
procure a judgment in its favor, to which he is made a party by reason of
being or having been a director or an officer of the corporation or body
corporate, against all costs, charges and expenses reasonably incurred by
him in connection with such action if he fulfils the conditions set out in
paragraphs (1)(a) and (b).
(3) Indemnity as of right. Notwithstanding anything in this section, a person
referred to in subsection (1) is entitled to indemnity from the
corporation with respect to all costs, charges and expenses reasonably
incurred by him in connection with the defense of any civil, criminal or
administrative action or
II-1
<PAGE>
proceeding to which he is made a party by reason of being or having been a
director or officer of the corporation or body corporate, if the person
seeking indemnity:
(a) was substantially successful on the merits in his defence of the
action or proceeding; and
(b) fulfils the conditions set out in paragraphs (1)(a) and (b).
(4) Directors' and officers' insurance. A corporation may purchase and
maintain insurance for the benefit of any person referred to in subsection
(1) against any liability incurred by him
(a) in his capacity as a director or officer of the corporation, except
where the liability relates to his failure to act honestly and in good
faith with a view to the best interests of the corporation; or
(b) in his capacity as a director or officer of another body corporate
where he acts or acted in that capacity at the corporation's request,
except where the liability relates to his failure to act honestly and in
good faith with a view to the best interests of the body corporate.
(5) Application to court. A corporation or a person referred to in subsection
(1) may apply to a court for an order approving an indemnity under this
section and the court may so order and make any further order it thinks
fit.
(6) Notice to director. An applicant under subsection (5) shall give the
Director notice of the application and the Director is entitled to appear
and be heard in person or by counsel.
(7) Other notice. On an application under subsection (5), the court may order
notice to be given to any interested person and such person is entitled to
appear and be heard in person or by counsel.
Section 7.02 of Bylaw No. 1 of Creo provide as follows:
7.02. Indemnity. Subject to the limitations contained in the Act, the
Corporation shall indemnify a director or officer, a former director or
officer, or a person who acts or acted at the Corporation's request as a
director or officer of a body corporate of which the Corporation is or
was a shareholder or creditor (or a person who undertakes or has
undertaken any liability on behalf of the Corporation or any such body
corporate), and his heirs and legal representatives, against all costs,
charges and expenses, including an amount paid to settle an action or
satisfy a judgement, reasonably incurred by him with respect to any
civil, criminal or administrative action or proceeding to which he is
made a party by reason of being or having been a director or officer of
the Corporation or such body corporate, if
(a) he acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
Creo carries liability insurance which provides for coverage for officers
and directors of Creo and its subsidiaries, after subtracting required
deductibles.
On various dates in 1998 and 1999, Creo entered into indemnification
agreements with its directors and officers providing for limitations on a
director's and officer's liability for judgments, settlements, penalties,
fines, and expenses of defense (including attorneys' fees, bonds and costs of
investigation) arising out of or in any way related to acts of omissions as a
director or an officer, or in any other capacity in which services are
rendered to Creo. Creo believes its indemnification agreements will assist it
in attracting and retaining qualified individuals to serve as directors and
officers. The agreements provide that a director or officer is not entitled to
indemnification under these agreements if
.the director or officer is not relieved of liability under applicable law,
II-2
<PAGE>
.for violations of certain securities laws, or
.for certain claims initiated by the officer or director. In addition,
indemnification may not be available to directors or officers under
Canadian law if any act or omission by a director or officer amounted to a
failure to act honestly and in good faith with a view to the best interests
of Creo and, in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, if the director or
officer did not have reasonable grounds for believing that his conduct was
lawful. Due to the lack of applicable case law, it is not clear whether
indemnification is available in the case of a breach of securities laws of
the United States.
Insofar as indemnification for liabilities arising under the U.S. Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the United States Securities and Exchange
Commission this indemnification is against the public policy position a
expressed by the Securities Act and therefore is unenforceable.
Item 15. Recent Sales of Unregistered Securities
The following is a summary of transactions by Creo involving sales of the
Creo's securities that were not registered under the Securities Act during the
last three years preceding the date of this registration statement:
(a) Between January 6, 1996 and November 21, 1997, Creo issued 18,826
common shares to 7 U.S. residents and 133,878 common shares to 36 non-
U.S. residents at a price of C$0.0005 per share. These shares were
issued in consideration of these individuals' services to Creo.
(b) On May 29, 1997, Creo issued 2,668,802 common shares to 27 U.S.
residents and 664,532 common shares to 15 non-U.S. residents at a price
of $7.50 per share.
(c) Between January 1, 1998 and the date of this registration statement, 8
U.S. residents have exercised options to purchase 2,963,572 common
shares and 26 non-U.S. residents have exercised options to purchase
104,146 common shares, at prices ranging from C$3.75 to C$17.50 per
share.
(d) On November 20, 1998, entities affiliated with The Goldman Sachs group,
Inc. exercised warrants to purchase 2,962,962 common shares at an
exercise price of $6.75 per share.
The issuances to U.S. residents described in Items 15(a) and 15(b) were
exempt from registration under the Securities Act in reliance on Section 4(2)
under the U.S. Securities Act as transactions by an issuer not involving a
public offering. The issuances to U.S. residents described in Item 15(c) were
exempt from registration under the Securities Act in reliance on Rule 701 of
the Securities Act in that they were offered or sold either pursuant to a
written contract relating to compensation. In addition, the issuances were
exempt from registration under Section 4(2) of the Securities Act as
transactions by an issuer not involving a public offering. The issuances
described in Item 15(d) were exempt from registration under the Securities Act
as transactions by an issuer not involving a public offering. Each of the
securities listed above but not otherwise described in this paragraph was sold
to persons who were neither nationals nor residents of the United States and
no facilities or instrumentalities of U.S. interstate commerce were used in
connection with any offer or sale of the securities listed above but not
described in this paragraph.
Item 16. Exhibits and Financial Statement Schedules
(a)Exhibits
<TABLE>
<C> <S>
+1.1 Form of Underwriting Agreement
*3.1 Certificate of Incorporation of the Registrant, as Amended
+3.2 By-laws of the Registrant and Amendments to the By-laws of the
Registrant
*4.1 Form of Stock Certificate
*5.1 Opinion and Consent of Getz Prince Wells
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*10.1 Agreement dated as at May 4, 1998, between Creo and Heidelberger
Druckmaschinen AG
*10.2 Form of Indemnification Agreement between Creo and each of its
directors and officers
*10.3 1996 Stock Option Plan and form of Notice of Stock Option Grant and
Option Agreement thereunder (for U.S. and Canadian employees)
*10.4 Shareholders Agreement dated as at April 24, 1994, between Creo and
certain shareholders, with amendments dated as at November 21, 1994;
June 30, 1995; November 2, 1995; March 22, 1996; June 1, 1997
*10.5 Profit Sharing Plan
+10.6 Form of Management Non-Compete Agreement between Creo and N. David
Brown, Mark Dance, Daniel Gelbart, Thomas Kordyback and Amos Michelson
*11.1 Statement Regarding Computation of Per Share Earnings
*21.1 Subsidiaries of the Company
+23.1 Consent of KPMG LLP, Chartered Accountants
+23.2 Consent of Price Waterhouse, Chartered Accountants
*23.3 Consent of Getz Prince Wells
*23.4 Consent of Thorsteinssons, Tax Lawyers
*23.5 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
*24.1 Power of Attorney
</TABLE>
- --------
+ Filed herewith.
* Previously filed.
(b)Financial Statement Schedules
Schedules have been omitted because the information required to be provided
is not applicable or is shown in the Consolidated Financial Statements or the
Notes.
Item 17. Undertakings
(a) The Registrant undertakes to provide to the underwriter at the closing
specified in the underwriting agreements certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (Securities Act) may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against the public
policy position as expressed by the Securities act and therefore is
unenforceable. In the event that a claim for indemnification against such
liabilities (other than 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.
(c) The undersigned Registrant undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Creo pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration statement
as at the time it was declared effective; and
(ii) For the purpose 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
in the registration statement, and the offering of the securities at the time
shall be deemed to be the initial bona fide offering of the securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the U.S. Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form F-1 and has duly caused this
Amendment No. 2 to its registration statement on Form F-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Burnaby,
Province of British Columbia, on the 1st day of July, 1999.
CREO PRODUCTS INC.
/s/ THOMAS A. KORDYBACK
By __________________________________
Thomas A. Kordyback
Chief Financial Officer
Pursuant to the requirements of the U.S. Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
* AMOS MICHELSON Chief Executive Officer and
---------------------------- Director July 1, 1999
Amos Michelson (Principal Executive Officer)
/s/ THOMAS A. KORDYBACK Vice President, Finance, July 1, 1999
---------------------------- Chief Financial Officer and
Secretary (Principal
Financial and Accounting
Officer)
Thomas A. Kordyback
* DANIEL GELBART President and Director July 1, 1999
----------------------------
Daniel Gelbart
* RAPHAEL H. AMIT Chair of the Board and July 1, 1999
---------------------------- Director
Raphael H. Amit
* DAVID A. BENNETT Director July 1, 1999
----------------------------
David A. Bennett
* THOMAS D. BERMAN Director July 1, 1999
----------------------------
Thomas D. Berman
* JOHN J. BU Authorized Representative in July 1, 1999
---------------------------- the United States, Director
John J. Bu
* DOUGLAS H. RICHARDSON Director July 1, 1999
----------------------------
Douglas H. Richardson
* KENNETH A. SPENCER Director July 1, 1999
----------------------------
Kenneth A. Spencer
*By: /s/ THOMAS A. KORDYBACK
----------------------------
Thomas A. Kordyback
(Attorney-in-fact)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
+1.1 Form of Underwriting Agreement
*3.1 Certificate of Incorporation of the Registrant, as
Amended
+3.2 By-laws of the Registrant and Amendments to the By-Laws
of the Registrant
*4.1 Form of Stock Certificate
*5.1 Opinion and Consent of Getz Prince Wells
*10.1 Agreement dated as at May 4, 1998, between Creo and
Heidelberger Druckmaschinen AG
*10.2 Form of Indemnification Agreement between Creo and each
of its directors and officers
*10.3 1996 Stock Option Plan and form of Notice of Stock
Option Grant and Option Agreement thereunder (for U.S.
and Canadian employees)
*10.4 Shareholders Agreement dated as at April 24, 1994,
between Creo and certain shareholders, with amendments
dated as at November 21, 1994; June 30, 1995; November
2, 1995; March 22, 1996; June 1, 1997
*10.5 Profit Sharing Plan
+10.6 Form of Management Non-Compete Agreement between Creo
and N. David Brown, Mark Dance, Daniel Gelbart, Thomas
Kordyback and Amos Michelson
*11.1 Statement Regarding Computation of Per Share Earnings
*21.1 Subsidiaries of the Company
+23.1 Consent of KPMG LLP, Chartered Accountants
+23.2 Consent of Price Waterhouse, Chartered Accountants
*23.3 Consent of Getz Prince Wells
*23.4 Consent of Thorsteinssons, Tax Lawyers
*23.5 Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation
*24.1 Power of Attorney
</TABLE>
- --------
+ Filed herewith.
* Previously filed.
<PAGE>
EXHIBIT 1.1
Creo Products Inc.
5,000,000 /a
-
Common (no par value) Shares
Underwriting Agreement
New York, New York
, 1999
Salomon Smith Barney Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
RBC Dominion Securities Inc.,
as Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Creo Products Inc., a corporation organized under the laws of Canada
(the "Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto, for whom the Representatives are acting as representatives,
4,000,000 Common Shares, no par value ("Common Shares") of the Company, and the
persons named in Schedule II hereto ("Selling Shareholders") propose to sell to
the several Underwriters 1,000,000 Common Shares (said shares to be issued and
sold by the Company and sold by the Selling Shareholders collectively being
hereinafter called the "Underwritten Shares"). The Selling Shareholders also
propose to grant to the Underwriters an option to purchase up to 750,000
additional Common Shares to cover over-allotments (the "Option Shares" and
together with the Underwritten Shares, the "Securities").
To the extent there are no additional Underwriters listed on Schedule
I other than you, the term Representatives as used in this Underwriting
Agreement shall mean you, as Underwriters, and the terms Representatives and
Underwriters shall mean either the singular or plural as the context requires.
The use of the neuter in this Underwriting Agreement shall include the feminine
and masculine wherever appropriate. Certain terms used in this Underwriting
Agreement are defined in Section 20 hereof.
As part of the offering contemplated by this Agreement, Salomon Smith
Barney Inc. ("Salomon Smith Barney") and Merrill Lynch, Pierce, Fenner & Smith
_____________________
/a/ Plus an option to purchase from the Selling Shareholders up to 750,000
-
Option Shares to cover over-allotments.
<PAGE>
2
Incorporated ("Merrill Lynch") have agreed to reserve out of the Securities set
forth opposite its name on the Schedule I to this Agreement, up to 250,000
Common Shares, for sale to the Company's employees, officers, and directors and
other parties associated with the Company (collectively, "Participants"), as set
forth in the Prospectuses under the heading "Underwriting" (the "Directed Share
Program"). The Shares to be sold by Salomon Smith Barney and Merrill Lynch
pursuant to the Directed Share Program (the "Directed Shares") will be sold by
Salomon Smith Barney and Merrill Lynch pursuant to this Agreement at the public
offering price. Any Directed Shares not orally confirmed for purchase by any
Participants by the end of the business day on which this Agreement is executed
will be offered to the public by Salomon Smith Barney and Merrill Lynch as set
forth in the Prospectus.
Two forms of prospectus are to be used in connection with the offering
and sale of Securities contemplated by the foregoing, one relating to the
offering and sale of the Securities in the United States and one relating to the
offering and sale of the Securities in Canada. The forms of prospectuses will be
identical except for certain substitute pages. References herein to any
prospectus, whether in preliminary or final form, and whether as amended or
supplemented, shall include the U.S. and Canadian versions thereof.
1. Representations and Warranties.
------------------------------
(i) The Company represents and warrants to, and agrees with, each
Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-78481) on Form F-1, including
related preliminary prospectuses, for registration under the Act of the
offering and sale of the Securities. The Company may have filed one or more
amendments thereto, including the related preliminary prospectuses, each of
which has previously been furnished to you. The Company will next file with
the Commission either (1) prior to the Effective Date of such registration
statement, a further amendment to such registration statement (including
the form of final prospectuses) or (2) after the Effective Date of such
registration statement, final prospectuses in accordance with Rules 430A
and 424(b). In the case of clause (2), the Company has included in such
registration statement, as amended at the Effective Date, all information
(other than Rule 430A Information) required by the Act and the rules
thereunder to be included in such registration statement and the
Prospectuses. As filed, such amendment and form of final prospectuses, or
such final prospectuses, shall contain all Rule 430A Information, together
with all other such required information, and, except to the extent the
Representatives shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectuses) as the Company has
advised you, prior to the Execution Time, will be included or made therein.
<PAGE>
3
(b) Pursuant to orders obtained from the British Columbia and
Ontario Securities Commissions (the "Canadian Securities Regulatory
Authorities"), the Company meets the requirements under the securities
legislation of each of the provinces of British Columbia and Ontario (the
"Canadian Qualifying Jurisdictions") and the respective regulations
thereunder and the published rules, policy statements, blanket rulings,
orders and notices of the securities commission or similar regulatory
authority in each of the Canadian Qualifying Jurisdictions, including the
rules and procedures established pursuant to National Policy Statement No.
44 of the Canadian Securities Administrators for the pricing of securities
after the final prospectus is receipted (the "PREP Procedures"), with
respect to the Securities (collectively, the "Canadian Securities Laws"); a
Canadian Preliminary Prospectus and a Canadian Final PREP Prospectus have
been filed with the Canadian Securities Regulatory Authorities; a final
receipt in respect of each of the Canadian Qualifying Jurisdictions has
been obtained from each of the Canadian Securities Regulatory Authorities
with respect to such Canadian Final PREP Prospectus and any amendment
thereto in the form heretofore delivered to you for each of the other
Underwriters (together with all documents filed in connection therewith and
all documents incorporated by reference therein); no other document with
respect to such Canadian Final PREP Prospectus or amendment thereto, has
heretofore been filed or transmitted for filing with the Canadian
Securities Regulatory Authorities; no order having the effect of ceasing or
suspending the distribution of the Shares has been issued by any Canadian
Securities Regulatory Authority and no proceeding for that purpose has been
initiated or, to the best of the Company's knowledge, threatened by any
Canadian Securities Regulatory Authority.
(c) On the Effective Date, the Registration Statement did or
will, and when the Prospectuses are first filed (if required) in accordance
with Rule 424(b) and on the Closing Date (as defined in this Underwriting
Agreement) and on any date on which Option Securities are purchased, if
such date is not the Closing Date (a "settlement date"), each Prospectus
(and any amendments or supplements thereto) will comply in all material
respects with the applicable requirements of the Act and the rules
thereunder and Canadian Securities Laws, as the case may be, and will
constitute full, true and plain disclosure of all material facts relating
to the Company and its subsidiaries, considered as a whole, and the
Securities; on the Effective Date and at the Execution Time, the
Registration Statement did not or will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, each Prospectus, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing pursuant
to Rule 424(b) and on the Closing Date and any settlement date, each
Prospectus (together with any supplement thereto) will not, include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
--------
however, that the Company makes no
-------
<PAGE>
4
representations or warranties as to the information contained in or omitted
from the Registration Statement, or the Prospectuses (or any supplement
thereto) in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement or
the Prospectuses (or any supplement thereto).
(d) No stamp or other issuance or transfer taxes or duties and no
capital gains, income, withholding or other taxes are payable by or on
behalf of the Underwriters in connection with (A) the sale and delivery of
the Securities in the manner contemplated by this Underwriting Agreement or
(B) the sale and delivery by the Underwriters of the Securities as
contemplated herein.
(e) The Company is not a Passive Foreign Investment Company
("PFIC") within the meaning of Section 1296 of the United States Internal
Revenue Code of 1986, as amended, and does not expect to become a PFIC in
the future.
(f) The Company is not a "foreign personal holding company"
within the meaning of the United States Internal Revenue Code of 1986, as
amended.
(g) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or organized
with full corporate power and authority to own or lease, as the case may
be, and to operate its properties and conduct its business as described in
the Prospectuses, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction
which requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect"), whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectuses.
(h) All the outstanding shares of capital stock of each
subsidiary have been duly and validly authorized and issued and are fully
paid and nonassessable, and, except as otherwise set forth in the
Prospectuses, all outstanding shares of capital stock of the subsidiaries
[(except for qualifying director shares)] are owned by the Company either
directly or through wholly owned subsidiaries free and clear of any
perfected security interest or any other security interests, claims, liens
or encumbrances;
(i) The Company's authorized equity capitalization is as set
forth in the Prospectuses; the capital stock of the Company conforms in all
material respects to the description thereof contained in the Prospectuses;
the
<PAGE>
5
outstanding Common Shares (including the Securities being sold pursuant to
the Underwriting Agreement by the Selling Shareholders) have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities being sold under the Underwriting Agreement by the Company have
been duly and validly authorized, and, when issued and delivered to and
paid for by the Underwriters pursuant to this Underwriting Agreement, will
be fully paid and nonassessable; the Securities being sold by the Selling
Shareholders are duly listed, and admitted and authorized for trading, on
the NASDAQ National Market ("NASDAQ") and the Securities being sold under
the Underwriting Agreement by the Company are duly listed, and admitted and
authorized for trading, subject to official notice of issuance, on NASDAQ
and the Securities have been conditionally approved for listing on The
Toronto Stock Exchange (the "TSE"), subject only to the filing of documents
and evidence of satisfactory distribution in accordance with the rules of
such exchange on or before __________, 1999; the certificates for the
Securities are in valid and sufficient form; the holders of outstanding
shares of capital stock of the Company are not entitled to preemptive or
other rights to subscribe for the Securities; and, except as set forth in
the Prospectuses under the captions "Capitalization" and "Management", no
options, warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into or exchange
any securities for, shares of capital stock of or ownership interests in
the Company are outstanding.
(j) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectuses, or to be filed as an exhibit thereto, which is not described
or filed as required; and the statements in the Prospectuses under the
headings "Description of Share Capital," "Interests of Management and
Others in Certain Material Transactions," "Taxation" (in the case of the
U.S. Prospectus only) and "Business-Our Joint Venture with Heidelberg"
fairly summarize the matters therein described.
(k) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
(l) The Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof as
described in the Prospectuses, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(m) No consent, approval, authorization, filing with or order of
any court or governmental agency or body is required in connection with the
transactions contemplated herein except such as have been obtained under
the Act and the Canadian Securities Laws, and such as may be required under
the blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectuses.
<PAGE>
6
(n) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor the
fulfillment of the terms hereof will conflict with, result in a breach or
violation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to,
(i) the charter or by-laws of the Company or any of its subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which the Company or any of its subsidiaries is a
party or bound or to which its or their property is subject, or (iii) any
statute, law, rule, regulation, judgment, order or decree applicable to the
Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its subsidiaries or any of
its or their properties.
(o) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement, other
than those that either have been expressly waived prior to the date hereof,
or have been satisfied in full by virtue of including such securities as
Securities herein.
(p) The financial statements of the Company included in the
Prospectuses comply as to form in all material respects with the applicable
requirements of the Act and the related rules and regulations
thereunder and Canadian Securities Laws. The financial statements of the
Company included in the Prospectuses present fairly the consolidated
financial position of the Company and its subsidiaries as of the dates
indicated and the consolidated results of operations and changes in
financial position of the Company and its subsidiaries for the periods
specified. Such financial statements have been prepared in conformity with
generally accepted accounting principles in Canada ("Canadian GAAP"),
consistently applied throughout the periods involved except as otherwise
stated therein. The summary and selected financial data included in the
Prospectuses fairly present, on a basis stated in the Prospectuses, the
information included therein and have been compiled on a basis consistent
with that of the financial statements included in the Prospectuses. The
reconciliation of net income and total shareholders' equity, as reported
under Canadian GAAP, to generally accepted accounting principles in the
United States ("U.S. GAAP") included in the Prospectuses complies with the
requirements of item 18 of Form 20-F under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(q) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to have a Material Adverse
Effect, whether or not arising
<PAGE>
7
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(r) Each of the Company and each of its subsidiaries owns or
leases all such properties as are necessary to the conduct of its
operations as presently conducted, except where any failure to own or lease
any such property would not have a Material Adverse Effect, whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectuses.
(s) Neither the Company nor any subsidiary is in violation or
default of (i) any provision of its charter or bylaws, (ii) the terms of
any indenture, contract, lease, mortgage, deed of trust, note agreement,
loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is
subject, or (iii) any statute, law, rule, regulation, judgment, order or
decree of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or
such subsidiary or any of its properties, as applicable, except, in the
case of clauses (ii) and (iii) above, where any such violation or default
would not have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectuses.
(t) KPMG LLP and PricewaterhouseCoopers LLP, who have certified
certain financial statements of the Company and its consolidated
subsidiaries and delivered their report with respect to the audited
consolidated financial statements and schedules included in the
Prospectuses, are independent public accountants with respect to the
Company within the meaning of the Act and the applicable published rules
and regulations thereunder and Canadian Securities Laws.
(u) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions
thereof, except in any case in which the failure so to file would not have
a Material Adverse Effect, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently being
contested in good faith or as would not have a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectuses
(exclusive of any supplement thereto).
(v) No labor problem or dispute with the employees of the Company
or any of its subsidiaries exists or is threatened or imminent, and the
<PAGE>
8
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or its subsidiaries' principal suppliers,
contractors or customers, that could have a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectuses
(exclusive of any supplement thereto).
(w) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which they are engaged; all material policies of insurance and fidelity or
surety bonds insuring the Company or any of its subsidiaries or their
respective businesses, assets, employees, officers and directors are in
full force and effect; the Company and its subsidiaries are in compliance
with the terms of such policies and instruments in all material respects;
and there are no material claims by the Company or any of its subsidiaries
under any such policy or instrument as to which any insurance company is
denying liability or defending under a reservation of rights clause;
neither the Company nor any such subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectuses (exclusive of any
supplement thereto).
(x) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from the
Company or from transferring any of such subsidiary's property or assets to
the Company or any other subsidiary of the Company, except as described in
or contemplated by the Prospectuses.
(y) The Company and its subsidiaries possess all licenses,
certificates, permits and other authorizations issued by the appropriate
federal, state or foreign regulatory authorities reasonably necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect, whether
or not arising from transactions in the ordinary course of business, except
as may be subject to restrictions under applicable corporate dividend law
or except as set forth in or contemplated in the Prospectuses (exclusive of
any supplement thereto).
<PAGE>
9
(z) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with Canadian GAAP
and to maintain asset accountability; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(aa) The Company has not taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
(bb) The Company and its subsidiaries are (i) in compliance with
any and all applicable foreign, federal, state, provincial, municipal and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have received and
are in compliance with all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) have not received notice of any actual or potential
liability for the investigation or remediation of any disposal or release
of hazardous or toxic substances or wastes, pollutants or contaminants,
except where such non-compliance with Environmental Laws, failure to
receive required permits, licenses or other approvals, or liability would
not, individually or in the aggregate, have a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectuses
(exclusive of any supplement thereto). Except as set forth in the
Prospectuses, neither the Company nor any of the subsidiaries has been
named as a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended.
(cc) In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws, or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or
in the aggregate, have a Material Adverse Effect, whether or not arising
from
<PAGE>
10
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectuses (exclusive of any supplement thereto).
(dd) The Company and its subsidiaries own, possess, license or
have other rights to use, on reasonable terms, all patents, patent
applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, technology, know-how and other intellectual property
(collectively, the "Intellectual Property") reasonably necessary for the
conduct of the Company's business as now conducted or as proposed in the
Prospectus to be conducted. Except as set forth in the Prospectuses under
the caption "Business--Intellectual Property" and "Business-Legal
Proceedings," (a) to the best knowledge of the Company, there are no rights
of third parties to any such Intellectual Property; (b) to the best
knowledge of the Company, there is no material infringement by third
parties of any such Intellectual Property; (c) there is no pending or, to
the best knowledge of the Company, threatened action, suit, proceeding or
claim by others challenging the Company's rights in or to any such
Intellectual Property, and the Company is unaware of any facts which would
form a reasonable basis for any such claim; (d) there is no pending or, to
the best knowledge of the Company, threatened action, suit, proceeding or
claim by others challenging the validity or scope of any such Intellectual
Property, and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (e) there is no pending or, to the
best knowledge of the Company, threatened action, suit, proceeding or claim
by others that the Company infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary rights of others,
and the Company is unaware of any other fact which would form a reasonable
basis for any such claim; (f) to the best knowledge of the Company, there
is no U.S. patent or published U.S. patent application which contains
claims that dominate or may dominate any Intellectual Property described in
the Prospectuses as being owned by or licensed to the Company or that
interferes with the issued or pending claims of any such Intellectual
Property; and (g) there is no prior art of which the Company is aware that
may render any U.S. patent held by the Company invalid or any U.S. patent
application held by the Company unpatentable which has not been disclosed
to the U.S. Patent and Trademark Office.
(ee) The Company and its subsidiaries have implemented a
comprehensive, detailed program to analyze and address the risk that their
computer hardware and software may be unable to recognize and properly
execute date-sensitive functions involving certain dates prior to and any
dates after December 31, 1999 (the "Year 2000 Problem") and has determined
that their computer hardware and software are and will be able to process
all date information prior to and after December 31, 1999 without any
errors, aborts, delays or other interruptions in operations associated with
the Year 2000 Problem, except for errors, aborts, delays or other
interruptions in operations associated with the Year 2000 Problem which
would not have a Material Adverse Effect, except as set forth in or
contemplated in the Prospectuses; and the Company
<PAGE>
11
believes, after due inquiry, that each material supplier, vendor, customer
or financial service organization used or serviced by the Company and its
subsidiaries has remedied or will remedy on a timely basis the Year 2000
Problem, except to the extent that a failure to remedy by any such
supplier, vendor, customer or financial service organization would not have
a Material Adverse Effect. The Company is in compliance with the
Commission's staff legal bulletin No. 5 dated January 12, 1998 related to
Year 2000 compliance, as amended to date.
(ff) Neither the Company nor any of its subsidiaries nor any of
its or their properties or assets has any immunity from the jurisdiction of
any court or from any legal process (whether through service or notice,
attachment prior to judgment, attachment in aid of execution or otherwise)
under the laws of the Province of British Columbia and the federal laws of
Canada applicable therein.
(gg) The Company has duly authorized, executed and delivered the
Agreement made as of May 4, 1998 between the Company and Heidelberger
Druckmaschinen AG ("Heidelberg") (the "JV Agreement"); the JV Agreement
constitutes a legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms; and except as
disclosed in the Prospectuses, neither the Company nor, to the best of the
Company's knowledge, Heidelberg is in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
the JV Agreement.
(hh) Other than as described in the Prospectuses, under the
current laws and regulations of Canada, all dividends and other
distributions declared and payable on the Common Shares may be paid by the
Company to the stockholders in Canada in Canadian Dollars that may be
converted into foreign currency and freely transferred out of Canada, and
all such dividends and other distributions made to shareholders who are not
residents of Canada will not be subject to Canada income, withholding or
other taxes under the laws and regulations of Canada and are otherwise free
and clear of any other tax, duty withholding or deduction in Canada and
without the necessity of obtaining any governmental authorization in
Canada.
Furthermore, the Company represents and warrants to Salomon Smith
Barney and Merrill Lynch that (i) the Registration Statement, the
Prospectuses and any preliminary prospectus comply, and any further
amendments or supplements thereto will comply, with any applicable laws or
regulations of foreign jurisdictions in which the Prospectuses or any
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or
qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the
securities laws and regulations of foreign jurisdictions in which the
Directed Shares are offered outside the United States.
<PAGE>
12
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by
the Company, as to matters covered thereby, to each Underwriter.
(ii) Each Selling Shareholder, severally and not jointly, represents
and warrants to, and agrees with, each Underwriter that:
(a) Such Selling Shareholder is the lawful owner of the Common
Shares to be sold by such Selling Shareholder hereunder and upon the sale
and delivery of, and payment for, such Securities as provided herein, the
Selling Shareholder will convey to the Underwriters good and valid title to
such Common Shares, free and clear of all pledges, liens, encumbrances,
equities and clauses whatsoever.
(b) Such Selling Shareholder has not taken, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities.
(c) Certificates in negotiable form for such Selling
Shareholder's Common Shares have been placed in custody, for delivery
pursuant to the terms of this Underwriting Agreement, under a Custody
Agreement and Power of Attorney duly authorized (if applicable), executed
and delivered by such Selling Shareholder, in the form heretofore furnished
to you (the "Custody Agreement"), with Leon Getz., Esq., American
Securities & Transfer Inc. as Custodian (the "Custodian"); the Securities
represented by the certificates so held in custody for each Selling
Shareholder are subject to the interests under this Underwriting Agreement
of the Underwriters; the arrangements for custody and delivery of such
certificates, made by such Selling Shareholder under this Underwriting
Agreement and under the Custody Agreement, are not subject to termination
by any acts of such Selling Shareholder, or by operation of law, whether by
the death or incapacity of such Selling Shareholder or the occurrence of
any other event; and if any such death, incapacity or any other such event
shall occur before the delivery of the Securities under this Underwriting
Agreement, certificates for Securities will be delivered by the Custodian
in accordance with the terms and conditions of this Underwriting Agreement
and the Custody Agreement as if such death, incapacity or other event had
not occurred, regardless of whether or not the Custodian shall have
received notice of such death, incapacity or other event.
(d) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such
Selling Shareholder of the transactions contemplated in this Underwriting
Agreement, except such as may have been obtained under the Act and the
Canadian Securities
<PAGE>
13
Laws and such as may be required under the blue sky laws of any
jurisdiction and the securities laws of any jurisdiction outside the United
States in connection with the purchase and distribution of the Securities
by the Underwriters and such other approvals as have been obtained.
(e) None of the execution and delivery of the Custody Agreement,
the sale of the Common Shares being sold by the Selling Shareholder or the
consummation of any other of the transactions contemplated in this
Underwriting Agreement by such Selling Shareholder or the fulfillment of
the terms hereof by such Selling Shareholder will conflict with, result in
a breach or violation of, or constitute a default under any law or the
Certificate of Incorporation or By-laws of such Selling Shareholder if such
Selling Shareholder is a corporation, the partnership agreement of such
Selling Shareholder if such Selling Shareholder is a partnership or any
comparable organizational documents if such Selling Shareholder is another
form of organization, or the terms of any indenture or other agreement or
instrument to which such Selling Shareholder is a party or bound, or any
judgment, order or decree applicable to such Selling Shareholder of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Shareholder.
(f) No stamp or other issuance or transfer taxes or duties and no
capital gains, income, withholding or other taxes are payable by or on
behalf of the Underwriters in connection with (A) the sale and delivery by
such Selling Shareholder of Common Shares to or for the respective accounts
of the Underwriters in the manner contemplated herein, and (B) the sale and
delivery by the Underwriters of such Common Shares in the manner
contemplated herein.
(g) Without having to determine independently the accuracy or
completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration
Statement, such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in this Section 1
are not true and correct, is familiar with the Registration Statement and
has no knowledge of any material fact, condition or information not
disclosed in the Prospectuses or any supplement thereto which has adversely
affected or may adversely affect the business of the Company or any of its
subsidiaries; and the sale of Common Shares by such Selling Shareholder
pursuant hereto is not prompted by any information concerning the Company
or any of its subsidiaries which is not set forth in the Prospectuses or
any supplement thereto.
(h) In respect of any statements in or omissions from the
Registration Statement and or the Prospectuses or any supplements thereto
made in reliance upon and in conformity with information furnished in
writing to the Company by any Selling Shareholder specifically for use in
connection with the preparation thereof, such Selling Shareholder hereby
makes the same
<PAGE>
14
representations and warranties to each Underwriter as the Company makes to
such Underwriter under paragraph (i)(c) of this Section.
(i) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectuses, except as expressly provided in the Prospectuses for the sale
of Securities by the Selling Shareholders, such Selling Shareholder shall
not exercise any registration rights relating to the Common Shares and
shall not offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder, any Common Shares or securities of the Company that are
substantially similar to the Common Shares, including but not limited to
any securities that are convertible into or exchangeable for, or that
represent the right to receive, Common Shares or any such substantially
similar securities (other than pursuant to employee share options
outstanding as of, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement)
without your prior written consent.
(j) In order to document the Underwriters/'/ compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Shareholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly
contemplated and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
Any certificate signed by any officer of any Selling Shareholder and
delivered to the Representatives or counsel for the Underwriters in
connection with the offering of the Securities shall be deemed a
representation and warranty by such Selling Shareholder, as to matters
covered thereby, to each Underwriter.
2. Purchase and Sale.
-----------------
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties in this Underwriting Agreement set forth,
the Company and the Selling Shareholders agree, severally and not jointly,
to sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company and the Selling Shareholders, at a
purchase price of U.S. $ per Common Share, the amount of the
Underwritten Shares set forth opposite such Underwriter's name in Schedule
I to this Underwriting Agreement.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Selling Shareholders
named in Schedule II hereto hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
750,000 Option Shares at the same purchase price per share as the
Underwriters shall pay for the Underwritten
<PAGE>
15
Shares. Said option may be exercised only to cover over-allotments in the
sale of the Underwritten Shares by the Underwriters. Said option may be
exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of the Prospectuses upon written notice
by the Representatives to such Selling Shareholders setting forth the
number of shares of the Option Shares as to which the several Underwriters
are exercising the option and the settlement date. The maximum number of
Option Shares which each Selling Shareholder agrees to sell is set forth in
Schedule II hereto. In the event that the Underwriters exercise less than
their full over-allotment option, the number of Option Shares to be sold by
each Selling Shareholder listed on Schedule II shall be, as nearly as
practicable, in the same proportion as the maximum number of Option Shares
to be sold by each Selling Shareholder and the number of Option Shares to
be sold. The number of Option Shares to be purchased by each Underwriter
shall be the same percentage of the total number of shares of the Option
Shares to be purchased by the several Underwriters as such Underwriter is
purchasing of the Underwritten Securities, subject to such adjustments as
you in your absolute discretion shall make to eliminate any fractional
shares.
3. Delivery and Payment. Delivery of and payment for the
---------------------
Underwritten Shares and the Option Shares (if the option provided for in Section
2(b) hereof shall have been exercised on or before the third Business Day prior
to the Closing Date) shall be made at 10:00 AM, New York City time, on
, 1999, or at such time on such later date not more than three Business Days
after the foregoing date as the Representatives shall designate, which date and
time may be postponed by agreement among the Representatives, the Company and
the Selling Shareholders or as provided in Section 9 hereof (such date and time
of delivery and payment for the Securities being herein called the "Closing
Date"). Delivery of the Securities shall be made to the Representatives for the
respective accounts of the several Underwriters against payment by the several
Underwriters through the Representatives of the respective aggregate purchase
prices of the Securities being sold by the Company and each of the Selling
Shareholders to or upon the order of the Company and the Selling Shareholders by
wire transfer payable in same-day funds to the accounts specified by the Company
and the Selling Shareholders. Delivery of the Underwritten Shares and the
Option Shares shall be made through the facilities of The Depository Trust
Company unless the Representatives shall otherwise instruct.
Each Selling Shareholder will pay all applicable state transfer taxes,
if any, involved in the transfer to the several Underwriters of the Securities
to be purchased by them from such Selling Shareholder and the respective
Underwriters will pay any additional stock transfer taxes involved in further
transfers.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Selling Shareholders named
in Schedule II hereto will deliver the Option Shares (at the expense of the
Company) to the Representatives, at 388 Greenwich Street, New York, New York, on
the date specified by the Representatives (which shall be within three Business
Days after exercise of said
<PAGE>
16
option) for the respective accounts of the several Underwriters, against payment
by the several Underwriters through the Representatives of the purchase price
thereof to or upon the order of the Selling Shareholders named in Schedule II by
wire transfer payable in same-day funds to the accounts specified by the Selling
Shareholders named in Schedule II hereto. If settlement for the Option Shares
occurs after the Closing Date, such Selling Shareholders will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
-------------------------
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements.
----------
(i) The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of the
Registration Statement or amendment or supplement to the Prospectuses or
any Rule 462(b) Registration Statement unless the Company has furnished you
a copy for your review prior to filing and will not file any such proposed
amendment or supplement to which you reasonably object. Subject to the
foregoing sentence, (1) if the Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the Prospectus is otherwise
required under Rule 424(b), the Company will cause the U.S. Prospectus,
properly completed, and any supplement thereto to be filed with the
Commission pursuant to the applicable paragraph of Rule 424(b) within the
time period prescribed and (2) the Company will cause to be filed the
supplemented Final PREP Prospectus (the "Canadian Supplemental PREP
Prospectus") setting forth the information that was omitted from the
Canadian Final PREP Prospectus not later than the close of business on the
second business day after the execution and delivery of this Agreement; and
the Company, in each case, will provide evidence satisfactory to the
Representatives of such timely filing. The Company will promptly advise
the Representatives (1) when the Registration Statement, if not effective
at the Execution Time, shall have become effective, (2) when the
Prospectuses, and any amendment or supplement thereto, shall have been
filed (if required) with the Commission pursuant to Rule 424(b) or with any
Canadian Securities Regulatory Authority, or when any Rule 462(b)
Registration Statement shall have been filed with the Commission, (3) when,
prior to termination of the offering of the Securities, any amendment to
the Registration Statement shall have been filed or become effective, (4)
of any request by the Commission or any Canadian
<PAGE>
17
Securities Regulatory Authority or their staff for any amendment of the
Registration Statement, or any Rule 462(b) Registration Statement, or for
any supplement to the Prospectuses or for any additional information, (5)
of the issuance by the Commission or any Canadian Security Regulatory
Authority of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding
for that purpose and (6) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the institution or threatening of any
proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order or the suspension of any such
qualification and, if issued, to obtain as soon as possible the withdrawal
thereof.
(b) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act or the Canadian Securities Laws,
any event occurs as a result of which the Prospectus as then supplemented
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall be
necessary to amend the Registration Statement or amend or supplement the
Prospectus to comply with the Act, the Canadian Securities Laws, or the
rules thereunder, the Company promptly will (1) notify the Representatives
of any such event, (2) prepare and file with the Commission and the
Canadian Securities Regulatory Authorities subject to the second sentence
of paragraph (i)(a) of this Section 5, an amendment or supplement which
will correct such statement or omission or effect such compliance and (3)
supply any supplemented Prospectus to you in such quantities as you may
reasonably request.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an earnings
statement or statements of the Company and its subsidiaries which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under the
Act.
(d) The Company will furnish to the Representatives and counsel
for the Underwriters signed copies of the Registration Statement (including
exhibits thereto) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Act and the
Canadian Securities Laws, as many copies of each Preliminary Prospectus and
the Prospectuses and any supplement or amendment thereto, at such times and
at such locations as the Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification
of the Securities for sale under the laws of such jurisdictions as the
Representatives may designate and will maintain such qualifications in
effect so long as required for the distribution of the Securities; provided
that in no event
<PAGE>
18
shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action that
would subject it to service of process in suits, other than those arising
out of the offering or sale of the Securities, in any jurisdiction where it
is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney, offer, announce an offering of, sell, contract to
sell, pledge, or otherwise dispose of (or enter into any transaction which
is designed to, or might reasonably be expected to, result in the
disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Company or any
affiliate of the Company or any person in privity with the Company or any
affiliate of the Company) directly or indirectly, of any Common Shares or
any securities convertible into, or exercisable, or exchangeable for,
Common Shares, including the filing (or participation in the filing) of a
registration statement with the Commission in respect of Common Shares, or
establish or increase a put equivalent position or liquidate or decrease a
call equivalent position within the meaning of Section 16 of the Exchange
Act, for a period of 180 days after the date of the Underwriting Agreement,
provided, however, that the Company may issue and sell Common Shares
pursuant to any stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the Execution Time for the
benefit of the Company's employees, consultants and directors and the
Company may issue Common Shares issuable upon the conversion of securities
or the exercise of warrants outstanding at Execution Time.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Common Shares.
(h) The Company will furnish to its shareholders as soon as
practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, shareholders' equity and cash flows
of the Company and its consolidated subsidiaries certified by independent
public accountants and prepared in conformity with Canadian GAAP together
with a reconciliation of net income and total shareholders' equity to U.S.
GAAP) and, as soon as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the first fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for each quarter in reasonable detail.
(i) The Company [and the Selling Shareholders (in proportion to
the number of Securities being offered by each of them, including any
Option Shares which the Underwriters shall have elected to purchase)] agree
to pay the costs and expenses relating to the following matters: (i) the
preparation, printing
<PAGE>
19
or reproduction and filing with the Commission and Canadian Securities
Regulatory Authorities of the Registration Statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, each
Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, each Prospectus, and
all amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of
the Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp or
transfer taxes in connection with the original issuance and sale of the
Securities; (iv) the printing (or reproduction) and delivery of this
Underwriting Agreement, any blue sky memorandum and all other agreements or
documents printed (or reproduced) and delivered in connection with the
offering of the Securities; (v) the registration of the Securities under
the Act and the listing of the Common Shares on the NASDAQ and TSE; (vii)
any registration or qualification of the Securities for offer and sale
under the securities or blue sky laws of the several states (including
filing fees and the reasonable fees and expenses of counsel for the
Underwriters relating to such registration and qualification); (viii) any
filings required to be made with the National Association of Securities
Dealers, Inc. (including filing fees and the reasonable fees and expenses
of counsel for the Underwriters relating to such filings); (ix) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers
of the Securities; (x) the fees and expenses of the Company's accountants,
the fees and expenses of counsel (including local and special counsel) for
the Company and the Selling Shareholders and the fees and expenses of the
transfer agent and registrar of the Common Shares; and (xi) all other costs
and expenses incident to the performance by the Company and the Selling
Shareholders of their obligations under the Underwriting Agreement.
(j) That in connection with the Directed Share Program,
the Company will ensure that the Directed Shares will be restricted to the
extent required by the National Association of Securities Dealers, Inc.
(the "NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Salomon Smith Barney and
Merrill Lynch will notify the Company as to which Participants will need to
be so restricted. The Company will direct the transfer restrictions upon
such period of time.
(k) The Company shall pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the Underwriters in connection with the Directed Share Program.
<PAGE>
20
Furthermore, the Company covenants with Salomon Smith Barney and
Merrill Lynch that the Company will comply with all applicable securities and
other applicable laws, rules and regulations in each foreign jurisdiction in
which the Directed Shares are offered in connection with the Directed Share
Program, as identified by Salomon Smith Barney and/or Merrill Lynch.
(ii) Each Selling Shareholder agrees with the several Underwriters
that:
(a) Such Selling Shareholder will not, without the prior written
consent of Salomon Smith Barney, offer, sell, contract to sell, pledge,
hedge, announce an offering of or otherwise dispose of (whether by actual
disposition or effective economic disposition) any Common Shares or any
securities convertible into or exercisable or exchangeable for Common
Shares, including a request to file (or participation in the filing of) a
registration statement, with the Commission in respect of Common Shares, or
establish or increase a put equivalent position or liquidate or decrease a
call equivalent position within the meaning of Section 16 of the Exchange
Act with respect to, any Common Shares for a period of 180 days after the
date of this Underwriting Agreement, other than Common Shares disposed of
as bona fide gifts approved by Salomon Smith Barney Inc. and other than
Common Shares transferred as bona fide gifts for estate planning purposes
or to trusts of which the transferor or the spouse of the transferor is an
annuitant, governed by a retirement savings plan, retirement income fund or
deferred profit sharing plan and in respect of which the Common Shares will
be qualified investments under the Income Tax Act (Canada); provided the
trustee of the trust agrees to be bound by the foregoing provisions.
(b) Such Selling Shareholder will not take any action designed
to or which has constituted or which might reasonably be expected to cause
or result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(c) Such Selling Shareholder will advise you promptly, and if
requested by you, will confirm such advice in writing, so long as delivery
of a prospectus relating to the Securities by an underwriter or dealer may
be required under the Act, of (i) any material change in the Company's
condition (financial or otherwise), prospects, earnings, business or
properties, (ii) any change in information in the Registration Statement or
the Prospectuses relating to such Selling Shareholder or (iii) any new
material information relating to the Company or relating to any matter
stated in the Prospectuses which comes to the attention of such Selling
Shareholder.
(d) Selling Shareholder will comply with the agreement contained
in Section 5(i)(i).
<PAGE>
21
6. Conditions to the Obligations of the Underwriters. The
--------------------------------------------------
obligations of the Underwriters to purchase the Underwritten Shares and the
Option Shares, as the case may be, shall be subject to the accuracy in all
material respects of the representations and warranties on the part of the
Company and the Selling Shareholders contained in this Underwriting Agreement as
of the Execution Time, the Closing Date and any settlement date pursuant to
Section 3 hereof, to the accuracy of the statements of the Company and the
Selling Shareholders made in any certificates pursuant to the provisions hereof,
to the performance in all material respects by the Company and the Selling
Shareholders of their respective obligations under this Underwriting Agreement
and to the following additional conditions:
(a) If the Registration Statement has not become effective prior
to the Execution Time, unless the Representatives agree in writing to a
later time, the Registration Statement will become effective not later than
(i) 6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 9:30 AM on the Business Day following
the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if
filing of either of the Prospectuses, or any supplement thereto, is
required pursuant to Rule 424(b), the Prospectuses, and any such
supplement, will be filed in the manner and within the time period required
by Rule 424(b); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened and (ii) the Canadian
Supplemental PREP Prospectus shall have been filed with the Canadian
Securities Regulatory Authorities not later than the close of business on
the second business day following the execution and delivery of this
Agreement; no stop order suspending the distribution of the Common Shares
shall have been issued or threatened by any Canadian Securities Regulatory
Authority; and all requests for additional information on the part of any
Canadian Securities Regulatory Authority shall have been complied with to
your reasonable satisfaction.
(b) The Company shall have requested and caused Wilson Sonsini
Goodrich & Rosati, a Professional Corporation, U.S. counsel for the
Company, to have furnished to the Representatives their opinion, dated the
Closing Date and addressed to the Representatives, in form and substance
satisfactory to you, to the effect that:
(i) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property of a
character required to be disclosed in the Registration Statement which
is not adequately disclosed in the Prospectuses, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or the U.S. Prospectus, or to
be filed as an exhibit
<PAGE>
22
thereto, which is not described or filed as required; the descriptions
contained in the U.S. Prospectus under the heading "Taxation - United
States Federal Income Taxes" and "Shares Eligible for Future Sale -
U.S. Resale Restrictions" constitute fair summaries of those statutes
and regulations discussed therein applicable to the offering of the
Securities and fairly summarize the matters therein described;
(ii) the Registration Statement has become effective under
the Act; any required filing of the U.S. Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); to the
knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and the U.S. Prospectus (except as to financial statements,
financial and statistical data and supporting schedules contained
therein, as to which such counsel need express no opinion) complies as
to form in all material respects with the applicable requirements of
the Act and the rules thereunder;
(iii) the Company is not and, after giving effect to the
offering and sale of the Securities and the application of the
proceeds thereof as described in the Prospectuses, will not be, an
"investment company" as defined in the Investment Company Act of 1940,
as amended;
(iv) no consent, approval, authorization, filing with or
order of any court or governmental agency or body is required in
connection with the transactions contemplated in the Underwriting
Agreement except such as have been obtained under the Act, such
filings as may be required by Rule 424(b) or Rule 463 of the Act and
such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters in the manner contemplated in the Underwriting Agreement
and in the Prospectuses and such other approvals (specified in such
opinion) as have been obtained;
(v) The Company is not, and giving consideration to the
consummation of the transactions contemplated hereby and the
application of the proceeds as described in the Registration Statement
under the caption "Use of Proceeds," the Company will not thereby
become, as of the Execution Time, a PFIC within the meaning of Section
1296 of the United States Internal Revenue Code of 1986, as amended
(the "Code").
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, underwriter's counsel
and the independent public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectuses and related
matters were discussed,
<PAGE>
23
and although they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectuses,
nothing has come to the attention of such counsel which cause them to
believe that, at the time the Registration Statement became effective, the
Registration Statement (except as to financial statements, financial and
statistical data and supporting schedules contained therein, as to which
such counsel need express no opinion, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at
the Closing Date or any later Option Closing Date, as the case may be, the
Registration Statement or the Prospectuses (except as aforesaid) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of New York or the Federal laws of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters and (B) as to matters of fact,
to the extent they deem proper, on certificates of responsible officers of
the Company and public officials. Reference to the Prospectuses in this
paragraph (b) include any supplements thereto at the Closing Date.
(c) The Company shall have requested and caused Getz Prince
Wells, Canadian counsel for the Company, to have furnished to the
Representatives their opinion, dated the Closing Date and addressed to the
Representatives, in form and substance satisfactory to you, to the effect
that:
(i) each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized, with full corporate power and authority to own or lease, as
the case may be, and to operate its properties and conduct its
business as described in the Prospectuses, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification;
(ii) all the outstanding shares of capital stock of each
subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in
the Prospectuses, all outstanding shares of capital stock of the
subsidiaries are owned by the Company either directly or through
wholly owned subsidiaries free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry, any
other security interest, claim, lien or encumbrance;
<PAGE>
24
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectuses; the capital stock of the Company conforms
in all material respects to the description thereof contained in the
Prospectuses; the outstanding Common Shares (including the Securities
being sold pursuant to the Underwriting Agreements by the Selling
Shareholders), have been duly and validly authorized and issued and
are fully paid and nonassessable; the Securities being sold under the
Underwriting Agreement by the Company have been duly and validly
authorized, and, when issued and delivered to and paid for by the
Underwriters pursuant to this Underwriting Agreement, will be fully
paid and nonassessable; the Securities being sold by the Selling
Shareholders are duly listed, and admitted and authorized for trading,
on the NASDAQ National Market ("NASDAQ") and the Securities being sold
under the Underwriting Agreement by the Company are duly listed, and
admitted and authorized for trading, subject to official notice of
issuance, on NASDAQ and the Securities have been conditionally
approved for listing on The Toronto Stock Exchange (the "TSE"),
subject only to the filing of documents and evidence of satisfactory
distribution in accordance with the rules of such exchange on or
before __________, 1999; the certificates for the Securities are in
valid and sufficient form; the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other
rights to subscribe for the Securities; and, except as set forth in
the Prospectuses, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or rights to convert any
obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property of a
character required to be disclosed in the Registration Statement which
is not adequately disclosed in the Prospectuses, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectuses, or to be
filed as an exhibit thereto, which is not described or filed as
required; the statements contained in the U.S. Prospectus under the
headings "Exchange Controls," "Shares Eligible for Future Resale -
Canadian Resale Restrictions," in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein; and the statements in the
Prospectuses under the headings "Description of Share Capital", and
"Business - Intellectual Property," "Business - Our Joint Venture With
Heidelberg," "Risk Factors - If we are unable to protect our
intellectual property and proprietary technology, we may lose the
competitive advantage that they currently provide"
<PAGE>
25
and "Risk Factors - If others claim that our products infringe upon
their intellectual property rights, we may be forced to seek expense
licenses, reengineer our products, engage in expensive and time-
consuming litigation or stop marketing the challenged products"
fairly summarize the matters therein described;
(v) each of the Underwriting Agreement and the JV Agreement
have been duly authorized, executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company and
is enforceable in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally and except as
limited by the application of equitable principles when equitable
remedies are sought; provided that such counsel may express no opinion
as to the enforceability of the indemnification and contribution
provisions of Section 8 of the Underwriting Agreement;
(vi) no consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated in the Underwriting Agreement
except such as have been obtained under the Canadian Securities Laws
and such approvals (specified in such opinion) as have been obtained;
(vii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions contemplated in the
Underwriting Agreement will conflict with, result in a breach or
violation of or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or its subsidiaries pursuant to,
(i) the charter or by-laws of the Company or its subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust,
note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or its
subsidiaries is a party or bound or to which its or their property is
subject, or (iii) any statute, law, rule, regulation, judgment, order
or decree applicable to the Company or its subsidiaries of any court,
regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or its
subsidiaries or any of its or their properties;
(viii) no holders of securities of the Company have rights to
the registration of such securities under the Registration Statement,
other than those that either have been expressly waived prior to the
date hereof, or have been satisfied in full by virtue of including
such securities as Securities herein;
(ix) to ensure the legality, validity, enforceability or
admissibility into evidence of this Underwriting Agreement and any
other document required to be furnished hereunder or thereunder in
Canada, it is not necessary that this Underwriting Agreement or any
such other document be filed or recorded with any court or other
authority, provided
<PAGE>
26
such documents are executed outside of, or that any stamp,
registration or similar tax be paid on or in respect of any such
document or the Shares in connection with the sale of Securities to
the Underwriters;
(x) a court of competent jurisdiction in the Province of
British Columbia (a "British Columbia Court") would give effect to the
choice of law of the State of New York ("New York law") as the proper
law governing the Underwriting Agreement, provided that such choice of
law is bona fide (in the sense that it was not made with a view to
avoiding the consequences of the laws of any other jurisdiction), is
not penal in nature and provided that such choice of law is not
contrary to public policy, as that term is applied by a British
Columbia Court; provided however, the choice of law will only be
effective with regard to substantive law, and the procedural laws of
the Province of British Columbia as the jurisdiction in which the
substantive rights are being enforced will apply to the enforcement of
the rights of the parties to the Underwriting Agreement; in such
counsel's opinion, there are no reasons under the laws of Canada or of
the Province of British Columbia or the laws of Canada applicable
therein for avoiding on public policy grounds the choice of New York
law to govern the Underwriting Agreement.
(xi) in an action on a final and conclusive judgment in personam
of any federal or state court in the State of New York (a "New York
Court") from which no appeal is pending and for which the time limits
for appeal have expired, that is not impeachable as void or voidable
under New York law, and that is for a sum certain, a British Columbia
Court would give effect to the appointment by the Company of CT
Corporation System as its agent to receive service of process in the
United States of America under the Underwriting Agreement and to the
provisions in the Underwriting Agreement whereby the Company submits
to the non-exclusive jurisdiction of a New York Court.
(xii) if the Underwriting Agreement is sought to be enforced in
the Province of British Columbia in accordance with the laws
applicable thereto as chosen by the parties, namely New York law, a
British Columbia Court would, subject to paragraph (x) above,
recognize the choice of New York law and, upon appropriate evidence as
to such law being adduced, apply such law to all issues which under
the conflicts of laws rules of the Province of British Columbia are to
be determined in accordance with the proper or governing law of a
contract, provided that none of the provisions of the Underwriting
Agreement, or of New York law, are contrary to public policy as that
term is applied by a British Columbia Court; provided however, that
(A) in matters of procedure, the laws of the Province of British
Columbia will be applied, and a British Columbia
<PAGE>
27
Court will retain discretion to decline to hear such action if it is
contrary to public policy, as that term is applied by a British
Columbia Court, for it to do so, or if it is not the proper forum to
hear such an action, or if concurrent proceedings are being brought
elsewhere, (B) a British Columbia Court will not recognize and apply
foreign revenue, penal, expropriatory or similar laws, or laws
contrary to any order made by the Attorney General of Canada under the
Foreign Extraterritorial Measures Act (Canada) or by the Competition
Tribunal under the Competition Act (Canada), (C) interest payable on a
judgement debt may be limited by the Interest Act (Canada) and the
Judgement Interest Act (British Columbia), (D) the Currency Act
(Canada), in effect precludes a British Columbia Court from giving a
judgement in any currency other than the lawful money of Canada, and
(E) the enforceability of any claim in an action brought in a British
Columbia Court may be limited by applicable bankruptcy, insolvency or
other laws of general application limiting the enforcement of
creditors' rights generally. Except with respect to the provisions of
the Underwriting Agreement relating to indemnification and
contribution (as to which such counsel need not express my opinion),
public policy as applied by a British Columbia Court would not be
contravened by reasons solely of the provisions of the Underwriting
Agreement nor would it preclude a British Columbia Court from
exercising its power to enforce the Underwriting Agreement.
(xiii) the laws of the Province of British Columbia and the laws
of Canada applicable therein permit an action to be brought in a
British Columbia Court of competent jurisdiction on a final and
conclusive judgement in personam of a New York Court that is
subsisting and unsatisfied respecting the enforcement of the
Underwriting Agreement from which no appeal is pending and for which
the time limits for appeal have expired, that is not impeachable as
void or voidable under New York law for a sum certain if: (A) the New
York Court rendering such judgement had jurisdiction over the
judgement debtor as recognized by a British Columbia Court (and
submission by the Company to the jurisdiction of a New York Court
pursuant to the Underwriting Agreement will be sufficient for this
purpose); (B) such judgement was not obtained by fraud or in a manner
contrary to natural justice and the enforcement thereof would not be
inconsistent with public policy as such term is understood under the
laws of the Province of British Columbia; or contrary to any order
made by the Attorney General of Canada under the Foreign
Extraterritorial Measures Act (Canada) or by the Competition Tribunal
under the Competition Act (Canada); (C) the enforcement of such
judgement would not be contrary to the laws of general application
limiting the enforcement of creditors' rights including bankruptcy,
reorganization, winding up, moratorium and similar laws and does not
constitute, directly or indirectly, the enforcement of foreign
revenue, expropriatory or penal laws in the Province of British
Columbia; (D) no new admissible evidence relevant to the action is
discovered prior to the
<PAGE>
28
rendering of judgement by a British Columbia Court; (E) interest
payable on any of the Securities is not characterized by a British
Columbia Court as interest payable at a criminal rate within the
meaning of Section 347 of the Criminal Code (Canada); and (F) the
action to enforce such judgement is commenced within applicable time
periods. Under the Currency Act (Canada), a British Columbia Court may
only give judgement in Canadian dollars. Under the laws of British
Columbia, the appropriate date for such conversion when the action is
on a foreign judgement may be other than the date of payment of the
judgement. Except with respect to the provisions of the Underwriting
Agreement relating to indemnification and contribution (as to which
such counsel may express no opinion), the enforcement of such
judgement would not, based solely upon the provisions of the
Underwriting Agreement, be inconsistent with public policy, as such
term is applied by a British Columbia Court.
(xiv) no stamp or other issuance or transfer taxes or duties and
no capital gains, income, withholding or other taxes are payable by or
on behalf of the Underwriters to Canada or to any political
subdivision or taxing authority thereof or therein in connection with
(A) the delivery of the Common Shares in the manner contemplated by
this Underwriting Agreement or (B) the sale and delivery by the
Underwriters of the Common Shares, as the case may be, as contemplated
herein;
(xv) other than as described in the Prospectuses, under the
current laws and regulations of Canada, all dividends and other
distributions declared and payable on the Common Shares may be paid by
the Company to the stockholders, in Canadian dollars that may be
converted into foreign currency and freely transferred out of Canada,
and all such dividends and other distributions made to holders of the
Common Shares who are non-residents of Canada will not be subject to
Canada income, withholding or other taxes under the laws and
regulations of Canada and are otherwise free and clear of any other
tax, duty withholding or deduction in Canada and without the necessity
of obtaining any governmental authorization in Canada;
(xvi) the Canadian Final PREP Prospectus and any further
amendments and supplements thereto made by the Company prior to the
Closing Date (other than the financial statements and other financial
information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of Canadian Securities Laws and the rules and regulations
thereunder; such counsel has no reason to believe that on the
Effective Date or at the Execution Time, the Registration Statement or
any further amendment thereto made by the Company prior to the Closing
Date (other than the financial statements and other financial
information contained therein, as to which such counsel need express
no opinion) contained an untrue
<PAGE>
29
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading (all within the meaning of the Securities Act
(British Columbia)), or that, as of the date thereof and or the
Closing Date, the Prospectuses or any further amendment of supplement
thereto made by the Company prior to the Closing Date (other than the
financial statements and other financial information contained
therein, as to which such counsel need express no opinion) contained
an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (all within
the meaning of the Securities Act (British Columbia));
(xvii) a final receipt in respect of each of the Canadian
Securities Regulatory Authorities has been obtained in respect of the
Canadian Final PREP Prospectus and any further amendments thereto
filed with such authorities and all necessary documents have been
filed, all necessary proceedings have been taken and all necessary
authorizations, approvals, permits and consents have been obtained
under the Canadian Securities Laws to permit the Securities to be
offered, sold and delivered, as contemplated by this Agreement, to the
public in each of the Canadian Qualifying Jurisdictions through
investment dealers or brokers registered under the applicable laws of
each such jurisdiction who have complied with all relevant provisions
of such laws. No other Governmental Authorization governmental
authorization in Canada is required for the sale and delivery of the
Securities by the Company or the Selling Shareholders to or for the
respective accounts of the Underwriters or the sale and delivery of
the Securities by the Underwriters in accordance with the terms of
this Agreement, the execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated by this
Underwriting Agreement;
(xviii) the Securities are eligible investments, without
resort to the so-called "basket provisions", or their purchase is not
prohibited or restricted, in each case subject to the general
investment provisions, and in certain cases subject to prudent
investor requirements and to additional requirements relating to
investment or lending policies, standards, procedures or goals, under
or by the following statutes and, where applicable, the relevant
regulations: Insurance Companies Act (Canada); Pension Benefits
Standards Act, 1985 (Canada); Trust and Loan Companies Act (Canada);
Financial Institutions Act (British Columbia); Pension Benefits
Standards Act (British Columbia); Loan and Trust Corporations Act
(Ontario); and Pension Benefits Act (Ontario); and
<PAGE>
30
(xix) The Underwriting Agreement has been duly executed and
delivered by the Company.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than Canada and
Province of British Columbia, to the extent they deem proper and specified
in such opinion, upon the opinion of other counsel of good standing whom
they believe to be reliable and who are satisfactory to counsel for the
Underwriters and (B) as to matters of fact, to the extent they deem proper,
on certificates of responsible officers of the Company and public
officials. Reference to the Prospectuses in this paragraph (c) include any
supplements thereto at the Closing Date.
(d) The Selling Shareholders shall have requested and caused
__________, counsel for the Selling Shareholders, to have furnished to the
Representatives their opinion dated the Closing Date and addressed to the
Representatives, in form and substance satisfactory to you, to the effect
that:
(i) the Underwriting Agreement and the Custody Agreement
have been duly authorized, executed and delivered by the Selling
Shareholders, the Custody Agreement is valid and binding on the
Selling Shareholders and each Selling Shareholder has full legal right
and authority to sell, transfer and deliver in the manner provided in
the Underwriting Agreement and the Custody Agreement the Securities
being sold by such Selling Shareholder under the Underwriting
Agreement;
(ii) the delivery by each Selling Shareholder to the several
Underwriter of certificates for the Securities being sold under the
Underwriting Agreements by such Selling Shareholder against payment
therefor as provided in the Underwriting Agreement, will pass good and
marketable title to such Securities to the several Underwriters, free
and clear of all liens, encumbrances, equities and claims whatsoever;
(iii) no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
by any Selling Shareholder of the transactions contemplated in the
Underwriting Agreement, except such as may have been obtained under
the Act and such as may be required under the blue sky laws of any
jurisdiction outside the United States in connection with the purchase
and distribution of the Securities by the Underwriters and such other
approvals (specified in such opinion) as have been obtained;
(iv) neither the sale of the Securities representing
deposited shares being sold by any Selling Shareholder nor the
consummation of any other of the transactions contemplated in the
Underwriting Agreement by any
<PAGE>
31
Selling Shareholder or the fulfillment of the terms hereof by any
Selling Shareholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the charter or
By-laws of the Selling Shareholder or the terms of any indenture or
other agreement or instrument known to such counsel and to which any
Selling Shareholder or any of its subsidiaries is a party or bound, or
any judgment, order or decree known to such counsel to be applicable
to any Selling Shareholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over any Selling Shareholder;
(v) the the submission of such Selling Shareholder to the non-
exclusive jurisdiction of the New York Courts and the appointment of
CT Corporation as its designee, appointee and authorized agent for the
purpose described in Section 15 hereof are legal, valid and binding
under the laws of the State of New York; and service of process in the
manner set forth in Section 15 hereof is effective under the laws of
the State of New York to confer valid personal jurisdiction over such
Selling Shareholder; and
(vi) the choice of law provision set forth in Section 14 hereof
is legal, valid and binding under the laws of the jurisdiction of
organization or residence of the Seller Stockholder ("Home
Jurisdiction") and such counsel knows of no reason why the courts
would not give effect to the choice of New York law as the proper law
of this Underwriting Agreement; such Selling Shareholder has the legal
capacity to sue and be sued in its own name under the laws of the Home
Jurisdiction; such Selling Shareholder has the power to submit, and
has irrevocably submitted, to the non-exclusive jurisdiction of the
New York Courts and has validly and irrevocably appointed CT
Corporation as its designee, appointee and authorized agent for the
purpose described in Section 15 hereof under the laws of the Home
Jurisdiction; the irrevocable submission of such Selling Shareholder
to the non-exclusive jurisdiction of the New York Courts and the
waivers by such Selling Shareholder of any immunity and any objection
to the venue of the proceeding in a New York Court herein are legal,
valid and binding under the laws of the Home Jurisdiction and such
counsel knows of no reason why the courts of the Home Jurisdiction
would not give effect to the submission and waivers; service of
process in the manner set forth in Section 15 hereof, will be
effective to confer valid personal jurisdiction over such Selling
Shareholder under the laws of the Home Jurisdiction; and the courts in
the Home Jurisdiction will recognize as valid and final, and will
enforce, any final and conclusive judgment against the Company
obtained in a New York Court arising out of or in relation to the
obligations of the Company under this Underwriting Agreement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the Home
<PAGE>
32
Jurisdiction; the State of or the Federal laws of the
United States, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the
Underwriters and the International Underwriters, and (B) as to matters of
fact, to the extent they deem proper, on certificates of responsible
officers of the Selling Shareholders and public officials.
(e) The Representatives shall have received from Munger, Tolles &
Olson LLP, and Osler, Hoskin & Harcourt, counsel for the Underwriters, such
opinion or opinions, dated the Closing Date and addressed to the
Representatives, with respect to the issuance and sale of the Securities,
the Registration Statement, the Prospectuses (together with any supplement
thereto) and other related matters as the Representatives may reasonably
require, and the Company and each Selling Shareholder shall have furnished
to such counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(f) The Company shall have requested and caused Thorsteinssons,
Canadian tax counsel for the Company, to have furnished to the
Representatives their opinion, dated the Closing Date and addressed to the
Representatives, in form and substance satisfactory to you, to the effect
that (i) the statements contained in the U.S. Prospectus under the heading
"Taxation--Canadian Income Tax Consequences," insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with respect
to such legal matters, documents and procedures and fairly summarize the
matters referred to therein; and (ii) the Securities are qualified
investments under the Income Tax Act (Canada) and the regulations
thereunder (the "Tax Act") for trusts governed by a registered retirement
savings plan, registered retirement income fund or deferred profit sharing
plan (collectively, "Deferred Income Plans"); and the Securities are not
foreign property under the Tax Act for Deferred Income Plans and other
persons subject to tax under Part XI of the Tax Act.
(g) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectuses, any
supplements to the Prospectuses and the Underwriting Agreements and that:
(i) the representations and warranties of the Company in the
Underwriting Agreement are true and correct in all material respects
on and as of the Closing Date with the same effect as if made on the
Closing Date and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Date;
<PAGE>
33
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, no order, ruling or
determination having the effect of suspending the sale or ceasing the
trading of the Securities has been issued, and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectuses (exclusive of any supplement thereto),
there has been no Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(h) Each Selling Shareholder shall have furnished to the
Representatives a certificate, signed by [the Chairman of the Board or the
President and the principal financial or accounting officer of] such
Selling Shareholder, dated the Closing Date, to the effect that the
signer[s] of such certificate have carefully examined the Registration
Statement, the Prospectuses, any supplement to either of the Prospectuses
and this Underwriting Agreement and that the representations and warranties
of such Selling Shareholder in this Underwriting Agreement are true and
correct in all material respects on and as of the Closing Date to the same
effect as if made on the Closing Date.
(i) The Company shall have requested and caused KPMG LLP to
have furnished to the Representatives letters, dated respectively as of the
Execution Time and as of the Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Act and the applicable rules and
regulations adopted by the Commission thereunder and Canadian Securities
Laws and that they have performed a review of the unaudited interim
financial information of the Company for the six-month period ended March
31, 1999 and as at March 31, 1999 , in accordance with Canadian GAAP and
Statement on Auditing Standards No. 71, and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included in the Registration Statement
and the Prospectuses and reported on by them comply as to form in all
material respects with Canadian GAAP and the regulations issued by the
Canadian Securities Regulatory Authorities and the applicable
accounting requirements of the Act and the related rules and
regulations adopted by the Commission; and all necessary adjustments
to net income and shareholders' equity for the periods presented that
would be required if U.S. generally accepted accounting principles had
been applied have been made;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
subsidiaries; their
<PAGE>
34
limited review, in accordance with generally accepted auditing
standards applicable in Canada and standards established under
Statement on Auditing Standards No. 71, of the unaudited interim
financial information for the six- month period ended March 31, 1999,
and as at March 31, 1999, carrying out certain specified procedures
(but not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter; a reading of
the minutes of the meetings of the stockholders, directors and the
audit, compensation and committees of the Company and the
Subsidiaries; and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events subsequent
to September 30, 1998, nothing came to their attention which caused
them to believe that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectuses do not comply as to
form in all material respects with Canada's generally accepted
accounting principles and the regulations issued by the Canadian
Securities Regulatory Authorities and applicable accounting
requirements of the Act and with the related rules and
regulations adopted by the Commission with respect to
registration statements on Form F-1; and said unaudited financial
statements are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with that of the audited financial statements included in the
Registration Statement and the Prospectuses; and all necessary
adjustments to net income and shareholders' equity for such
interim period that would be required if U.S. generally accepted
accounting principles had been applied have been made;
(2) With respect to the period subsequent to March 31,
1999, there were any changes, at a specified date not more than
five days prior to the date of the letter, in the long-term debt
of the Company and its subsidiaries or capital stock of the
Company or decreases in the stockholders' equity of the Company
as compared with the amounts shown on the March 31, 1999,
consolidated balance sheet included in the Registration Statement
and the Prospectuses, or for the period from April 1, 1999 to
such specified date there were any decreases, as compared with
the corresponding period in the preceding year and the
corresponding period in the preceding quarter in net revenues or
income before income taxes or in total or per share amounts of
net income of the Company and its subsidiaries, except in all
instances for changes or decreases set forth in such letter, in
which case the letter shall be accompanied by an explanation by
the Company as to the significance thereof
<PAGE>
35
unless said explanation is not deemed necessary by the
Representatives;
(3) the information included in the Registration Statement
and Prospectuses in response to Form 20-F, Item 8 (Selected
Financial Data) and Item 11 (Compensation of Directors and
Officers) is not in conformity with the applicable disclosure
requirements of Form 20-F; and
(iii) they have performed certain other specified procedures as
a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectuses, including
the information set forth under the captions "Selected Consolidated
Financial Data", "Capitalization", Management's Discussion and
Analysis of Financial Condition and Results of Operation", "Business",
and "Management" in the Prospectuses, agrees with the accounting
records of the Company and its subsidiaries, excluding any questions
of legal interpretation;
References to the Prospectuses in this paragraph (i) include any supplement
thereto at the date of the letter.
(j) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement (exclusive
of any amendment thereof) and the Prospectuses (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (i) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the condition (financial or otherwise), earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectuses (exclusive of any
supplement thereto) the effect of which, in any case referred to in clause
(i) or (ii) above, is, in the sole judgment of the Representatives, so
material and adverse as to make it impractical or inadvisable to proceed
with the offering or delivery of the Securities as contemplated by the
Registration Statement (exclusive of any amendment thereof) and the
Prospectuses (exclusive of any supplement thereto).
(k) Prior to the Closing Date, the Company and the Selling
Shareholders shall have furnished to the Representatives such further
information, certificates and documents as the Representatives may
reasonably request.
<PAGE>
36
(l) The Securities shall have been listed and admitted and
authorized for trading on the NASDAQ and the TSE, and satisfactory evidence
of such actions shall have been provided to the Representatives.
(m) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A hereto
from each officer and director of the Company and the persons listed on
Schedule III hereto addressed to the Representatives.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Underwriting Agreement, or if any of the opinions and certificates
mentioned above or elsewhere in this Underwriting Agreement shall not be in
all material respects reasonably satisfactory in form and substance to the
Representatives and counsel for the Underwriters, this Underwriting
Agreement and all obligations of the Underwriters under this Underwriting
Agreement may be canceled at, or at any time prior to, the Closing Date by
the Representatives. Notice of such cancelation shall be given to the
Company and each Selling Shareholder in writing or by telephone or
facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of , counsel for the
Underwriters, at , on the Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
----------------------------------------
Securities provided for in this Underwriting Agreement is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Company or any Selling Shareholders to perform any agreement in this
Underwriting Agreement or comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally through Salomon Smith Barney on demand for all out-of-
pocket expenses (including reasonable fees and disbursements of counsel) that
shall have been approved by Salomon Smith Barney and that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution.
--------------------------------
(a) The Company and Daniel Gelbart (referred to as the
"Designated Stockholder"), jointly and severally agree to indemnify and
hold harmless each Underwriter, the directors, officers, employees and
agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Exchange Act against any and
all losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act, the
Canadian Securities Laws, or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such
<PAGE>
37
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for
the registration of the Securities as originally filed or in any amendment
thereof, as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or in either of the Prospectuses, or in any
amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company and the Designated
-------- -------
Stockholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
through the Representatives specifically for inclusion therein. The Company
and the Designated Stockholder acknowledge that the statements set forth in
the last paragraph of the cover page regarding delivery of the Securities,
and, under the heading "Underwriting", (i) the list of Underwriters and
their respective participation in the sale of the Securities, (ii) the
sentences relating to offers and sales not being made by brokers and
dealers not registered under the U.S. Securities laws and Candian
Securities Laws, respectively, (iii) the sentences related to concessions
and reallowances, and (iv) the paragraph related to stabilization,
syndicate covering transactions and penalty bids in any Preliminary
Prospectus and the Prospectuses constitute the only information furnished
in writing by or on behalf of the several Underwriters for inclusion in any
Preliminary Prospectus or the Prospectuses. This indemnity agreement will
be in addition to any liability which the Company or the Selling
Shareholders may otherwise have. In addition, the indemnity agreement
contained in this paragraph (a) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages, liabilities or expenses
purchasing the Securities which is the subject thereof (or to the benefit
of any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Securities, a copy of the Prospectus (or
the Prospectus as amended or supplemented) was not sent or delivered to
such person within the time required by the Act and the regulations
thereunder and the applicable Canadian Securities Laws and the untrue
statement or omission or alleged untrue statement or omission of a material
fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented).
(b) The Company agrees to indemnify and hold harmless Salomon
Smith Barney and Merrill Lynch and each person, if any, who controls
Salomon Smith Barney and Merrill Lynch within the meaning of either Section
15
<PAGE>
38
of the Securities Act or Section 20 of the Exchange Act ("Salomon and
Merrill Entities"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in the prospectus wrapper material
prepared by or with the consent of the Company for distribution in foreign
jurisdictions in connection with the Directed Share Program attached to the
Prospectus or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement therein, when considered in
conjunction with the Prospectus or any applicable preliminary prospectus,
not misleading; (ii) caused by the failure of any Participant to pay for
and accept delivery of the shares which immediately following the effective
of the Registration Statement, were subject to a properly confirmed
agreement to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, provided that, the Company
shall not be responsible under this subparagraph (iii) for any losses,
claim, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Salomon and Merrill.
(c) Each Selling Shareholder severally agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signs the Registration Statement, each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person who
controls the Company or any Underwriter within the meaning of the Act,
Exchange Act or the Canadian Securities Laws and each other Selling
Shareholder, if any, to the same extent as the foregoing indemnity from
the Company to each Underwriter, but only with reference to written
information furnished to the Company by or on behalf of such Selling
Shareholder specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any Selling Shareholder may otherwise have.
(d) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, and each person who controls
the Company within the meaning of either the Act or the Exchange Act and
each Selling Shareholder, to the same extent as the foregoing indemnity to
each Underwriter, but only with reference to written information relating
to such Underwriter furnished to the Company by or on behalf of such
Underwriter through the Representatives specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement
will be in addition to any liability which any Underwriter may otherwise
have. The Company and each Selling Shareholder acknowledge that the
statements set forth in the last paragraph of the cover page regarding
delivery of the Securities and, under the heading "Underwriting", (i) the
list of Underwriters and their respective participation in the sale of the
Securities, (ii) the sentences relating to offers and
<PAGE>
39
sales being made by brokers and dealers not registered under
the U.S. Securities and Canadian Securities Laws, respectively, (iii) the
sentences related to concessions and reallowances, (iv) the paragraph
related to stabilization, syndicate covering transactions and penalty bids
in any Preliminary Prospectus and the Prospectuses constitute the only
information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the
Prospectuses.
(e) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof; but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph
(a), (b), (c) or (d) above unless and to the extent it did not otherwise
learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a), (b), (c) or (d) above. The indemnifying party shall be
entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any
action for which indemnification is sought (in which case the indemnifying
party shall not thereafter be responsible for the fees and expenses of any
separate counsel retained by the indemnified party or parties except as set
forth below); provided, however, that such counsel shall be satisfactory to
-------- -------
the indemnified party. Notwithstanding the indemnifying party's election
to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the
actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different from
or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party
will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect
to any pending or threatened claim, action, suit or proceeding in respect
of which indemnification or contribution may be sought under this
Underwriting Agreement (whether or not the indemnified parties are actual
or potential parties to such claim or action)
<PAGE>
40
unless such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out of such
claim, action, suit or proceeding. Notwithstanding anything contained
herein to the contrary, if indemnity may be sought pursuant to Section 8(b)
hereof in respect of such action or proceeding, then in addition to such
separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate
firm (in addition to any local counsel) for Salomon Smith Barney for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control Salomon Smith
Barney within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act.
(f) In the event that the indemnity provided in paragraph (a),
(b), (c) or (d) of this Section 8 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, the indemnifying parties
severally agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which the indemnified parties may be subject in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying
parties from the offering of the Securities; provided, however, that in no
-------- -------
case shall any Underwriter (except as may be provided in any agreement
among underwriters relating to the offering of the Securities) be
responsible for any amount in excess of the underwriting discount or
commission applicable to the Securities purchased by such Underwriter under
this Underwriting Agreement. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the indemnifying parties
severally shall contribute in such proportion as is appropriate to reflect
not only such relative benefits but also the relative fault of the
indemnifying parties in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company and the Selling
Shareholders shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses) received by it, and benefits received
by the Underwriters shall be deemed to be equal to the total underwriting
discounts and commissions, in each case as set forth on the cover page of
the Prospectus. Relative fault shall be determined by reference to, among
other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company or the Selling Shareholders
on the one hand or the Underwriters on the other, the intent of the parties
and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company, the
Selling Shareholders and the Underwriters agree that it would not be just
and equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (f), no person guilty of fraudulent misrepresentation (within the
<PAGE>
41
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 8, each person who controls an Underwriter within
the meaning of either the Act or the Exchange Act and each director,
officer, employee and agent of an Underwriter shall have the same rights to
contribution as such Underwriter, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, each officer of
the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of
this paragraph (f).
(g) The liability of the Designated Shareholder under the
indemnity and contribution Agreements contained in this Section 8 shall not
exceed the lesser of (A) the aggregate net proceeds received by the
Designated Shareholder upon the sale of the Common Stock by the Designated
Shareholder to the Underwriters and (B) the proportion of the aggregate
losses, claims, damages or liabilities indemnified against or for which
contribution is made which equals the proportion which the number of shares
being sold by the Designated Shareholder bears to the total number of
shares being sold by the Company and all Selling Shareholders. The Company
and the Selling Shareholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Underwriting Agreement,
as to the respective amounts of such liability for which they each shall be
responsible.
9. Default by a Underwriter. If any one or more Underwriters shall
-------------------------
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters under this Underwriting Agreement and such
failure to purchase shall constitute a default in the performance of its or
their obligations under this Underwriting Agreement, the remaining Underwriters
shall be obligated severally to take up and pay for (in the respective
proportions which the amount of Securities set forth opposite their names in
Schedule I hereto bears to the aggregate amount of Securities set forth opposite
the names of all the remaining Underwriters) the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase; provided, however,
-------- -------
that in the event that the aggregate amount of Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate amount of Securities set forth in Schedule I hereto, the remaining
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the Securities, and if such nondefaulting
Underwriters do not purchase all the Securities, this Underwriting Agreement
will terminate without liability to any nondefaulting Underwriter, the Selling
Shareholders or the Company. In the event of a default by any Underwriter as set
forth in this Section 9, the Closing Date shall be postponed for such period,
not exceeding five Business Days, as the Representatives shall determine in
order that the required changes in the Registration Statement, and the
Prospectuses or in any other documents or arrangements may be effected. Nothing
contained in this Underwriting Agreement shall relieve any defaulting
Underwriter of its liability, if any, to
<PAGE>
42
the Company, the Selling Shareholders and any nondefaulting Underwriter for
damages occasioned by its default under this Underwriting Agreement.
10. Termination. This Underwriting Agreement shall be subject to
------------
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if at any
time prior to such time (i) trading in the Company's Common Shares shall have
been suspended by the Commission or a Canadian Securities Regulatory Authority,
or the TSE or NASDAQ or trading in securities generally on the New York Stock
Exchange, the TSE or NASDAQ shall have been suspended or limited or minimum
prices shall have been established on either of such Exchanges or NASDAQ, (ii) a
banking moratorium shall have been declared by U.S. Federal, New York State or
Canadian authorities or (iii) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States or Canada of a
national emergency or war, or other calamity or crisis, the effect of which on
financial markets is such as to make it, in the sole judgment of the
Representatives, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Prospectus (exclusive of any
supplement thereto).
11. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Shareholder and of the Underwriters set
forth in or made pursuant to this Underwriting Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter, any Selling Shareholder or the Company or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and will
survive delivery of and payment for the Securities. The provisions of Sections
7, 8 and this Section 11 hereof shall survive the termination or cancelation of
this Underwriting Agreement.
12. Notices. All communications under this Underwriting Agreement
--------
will be in writing and effective only on receipt, and, if sent to the
Representatives, will be mailed, delivered or telefaxed to the Salomon Smith
Barney Inc. General Counsel (fax no.: (212) 816-7912) and confirmed to such
General Counsel at Salomon Smith Barney Inc., 388 Greenwich Street, New York,
New York, 10013, Attention: General Counsel; or, if sent to the Company, will
be mailed, delivered or telefaxed to Tom Kordyback and confirmed to it 3700
Gilmore Way, Burnaby, British Columbia, V5G 4M1; or if sent to any Selling
Shareholder, will be mailed, delivered or telefaxed and confirmed to it at the
address set forth in Schedule II hereto.
13. Successors. This Underwriting Agreement will inure to the
-----------
benefit of and be binding upon the parties hereto and their respective
successors and the officers and directors and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation under
this Underwriting Agreement.
14. Applicable Law. This Underwriting Agreement will be governed by
---------------
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
<PAGE>
43
15. Jurisdiction. Each of the Company and the Selling Shareholders
-------------
agrees that any suit, action or proceeding against the Company brought by any
Underwriter, the directors, officers, employees and agents of any Underwriter,
or by any person who controls any Underwriter, arising out of or based upon this
Underwriting Agreement or the transactions contemplated hereby may be instituted
in any New York Court, and waives any objection which it may now or hereafter
have to the laying of venue of any such proceeding, and irrevocably submits to
the non-exclusive jurisdiction of such courts in any suit, action or proceeding.
Each of the Company and each Selling Shareholder has appointed CT Corporation as
its authorized agent (the "Authorized Agent") upon whom process may be served in
any suit, action or proceeding arising out of or based upon this Underwriting
Agreement or the transactions contemplated herein which may be instituted in any
New York Court, by any Underwriter, the directors, officers, employees and
agents of any Underwriter, or by any person who controls any Underwriter, and
expressly accepts the non-exclusive jurisdiction of any such court in respect of
any such suit, action or proceeding. Each of the Company and the Selling
Shareholders hereby represents and warrants that the Authorized Agent has
accepted such appointment and has agreed to act as said agent for service of
process, and the Company agrees to take any and all action, including the filing
of any and all documents that may be necessary to continue such appointment in
full force and effect as aforesaid. Service of process upon the Authorized
Agent shall be deemed, in every respect, effective service of process upon the
Company and the Selling Shareholders. Notwithstanding the foregoing, any action
arising out of or based upon this Underwriting Agreement may be instituted by
any Underwriter, the directors, officers, employees and agents of any
Underwriter, or by any person who controls any Underwriter, in any court of
competent jurisdiction in Canada.
The provisions of this Section 15 shall survive any termination of
this Underwriting Agreement, in whole or in part.
16. Currency. Each reference in this Underwriting Agreement to
---------
Dollars (the "relevant currency") is of the essence. To the fullest extent
permitted by law, the obligations of each of the Company and the Selling
Shareholders in respect of any amount due under this Underwriting Agreement
will, notwithstanding any payment in any other currency (whether pursuant to a
judgment or otherwise), be discharged only to the extent of the amount in the
relevant currency that the party entitled to receive such payment may, in
accordance with its normal procedures, purchase with the sum paid in such other
currency (after any premium and costs of exchange) on the Business Day
immediately following the day on which such party receives such payment. If the
amount in the relevant currency that may be so purchased for any reason falls
short of the amount originally due, the Company or the Selling Shareholder
making such payment will pay such additional amounts, in the relevant currency,
as may be necessary to compensate for the shortfall. Any obligation of any of
the Company or the Selling Shareholders not discharged by such payment will, to
the fullest extent permitted by applicable law, be due as a separate and
independent obligation and, until discharged as provided herein, will continue
in full force and effect.
<PAGE>
44
17. Waiver of Immunity. To the extent that any of the Company or the
-------------------
Selling Shareholders has or hereafter may acquire any immunity (sovereign or
otherwise) from any legal action, suit or proceeding, from jurisdiction of any
court or from set-off or any legal process (whether service or notice,
attachment in aid or otherwise) with respect to itself or any of its property,
each of the Company and the Selling Shareholders hereby irrevocably waives and
agrees not to plead or claim such immunity in respect of its obligations under
this Underwriting Agreement.
18. Counterparts. This Underwriting Agreement may be signed in one
------------
or more counterparts, each of which shall constitute an original and all of
which together shall constitute one and the same agreement.
19. Headings. The section headings used in this Underwriting
---------
Agreement are for convenience only and shall not affect the construction hereof.
20. Definitions. The terms which follow, when used in this
------------
Underwriting Agreement, shall have the meanings indicated.
"Act" shall mean the United States Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City or Toronto.
"Canadian Final PREP Prospectus" shall mean the final prospectus, as
most recently amended, if applicable, filed with the Canadian Securities
Regulatory Authorities and for which a final receipt has been obtained,
provided that, from and after the time the supplemented Canadian Final PREP
Prospectus is filed with the Canadian Securities Regulatory Authorities
pursuant to the PREP Procedures in accordance with Section 5(i)(a) hereof,
any reference to the Canadian Final PREP Prospectus herein shall be deemed
to refer to the Canadian Final PREP Prospectus as so supplemented.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission
promulgated thereunder.
"Execution Time" shall mean the date and time that this Underwriting
Agreement is executed and delivered by the parties hereto.
<PAGE>
45
"New York Courts" shall mean the U.S. Federal or State courts located
in the State of New York, County of New York.
"Prospectuses" and "each Prospectus" shall mean the U.S. Prospectus,
the Canadian Final PREP Prospectus and the Canadian Supplemental PREP
Prospectus.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(i)(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a)(i) hereof.
"Securities" shall mean the Underwritten Securities and the Option
Securities.
"Selling Shareholders" shall mean the persons named on Schedule II to
the Underwriting Agreement.
"Underwriter" and "Underwriters" shall mean the Underwriters.
"Underwriters" shall mean the several underwriters named in Schedule I
to the Underwriting Agreement.
"Underwriting Agreement" shall mean this agreement relating to the
sale of the Securities by the Company and the Selling Shareholders to the
Underwriters.
"United States or Canadian Person" shall mean any person who is a
national or resident of the United States or Canada, any corporation,
partnership, or other entity created or organized in or under the laws of
the United States or Canada or of any political subdivision thereof, or any
estate or trust the income of which is subject to United States or Canadian
Federal income taxation, regardless
<PAGE>
46
of its source (other than any non-United States or non-Canadian branch of
any United States or Canadian Person), and shall include any United States
or Canadian branch of a person other than a United States or Canadian
Person. "U.S." or "United States" shall mean the United States of America
(including the states thereof and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction.
"U.S. Preliminary Prospectus" and the "Canadian Preliminary
Prospectus," respectively, shall mean any preliminary prospectus with
respect to the offering of the Securities in the United States and Canada,
as the case may be, referred to in paragraphs 1(i)(a) and (b) above and any
preliminary prospectus with respect to the offering of such Securities, as
the case may be, included in the Registration Statement at the Effective
Date that omits Rule 430A Information; the U.S. Preliminary Prospectus and
the Canadian Preliminary Prospectus are collectively called the
"Preliminary Prospectuses."
"U.S. Prospectus" shall mean the prospectus relating to the Securities
that is first filed pursuant to Rule 424(b) after the Execution Time or, if
no filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
Corporation
By:__________________________________
Name:
Title:
[Names of Selling Shareholders]
By:__________________________________
Name:
Title:
As Attorney-in-Fact acting on behalf of the
Selling Shareholders named in Schedule II to this
Agreement
<PAGE>
47
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
Merrill Lynch, Pierce Fenner & Smith Incorporated
RBC Dominion Securities Inc.
By: Salomon Smith Barney Inc.
By:__________________________________
Name:
Title:
For themselves and the other
several Underwriters
named in Schedule I to the foregoing
Agreement.
<PAGE>
48
SCHEDULE I
----------
Number of Underwritten
----------------------
Securities to be
----------------
Underwriters Purchased
- ------------ ---------
Salomon Smith Barney Inc.............................
Merrill Lynch Pierce, Fenner & Smith Incorporated....
RBC Dominion Securities Inc..........................
____________
Total.............................
<PAGE>
49
SCHEDULE II
-----------
<TABLE>
<CAPTION>
Number of Underwritten
Securities to be Sold Maximum Number of Option
Selling Shareholders: to be Sold Securities
- --------------------- ---------------------- ------------------------
<S> <C> <C>
[name]
[address, fax no.]..........
[name]
[address, fax no.]..........
_____________ _____________
Total..................
============= =============
</TABLE>
<PAGE>
50
SCHEDULE III
------------
Persons to sign Lock-up Agreements
<PAGE>
EXHIBIT 3.2
CREO PRODUCTS INC.
------------------
BY-LAW NO. 1
A by-law relating generally to the transaction of the business and
affairs of Creo Products Inc. (the "Corporation").
Contents
--------
One - Interpretation
Two - Business of the Corporation
Three - Borrowing and Securities
Four - Directors
Five - Committees
Six - Officers
Seven - Protection of Directors,
Officers and Others
Eight - Shares
Nine - Dividends and Rights
Ten - Meetings of Shareholders
Eleven - Divisions and Departments
Twelve - Notices
Thirteen - Effective Date
BE IT ENACTED as a by-law of the Corporation as follows:
<PAGE>
-2-
Section One
INTERPRETATION
1.01 Definitions - In the by-laws of the Corporation, unless the
context otherwise requires:
"Act" means the Canada Business Corporations Act, and any statute that
may be substituted therefor, as from time to time amended;
"appoint" includes "elect" and vice versa;
"articles" means the articles attached to the certificate of
incorporation dated May 30, 1985, of the Corporation as from time to
time amended or restated;
"board" means the board of directors of the Corporation;
"by-laws" means this by-law and all other by-laws of the Corporation
from time to time in force and effect;
"Corporation" means the corporation incorporated by certificate of
incorporation under the Act and named CREO PRODUCTS INC.;
"meeting of the shareholders" means an annual meeting of shareholders
and a special meeting of shareholders;
"non-business day" means Saturday, Sunday and any other day that is a
holiday as defined in the Interpretation Act (Canada);
"recorded address" means in the case of a shareholder his address as
recorded in the securities register; and in the case of joint
shareholders the address appearing in the securities register in
respect of such joint holding or the first address so appearing if
there are more than one; and in the case of a director, officer,
auditor or member of a committee of the board, his latest address as
recorded in the records of the Corporation;
"signing officer" means, in relation to any instrument, any person
authorized by section 2.04 to sign the same on behalf of the
Corporation or by a resolution passed pursuant thereto;
<PAGE>
-3-
"special meeting of shareholders" means a special meeting of all
shareholders entitled to vote at an annual meeting of shareholders;
"unanimous shareholder agreement" means a written agreement among all
the shareholders of the Corporation, or among all such shareholders
and a person who is not a shareholder, that restricts, in whole or in
part, the powers of the directors to manage the business and affairs
of the Corporation, as from time to time amended;
save as aforesaid, words and expressions defined in the Act have the
same meanings when used herein; and
words importing the singular number include the plural and vice versa;
words importing gender include the masculine, feminine and neuter
genders; and words importing persons include individuals, bodies
corporate, partnerships, trusts and unincorporated organizations.
Section Two
BUSINESS OF THE CORPORATION
2.01 Registered Office - The registered office of the Corporation
shall be at such location in Canada as the board may from time to time
determine.
2.02 Corporate Seal - Until changed by the Board, the corporate seal
of the Corporation shall be in the form impressed.
2.03 Financial Year - The financial year of the Corporation shall be
as determined from time to time by the Board.
2.04 Execution of Instruments - Deeds, transfers, assignments,
contracts, obligations, certificates and other instruments may be signed on
behalf of the Corporation by two persons, one of whom holds the office of
chairman of the board, president, managing director, vice-president, secretary,
or director and the other of whom holds one of the said offices, or by such
other per son or per sons as may be determined by the Board from time to time by
resolution. In addition, the board may from time to time direct the manner in
which the person or persons by whom any particular instrument or class of
instruments may or shall be signed. Any signing officer may affix the corporate
seal to any instrument requiring the same.
<PAGE>
-4-
2.05 Banking Arrangements - The banking business of the Corporation
including, without limitation, the borrowing of money and the giving of security
therefor, shall be transacted with such banks, trust companies or other bodies
corporate or organizations as may from time to time be designated by or under
the authority of the board. Such banking business or any part thereof shall be
transacted under such agreements, instructions and delegations of powers as the
board may from time to time prescribe or authorize.
2.06 Voting Rights in Other Bodies Corporate - The signing officers of
the Corporation may execute and deliver proxies and arrange for the issuance of
voting certificates or other evidence of the right to exercise the voting rights
attaching to any securities held by the Corporation. Such instruments,
certificates or other evidence shall be in favour of such person or persons as
may be determined by the officers executing such proxies or arranging for the
issuance of voting certificates or such other evidence of the right to exercise
such voting rights. In addition, the board may, from time to time, direct the
manner in which, and the person or persons by whom, any particular voting rights
or class of voting rights may or shall be exercised.
2.07 Withholding Information from Shareholders - Subject to the
provisions of the Act, no shareholder shall be entitled to discovery of any
information respecting any details or conduct of the Corporation's business
which, in the opinion of the board, it would be inexpedient in the interests of
the shareholders or the Corporation to communicate to the public. The board may
from time to time determine whether and to what extent and at what time and
place and under what conditions or regulations the accounts, records and
documents of the Corporation or any of them shall be open to the inspection of
the shareholders and no shareholder shall have any right of inspecting any
account, record or document of the Corporation except as conferred by the Act or
authorized by the board or by resolution passed at a general meeting of
shareholders.
Section Three
BORROWING AND SECURITIES
3.01 Borrowing Power - Without limiting the borrowing powers of the
Corporation as set forth in the Act, the board may from time to time:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge bonds, debentures, notes or other
evidence of indebtedness or guarantee of the Corporation, whether
secured or unsecured; and
<PAGE>
-5-
(c) mortgage, hypothecate, pledge or otherwise create an interest in
or charge upon all or any property (including the undertaking and
rights) of the Corporation, owned or subsequently acquired, by way or
mortgage, hypothec, pledge or otherwise, to secure payment of any such
evidence of indebtedness or guarantee of the Corporation.
Nothing in this section limits or restricts the borrowing of money by the
Corporation on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Corporation.
3.02 Delegation - The board may from time to time delegate to such one
or more of the directors and officers of the Corporation as may be designated by
the board all or any of the powers conferred on the board by section 3.01 or by
the Act to such extent and in such manner as the board shall determine at the
time of each such delegation.
Section Four
DIRECTORS
4.01 Number of Directors and Quorum - Until changed in accordance with
the Act, the Board shall consist of not fewer than Two (2) and not more than
Seven (7) directors. Subject to section 4.08, the quorum for the transaction of
business at any meeting of the board shall consist of a majority of the number
of directors of the Corporation at that time, or such greater number of
directors as the board may from time to time determine.
4.02 Qualification - No person shall be qualified for election as a
director if he is less than 18 years of age; if he is of unsound mind and has
been so found by a court in Canada or elsewhere; if he is not an individual; or
if he has the status of a bankrupt. A director need not be a shareholder. A
majority of the directors shall be resident Canadians.
4.03 Election and Term - The election of directors shall take place at
the first meeting of shareholders and at each annual meeting of shareholders and
all the directors then in office shall retire but, if qualified, shall be
eligible for re-election. The number of directors to be elected at any such
meeting shall be the number of directors then in office unless the directors or
the shareholders otherwise determine. The election shall be by resolution. If an
election of directors is not held at the proper time, the incumbent directors
shall continue in office until their successors are elected.
<PAGE>
-6-
4.04 Removal of Directors - Subject to the provisions of the Act, the
shareholders may be resolution passed at a special meeting remove any director
from office and the vacancy created by such removal may be filled at the same
meeting failing which it may be filled by the board.
4.05 Vacation of Office - A director ceases to hold office when: he
dies; he is removed from office by the shareholders; he ceases to be qualified
for election as a director; or his written resignation is sent or delivered to
the Corporation, or if a time is specified in such resignation, at the time so
specified, whichever is later.
4.06 Vacancies - Subject to the Act, a quorum of the board may fill a
vacancy in the board, except a vacancy resulting from an increase in the minimum
number of directors or from a failure of the shareholders to elect the minimum
number of directors. In the absence of a quorum of the board, or if the vacancy
has arisen from a failure of the shareholders to elect the minimum number of
directors, the board shall forthwith call a special meeting of shareholders to
fill the vacancy. If the board fails to call such meeting or if there are no
such directors then in office, any shareholder may call the meeting.
4.07 Action by the Board - The board shall manage the business and
affairs of the Corporation. Subject to section 4.08 and 4.09, the powers of the
board may be exercised by resolution passed at a meeting at which a quorum is
present or by resolution in writing signed by all the directors entitled to vote
on that resolution at a meeting of the board. Where there is a vacancy in the
board, the remaining directors may exercise all the powers of the board so long
as a quorum remains in office. Where the Corporation has only one director, that
director may constitute the meeting.
4.08 Canadian Majority - The board shall not transact business at a
meeting, other than filling a vacancy in the board, unless a majority of the
directors present are resident Canadians, except where:
(a) a resident Canadian director who is unable to be present approves
in writing or by telephone or other communications facilities the
business transacted at the meeting; and
(b) a majority of resident Canadians would have been present had that
director been present at the meeting.
4.09 Meetings by telephone - If all the directors consent, a director
may participate in a meeting of the board or
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of a committee of the board by means of such telephone or other communications
facilities as permit all persons participating in the meeting to hear each
other, and a director participating in such a meeting by such means is deemed to
be present at the meeting. Any such consent shall be effective whether given
before or after the meeting to which it relates and may be given with respect to
all meetings of the board and of committees of the board held while a director
holds office.
4.10 Place of Meetings - Meetings of the board may be held at any
place in or outside Canada.
4.11 Calling of Meetings - Meetings of the board shall be held from
time to time and at such place as the board, the chairman of the board, the
president or any two directors may determine.
4.12 Notice of Meeting - Notice of the time and place of each meeting
of the board shall be given in the manner provided in section 12.01 to each
director not less than 48 hours before the time when the meeting is to be held.
A notice of a meeting of directors need not specify the purpose of or the
business to be transacted at the meeting except where the Act requires such
purpose or business to be specified, including any proposal to:
(a) submit to the shareholders any question or matter requiring
approval of the shareholders;
(b) fill a vacancy among the directors or in the office of auditor;
(c) issue securities;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares of the Corporation;
(f) pay a commission for the sale of shares;
(g) approve a management proxy circular;
(h) approve a take-over bid circular or directors' circular;
(i) approve any annual financial statements; or
(j) adopt, amend or repeal by-laws.
A director may in any manner waive notice or otherwise consent to a meeting of
the board.
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4.13 First Meeting of New Board - Provided a quorum of directors is
present, each newly elected board may without notice hold its first meeting
immediately following the meeting of shareholders at which such board is
elected.
4.14 Adjourned Meeting - Notice of an adjourned meeting of the board
is not required if the time and place of the adjourned meeting is announced at
the original meeting.
4.15 Regular Meetings - The board may appoint a day or days in any
month or months for regular meetings of the board at a place and hour to be
named. A copy of any resolution of the board fixing the place and time of such
regular meetings shall be sent to each director forthwith after being passed,
but no other notice shall be required for any such regular meeting except where
the Act requires the purpose thereof or the business to be transacted thereat to
be specified.
4.16 Chairman - The chairman of any meeting of the board shall be the
first mentioned of such of the following officers as have been appointed and who
is a director and is present at the meeting: chairman of the board, president,
or a vice-president who is a director. If no such officer is present, the
directors present shall choose one of their number to be chairman.
4.17 Vote to Govern - At all meetings of the board every question
shall be decided by a majority of the votes cast on the question. In case of an
equality of votes the chairman of the meeting shall not be entitled to a second
or casting vote.
4.18 Conflict of Interest - A director or officer who is a party to,
or who is a director or officer of or has a material interest in any person who
is a party to, a material contract or proposed material contract with the
Corporation shall disclose the nature and extent of his interest at the time and
in the manner provided by the Act. Any such contract or proposed contract shall
be referred to the board or shareholders for approval even if such contract is
one that in the ordinary course of the Corporation's business would not require
approval by the board or shareholders, and a director interested in a contract
so referred to the board shall not vote on any resolution to approve the same
except as provided by the Act.
4.19 Remuneration and Expenses - Subject to any unanimous shareholder
agreement, the directors shall be paid such remuneration for their services as
the board may from time to time determine. The directors shall also be entitled
to be reimbursed for travelling and other expenses properly incurred by them in
attending meetings of the board or any committee
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thereof. Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
Section Five
COMMITTEES
5.01 Committee of Directors - The board may appoint a committee of
directors, however designated, and delegate to such committee any of the powers
of the board except those which, under the Act, a committee of directors has no
authority to exercise. A majority of the members of such committee shall be
resident Canadians.
5.02 Transaction of Business - Subject to the provisions of section
4.09, the powers of a committee of directors may be exercised by a meeting at
which a quorum is present or by resolution in writing signed by all the members
of such committee who would have been entitled to vote on that resolution at a
meeting of the committee. Meetings of such committee may be held at any place in
or outside Canada.
5.03 Advisory Committees - The board may from time to time appoint
such other committees as it may deem advisable, but the functions of any such
other committees shall be advisory only.
5.04 Procedure - Unless otherwise determined by the board, each
committee shall have the power to fix its quorum at not less than a majority of
its members, to elect its chairman and to regulate its procedure.
Section Six
OFFICERS
6.01 Appointment - Subject to any unanimous shareholder agreement, the
board may from time to time appoint a president, one or more vice-presidents (to
which title may be added words indicating seniority or function), a secretary,
a treasurer and such other officers as the board may determine, including one or
more assistants to any of the officers so appointed. The board may specify the
duties of and, in accordance with this by-law and subject to the provisions of
the Act, delegate to such officers powers to manage the business and affairs of
the Corporation. Subject to sections 6.02 and 6.03, an officer may but need not
be a director and one person may hold more than one office.
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6.02 Chairman of the Board - The board may from time to time also
appoint a chairman of the board who shall be a director. If appointed, the board
may assign to him any of the powers and duties that are by any provisions of
this by-law assigned to the president; and he shall, subject to the provisions
of the Act, have such other powers and duties as the board may specify. During
the absence or disability of the chairman of the board, his duties shall be
performed and his powers exercised by the president.
6.03 President - The president shall be a resident Canadian and a
director. He shall be the chief executive officer and operating officer and,
subject to the authority of the board, shall have general supervision of the
business and affairs of the Corporation; and he shall, subject to the provisions
of the Act, have such other powers and duties as the board may specify.
6.04 Vice-President - A vice-president shall have such powers and
duties as the board or the President may specify.
6.05 Secretary - The secretary shall attend and be the secretary of
all meetings of the board, shareholders and committees of the board and shall
enter or cause to be entered in records kept for that purpose minutes of all
proceedings thereat; he shall give or cause to be given, as and when instructed,
all notices to shareholders, directors, officers, auditors and members of
committees of the board; he shall be the custodian of the stamp or mechanical
device generally used for affixing the corporate seal of the Corporation and of
all books, papers, records, documents and instruments belonging to the
Corporation, except when some other officer or agent has been appointed for that
purpose; and he shall have such other powers and duties as the board or the
President may specify.
6.06 Treasurer - The treasurer shall keep proper accounting records in
compliance with the Act and shall be responsible for the deposit of money, the
safekeeping of securities and the disbursement of the funds of the Corporation;
he shall render to the board whenever required an account of all his
transactions as treasurer and of the financial position of the Corporation; and
he shall have such other powers and duties as the board or the President may
specify.
6.07 Powers and Duties of Other Officers - The powers and duties of
all other officers shall be such as the terms of their engagement call for or as
the board or the President may specify. Any of the powers and duties of an
officer to whom an assistant has been appointed may be exercised and performed
by such assistant, unless the board or the President otherwise directs.
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6.08 Variation of Powers and Duties - The board may from time to time
and subject to the provisions of the Act, vary, add to or limit the powers and
duties of any officer.
6.09 Term of Office - The board, in its discretion, may remove any
officer of the Corporation, without prejudice to such officer's rights under any
employment contract. Otherwise each officer appointed by the board shall hold
office until his successor is appointed or his employment is terminated by
death, incapacity or resignation.
6.10 Terms of Employment and Remuneration - The terms of employment
and remuneration of officers appointed by the board shall be settled by it from
time to time.
6.11 Conflict of Interest - An officer shall disclose his interest in
any material contract or proposed material contract with the Corporation in
accordance with section 4.18.
6.12 Agents and Attorneys - The board shall have power from time to
time to appoint agents or attorneys for the Corporation in or outside Canada
with such powers of management or otherwise (including the power to sub-
delegate) as may be thought fit.
6.13 Fidelity Bonds - The board may require such officers, employees
and agents of the Corporation as the board deems advisable to furnish bonds for
the faithful discharge of their powers and duties, in such form and with such
surety as the board may from time to time determine.
Section Seven
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
7.01 Limitation of Liability - No director or officer shall be liable
for the acts, receipts, neglects or defaults of any other director or officer or
employee, or for joining in any receipt or other act for conformity, or for any
loss, damage or expense happening to the Corporation through the insufficiency
or deficiency of title to any property acquired for or on behalf of the
Corporation, or for the insufficiency or deficiency of any security in or upon
which any of the monies of the Corporation shall be invested, or for any loss or
damage arising from the bankruptcy, insolvency or tortious acts of any person
with whom any of the monies, securities or effects of the Corporation shall be
deposited, or for any loss occasioned by any error of judgment or oversight on
his part, or for any other loss, damage or misfortune whatever which shall
happen in the execution of the duties of his office or in relation thereto,
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unless the same are occasioned by his own willful neglect or default; provided
that nothing herein shall relieve any director or officer from the duty to act
in accordance with the Act and the regulations thereunder or from liability for
any breach thereof.
7.02 Indemnity - Subject to the limitations contained in the Act, the
Corporation shall indemnify a director or officer, a former director or officer,
or a person who acts or acted at the Corporation's request as a director or
officer of a body corporate of which the Corporation is or was a shareholder or
creditor (or a person who undertakes or has undertaken any liability on behalf
of the Corporation or any such body corporate) and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
the Corporation or such body corporate, if
(a) he acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
7.03 Insurance - Subject to the limitations contained in the Act, the
Corporation may purchase and maintain such insurance for the benefit of its
directors and officers as such, as the board may from time to time determine.
Section Eight
SHARES
8.01 No shareholder shall be entitled to a pre-emptive right or first
offer to acquire any shares of the authorized unissued shares of the Company and
the board may, from time to time, allot or issue or agree to allot or issue the
whole or any part of the authorized and unissued shares of the Corporation at
such times and to such persons and for such consideration as the board shall
determine without notice to or any entitlement of existing shareholders to
participate in such allotment or issue and without pre-emptive rights to the
existing shareholders, provided that no share shall be issued until it is fully
paid as prescribed by the Act.
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8.02 Allotment - The board may from time to time allot or grant
options to purchase the whole or any part of the authorized and unissued shares
of the Corporation at such times and to such persons and for such consideration
as the board shall determine, provided that no share shall be issued until it is
fully paid as prescribed by the Act.
8.03 Commissions - The board may from time to time authorize the
Corporation to pay a commission to any person in consideration of his purchasing
or agreeing to purchase shares of the Corporation, whether from the Corporation
or from any other person, or procuring or agreeing to procure purchasers for any
such shares.
8.04 Registration of Transfer - Subject to the provisions of the Act,
no transfer of shares shall be registered in a securities register except upon
presentation of the certificate representing such shares with a transfer
endorsed thereon or delivered therewith duly executed by the registered holder
or by his attorney or successor duly appointed, together with such reasonable
assurance or evidence of signature, identification and authority to transfer as
the board may from time to time prescribe, upon payment of all applicable taxes
and any fees prescribed by the board, upon compliance with such restrictions on
transfer as are authorized by the articles and upon satisfaction of any lien
referred to in section 8.06.
8.05 Transfer Agents and Registrars - The board may from time to time
appoint a registrar to maintain the securities register and transfer agent to
maintain the register of transfers and may also appoint one or more branch
registrars to maintain branch securities registers and one or more branch
transfer agents to maintain branch registers of transfers, but one person may be
appointed both registrar and transfer agent. The board may at any time terminate
any such appointment.
8.06 Lien for Indebtedness - If the articles provide that the
Corporation shall have a lien on shares registered in the name of a shareholder
indebted to the Corporation, such lien may be enforced, subject to any other
provision of the articles and to any unanimous shareholder agreement, by the
sale of the shares thereby affected or by any other action, suit, remedy or
proceeding authorized or permitted by law or by equity and, pending such
enforcement, may refuse to register a transfer of the whole of any part of such
shares.
8.07 Non-recognition of Trusts - Subject to the provisions of the Act,
the Corporation shall treat as absolute owner of any share the person in whose
name the share is registered in the securities register as if that person had
full
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legal capacity and authority to exercise all rights of ownership, irrespective
of any indication to the contrary through knowledge or notice or description in
the Corporation's records or on the share certificate.
8.08 Share Certificates - Every holder of one or more shares of the
Corporation shall be entitled, at his option, to a share certificate, or to a
non-transferable written acknowledgment of his right to obtain a share
certificate, stating the number and class or series of shares held by him as
shown on the securities register. Share certificates and acknowledgments of a
shareholder's right to a share certificate, respectively, shall be in such form
as the board shall from time to time approve. Any share certificate shall be
signed in accordance with section 2.04 and need not be under the corporate seal
provided that, unless the board otherwise determines, certificates representing
shares in respect of which a transfer agent and/or registrar has been appointed
shall not be valid unless countersigned by or on behalf of such transfer agent
and/or registrar. The signature of one of the signing officers or, in the case
of share certificates which are not valid unless countersigned by or on behalf
of a transfer agent and/or registrar, the signatures of both signing officers,
may be printed or mechanically reproduced in facsimile upon share certificates
and every such facsimile signature shall for all purposes be deemed to be the
signature of the officer whose signature it reproduces and shall be binding upon
the Corporation. A share certificate executed as aforesaid shall be valid
notwithstanding that one or both of the officers whose facsimile signature
appears thereon no longer holds office at the date of issue of the certificate.
8.09 Replacement of Share Certificates - The board or any officer or
agent designated by the board may in its or his discretion direct the issue of a
new share certificate in lieu of and upon cancellation of a share certificate
that has been mutilated or in substitution for a share certificate claimed to
have been lost, destroyed or wrongfully taken on payment of such fee, not
exceeding $3, and on such terms as to indemnity, reimbursement of expenses and
evidence of loss and of title as the board may from time to time prescribe,
whether generally or in any particular case.
8.10 Joint Shareholders - If two or more persons are registered as
joint holders of any share, the Corporation shall no be bound to issue more than
one certificate in respect thereof, and delivery of such certificate to one of
such persons shall be sufficient delivery to all of them. Any one of such
persons may give effectual receipts for the certificate issued in respect
thereof or for any dividend, bonus, return of capital or other money payable or
warrant issuable in respect of such share.
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8.11 Deceased Shareholders - In the event of the death of a holder, or
of one of the joint holders, of any share, the Corporation shall not be required
to make any entry in the securities register in respect thereof or to make
payment of any dividends thereon except upon production of all such documents as
may be required by law and upon compliance with the reasonable requirements of
the Corporation and its transfer agents.
Section Nine
DIVIDENDS AND RIGHTS
9.01 Dividends - Subject to the provisions of the Act, the board may
from time to time declare dividends payable to the shareholders according to
their respective rights and interests in the Corporation. Dividends may be paid
in money or property or by issuing fully paid shares of the Corporation.
9.02 Dividend Cheques - A dividend payable in cash shall be paid by
cheque drawn on the Corporation's bankers or one of them to the order of each
registered holder of shares of the class or series in respect of which it has
been declared and mailed by prepaid ordinary mail to such registered holder at
his recorded address, unless such holder otherwise directs. In the case of joint
holders the cheque shall, unless such joint holders otherwise direct, be made
payable to the order of all of such joint holders and mailed to them at their
recorded address. The mailing of such cheque as aforesaid, unless the same is
not paid on due presentation, shall satisfy and discharge the liability for the
dividend to the extent of the sum represented thereby plus the amount of any tax
which the Corporation is required to and does withhold.
9.03 Non-receipt of Cheques - In the event of non-receipt of any
dividend cheque by the person to whom it is sent as aforesaid, the Corporation
shall issue to such person a replacement cheque for a like amount on such terms
as to indemnity, reimbursement or expenses and evidence of non-receipt and of
title as the board may from time to time prescribe, whether generally or in any
particular case.
9.04 Record Date for Dividends and Rights - The board may fix in
advance a date, preceding by not more than 50 days the date for the payment of
any dividend or the date for the issue of any warrant or other evidence of right
to subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or to
exercise the right to subscribe for such securities, provided that notice of any
such record date is
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given, not less than 14 days before such record date, by newspaper advertisement
in the manner provided in the Act. Where no record date is fixed in advance as
aforesaid, the record date for the determination of the persons entitled to
receive payment of any dividend or to exercise the right to subscribe for
securities of the Corporation shall be at the close of business on the day on
which the resolution relating to such dividend or right to subscribe is passed
by the board.
9.05 Unclaimed Dividends - Any dividend unclaimed after a period of 6
years from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
9.06 Rights Attached to Shares - The Shares of the Corporation shall
have attached to them the respective rights described in the Articles of
Incorporation of the Corporation and as may be amended from time to time in
accordance with the Act.
Section Ten
MEETINGS OF SHAREHOLDERS
10.01 Annual Meetings - The annual meeting of shareholders shall be
held at such time in each year and, subject to section 10.03, at such place as
the board, the chairman of the board, or the president may from time to time
determine, for the purpose of considering the financial statements and reports
required by the Act to be placed before the annual meeting, electing directors,
appointing auditors and for the transaction of such other business as may
properly be brought before the meeting.
10.02 Special Meetings - the board, the chairman of the board, or the
president shall have power to call a special meeting of shareholders at any
time.
10.03 Place of Meetings - Meetings of shareholders shall be held at
the registered office of the Corporation or elsewhere in the municipality in
which the registered office is situate or, if the board shall so determine, at
some other place in Canada or, if all the shareholders entitled to vote at the
meeting so agree, at some place outside Canada.
10.04 Notice of Meetings - Notice of the time and place of each
meeting of shareholders shall be given in the manner provided in section 12.01
not less than 21 nor more than 50 days before the date of the meeting to each
director, to the auditor and to each shareholder who at the close of business on
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the record date, if any, for notice is entered in the securities register as the
holder of one or more shares carrying the right to vote at the meeting. Notice
of a meeting of shareholders called for any purpose other than consideration of
the financial statements and auditor's report, election of directors and
reappointment of the incumbent auditor shall state the nature of such business
in sufficient detail to permit the shareholder to form a reasoned judgment
thereon and shall state the text of any special resolution to be submitted to
the meeting. A shareholder may in any manner waive notice of or otherwise
consent to a meeting of shareholders.
10.05 List of Shareholders Entitled to Notice - For every meeting of
shareholders, the Corporation shall prepare a list of shareholders entitled to
receive notice of the meeting, arranged in alphabetical order and showing the
number of shares entitled to vote at the meeting held by each shareholder. If a
record date for the meeting is fixed pursuant to section 10.06, the shareholders
listed shall be those registered at the close of business on the day immediately
preceding the day on which notice of the meeting is given, or where no such
notice is given, the day on which the meeting is held. The list shall be
available for examination by any shareholder during usual business hours at the
registered office of the Corporation or at the place where the securities
register is kept and at the place where the meeting is held.
10.06 Record Date for Notice - The board may fix in advance a record
date, preceding the date of any meeting of shareholders by not more than 50 days
and not less than 21 days, for determination of the shareholders entitled to
notice of the meeting, provided that notice of any such record date is given not
less than 14 days before such record date, by newspaper advertisement in the
manner provided in the Act. If no record date is so fixed, the record date for
the determination of the shareholders entitled to notice of the meeting shall be
the close of business on the day immediately preceding the day on which the
notice is given.
10.07 Meetings without Notice - A meeting of shareholders may be held
without notice at any time and place permitted by the Act (a) if all the
shareholders entitled to vote thereat are present in person or represented by
proxy or if those not present or represented by proxy waive notice of or
otherwise consent to such meeting being held, and (b) if the auditors and the
directors are present or waive notice of or otherwise consent to such meeting
being held. At such a meeting any business may be transacted which the
Corporation at a meeting of shareholders may transact. If the meeting is held at
a place outside Canada, shareholders not present or represented
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by proxy, but who have waived notice of or otherwise consented to such meeting,
shall also be deemed to have consented to the meeting being held at such place.
10.08 Chairman, Secretary and Scrutineers - The chairman of any
meeting of shareholders shall be the first mentioned of such of the following
officers as have been appointed and who is present at the meeting: president,
chairman of the board, or a vice-president who is a shareholder. If no such
officer is present within 15 minutes from the time fixed for holding the
meeting, the persons present and entitled to vote shall choose one of their
number to be chairman. If the secretary of the Corporation is absent, the
chairman shall appoint some person, who need not be a shareholder, to act as
secretary of the meeting. If desired, one or more scrutineers, who need not be
shareholders, may be appointed by a resolution or by the chairman with the
consent of the meeting.
10.09 Persons Entitled to be Present - the only persons entitled to be
present at a meeting of shareholders shall be those entitled to vote thereat,
the directors and auditors of the Corporation and others who, although not
entitled to vote, are entitled or required under any provision of the Act or the
articles or by-laws to be present at the meeting. Any other person may be
admitted only on the invitation of the chairman of the meeting or with the
consent of the meeting.
10.10 Quorum - A quorum for the transaction of business at any meeting
of shareholder shall be two persons present in person, each being a shareholder
entitled to vote thereat or a duly appointed proxy for an absent shareholder so
entitled.
10.11 Right to Vote - Subject to the provisions of the Act as to
authorized representatives of any other body corporate, at any meeting of
shareholders in respect of which the Corporation has prepared the list referred
to in section 10.05, every person who is named in such list shall be entitled to
vote the shares shown thereon opposite his name except, where the Corporation
has fixed a record date in respect of such meeting pursuant to section 10.06, to
the extent that such person has transferred any of his shares after such record
date and the transferee, upon producing properly endorsed certificates
evidencing such shares or otherwise establishing that he owns such shares,
demands not later than 10 days before the meeting that his name be included to
vote the transferred shares at the meeting. In the absence of a list prepared as
aforesaid in respect of a meeting of shareholders, every person
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shall be entitled to vote at the meeting who at the time is entered in the
securities register as the holder of one or more shares carrying the right to
vote at such meeting.
10.12 Proxies - Every shareholder entitled to vote at a meeting of
shareholders may appoint a proxyholder, or one or more alternate proxyholders,
who need not be shareholders, to attend and act at the meeting in the manner and
to the extent authorized and with the authority conferred by the proxy. A proxy
shall be in writing executed by the shareholder or his attorney and shall
conform with the requirements of the Act.
10.13 Time for Deposit of Proxies - The board may specify in a notice
calling a meeting of shareholders a time, preceding the time of such meeting by
not more than 48 hours exclusive of non-business days, before which time proxies
to be used at such meeting must be deposited. A proxy shall be acted upon only
if, prior to the time so specified, it shall have been deposited with the
Corporation or an agent thereof specified in such notice or, if no such time is
specified in such notice, unless it has been received by the secretary of the
Corporation or by the chairman of the meeting or any adjournment thereof prior
to the time of voting.
10.14 Joint Shareholders - Where there are joint members registered in
respect of any share, any one of the joint members may vote at any meeting,
either personally or by proxy, in respect of the share as if he were solely
entitled to it. If more than one of the joint members is present at the meeting,
personally or by proxy, the joint member present whose name stands first on the
register in respect of the share shall alone be entitled to vote in respect of
that share.
10.15 Votes to Govern - At any meeting of shareholders every question
shall, unless otherwise required by the articles or by-laws or by law, be
determined by the majority of the votes cast on the question. In case of an
equality of votes either upon a show of hands or upon a poll, the chairman of
the meeting shall not be entitled to a second or casting vote.
10.16 Show of Hands - Subject to the provisions of the Act, any
question at a meeting of shareholders shall be decided by a show of hands unless
a ballot thereon is required or demanded as hereinafter provided. Upon a show of
hands every person who is present and entitled to vote shall have one vote.
Whenever a vote by show of hands shall have been taken upon a question, unless a
ballot thereon is so required or demanded, a declaration by the chairman of the
meeting that the vote upon the question has been carried or carried by a
particular majority or not carried and an entry to that effect in the
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minutes of the meeting shall be prima facie evidence of the fact without proof
of the number or proportion of the votes recorded in favour of the said
question, and the result of the vote so taken shall be the decision of the
shareholders upon the said question.
10.17 Ballots - On any question proposed for consideration at a
meeting of shareholders, and whether or not a show of hands has been taken
thereon, any shareholder or proxyholder entitled to vote at the meeting may
require or demand a ballot. A ballot so required or demanded shall be taken in
such manner as the chairman shall direct. A requirement or demand for a ballot
may be withdrawn at any time prior to the taking of the ballot. If a ballot is
taken each person present shall be entitled, in respect of the shares which he
is entitled to vote at the meeting upon the question, to that number of votes
provided by the Act or the articles, and the result of the ballot so taken shall
be the decision of the shareholders upon the said question.
10.18 Adjournment - If a meeting of shareholders is adjourned for less
than 30 days, it shall not be necessary to give notice of the adjourned meeting,
other than by announcement at the earliest meeting that is adjourned. If a
meeting of shareholders is adjourned by one or more adjournments for an
aggregate of 30 days or more, notice of the adjourned meeting shall be given as
for an original meeting.
10.19 Resolution in Writing - A resolution in writing signed by all
the shareholders entitled to vote on that resolution at a meeting of
shareholders is as valid as if it had been passed at a meeting of the
shareholders unless a written statement with respect to the subject matter of
the resolution is submitted by a director or the auditors in accordance with the
Act.
10.20 Only One Shareholder - Where the Corporation has only one
shareholder or only one holder of any class or series of shares, the shareholder
present in person or by proxy constitutes a meeting.
Section Eleven
DIVISIONS AND DEPARTMENTS
11.01 Creation and Consolidation of Divisions - The board may cause
the business and operations of the Corporation or any part thereof to be divided
or to be segregated into one or more divisions upon such basis, including
without limitation, character or type or operation, geographical territory,
product
<PAGE>
-21-
manufactured or service rendered, as the board may consider appropriate in each
case. The board may also cause the business and operations of any Such division
to be further divided into sub-units and the business and operations of any such
divisions or sub-units to be consolidated upon such basis as the board may
consider appropriate in each case.
11.02 Name of Division - Any division or its sub-units may be
designated by such name as the board may from time to time determine and may
transact business, enter into contracts, sign cheques and other documents of any
kind and do all acts and things under such name. Any such contract, cheque or
document shall be binding upon the Corporation as if it had been entered into or
signed in the name of the Corporation.
11.03 Officers of Divisions - From time to time the board or, if
authorized by the board, the President, may appoint one or more officers for any
division, prescribe their powers and duties and settle their terms of employment
and remuneration. The board or, if authorized by the board, the President, may
remove at its or his pleasure any officer so appointed, without prejudice to
such officer's right under any employment contract. Officers of divisions or
their sub-units shall not, as such, be officers of the Corporation.
Section Twelve
NOTICES
12.01 Method of Giving Notices - Any notice (which term includes any
communication or document) to be given (which term includes sent, delivered or
served) pursuant to the Act, the regulations thereunder, the articles, the by-
laws or otherwise to a shareholder, director, officer, auditor or member of a
committee of the board shall be sufficiently given if delivered personally to
the person to whom it is to be given or if delivered to his recorded address or
if mailed to him at his recorded address by prepaid ordinary or air mail or if
sent to him at his recorded address by any means of prepaid transmitted or
recorded communication. A notice so delivered shall be deemed to have been given
when it is delivered personally or to the recorded address as aforesaid; a
notice so mailed shall be deemed to have been given when deposited in a post
office or public letter box; and a notice so sent by any means of transmitted or
recorded communication shall be deemed to have been given when dispatched or
delivered to the appropriate communication company or agency or its
representative for dispatch. The secretary may change or cause to be changed the
recorded address of any shareholder, director, officer, auditor or member of a
committee of the board in accordance with any information believed by him to be
reliable.
<PAGE>
-22-
12.02 Notice to Joint Shareholders - If two or more persons are
registered as joint holders of any share, any notice shall be addressed to all
of such joint holders but notice to one of such persons shall be sufficient
notice to all of them.
12.03 Computation of Time - In computing the date when notice must be
given under any provision requiring a specified number of days' notice of any
meeting or other event, the date of giving the notice shall be excluded and the
date of the meeting or other event shall be included.
12.04 Undelivered Notices - If any notice given to a shareholder
pursuant to section 12.01 is returned on three consecutive occasions because he
cannot be found, the Corporation shall not be required to give any further
notices to such shareholder until he informs the Corporation in writing of his
new address.
12.05 Omissions and Errors - The accidental omission to give any
notice to any shareholder, director, officer, auditor or member of a committee
of the board or the non-receipt of any notice by any such person or any error in
any notice not affecting the substance thereof shall not invalidate any action
taken at any meeting held pursuant to such notice or otherwise founded thereon.
12.06 Persons Entitled by Death or Operation of Law -Every person who,
by operation of law, transfer, death of a shareholder or any other means
whatsoever, shall become entitled to any share, shall be bound by every notice
in respect of such share which shall have been duly given to the shareholder
from whom he derives his title to such share prior to his name and address being
entered on the securities register (whether such notice was given before or
after the happening of the event upon which he became so entitled) and prior to
his furnishing to the Corporation the proof of authority or evidence of his
entitlement prescribed by the Act.
12.07 Waiver of Notice - Any shareholder (or his duly appointed
proxyholder) , director, officer, auditor or member of a committee of the board
may at any time waive any notice, or waive or abridge the time for any notice,
required to be given to him under any provision of the Act, the regulations
thereunder, the articles, the by-laws or otherwise and such waiver or
abridgement shall cure any default in the giving or in the time of such notice,
as the case may be. Any such waiver or abridgement shall be in writing except a
waiver of notice of a meeting of shareholders or of the board which may be given
in any manner.
<PAGE>
-23-
Section Thirteen
EFFECTIVE DATE
13.01 Effective Date - This by-law shall come into force when
confirmed by the shareholders in accordance with the Act.
ENACTED by the board the 30th day of May, 1985.
/s/ Kenneth Albert Spencer
-----------------------------
KENNETH ALBERT SPENCER
Director/President/Secretary
/s/ Daniel Gelbart
-----------------------------
DANIEL GELBART
Director/Vice-President
CONFIRMED by the shareholders in accordance with the Act the 30th day
of May, 1985.
/s/ Kenneth Albert Spencer
-----------------------------
KENNETH ALBERT SPENCER
/s/ Daniel Gelbart
-----------------------------
DANIEL GELBART
<PAGE>
CREO PRODUCTS INC.
------------------
BY-LAW NO. 2
A by-law respecting the borrowing of money by CREO PRODUCTS INC.
(hereinafter called the "Corporation").
BY IT ENACTED AND IT IS HEREBY ENACTED as a by-law of the Corporation
as follows-
1. The directors may from time to time:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the
Corporation; and
(c) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any debt obligations of the
Corporation.
The words "debt obligations" as used in this paragraph mean bonds,
debentures, notes or other evidences oft indebtedness or guarantees of the
Corporation, whether secured or unsecured.
2. The directors may from time to time by resolution delegate to the
President, Secretary and Vice President or to any two individuals (including the
President Secretary or Vice President) each of whom is an officer of the
Corporation all or any of the powers conferred on the directors by paragraph 1
of this by-law to the full extent thereof or such lesser extent as the directors
may in any such resolution provide.
3. The powers hereby conferred shall be deemed to be in supplement
of and not in substitution for any powers to borrow money for the purposes of
the Corporation possessed by its directors or officers independently of a
borrowing by-law.
ENACTED this 30th day of May, 1985.
/s/ Kenneth Albert Spencer /s/ Daniel Gelbart
- -------------------------------- ------------------------------------
KENNETH ALBERT SPENCER DANIEL GELBART
Director/Shareholder Director/Shareholder
President/Secretary Vice President
<PAGE>
Amendments to the By-Laws of Creo Products Inc.
Passed at the February 5, 1998 Annual General Meeting
of the
Shareholders of Creo Products Inc.
By-Law 4.01 has been amended as follows:
Until changed in accordance with the Act, the Board shall consist of not
fewer than Two (2) and not more than Nine (9) directors. Subject to
section 4.08, the quorum for the transaction of business at any meeting of
the board shall consist of a majority of the number of directors of the
Corporation at that time, or such greater number of directors as the board
may from time to time determine.
By-Law 4.02 has been amended as follows:
Qualification: No person shall be qualified for election as a director who
is less than 18 years of age; who is of unsound mind and has been so found
by a court in Canada or elsewhere; who is not an individual; or who has the
status of a bankrupt. A director need not be a shareholder. So long as
the Act prescribes the residency of a majority of the directors, such
majority of the directors shall be resident Canadians.
By-Law 4.08 has been amended as follows:
Canadian Majority - So long as the Act so prescribes, the board shall not
transact business at a meeting, other than filling a vacancy in the board,
unless a majority of the directors present are resident Canadians, except
where:
(a) a resident Canadian director who is unable to be present approves in
writing or by telephone or other communications facilitates the business
transacted at the meeting; and
(b) a majority of resident Canadians would have been present had that
director been present at the meeting.
By-Law 5.01 has been amended as follows:
Committee of Directors - The board may appoint a committee of directors,
however designated, and delegate to such committee any of the powers of the
board except those which, under the Act, a committee of directors has no
authority to exercise. So long as the Act prescribes the residency of a
majority of the members of such committee, such majority of the directors
shall be resident Canadians.
By-Law 6.03 has been amended as follows:
President - The president may but shall not be required to be a director.
Subject to the provisions of the Act, the President shall have such powers
and duties as the Board may specify.
<PAGE>
Exhibit 10.6
[LOGO OF CREO APPEARS HERE]
CREO PRODUCTS INC. TEL (604) 451-2700
3700 GILMORE WAY, BURNABY, B.C. CANADA, V5G 4M1 FAX (604) 437-9891
THIS MANAGEMENT NON-COMPETE AGREEMENT MADE AS OF
BETWEEN:
CREO PRODUCTS INC., a company duly incorporated under the laws of Canada,
registered extraprovincially in the Province of British Columbia, and
having an office at 3700 Gilmore Way, Burnaby, British Columbia.
(the "Company")
AND
(the "Covenantor")
WITNESSES THAT WHEREAS:
A. The Covenantor is an employee and part of the senior management of the
Company;
B. Certain entities, referred to for convenience as "the Goldman Sachs Group"
have agreed to make an investment in and become shareholders of the Company
on the condition that the Company and the Covenantor enter into the
Agreement; and
C. The Company and The Covenantor agree that it is in their respective best
interests that the Goldman Sachs Group become shareholders of the Company
and, accordingly, have agreed to enter into this agreement.
THE PARTIES, in consideration of the promises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
agree as follows:
1. The Covenantor agrees that for a period of two years commencing upon the
date (the "Termination Date") upon which he ceases, for any reason
whatsoever, to be an officer, employee or agent of the Company, he will
not:
(a) engage, directly or indirectly, whether as shareholder, director, agent,
officer or employee, in any business that is competitive, directly or
indirectly, with any business carried on by the Company at any time prior
to the Termination Date;
(b) solicit, encourage or suggest to any officer, director, employee, or agent
of the Company or any of its related companies, to leave such office or
employment or otherwise terminate such relationship;
(c) canvass or solicit any business from any person who at any time while the
Covenantor was an officer, employee or agent of the Company or any of its
related companies, has been a client or customer of the Company or any of
its related companies, if to do so would in any way, directly or
indirectly, be detrimental to the business or best interests of the Company
or any of its related companies.
<PAGE>
2. This agreement shall be governed by and interpreted in accordance with the
laws of the Province of British Columbia.
The parties, intending to be contractually bound, have executed this agreement
as of the date first set out above.
- ----------------------------
Covenantor
CREO PRODUCTS INC.
- ----------------------------
Authorized signatory
<PAGE>
EXHIBIT 23.1
[KPMG LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Creo Products Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in this registration statement of Form F-
1.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
June 30, 1999
<PAGE>
EXHIBIT 23.2
[Price Waterhouse Letterhead]
June 30, 1999
Consent of Independent Accountants
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form F-1 of our report dated November 20, 1997, which
appears in such prospectus. We also consent to the references to us under the
headings "Experts" in such prospectus.
/s/ Price Waterhouse
Chartered Accountants
Vancouver, British Columbia
