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[LOGO]
CREO PRODUCTS INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
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MANAGEMENT PROXY CIRCULAR
FEBRUARY 25, 2000
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[LETTERHEAD]
CREO PRODUCTS INC.
Tel: 604.451.2700
3700 Gilmore Way Fax: 604.437.9891
Burnaby, British Columbia Int: [email protected]
Canada V5G 4M1
February 25, 2000
Dear Creo Shareholder:
We are pleased to invite you to the Annual and Special Meeting (the "Meeting")
of the shareholders of Creo Products Inc., which will be held at the Executive
Inn, 4201 Lougheed Highway, Burnaby, British Columbia on Thursday, March 30,
2000 at 2:00 p.m. (Vancouver time). The formal Notice of Meeting and Management
Proxy Circular, which are contained in the following pages, outline the actions
to be considered by the shareholders at the Meeting.
In addition to the regular business of receiving financial statements, electing
directors and appointing auditors, you will be asked to consider and vote upon
the confirmation of an amendment to Creo's By-laws, the approval of a proposed
amendment to Creo's Articles of Incorporation and the issuance of 13,250,000
common shares of Creo to Scitex Corporation Ltd. ("Scitex") in connection with
the proposed acquisition by Creo of the assets of Scitex's digital prepress and
print-on-demand businesses.
We at Creo are extremely excited about the Scitex acquisition. We believe that
the combined business will capitalize on strong synergies in technology,
products, service and distribution to create a leading provider of digital
prepress solutions for the graphic arts industry. Your Board of Directors has
unanimously concluded that the issuance of common shares to Scitex is in the
best interests of Creo and accordingly has recommended that you vote in favour
of the resolution approving the share issuance. The reasons for this
recommendation are set out in the Management Proxy Circular.
We hope that you will be able to attend the Meeting. However, if you are unable
to be present, we would appreciate your taking a few minutes now to complete,
sign and return your proxy in the enclosed postage-paid envelope. Regardless of
the number of shares you own, your vote is important.
Thank you for your continued interest in, and support for, Creo.
Yours sincerely,
/s/ RAFFI AMIT /s/ AMOS MICHELSON
Raffi Amit Amos Michelson
Chair of the Board Chief Executive Officer
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NOTICE OF ANNUAL AND SPECIAL MEETING
CREO PRODUCTS INC.
NOTICE IS HEREBY GIVEN that the Annual and Special Meeting (the
"Meeting") of the holders of common shares of Creo Products Inc. ("Creo")
will be held at the Executive Inn, 4201 Lougheed Highway, Burnaby, British
Columbia on Thursday, March 30, 2000 at 2:00 p.m. (Vancouver time) for the
following purposes:
1. to receive the consolidated financial statements for the year ended
September 30, 1999 and the auditors' report thereon;
2. to elect directors;
3. to re-appoint KPMG LLP, Chartered Accountants, as Creo's auditors and
to authorize the directors to fix their remuneration;
4. to consider and, if thought fit, to pass a special resolution amending
Creo's Articles of Incorporation to authorize the directors to appoint
additional directors between annual meetings of shareholders to a
maximum of one-third the number of directors elected at the prior
annual meeting;
5. to consider and, if thought fit, to pass a resolution confirming an
amendment to Creo's By-law No. 1 providing that a quorum at meetings of
shareholders shall be at least two shareholders physically present or
represented by proxy who between them hold not less than 20% of the
outstanding common shares;
6. to consider and, if thought fit, to pass a resolution approving the
issuance of 13,250,000 common shares to Scitex Corporation Ltd.
("Scitex") in connection with the proposed acquisition by Creo of
certain assets of Scitex; and
7. to transact such other business as may properly be brought before the
Meeting.
Further particulars of the above matters are set out in the attached Management
Proxy Circular.
If you cannot be present in person, PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ACCOMPANYING FORM OF PROXY in the enclosed postage-paid envelope, as soon
as possible.
By Order of the Board of Directors
/s/ THOMAS A. KORDYBACK
Thomas A. Kordyback
Vice President, Finance,
Chief Financial Officer and Secretary
Burnaby, British Columbia
February 25, 2000
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MANAGEMENT PROXY CIRCULAR
TABLE OF CONTENTS
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<S> <C>
FORWARD-LOOKING STATEMENTS............................................... 1
EXCHANGE RATE INFORMATION................................................ 1
GENERAL PROXY INFORMATION................................................ 2
Solicitation of Proxies................................................ 2
Appointment of Proxyholders............................................ 2
Action to be Taken under Proxy......................................... 2
Revocation of Proxy.................................................... 3
Non-registered Shareholders............................................ 3
Voting Shares.......................................................... 4
Principal Holders of Common Shares..................................... 5
THE ACQUISITION AND THE SHARE ISSUANCE................................... 5
General................................................................ 5
Background to the Acquisition.......................................... 5
Reasons for the Acquisition............................................ 6
Recommendation of the Board of Directors............................... 7
Opinion of Financial Advisor........................................... 7
Required Approvals..................................................... 8
Agreements Relating to the Acquisition................................. 9
INFORMATION RELATING TO THE SCITEX BUSINESS.............................. 14
CREO/SCITEX.............................................................. 17
Business............................................................... 17
Head Office............................................................ 19
Board of Directors..................................................... 19
Senior Management...................................................... 20
Steering Committee..................................................... 20
Employees.............................................................. 20
Risks Associated with the Acquisition.................................. 20
Selected Historical and Pro Forma Consolidated
Financial Information................................................ 21
ELECTION OF DIRECTORS.................................................... 22
Information Concerning the Compensation of
Directors and Officers............................................... 24
Report on Executive Compensation....................................... 27
Performance Graph...................................................... 29
Statement On Corporate Governance Practices............................ 30
APPOINTMENT OF AUDITORS.................................................. 32
AMENDMENT TO THE ARTICLES OF INCORPORATION............................... 32
AMENDMENT TO BY-LAW No. 1................................................ 33
FINANCIAL STATEMENTS..................................................... 33
OTHER BUSINESS........................................................... 33
GENERAL.................................................................. 33
SCHEDULES
Schedule "A" - Opinion of Goldman, Sachs & Co.
Schedule "B" - Asset Purchase Agreement
Schedule "C" - Combined Financial Statements of the Scitex Business
Schedule "D" - Unaudited Pro Forma Consolidated Financial
Statements of Creo Products Inc.
Schedule "E" - Toronto Stock Exchange Corporate Governance Guidelines
Schedule "F" - Special Resolution to Amend Articles of Incorporation
Schedule "G" - Extract from By-Law No. 1
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FORWARD-LOOKING STATEMENTS
This Management Proxy Circular ("Circular"), together with the attached
schedules, contains forward-looking statements within the meaning of Section 27A
of the United States SECURITIES ACT OF 1933, as amended ("Securities Act") and
Section 21E of the United States SECURITIES EXCHANGE ACT OF 1934, as amended.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify these forward-looking statements. Specifically, and without limiting
the generality of the foregoing, all statements included in this Circular that
address activities, events or developments that Creo expects or anticipates will
or may occur in the future, including such things as business strategies and
measures to implement such strategies, competitive strengths, goals, expansion
and growth of the business and operations, synergies, savings and benefits
anticipated to be realized from the proposed acquisition by Creo of the assets
of Scitex's digital prepress and print-on-demand businesses, plans and
references to the future results of Creo and the companies or partnerships in
which it has equity investments are forward-looking statements, including,
without limitation, those statements contained under the headings "The
Acquisition and the Share Issuance" and "Creo/Scitex" in this Circular. These
forward-looking statements include significant risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements as a result of a number of factors, many of which are beyond the
control of Creo and the companies or partnerships in which it has equity
investments. These factors include, but are not limited to, those set forth in
this Circular under the heading "The Acquisition and the Share Issuance Risks
Associated With the Acquisition".
Readers are cautioned not to place undue reliance on forward-looking
statements contained in this Circular, which reflect the judgments and opinions
of the management of Creo only as of the date of this Circular. There can be no
assurance that the actual results or developments anticipated by Creo will be
realized or, even if substantially realized, that they will have the expected
consequences to, or effects on, Creo and the companies or partnerships in which
it has equity investments or any of the business or operations of those
entities. Creo does not undertake any obligation to update any of these
forward-looking statements to reflect events or circumstances after the date of
this Circular or to reflect the occurrence of unanticipated events.
EXCHANGE RATE INFORMATION
In this Circular, except where otherwise indicated, all dollar amounts
are expressed in U.S. dollars. The following table sets forth, for each period
indicated, the high and low exchange rates for U.S. dollars expressed in
Canadian dollars, based on the indicated noon buying rate in New York City for
cable transfers in Canadian dollars, as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate"), the average of such
exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period:
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YEAR ENDED DECEMBER 31
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1997 1998 1999
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<S> <C> <C> <C>
High............................ 1.4398 1.5770 1.5302
Low............................. 1.3357 1.4075 1.4400
Average......................... 1.3894 1.4894 1.4827
Rate at period end.............. 1.4288 1.5375 1.4400
</TABLE>
On February 17, 2000, the Noon Buying Rate was U.S.$1.00=Cdn$1.4522.
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GENERAL PROXY INFORMATION
SOLICITATION OF PROXIES
This Circular accompanies the Notice of Annual and Special Meeting (the
"Notice of Meeting") of the holders of the common shares of Creo Products Inc.
("Creo") to be held at 2:00 p.m. (Vancouver time) on Thursday, March 30, 2000,
at the Executive Inn, 4201 Lougheed Highway, Burnaby, British Columbia, and any
adjournment thereof (the "Meeting"), and is provided in connection with the
solicitation of proxies by or on behalf of the management of Creo for use at the
Meeting. The cost of soliciting proxies will be borne by Creo. While most
proxies will be solicited by mail only, some shareholders may also be contacted
by directors, officers or employees of Creo by telephone, facsimile or other
similar means of communication.
Except where otherwise indicated, the information contained in this
Circular is given as of February 17, 2000.
APPOINTMENT OF PROXYHOLDERS
The persons named in the accompanying form of proxy are directors or
officers of Creo. A SHAREHOLDER MAY APPOINT SOME OTHER PERSON (WHO NEED NOT
BE A SHAREHOLDER) TO ATTEND AND ACT ON THE SHAREHOLDER'S BEHALF AT THE
MEETING. TO EXERCISE THIS RIGHT, THE SHAREHOLDER MAY EITHER INSERT THE NAME
OF SUCH OTHER PERSON IN THE BLANK SPACE PROVIDED IN THE FORM OF PROXY OR
SUBMIT ANOTHER APPROPRIATE FORM OF PROXY.
To be valid, a proxy must be signed by the shareholder or the
shareholder's attorney authorized in writing or, if the shareholder is a
corporation, by a duly authorized officer or attorney. Persons signing as
executors, administrators, or trustees should so indicate.
To be acted on, a proxy properly executed by the shareholder must be
received by Montreal Trust Company of Canada, at 510 Burrard Street,
Vancouver, British Columbia, V6C 3B9, Canada (fax: (604) 683-3694) in all
cases no later than 2:00 p.m. (Vancouver time) on March 29, 2000 or, if the
Meeting is adjourned, 24 hours (excluding Saturdays, Sundays and holidays)
before the time the adjourned Meeting is reconvened.
ACTION TO BE TAKEN UNDER PROXY
On any ballot that may be called for, common shares represented by
properly executed proxies will be voted for, against or withheld from voting
in accordance with the instructions of the shareholder indicated on the
proxy. IN THE ABSENCE OF ANY INSTRUCTIONS ON THE PROXY OR IF SUCH
INSTRUCTIONS ARE UNCLEAR, SUCH COMMON SHARES WILL BE VOTED:
(a) FOR THE ELECTION OF THE PERSONS LISTED IN THE PROXY AS
DIRECTORS OF CREO;
(b) FOR THE RE-APPOINTMENT OF KPMG LLP, CHARTERED ACCOUNTANTS, AS
CREO'S AUDITORS AND AUTHORIZING THE DIRECTORS TO FIX THEIR
REMUNERATION;
(c) FOR THE SPECIAL RESOLUTION AMENDING THE ARTICLES OF
INCORPORATION TO AUTHORIZE THE DIRECTORS TO APPOINT ADDITIONAL
DIRECTORS BETWEEN ANNUAL MEETINGS OF THE SHAREHOLDERS, TO A
MAXIMUM OF ONE-THIRD OF THE NUMBER OF DIRECTORS ELECTED AT THE
PRIOR ANNUAL MEETING;
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(d) FOR THE RESOLUTION CONFIRMING THE AMENDMENT TO CREO'S BY-LAW
NO. 1 PROVIDING THAT A QUORUM AT MEETINGS OF SHAREHOLDERS
SHALL BE AT LEAST TWO SHAREHOLDERS PHYSICALLY PRESENT OR
REPRESENTED BY PROXY WHO BETWEEN THEM HOLD NOT LESS THAN 20%
OF THE OUTSTANDING COMMON SHARES; AND
(e) FOR THE RESOLUTION APPROVING THE ISSUANCE OF 13,250,000 COMMON
SHARES TO SCITEX CORPORATION LTD. ("SCITEX") IN CONNECTION
WITH THE PROPOSED ACQUISITION BY CREO OF CERTAIN ASSETS OF
SCITEX,
in each case as more fully described elsewhere in this Circular.
The enclosed form of proxy confers discretionary authority on the
persons named regarding amendments to those matters identified in the Notice
of Meeting and any other matters which may properly come before the Meeting.
At the date of this Circular, the management of Creo knows of no such
amendment or other matter. If any matters that are not now known should
properly come before the Meeting, the persons named in the enclosed form of
proxy will vote on those matters in accordance with their best judgment.
REVOCATION OF PROXY
A shareholder who has given a proxy may revoke it by an instrument
in writing, including another proxy, executed by the shareholder or the
shareholder's attorney authorized in writing and deposited at Creo's
registered office at 1810-1111 West Georgia Street, Vancouver, British
Columbia V6E 4M3 prior to the day of the Meeting or any adjournment thereof,
or with the Chairman of the Meeting on the day of the Meeting or any
adjournment thereof before it is exercised on any particular matter, by
voting in person at the Meeting, or in any other manner permitted by law.
Attendance at the Meeting will not, by itself, revoke a previously delivered
proxy.
NON-REGISTERED SHAREHOLDERS
ONLY REGISTERED SHAREHOLDERS OR THE PERSONS THEY APPOINT AS THEIR
PROXIES ARE PERMITTED TO VOTE AT THE MEETING.
In many cases, common shares beneficially owned by a person (a
"non-registered shareholder") are registered either (i) in the name of an
intermediary that the non-registered shareholder deals with in respect of the
common shares (intermediaries include, among others, banks, trust companies,
securities dealers or brokers and trustees or administrators of
self-administered RRSPs, RRIFs, RESPs and similar plans) or (ii) in the name
of a clearing agency such as The Canadian Depository for Securities Limited
of which the intermediary is a participant. In accordance with the
requirements of National Policy Statement No. 41 of the Canadian Securities
Administrators, Creo will have distributed copies of the Notice of Meeting,
this Circular and the form of proxy (collectively, the "Meeting materials")
to the clearing agencies and intermediaries for onward distribution to
non-registered shareholders.
Intermediaries are required to forward the Meeting materials to those
non-registered shareholders who have not waived the right to receive them.
Intermediaries often use service companies to forward the Meeting materials to
non-registered shareholders. Generally, non-registered shareholders who have not
waived the right to receive the Meeting materials will either:
(a) be given a form of proxy which has already been signed by the
intermediary (typically by a facsimile, stamped signature),
which is restricted to the number of common shares
beneficially owned by the non-registered shareholder but which
is otherwise uncompleted. In this case, the non-registered
shareholder who wishes to submit a proxy
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should properly complete the form of proxy and submit it to
Creo, c/o Montreal Trust Company of Canada, Creo's registrar
and transfer agent, at 510 Burrard Street, Vancouver, British
Columbia, V6C 3B9 (fax: (604) 683-3694); or
(b) be given a form of proxy which is not signed by the
intermediary and which, when properly completed and signed by
the non-registered shareholder and returned to the
intermediary or its service company, will constitute voting
instructions (often called a "proxy authorization form") which
the intermediary must follow. Typically, the non-registered
shareholder will be given a page of instructions which
contains a removable label containing a bar-code and other
information. In order for the form of proxy to validly
constitute a proxy authorization form, the non-registered
shareholder must remove the label from the instructions and
affix it to the form of proxy, properly complete and sign the
form of proxy and submit it to the intermediary or its service
company in accordance with the instructions of the
intermediary or the service company.
In either case, the purpose of these procedures is to permit
non-registered shareholders to direct the voting of the shares they
beneficially own. If a non-registered shareholder who receives either form of
proxy wishes to attend the Meeting and vote in person (or have another person
do so on behalf of the non-registered shareholder), the non-registered
shareholder should strike out the persons named in the proxy and insert the
name of the non-registered shareholder or other person's name in the blank
space provided. IN EITHER CASE, NON-REGISTERED SHAREHOLDERS SHOULD FOLLOW THE
INSTRUCTIONS OF THEIR INTERMEDIARY CAREFULLY, INCLUDING THE INSTRUCTIONS
REGARDING WHEN AND WHERE THE PROXY OR PROXY AUTHORIZATION FORM IS TO BE
DELIVERED.
A non-registered shareholder may revoke a proxy authorization form
(voting instructions) or a waiver of the right to receive Meeting materials
and to vote given to an intermediary at any time by written notice to the
intermediary, except that an intermediary is not required to act on
revocation of a proxy authorization form (voting instructions) or of a waiver
of the right to receive Meeting materials and to vote, that is not received
by the intermediary at least seven (7) days prior to the Meeting.
VOTING SHARES
As at February 17, 2000, the record date for the purpose of
determining the shareholders entitled to receive notice of the Meeting (the
"Record Date"), Creo's issued and outstanding capital consisted of 32,630,637
common shares, each carrying the right to one vote at all meetings of
shareholders. A majority of the votes cast, in person or by proxy, is
required for approval of each of the matters to be voted on at the Meeting,
except for the special resolution to amend Creo's Articles of Incorporation,
which requires a majority of not less than two-thirds of the votes cast by
the shareholders who voted in respect of that resolution.
In accordance with the provisions of the CANADA BUSINESS
CORPORATIONS ACT (the "CBCA"), Creo's governing statute, Creo will prepare a
list of shareholders as at the close of business on the Record Date. Each
holder of common shares named in the list will be entitled to vote the shares
shown opposite the name of the shareholder on the list on all resolutions put
before the Meeting, except to the extent that: (a) the shareholder has
transferred any of those shares after the Record Date, and (b) the transferee
of those shares produces properly endorsed share certificates or otherwise
establishes ownership of the shares and demands, not later than ten (10) days
before the Meeting, that the transferee's name be included in the list of
shareholders before the Meeting, in which case the transferee will be
entitled to vote those shares at the Meeting. A shareholder who does not
receive the Notice of Meeting is not deprived of the right to vote at the
Meeting.
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PRINCIPAL HOLDERS OF COMMON SHARES
As at the Record Date, the only persons who, to the knowledge of
Creo's directors and officers, beneficially owned, directly or indirectly, or
exercised control or direction over, common shares carrying more than ten
percent (10%) of the votes attached to all outstanding common shares, were
entities associated with The Goldman Sachs Group, Inc., who beneficially
owned 5,314,336, or 16.3%, of the outstanding common shares. These entities
include: GS Capital Partners II, L.P. (3,334,368 shares); GS Capital Partners
II Offshore, L.P (1,325,549 shares); Goldman, Sachs & Co. Verwaltungs GmbH
(122,986 shares); Bridge Street Fund 1995, L.P. (281,382 shares); and Stone
Street Fund 1995, L.P. (250,051 shares).
THE ACQUISITION AND THE SHARE ISSUANCE
GENERAL
Creo and certain of its subsidiaries have entered into an Asset
Purchase Agreement with Scitex Corporation Ltd. ("Scitex") of Herzlia,
Israel, and one of its subsidiaries, Scitex Development Corp. (the
"Sellers"), to acquire all of the assets of the Sellers' digital prepress and
print-on-demand businesses, other than certain excluded assets (the "Scitex
Business") (the "Acquisition"). Creo will pay for the Scitex Business by
issuing 13,250,000 Creo common shares (the "Share Issuance" or the
"Consideration"), representing approximately 26.1% of the outstanding shares
of Creo on a fully diluted basis after giving effect to the Share Issuance.
Creo's Board of Directors and management believe that the combined
business will be able to capitalize on strong synergies in technology,
products, service and distribution to create a leading provider of digital
prepress solutions for the graphic arts industry.
Under the rules of the Nasdaq National Market ("NASDAQ") and The
Toronto Stock Exchange (the "TSE") on which Creo's common shares are traded,
the Share Issuance must be approved by Creo shareholders. The closing of the
Acquisition will take place on the first day of the month following the month
in which all closing conditions, including shareholder and regulatory
approvals, are satisfied or waived.
BACKGROUND TO THE ACQUISITION
The proposed Acquisition is the result of arm's length discussions and
negotiations conducted over a period of several months among representatives of
Creo and Scitex and their legal, accounting and investment advisors. The
following is a summary of the history of those discussions and negotiations.
Early in August 1999, Creo's management became aware that Scitex had
engaged Salomon Smith Barney Inc. to explore strategic alternatives for the
company. Creo engaged Goldman, Sachs & Co. ("Goldman Sachs") to act as its
financial advisor in connection with Creo's interest in exploring a potential
transaction with Scitex. On August 24 and 25, 1999, Amos Michelson, Chief
Executive Officer of Creo, Tom Kordyback, Creo's Chief Financial Officer, and
Mark Dance, Creo's Chief Operating Officer, met in Tel Aviv with Yoav Z.
Chelouche, Chief Executive Officer of Scitex, Eyal Desheh, Scitex's Chief
Financial Officer, and several other members of the senior management of
Scitex. These discussions were exploratory in nature, and no substantive
information was exchanged. The potential benefits of a complete merger
between the two companies were generally discussed, but no agreements were
reached.
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During September 1999, telephone contacts between senior officials
of the two companies were made, but no formal meetings or substantive
discussions took place. On September 15, 1999, Creo's Board of Directors,
having considered the potential benefits of a business combination between
the two companies, authorized the making of a preliminary, non-binding
proposal for the merger of the two companies, subject to various conditions
including the satisfactory completion of due diligence, a review of
operating, financial, legal and other information and the negotiation of a
mutually acceptable definitive agreement. This proposal was made in a letter
sent to Scitex on September 17, 1999.
Although there were some telephone conversations following this
proposal, no further meetings took place, nor did Creo receive any response
to its proposal until October 27, 1999 when Amos Michelson and Tom Kordyback
met in Tel Aviv with representatives of Scitex and certain of its principal
shareholders and were informed that a complete merger on the indicative terms
that had been proposed was unacceptable and had been rejected. Instead, on
the basis that there was little commonality between Creo's business and the
non-prepress business of Scitex, the parties decided to explore the
possibility of combining only Scitex's digital prepress and print-on-demand
businesses with the business of Creo.
On November 19, 1999 Creo's Board of Directors authorized management
to explore further the possibility of merging Scitex's digital prepress and
print-on-demand businesses into Creo. In the succeeding weeks, management of
the two companies had several telephone conversations about the advantages
and general terms of such a transaction. During the week of November 21, 1999
a Confidentiality Agreement was entered into and Creo representatives, with
the assistance of Israeli counsel and tax, financial and accounting advisors,
conducted diligence investigations in Israel. From December 1 to 3, 1999,
Scitex undertook similar investigations in Vancouver.
During the week of December 13, 1999, representatives of the two
companies and their respective advisors met in New York to try to settle the
terms of a proposed transaction. Although progress was made on a number of
important points, at the conclusion of these meetings significant issues
remained outstanding.
Between December 20, 1999 and January 14, 2000, Creo and Scitex and
their respective legal and financial advisors negotiated and settled the
outstanding issues and the terms of the Asset Purchase Agreement and certain
other ancillary agreements. Throughout this period, Creo continued with its
diligence enquiries.
On January 14, 2000, Creo's Board of Directors met and considered a
full report from management and its legal advisors with respect to the
Acquisition. The Board also received and considered an oral opinion from
Goldman Sachs that, as of that date, the Consideration to be paid for the
Scitex Business pursuant to the draft Asset Purchase Agreement was fair from
a financial point of view to Creo. The Board then authorized management to
negotiate the final terms of the Asset Purchase Agreement and the ancillary
agreements. Over the next three days the parties' legal advisors completed
the definitive Asset Purchase Agreement and the form of the ancillary
agreements. On January 17, 2000, after considering the matters described
under the heading "The Acquisition and the Share Issuance - Recommendation of
the Board of Directors", Creo's Board of Directors unanimously approved the
Asset Purchase Agreement, which was executed that day.
On January 18, 2000, Creo and Scitex jointly announced that they had
entered into the Asset Purchase Agreement.
REASONS FOR THE ACQUISITION
Creo's Board of Directors and management believe that the
combination of Creo's existing prepress business with Scitex's prepress and
print-on-demand businesses will significantly enhance
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Creo's long-term development, and strengthen its position as a leading
provider of advanced digital prepress solutions for the graphic arts
industry. Creo believes that the Acquisition will unlock significant
synergies, and provide it with a wide portfolio of leading products and
technologies and the best value delivery system and technical support
capabilities currently available in the prepress market. Creo anticipates
that the combined research and development, manufacturing and worldwide
distribution infrastructure will permit more cost-efficient delivery of
existing products and accelerated development of innovative new products
responsive to customer needs. In addition, management expects that Creo will
benefit from enhanced access to capital, and a greater ability to pursue
growth opportunities and respond to competitive challenges.
RECOMMENDATION OF THE BOARD OF DIRECTORS
CREO'S BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED, BASED ON THE
CONSIDERATIONS NOTED BELOW, THAT THE SHARE ISSUANCE IS IN THE BEST INTERESTS
OF CREO, AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOUR OF THE
SHARE ISSUANCE.
In reaching its conclusion, Creo's Board of Directors considered,
among other things, the following:
(a) the business reasons for the Acquisition set forth under "The
Acquisition and the Share Issuance - Reasons for the
Acquisition";
(b) the anticipated benefits of the Acquisition set forth under
"Creo/Scitex - Business - Expected Impact of the Acquisition";
(c) the terms of the Asset Purchase Agreement and the ancillary
agreements described under "The Acquisition and the Share
Issuance - Agreements Relating to the Acquisition";
(d) management's review of, and advice with respect to, the
financial condition, results of operations, business plans and
prospects of the Scitex Business and the prospects of the
combined business of Creo and the Scitex Business; and
(e) the opinion of Goldman Sachs that the Consideration to be paid
by Creo for the Scitex Business pursuant to the Asset Purchase
Agreement is fair from a financial point of view to Creo (see
"The Acquisition and the Share Issuance - Opinion of Financial
Advisor").
OPINION OF FINANCIAL ADVISOR
Creo's Board of Directors retained Goldman Sachs as its financial
advisor in connection with the Acquisition and requested that Goldman Sachs
render an opinion as to the fairness to Creo from a financial point of view
of the Consideration to be issued by Creo pursuant to the Asset Purchase
Agreement for the Scitex Business.
Goldman Sachs' written opinion is dated January 17, 2000 (the
"Goldman Sachs Opinion"). It concludes that as of that date, based on the
assumptions made, the scope of review and the limitations set forth therein,
the Consideration to be paid by Creo for the Scitex Business pursuant to the
Asset Purchase Agreement is fair from a financial point of view to Creo.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS CIRCULAR AS SCHEDULE "A" UNDER THE
HEADING "OPINION OF GOLDMAN, SACHS & CO.". YOU SHOULD READ THE GOLDMAN SACHS
OPINION IN ITS ENTIRETY. IT WAS PREPARED AT THE REQUEST AND FOR THE
INFORMATION OF CREO'S BOARD OF
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DIRECTORS. IT DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW ANY PARTICULAR
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE SHARE ISSUANCE RESOLUTION.
Goldman Sachs will receive a fee for its services in connection with
the Acquisition, will be reimbursed for reasonable out-of-pocket expenses and
will be indemnified by Creo under certain circumstances. The fee of Goldman
Sachs is dependent on the successful completion of the Acquisition. Entities
affiliated with Goldman Sachs beneficially own 5,314,336 common shares of
Creo, representing approximately 16.3% of Creo's issued and outstanding
shares, and as at the date of the Goldman Sachs Opinion, also owned
approximately 10% of the outstanding common shares of IDB Holding Corporation
Ltd., which as at that date held the power to vote and dispose of
approximately 40% of the outstanding common shares of Scitex. In addition,
John Bu, a Managing Director of Goldman Sachs, is a director of Creo and
Melina E. Higgins, a Vice President of Goldman Sachs, is an observer on the
Creo Board of Directors. Goldman Sachs is a party to an Investment Banking
Services Agreement with Creo under which it has a right of first refusal to
provide Creo's requirements for investment banking services until November
2000. Goldman Sachs has also provided significant investment banking services
to Scitex from time to time. In the course of its normal trading activities,
Goldman Sachs and its affiliated entities may hold or actively trade
securities, including derivative securities, of Creo and Scitex for their own
account and for the accounts of customers. Goldman Sachs and its affiliates
may also have other business relationships with Creo in the ordinary course
of business.
REQUIRED APPROVALS
SHAREHOLDER APPROVAL
The rules of NASDAQ and the TSE require that the Share Issuance
resolution be approved by a majority of the votes cast by holders of Creo
common shares at the Meeting. All of the directors and officers of Creo have
indicated their intention to vote their Creo common shares in favour of the
Share Issuance resolution.
REGULATORY APPROVALS
HART-SCOTT-RODINO
Under the HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 of
the United States ("HSR") and the regulations promulgated thereunder by the
United States Federal Trade Commission (the "Federal Trade Commission"), the
Acquisition may not be consummated until notifications have been filed and
certain information has been furnished to the Federal Trade Commission and
the Antitrust Division of the United States Department of Justice (the
"Antitrust Division") and the applicable waiting period has expired or been
terminated. HSR filings were made on January 28, 2000 and the applicable HSR
waiting period is scheduled to expire on February 27, 2000.
At any time before or after the consummation of the Acquisition,
notwithstanding the expiry of the waiting period under the HSR, the Federal
Trade Commission, the Antitrust Division or other interested persons could
take action under the U.S. antitrust laws to seek to enjoin, modify or
dissolve the Acquisition if it would be likely to substantially lessen
competition in any line of commerce in any section of the United States or
otherwise result in the violation of its antitrust laws.
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<PAGE>
OTHER ANTITRUST APPROVALS
Regulatory approvals are required under the antitrust or comparable
laws of several other countries, including certain countries in Europe and
Latin America. These approvals have been or will be applied for.
TSE APPROVAL
The TSE has accepted notice of the Acquisition and has conditionally
approved the listing of the additional 13,250,000 common shares issuable
pursuant to the Share Issuance, subject to customary conditions, including
shareholder approval.
OTHER APPROVALS - ISRAEL
The consummation of the Acquisition is subject to the receipt of
approvals from the Office of the Chief Scientist of the State of Israel, the
Investment Centre of the State of Israel and the Israeli Restrictive Trade
Practices Controller. These approvals have been applied for.
AGREEMENTS RELATING TO THE ACQUISITION
THE ASSET PURCHASE AGREEMENT
THE ASSET PURCHASE AGREEMENT, WHICH PROVIDES THE TERMS ON WHICH THE
ACQUISITION, INCLUDING THE SHARE ISSUANCE, WILL BE COMPLETED, IS ATTACHED AS
SCHEDULE "B" TO THIS CIRCULAR. THE FOLLOWING GENERAL DESCRIPTION IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE ASSET PURCHASE AGREEMENT.
GENERAL
The proposed Acquisition provides for the purchase by Creo from the
Sellers of all of the assets of the Sellers' digital prepress and
print-on-demand businesses, other than certain excluded assets. The assets
include: shares of various Scitex subsidiaries, including Iris Graphics,
Inc.; intellectual property (including patents, trademarks and know-how)
primarily used in the Scitex Business; a license to use the "Scitex" name and
logo in the Scitex Business; inventory and other current assets; real
property; receivables; third party software; and cash and cash equivalents in
an amount sufficient to bring the book value of the net tangible assets of
the Scitex Business included in the balance sheet of the Scitex Business at
December 31, 1999 (the "December Balance Sheet") to $221 million
(collectively, the "Included Assets"). Substantially all of the liabilities
of the Scitex Business will be assumed by Creo.
Creo will issue to Scitex, as consideration for the Scitex Business,
13,250,000 Creo common shares, being approximately 26.1% of the outstanding
shares of Creo at the Closing on a fully diluted basis after giving effect to
the Share Issuance. The closing of the Acquisition will take place on the
first day of the month following the month in which all closing conditions,
including shareholder and regulatory approvals, are satisfied or waived (the
"Closing").
REPRESENTATIONS, WARRANTIES AND INDEMNITIES OF SCITEX
In addition to representations and warranties customary in
transactions of the kind contemplated by the Asset Purchase Agreement, the
Sellers have represented and warranted to Creo that to their best knowledge
the December Balance Sheet will fairly reflect the assets and liabilities of
the Scitex Business at December 31, 1999, and that the December Balance Sheet
and the statement of operations and cash flows of the Scitex Business for the
year ended December 31, 1999 (the "December Financial Statements") will
fairly reflect the financial condition of the Scitex Business at December 31,
1999 and the results of its operations and cash flows for the year then ended
in accordance with U.S. generally
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<PAGE>
accepted accounting principles, consistently applied. The representations and
warranties relating to the December Balance Sheet and December Financial
Statements will survive until December 31, 2000. The Sellers have also
represented and warranted that the assets of the Scitex Business to be
acquired in the Acquisition will be all of the assets used in or necessary to
enable Creo to conduct the Scitex Business after Closing in all material
respects as it has been and is currently being conducted. This representation
and warranty has no expiration date. All other representations and warranties
expire at Closing.
The Sellers have jointly and severally agreed to indemnify Creo
against any losses resulting from any breach of the representations and
warranties regarding the December Balance Sheet and the December Financial
Statements and the Included Assets. In addition, they have jointly and
severally agreed to indemnify Creo in respect of any and all liabilities in
respect of income taxes related to or arising out of the Scitex Business or
the Included Assets for any taxable period ending on or before December 31,
1999 or by any entity being sold to Creo as part of the Scitex Business with
respect to any such period, in excess of the accruals or reserves for income
taxes provided for in the December Balance Sheet.
COVENANTS
OPERATION OF THE SCITEX BUSINESS
Pending Closing, Scitex is required to operate the Scitex Business,
to the extent possible, as a separate entity for the benefit of Creo and in
the usual, regular and ordinary course, and is to use its reasonable best
efforts to preserve intact the Scitex Business as conducted at December 31,
1999. Profits and losses of the Scitex Business from January 1, 2000 to
Closing will be for the account of Creo. Within 45 days of the Closing,
Scitex must deliver audited financial statements of the Scitex Business for
the period from January 1, 2000 to the Closing ("Closing Financial
Statements"). Scitex will pay Creo the amount of any net income of the Scitex
Business shown on the Closing Financial Statements and if there is a net loss
Creo will reimburse Scitex, subject to adjustment to the extent of any
increase or decrease in net non-cash tangible assets of the Scitex Business
from January 1, 2000 to the Closing.
NON-COMPETITION
Scitex has agreed that until the later of five years from the
Closing and the date on which Scitex owns less than 15% of the outstanding
Creo common shares, it will not and it will cause any subsidiary in which it
holds 50% or more of the voting shares or of which it has the right to
nominate a majority of the board of directors, not to compete directly or
indirectly with Creo in the Scitex Business. Notwithstanding the foregoing,
Scitex is permitted to acquire up to 49% of the outstanding shares of any
company that competes with the Scitex Business, but neither Scitex nor any
Scitex subsidiary may have more than one director of such company or any
involvement in its business other than such stock ownership and board
representation. Scitex has also covenanted to indemnify Creo in respect of
any material damages it may suffer if Aprion Digital Ltd. ("Aprion"), a joint
venture company in which Scitex holds a minority interest, commits a breach
of a non-competition covenant with Scitex pursuant to an Asset Purchase and
Licensing Agreement between them. The indemnity will expire on the earlier of
(i) the expiry of the license granted to Aprion pursuant to the Asset
Purchase and Licensing Agreement between Scitex and Aprion; (ii) Scitex
beneficially owning less than 15% of the outstanding Creo common shares; and
(iii) February 23, 2002, but if Scitex acquires control of Aprion, Aprion
will be subject to the general non-competition covenant described above. Creo
and Scitex have also agreed that, subject to certain exceptions, they will
not solicit the employees of the other for a period of two years from the
Closing.
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<PAGE>
INTELLECTUAL PROPERTY AGREEMENTS
Under the Asset Purchase Agreement, Creo will acquire all of the
intellectual property primarily used in the Scitex Business ("Business IP").
Effective as of the Closing, Creo will grant the Sellers and their respective
subsidiaries, other than Karat Digital Press GmbH, Aprion Digital Ltd. and
Vio Worldwide Limited, U.K, non-exclusive, non-assignable, royalty-free,
non-sublicensable (except for specified limited purposes) perpetual licenses
of certain specified patents and patent applications included in the Business
IP, and of certain know-how, technology and technical information related to
the Scitex Business that is possessed by employees of the Sellers but does
not exist in any tangible form or medium. These licenses, which principally
include technologies related to colour management and screening, will permit
the Sellers to use the covered intellectual property in their respective
current fields of business, but not in connection with the Scitex Business.
These licenses will permit Scitex to use the covered intellectual property
only for purposes unrelated to prepress. A comparable license, similarly
restricted, will be granted in respect of certain other specified
non-patented intellectual property.
In addition, Creo will grant the Sellers and their respective
subsidiaries, other than those identified above, for a royalty representing
fair market value, a perpetual and, (except for specified limited purposes)
non-exclusive, non-assignable, non-sublicensable license to use all of the
other Business IP (other than trademark rights). This license will permit the
Sellers to use the covered intellectual property in their respective current
fields of business, but not in connection with the Scitex Business.
Also effective as of the Closing, Creo will grant to Aprion and
Karat Digital Press GmbH and certain related entities, certain royalty-free,
non-exclusive, non-assignable and non-sublicensable (except for specified
limited purposes) licenses under the patents and patent applications included
in Business IP and issued or filed as of December 31, 1999, and of related
know-how and certain other rights to be scheduled at Closing, but solely to
the extent necessary to enable these licensees to develop, manufacture,
assemble, integrate, market, distribute, service and support four page
digital offset printing presses. Creo will also grant these parties a similar
license, for a royalty representing fair market value, of other Business IP,
but subject to the same use limitation.
Creo and Scitex will also enter into a Trademark and Tradename
License Agreement pursuant to which, effective as of the Closing, Creo will
have the exclusive (subject to an existing license to Aprion), worldwide,
perpetual, royalty-free, non-assignable and non-sublicensable (except in
certain circumstances) right to use the "Scitex" trademark, service mark,
tradename and logo in connection with Creo's digital prepress business and
print-on-demand business.
EMPLOYMENT MATTERS
The Sellers will assign and Creo will assume as of the Closing,
continuation of employment to all employees of the Scitex Business, including
any employee on disability (long-term or short-term) or authorized temporary
leave as at the Closing. Creo has also agreed that for 18 months from Closing
it will provide compensation and benefits to those employees of the Scitex
Business who become employees of Creo or its subsidiaries, that are no less
favourable in the aggregate than the compensation and benefits currently
provided by Scitex. Creo is not obligated to retain any employees of the
Scitex Business who become employed by Creo for any particular period of
time. Scitex has agreed that it will cancel 50% of the outstanding unvested
Scitex stock options held by employees of the Scitex Business who move over
to Creo as of the Closing. In consideration of the cancellation, Creo will
issue a replacement stock option with an exercise price equal to the fair
market value of Creo common shares on the date of grant of the replacement
option, to purchase a number of Creo common shares so that the Black Scholes
value of the replacement option equals the product of (i) the number of
Scitex shares subject to the cancelled option and (ii) the excess of the fair
market value of a Scitex share as of the date of the Asset Purchase Agreement
over the exercise price of the unvested Scitex options. The replacement
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stock options to be issued by Creo will have a term of 5 years and be subject
to the same vesting conditions as are attached to the unvested Scitex options.
BOARD REPRESENTATION
Creo has agreed that concurrently with the Closing it will appoint
two representatives of Scitex to Creo's Board of Directors, one of whom will
be appointed Co-Chair of the Board. In addition, one of these representatives
will be appointed to each significant committee of the Board. The initial
representatives of Scitex on the Board will be Rimon Ben-Shaoul and Yoav Z.
Chelouche, who are respectively the Chair of the Board of Directors and the
Chief Executive Officer of Scitex. Creo has further agreed that for as long
as Scitex owns 15% or more of Creo's outstanding common shares it will cause
two designees of Scitex to be included in the slate of nominees proposed by
Creo's management for election to the Board of Directors of Creo and use its
best efforts to obtain the election of those designees, and to cause one of
them to be appointed to the Compensation, Nominating and Corporate Governance
Committee and each other significant committee of Creo's Board, and one of
them to be appointed Co-Chair of Creo. If Scitex owns less than 15% but 7.5%
or more of the outstanding Creo common shares, it will only be entitled to
one nominee for election to Creo's Board. If the size of Creo's Board is
increased to greater than nine directors, the number of Scitex designees
would be increased proportionately. Scitex's entitlement to representation on
Creo's Board and significant committees will cease on it holding fewer than
7.5% of the outstanding Creo common shares.
UNDERTAKING TO THE OFFICE OF THE CHIEF SCIENTIST (ISRAEL)
Creo has agreed to undertake directly to the Office of the Chief
Scientist of the Israeli Ministry of Trade & Industry that it will observe
all of the requirements of the Israel Encouragement of Research and
Development in Industry Law and, in particular, the restrictions on transfer
of technology and production rights with respect to all intellectual property
acquired by Creo under the transaction, that has been funded by the Office of
the Chief Scientist. For further information concerning these matters, see
"Information Relating to the Scitex Business - Research and Development".
STANDSTILL AGREEMENT
On Closing, Scitex will enter into a Standstill Agreement with Creo
for a term of five years (the "Standstill Period").
The Standstill Agreement will provide that during the Standstill
Period, Scitex will not vote against the election of Creo's nominees for
election as directors, and that if it votes on an election of directors it
will do so in the same way in respect of all nominees proposed by the Creo
Board of Directors for election. Scitex will also agree that during the
Standstill Period it will vote its shares, at its election, either as
recommended by a majority of Creo's Board or in the same proportion as Creo's
other shareholders vote, on any proposal for the adoption or modification of
take-over defences. For a period of three years from Closing, Scitex will
similarly vote its shares on any proposal for a sale of Creo, including a
sale of substantially all of its assets or a merger, consolidation or
amalgamation in which it is not the survivor, provided that the transaction
has been approved by at least 51% of Creo's shareholders (or, if less, 75% of
those unaffiliated with Scitex) and that Scitex receives a total profit in
respect of the shares issued to it at Closing, calculated in accordance with
the Standstill Agreement.
Scitex's ownership of Creo common shares is limited by the
Standstill Agreement to the greater of 15 million shares and 26.1% of Creo's
outstanding common shares on a fully diluted basis. To the extent that the
number of outstanding common shares increases, Scitex may purchase additional
shares to maintain its percentage ownership at 26.1%.
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Scitex sales of Creo common shares are limited, during the term of
the Standstill Agreement, to the following circumstances: (i) at any time
with the consent of a majority of the non-Scitex directors of Creo; (ii)
during the first six months after the Closing, only to an affiliate which
agrees to be bound by the Standstill Agreement; (iii) during the second six
months after the Closing, to an affiliate which agrees to be bound by the
Standstill Agreement or up to an aggregate of 10% of its shares in compliance
with the provisions set out in (iv); and (iv) during years two to five
following the Closing: (a) pursuant to a registered underwritten offering in
which no transfer representing more than 2% of the outstanding shares is made
to any person or group; (b) pursuant to Rule 144 under the Securities Act;
(c) to an affiliate which agrees to be bound by the Standstill Agreement;
(d) pursuant to a tender offer for all outstanding Creo common shares by a
third party that is not rejected by Creo's Board of Directors; (e) up to 4.9%
of the outstanding Creo common shares to any investor in a private sale
provided that the investor does not as a result hold, either alone or as part
of a group, more than 5% of the outstanding Creo common shares; or (f) to
shareholders of Scitex by way of a dividend, provided that as a result, no
shareholder holds more than 17% of the outstanding Creo common shares, unless
the shareholder agrees to be bound by the Standstill Agreement to the extent
that it is still in force.
During the term of the Standstill Agreement, neither Scitex nor any
of its majority or wholly-owned subsidiaries may (i) seek to exercise
controlling influence over Creo (otherwise than through its representation on
Creo's Board of Directors or through exercising its voting rights in a manner
consistent with the Standstill Agreement); (ii) present any proposal to Creo
or a third party that would result in a change of control of Creo or increase
Scitex's then percentage ownership, including a merger, recapitalization,
sale of substantially all of the assets or other business combination, or a
tender offer for Creo securities; (iii) encourage or assist any other person
to make such a proposal; (iv) publicly announce its interest in engaging or
having some other person engage in any such proposal; (v) solicit or
participate in a proxy solicitation in opposition to a recommendation of
Creo's Board; (vi) form or become part of a group for the purpose of
acquiring, holding, voting or disposing of Creo securities; (vii) make a
shareholder proposal to Creo's shareholders or seek to elect any person to
Creo's Board, except consistently with the Standstill Agreement; or (viii)
engage in any other conduct, whether alone or in concert with others,
designed to effect a change in control of Creo or to circumvent any of the
preceding restrictions.
REGISTRATION RIGHTS AGREEMENT
On Closing, Creo and Scitex will enter into a Registration Rights
Agreement which provides that, commencing on the first anniversary of the
Closing and continuing until the fifth anniversary of the Closing, subject to
certain conditions and limitations, Scitex will have the right to demand that
Creo (i) register Scitex's common shares for sale, provided that Creo shall
only be obligated to register Scitex's common shares on two occasions and no
more than once during any 12 month period; and (ii) include Scitex's common
shares in any registration statement pursuant to which Creo proposes to
register common shares, whether or not for sale for its own account.
SUPPLY AND SERVICES AGREEMENT
On Closing, Creo and Scitex will enter into a Supply and Services
Agreement pursuant to which Creo will provide a variety of services to Scitex
and its subsidiaries and affiliates. These services include facilities,
administrative, accounting, management information systems and supply and
distribution services. The services will be charged for by Creo on various
bases, depending upon the nature of the service involved, and for varying
periods of time.
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INFORMATION RELATING TO THE SCITEX BUSINESS
THE INFORMATION CONCERNING SCITEX AND THE SCITEX BUSINESS CONTAINED
IN THIS CIRCULAR HAS BEEN TAKEN FROM INFORMATION PROVIDED BY SCITEX OR IS
BASED UPON PUBLICLY AVAILABLE DOCUMENTS AND RECORDS ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION IN THE UNITED STATES AND OTHER PUBLIC
SOURCES. ALTHOUGH CREO HAS NO KNOWLEDGE THAT WOULD INDICATE THAT ANY
STATEMENTS CONTAINED HEREIN CONCERNING SCITEX AND THE SCITEX BUSINESS ARE
UNTRUE OR INCOMPLETE, THE MANAGEMENT OF CREO ASSUMES NO RESPONSIBILITY FOR
THE ACCURACY OR COMPLETENESS OF THIS INFORMATION, OR FOR ANY FAILURE BY
SCITEX TO DISCLOSE FACTS THAT MAY AFFECT ITS SIGNIFICANCE OR ACCURACY, BUT
WHICH ARE UNKNOWN TO CREO.
BUSINESS
GENERAL
Scitex and its subsidiaries design, develop, manufacture, market and
support digital graphics communications products. The operations of Scitex
principally comprise two related businesses, digital prepress and digital
printing, operating within a single industry. Under the Asset Purchase
Agreement, Creo will, on Closing, acquire substantially all of the assets and
assume substantially all of the liabilities of Scitex's prepress business
only, consisting of the Input Systems Division, the Output Systems Division,
Iris Graphics, Inc. ("Iris Graphics"), the Print-on-Demand Systems Division
and the Scitex marketing, sales and customer support companies related to
these businesses. Creo will not acquire any interest in Scitex Digital
Printing, Inc., Scitex Wide Format Printing, Inc., Karat Digital Press B.V.,
Vio Worldwide Limited, Aprion Digital Ltd., Scidel Technologies Ltd., RT
image Ltd., Accom Inc., Blaze Technologies B.V., P. Point Company (1995)
Ltd., Pitango Multimedia Inc., the Sellers' Digital Graphics Network Group or
the Sellers' Internet businesses.
During the years ended December 31, 1999, 1998 and 1997, the
revenues generated by the Scitex Business were $491,521,000, $454,147,000 and
$473,585,000 respectively. Revenues from product sales amounted to
$336,883,000 in 1999, $303,274,000 in 1998 and $322,190,000 in 1997. Service
revenues were $104,784,000 in 1999, $103,716,000 in 1998 and $103,173,000 in
1997. The remaining revenues were generated through the sale of supplies. For
further financial information regarding the Scitex Business, see the Combined
Financial Statements of the Scitex Business included in Schedule "C" to this
Circular.
No end-user customer or distributor of the Scitex Business accounted
for more than 10% of net revenues in any of the years 1999, 1998 or 1997.
INPUT SYSTEMS DIVISION
The Input Systems division of the Scitex Business develops,
manufactures and markets image capture solutions, such as scanners and
digital cameras, as well as colour management applications. Scitex scanners
include a series of flatbed colour scanners of continuous-tone images and
line art in reflective and transparent forms and in various sizes. The
EVERSMART-TM- line of large format, tabletop scanners includes technology
that provides a uniformly high resolution over the entire scanner format.
The Input Systems division products also include the LEAF-TM- line
of digital cameras that capture images electronically without using film or
chemicals, and are efficient, high-quality replacements for conventional
photography, especially for catalog applications. The high-resolution,
digital images are transferred to the hard disk of the computer and displayed
in full colour on the monitor.
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OUTPUT SYSTEMS DIVISION
The Output Systems division of the Scitex Business develops,
manufactures and markets the DOLEV-TM- line of imagesetters. It also offers
computer-to-plate (CTP) technology in the form of the LOTEM-TM- line of
thermal platesetters, designed for high quality CTP colour production, with
an imaging format of eight pages up; and the BRISQUE-TM- family of digital
front ends (DFEs), a workflow automation solution for output devices such as
imagesetters, platesetters and proofers.
The Output Systems division's products also include systems for data
management based on client-server architecture that provide automation tools
for fast access to any data element and better control of data in process and
data archiving.
IRIS GRAPHICS
Iris Graphics, based in Bedford, Massachusetts, is a leading
developer and manufacturer of high quality colour digital inkjet printers and
proofing systems. The IRIS-TM- direct digital colour printers are high
quality, continuous flow, colour inkjet devices, available in a variety of
formats to suit several applications.
PRINT-ON-DEMAND SYSTEMS DIVISION
The Print-on-Demand Systems division of the Scitex Business
develops, assembles and markets digital colour servers for colour-on-demand
and variable information printing systems. Scitex is co-operating with Xerox
Corporation worldwide to supply Scitex digital colour servers for the
Xerox-Registered Trademark- DocuColor-TM- copier/printers. These servers
offer a complete solution for variable printing, including advanced
personalization and customization. The division's products are also used in
driving high-speed, variable-information printing engines developed by Scitex
Digital Printing, Inc. Effective from the Closing, Creo will enter into an
agreement with Scitex Digital Printing, Inc. providing for the continuing
supply of these products.
MARKETING AND SALES
Under the Asset Purchase Agreement, Creo will, on Closing, acquire
the shares or the assets and liabilities of the following Scitex entities,
responsible for marketing, sales and customer support of digital prepress
products in their stated geographical areas:
- - SCITEX AMERICA CORP ("SCITEX AMERICA") - NORTH AND SOUTH AMERICA. Scitex
America, based in Bedford, Massachusetts, has a network of regional
offices and other facilities throughout the United States and Canada,
and uses both direct sales channels and selected dealers and
distributors. It sells to Latin America through dealers and
distributors, and has approximately 540 employees.
- - SCITEX EUROPE S.A. ("SCITEX EUROPE") - EUROPE. Scitex Europe, with
headquarters in Waterloo (near Brussels), Belgium, has a network of
regional sales offices and other facilities, and uses both direct sales
channels and selected dealers and distributors. Together with employees
of Scitex Europe's regional subsidiaries and affiliates in, among other
countries, the United Kingdom, France, Italy and Scandinavia, Scitex
Europe employs approximately 510 people.
- - NIHON SCITEX LTD. ("NIHON SCITEX") - JAPAN. Nihon Scitex is a 50:50
joint venture with Toyo Ink Mfg. Co. Ltd. ("Toyo") based in Tokyo,
Japan. It operates several regional sales offices and customer support
centers, and has approximately 170 employees (including a number of Toyo
employees assigned to Nihon Scitex). Creo will acquire Scitex's 50%
interest in Nihon Scitex.
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- - SCITEX ASIA PACIFIC (H.K.) LTD. ("SCITEX ASIA PACIFIC") - ASIA AND
PACIFIC RIM (EXCEPT FOR JAPAN). Scitex Asia Pacific is headquartered in
Hong Kong, and has a number of regional offices and branches, including
a subsidiary in Shanghai, China. It employs approximately 80 people.
- - SCITEX MIDDLE EAST/AFRICA ("SCITEX MIDDLE EAST/AFRICA") - Scitex Middle
East/Africa is a division of Scitex Corporation Ltd. with approximately
35 employees.
The sales and marketing strategy of the Scitex Business in the
digital prepress market combines direct distribution outlets (primarily in
North America, Western Europe and Japan), with other selective distribution
strategies, such as dealers, distributors and value added resellers (VARs).
During 1999, 46% of Scitex America's sales and 48% of Scitex Europe's sales
were made through these indirect channels (compared to 55% and 62%,
respectively, in 1998 and 45% and 65%, respectively, in 1997). By the end of
1999, the indirect channels of the Scitex Business included over 100 dealers
and distributors, and over 50 resellers, world-wide.
Smaller stand-alone devices, such as the scanners, digital cameras,
proofers and small-format imagesetters, are generally sold through indirect
distribution channels. Direct distribution outlets are generally used for the
larger integrated systems, such as the large-format imagesetters, the CTP
systems and related workflow and data management solutions.
CUSTOMER SUPPORT
The Scitex Business has full-time support centers in its major
geographic markets offering rapid deployment of service engineers, telephone
support and, for certain products, electronic on-line information services.
The customer support operations engage over 700 employees, comprising
engineers, technical and application specialists as well as logistics and
management personnel. The employees are based in several dozen locations, in
Israel, North America, Europe, Japan and the Pacific. In certain areas,
services are provided through distributors and agents, who provide technical
and applications support through locally trained engineers.
Sales support includes site preparation and inspection, equipment
installation and basic training in equipment operation and preventive
maintenance. Assistance to customers in achieving full utilization of the
equipment is also provided through regular updates to software, classes for
operators, advanced application training and management seminars.
Following completion of installation, an equipment warranty for an
agreed period is generally provided. After the warranty period, service
contracts providing for equipment and software maintenance are offered at a
fixed quarterly charge for each product. While the majority of systems that
are beyond their warranty period are covered by service contracts, in recent
years a significant proportion of customers have preferred to pay for service
on a time and materials basis.
RESEARCH AND DEVELOPMENT
The Scitex Business employs approximately 360 people in developing
new products and technologies, enhancing the quality and performance relative
to price of its existing products, reducing manufacturing costs and upgrading
and expanding its product line through the development of additional features
and improved functionality. Most of this engineering, research and
development activity is carried on in Israel and, in the United States,
principally through Iris Graphics.
The Scitex Business has in the past taken advantage of
royalty-bearing grants in the form of participations in industrial research
provided by the Government of Israel. Under the terms of the Israeli
Government participations, a royalty is payable on the proceeds of sales of
products resulting from funded projects, up to the amount of the grants
received. The royalties payable in respect of projects approved
- 16 -
<PAGE>
prior to 1995 are generally 2% of the amount of such sales. However, on
projects approved subsequently, the royalties generally payable are 3% for
the first three years of product sales, 4% for the next three years and 5%
thereafter up to the amount of the grant received (such rates being increased
by 1% in respect of certain special projects). At December 31, 1999, the
maximum contingent royalty payable was approximately $30.5 million.
Creo expects that Israeli Government participation will decline as a
percentage of total research and development expenditure, due to an
increasing proportion of such expenditure being incurred in operations
outside Israel (and therefore ineligible to receive such funding) and to
continuing changes in Israeli Government policy regarding such funding.
MANUFACTURING
The Scitex Business has manufacturing facilities in Israel and the
United States, and also uses subcontractors in connection with certain types
of work and activities in both countries. Most of the parts, components and
commodities used by the Scitex Business in product manufacture and assembly
are available from several sources, although a substantial number of items
are currently purchased from single suppliers. In some cases, there is only
one source of supply for a component or commodity used by them. Certain major
components and commodities used in the products of the Scitex Business are
generally purchased under annually renewable supply agreements with principal
suppliers.
PATENTS AND TRADEMARKS
Scitex owns, licenses or otherwise has rights in over 600 issued
patents (primarily in the United States) and has over 470 patent applications
pending in the United States and elsewhere, relating to the Scitex Business.
In addition, the Scitex Business claims proprietary rights in various
technology and trade secrets relating to its products and operations.
Scitex also holds a number of trademarks and service marks in the
United States and elsewhere.
EMPLOYEE AND LABOUR RELATIONS
The Scitex Business currently has a total worldwide workforce of
approximately 2,370 employees. The workforce in Israel numbers approximately
1,000 employees (including approximately 180 positions filled by part-time
and temporary employees). There are 645 employees in the United States
(including approximately 40 temporary employees) and 725 employees in Europe
and elsewhere. Scitex considers its relations with the employees of the
Scitex Business to be good and has never experienced a strike or work
stoppage.
Other than certain employees in the German and Belgian operations of
the Scitex Business, the employees are not represented by labour unions.
Certain provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and Israel's Coordination
Bureau of Economic Organizations (including the Manufacturers' Association)
are applicable to employees in Israel by order of the Israel Ministry of
Labor and Welfare.
CREO/SCITEX
BUSINESS
The management of Creo believes that the combination of Creo's
existing prepress business with Scitex's prepress and print-on-demand
businesses will significantly enhance Creo's long-term development, and
strengthen its position as a leading provider of advanced digital prepress
solutions for
- 17 -
<PAGE>
the graphic arts industry. Creo believes that the Acquisition will unlock
significant synergies, and provide it with a wide portfolio of leading
products and technologies and the best value delivery system and technical
support capabilities currently available in the prepress market.
The combined operation will be a division of Creo ("Creo/Scitex")
operating in the digital prepress market, providing both the current Creo and
Scitex Business product lines, including computer-to-plate and
computer-to-film devices, digital front-end and variable information workflow
solutions, inkjet and digital halftone proofing solutions, professional
scanners, digital photography devices, and imaging heads for digital offset
press applications. The combined operations will include substantially all
prepress operations, products and services of both Creo and the Scitex
Business and will continue to support all existing products for the
foreseeable future.
EXPECTED IMPACT OF THE ACQUISITION
Creo expects that the strategic and operational compatibility of its
business and the Scitex Business will result in the following principal
benefits:
(a) the realization of significant synergies, including cost and
capital savings, and the creation of a broader platform for
Creo's further growth;
(b) significant benefits to customers from the combination of
product and service offerings, the expansion of these
offerings into new markets and improved efficiencies; and
(c) a significant enhancement of the business prospects for
printCafe.com, Creo's recently announced e-commerce initiative
with, among others, Prograph, Inc.
Creo believes that the combination of its business and the Scitex
Business will make possible the achievement of significant synergies in the
areas of research and development, manufacturing, administration, sales and
servicing. It is also expected to result in substantial enhancements to
Creo's revenues and profits.
There is considerable overlap in the research and development
efforts currently being undertaken by Scitex and Creo. The management of Creo
believes that these efforts can be rationalized, resulting not only in
significant cost savings, but also in expanded technical resources and
accelerated development of new features, technologies and products and
functions for existing products. It is expected that this enhanced
development will result in broader customer choice and satisfaction, and an
enhanced presence in the marketplace.
It is also expected that manufacturing efficiencies and
cost-reductions can be achieved through an increased scale of manufacturing
operations in the combined entity and that significant cost savings can be
achieved through a rationalization and standardization of general and
administrative services across the combined operation. Creo's management
believes that similar synergies can be achieved in sales and customer service
management and infrastructure.
Job losses are expected to be minimal, and the costs associated with
them are not expected to be significant. It is also expected that there will
be a reduced growth rate in the number of employees of the combined
operation, compared to the anticipated growth rate for the companies
operating independently.
The combined effect of the achievement of these synergies is
expected to strengthen Creo's ability to compete effectively in its core
businesses and to develop new businesses, thus providing a broader platform
for growth in Creo's revenue and earnings.
- 18 -
<PAGE>
The management of Creo believes that the Acquisition will create
significant benefits for customers of Creo and the Scitex Business in the
form of a broader product portfolio and improved customer support. Because
there is limited overlap in the existing product portfolios of the two
companies, the combined operation will provide customers with a single source
for the broadest range of prepress solutions available in the graphic arts
industry, thus offering them greater flexibility in tailoring solutions to
best fit their business needs.
Creo has recently announced its participation with, among others,
Prograph Inc. in printCafe.com, an eCommerce company that is believed to be
the only company in graphic arts to offer integration of eCommerce
applications with print production and planning. The combination of the
Scitex Business' installed base of 16,000 customers, and Creo's installed
base of approximately 1,600 customers is expected to provide a readily
accessible market for printCafe's service offering.
HEAD OFFICE
Creo will manage the global operations of Creo/Scitex from its
existing corporate headquarters in Burnaby, British Columbia, and from
distribution and support centers located in the United States, Europe, Japan,
Hong Kong, Israel and Africa. Three research and development sites will
operate in Burnaby, British Columbia, Bedford, Massachusetts and Herzlia,
Israel, in addition to the manufacturing and research and development
facilities of Heidelberg Druckmaschinen A.G. ("Heidelberg") in Kiel, Germany,
in connection with Creo's joint venture with Heidelberg.
BOARD OF DIRECTORS
Following Closing and subject to the approval by shareholders of the
amendment to Creo's Articles of Incorporation described elsewhere in this
Circular, the Board of Directors of Creo will consist of nine directors, the
seven directors to be elected at the Meeting and two nominees of Scitex to be
appointed upon Closing. Initially, the two nominees representing Scitex will
be Yoav Z. Chelouche and Rimon Ben-Shaoul.
Yoav Z. Chelouche, a resident of Israel, has been President and
Chief Executive Officer of Scitex since November 1995, having previously held
the office of Executive Vice President - Marketing and Business Development
from December 1993. Prior to then, Mr. Chelouche had served as Corporate Vice
President - Marketing from 1983, such position being expanded in 1986 to
include Business Development. He joined Scitex in 1979 as Vice President for
Finance and Administration at Scitex Europe and from 1982 to 1983 held the
position of Corporate Marketing Manager. He holds a bachelors degree in
economics and statistics from Tel Aviv University and a masters degree in
business administration from INSEAD, Fontainebleau, France.
Rimon Ben-Shaoul, a resident of Herzlia, Israel, is currently
Chairman of the board of directors of Scitex, having previously served as
Vice Chairman since May 1999. Since 1997 he has served as Chairman of Clal
Electronics Industries and President and Chief Executive Officer of Clal
Industries and Investments Ltd. Mr. Ben-Shaoul serves on the board of
directors of various subsidiaries of Clal Industries and Investments. Since
1997, he has been a member of the board of directors of Clal (Israel) Ltd.
From 1985 to 1997, he held the position of President and Chief Executive
Officer of Clal Insurance Company Ltd., was a member of its board of
directors, and chairman or member of the board of directors of various
subsidiaries of Clal Insurance Company Ltd. Mr. Ben-Shaoul holds a B.A. in
Economics and M.B.A. from Tel Aviv University.
- 19 -
<PAGE>
SENIOR MANAGEMENT
On Closing, it is expected that the senior management of Creo will
include the following persons:
<TABLE>
<CAPTION>
NAME PROPOSED POSITION CURRENT POSITION LOCATION
- ---- ----------------- ---------------- --------
<S> <C> <C> <C>
Amos Michelson Chief Executive Officer Chief Executive Officer Vancouver, Canada
Dan Gelbart President President Vancouver, Canada
Mark Dance President, Prepress Chief Operating Officer Vancouver, Canada
Erez Melzer Chief Operating Officer Corporate Vice-President, Herzlia, Israel
Global Operations, Scitex
Tom Kordyback Chief Financial Officer Chief Financial Officer Vancouver, Canada
Eyal Desheh Executive Vice President, Corporate Vice-President Herzlia, Israel
Finance and Chief Financial
Officer, Scitex
</TABLE>
STEERING COMMITTEE
Creo and Scitex have formed a Steering Committee to assist in the
integration of the Scitex Business and Creo's business and to co-ordinate the
planning for the operations of the Scitex Business following Closing.
EMPLOYEES
Creo expects that between 2,400 and 2,500 people currently employed
in the Scitex Business will become employees of Creo on Closing, resulting in
a total employee complement of approximately 4,100. Of these employees,
approximately 1,150 will be engaged in customer support, 560 in sales and
marketing, 820 in research and development, 1,100 in manufacturing and
related operations and 475 in finance and administration. Approximately 2,300
employees will be located in North America, 630 in Europe, 1,000 in Israel
and the remainder in the Asia Pacific region, the Middle East (other than
Israel) and Africa.
RISKS ASSOCIATED WITH THE ACQUISITION
The Acquisition, and Creo's business and operating results following
the Acquisition, are subject to a number of risks and uncertainties,
including the following:
REGULATORY RISK. Completion of the Acquisition requires regulatory
consents and approvals from government agencies and authorities in several
countries. These approvals include consents under anti-trust or comparable
competition laws in the United States and several other countries, and
consents from the Office of the Chief Scientist and other agencies in Israel.
There can be no assurance that the required consents will be obtained, or
that no conditions will be imposed that are unduly onerous or that will
otherwise make it undesirable or disadvantageous for Creo to complete the
Acquisition on the terms that have been agreed to.
IMPACT ON CREO'S JOINT VENTURE WITH HEIDELBERG. Creo's operating and
financial performance depends substantially on its joint venture with
Heidelberg. Creo's share of joint venture revenues accounted for 32.3% of its
total revenue for the fiscal year ended September 30, 1999. The Acquisition
- 20 -
<PAGE>
may make it necessary for Creo and Heidelberg to renegotiate certain aspects
of the joint venture agreement, and there is no assurance that such a
renegotiation will be successful. If it is not, the effect on Creo's
business, results of operations and financial condition could be material and
adverse.
POLITICAL AND MILITARY RISK. Upon completion of the Acquisition,
Creo will have significant research and development, engineering and
manufacturing operations, and some administrative operations located in
Israel, and will therefore be affected by economic, political and military
conditions in Israel. In addition, the Scitex Business is heavily dependent
upon components imported into Israel, primarily from the United States, and
all but a small percentage of its sales are made outside Israel. Accordingly,
Creo's operations in Israel upon completion of the Acquisition could be
adversely affected if major hostilities involving Israel should occur in the
Middle East or if trade between Israel and its present trading partners were
to be curtailed or interrupted. In addition, a large number of the Israeli
male employees of the Scitex Business, including some officers, are obligated
to perform annual reserve duty in the Israel Defense Forces. An emergency
involving the mobilization of military forces in Israel could require a
substantial increase in the time such personnel are required to devote to
active military service, which could result in the disruption of Creo's
Israeli operations.
OTHER RISKS. The anticipated benefits of the Acquisition, and the
business and operating results of Creo following the Acquisition, are also
subject to the following risks and uncertainties:
- the expected cost-savings and synergies from the Acquisition
cannot be fully realized or take significantly longer to realize
than expected;
- revenues from the Scitex Business are lower than expected or
customer attrition and business disruption following the
Acquisition are greater than expected;
- the integration of the Scitex Business into Creo's operations is
more difficult, time-consuming or expensive than anticipated, or
the attrition rate of key employees of the Scitex Business is
greater than expected;
- technological changes or changes in the competitive environment
adversely affect the products, market share, revenues or margins
of Creo or the Scitex Business; or
- changes in general economic, financial or business conditions
adversely affect Creo or the Scitex Business or the markets in
which they operate.
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The selected historical financial data set out below has been
extracted from, in the case of Creo, its audited consolidated financial
statements previously provided to shareholders, and in the case of the Scitex
Business, the audited Combined Financial Statements of the Scitex Business
included in Schedule "C" to this Circular. The selected pro forma
consolidated financial data has been extracted from the Unaudited Pro Forma
Consolidated Financial Statements of Creo included in Schedule "D" to this
Circular. Reference should be made to those financial statements for
additional information. All dollar amounts are expressed in thousands of U.S.
dollars.
- 21 -
<PAGE>
<TABLE>
<CAPTION>
CREO SCITEX BUSINESS
---- ---------------
YEARS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------- ----------------------------- PRO FORMA
STATEMENT OF OPERATIONS DATA 1997 1998 1999 1997 1998 1999 1999
------- -------- -------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenue.................. $95,583 $128,848 $178,323 $473,585 $454,147 $491,521 $669,844
Gross profit................... 41,949 57,631 83,858 171,257 184,025 201,355 291,341
Earnings (loss) from
operations................... 8,287 19,346 29,536 (4,198) 10,146 40,465 45,382
</TABLE>
<TABLE>
<CAPTION>
CREO SCITEX BUSINESS
AS AT SEPTEMBER 30, AS AT DECEMBER 31,
------------------- ------------------ PRO FORMA
BALANCE SHEET DATA 1998 1999 1998 1999 1999
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 16,224 $103,075 $ 17,864 $ 16,784 $115,144
Working capital.................... 34,615 123,535 143,317 181,107 264,807
Total assets....................... 102,118 220,155 319,054 346,294 883,219
Total liabilities.................. 40,070 60,199 115,270 113,225 196,263
Shareholders' equity............... 62,048 159,956 203,784 233,069 686,956
</TABLE>
ELECTION OF DIRECTORS
Creo's Articles of Incorporation provide for a board of directors
consisting of not less than three (3) and not more than nine (9) directors.
There are currently eight (8) directors. In accordance with Creo's By-Laws,
the Board of Directors has determined that seven (7) directors will be
elected at the Meeting. Creo's management will propose at the Meeting that
the seven nominees identified below be elected directors. Each person elected
at the meeting will hold office until the next annual meeting or until that
person's successor is elected or appointed, unless they resign or are removed
earlier. The CBCA requires that a majority of the directors, and of the
members of any committee of the Board of Directors, be resident Canadians.
THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY INTEND TO VOTE FOR
THE ELECTION OF THE NOMINEES OF MANAGEMENT SET OUT BELOW, IN THE ABSENCE OF
DIRECTIONS TO THE CONTRARY FROM THE SHAREHOLDERS APPOINTING THEM. MANAGEMENT
OF CREO HAS NO REASON TO BELIEVE THAT ANY OF THE NOMINEES NAMED BELOW IS
UNABLE OR UNWILLING TO SERVE AS A DIRECTOR. IF ANY SUCH NOMINEE SHOULD BE
UNABLE OR UNWILLING TO SERVE AS A DIRECTOR, THE FORM OF PROXY ACCOMPANYING
THIS CIRCULAR CONFERS THE RIGHT ON THE PERSONS NAMED IN THE PROXY, IN THEIR
DISCRETION, TO VOTE FOR SOME OTHER PERSON OR PERSONS AS DIRECTORS, UNLESS THE
PROXY SPECIFIES THAT THE COMMON SHARES ARE TO BE WITHHELD FROM VOTING IN THE
ELECTION OF DIRECTORS.
Creo has agreed with Scitex that if the Acquisition is completed,
Creo will appoint two nominees of Scitex to the Board of Directors. As a
result, provided that the shareholders approve the amendment to Creo's
Articles of Incorporation described elsewhere in this Circular, the Board of
Directors will consist of nine (9) directors. See "The Acquisition and the
Share Issuance - Agreements Relating to the Acquisition - The Asset Purchase
Agreement".
The following table sets out the names of the seven proposed
nominees; their municipalities of residence; their principal occupations
during the past five years, including all positions and offices currently
held by them with Creo; the date upon which each nominee, if currently a
director, first became a director; and the number of common shares
beneficially owned, directly or indirectly, by each nominee, or over which
the nominee exercises control or direction.
- 22 -
<PAGE>
<TABLE>
<CAPTION>
COMMON SHARES
NAME AND DIRECTOR BENEFICIALLY OWNED
MUNICIPALITY OF RESIDENCE PRINCIPAL OCCUPATION SINCE OR CONTROLLED(1)
------------------------- -------------------- ----- ----------------
<S> <C> <C> <C>
Raphael H. Amit(2)(3)........... Chair of Board of Directors 1996 63,000(5)
Vancouver, British Columbia of Creo; University Professor
Thomas D. Berman(4)............. Executive Director, 1998 2,266,668(6)
Winnetka, Illinois Private Markets Group,
Brinson Partners, Inc.
(investment managers)
John Bu(2)(4)................... Managing Director, 1997 5,314,336(7)
Short Hills, New Jersey Goldman, Sachs & Co.
(investment bankers)
Dan Gelbart..................... President of Creo 1985(8) 2,332,316(9)
Vancouver, British Columbia
Amos Michelson.................. Chief Executive Officer 1992 1,846,658
Vancouver, British Columbia of Creo
Kenneth A. Spencer(2)(3)........ Private businessman and 1985(10) 1,542,553(11)
Vancouver, British Columbia corporate director
Charles E. Young(2)............. President, 1999 1,104,900(12)
Vancouver, British Columbia Marin Investments Ltd.
(private investment
company)
</TABLE>
- ----------
(1) The information as to shares beneficially owned or over which control or
direction is exercised, not being within the knowledge of Creo, has been
furnished by each of the nominees. As used in this table, "beneficial
ownership" means sole or shared power to vote or direct the voting of the
common shares, or the sole or shared power to dispose, or direct a
disposition, of the common shares. A person who has a right to acquire a
common share within 60 days of February 17 has "beneficial ownership" of
that common share. More than one person may be deemed to have beneficial
ownership of the same securities.
(2) Member of the Compensation, Nominating and Corporate Governance Committee.
See "Statement on Corporate Governance Practices - Board Committees".
(3) Member of the Audit Committee. See "Statement on Corporate Governance
Practices - Board Committees".
(4) Member of the Finance Committee. See "Statement on Corporate Governance
Practices - Board Committees".
(5) Includes options to acquire 20,000 common shares.
(6) Includes 2,000,000 common shares beneficially owned by the Virginia
Retirement System, 229,276 common shares beneficially owned by Brinson
Venture Capital Fund III L.P. and 37,392 common shares beneficially owned
by Brinson MAP Venture Capital Fund III. Brinson Partners, Inc., of which
Mr. Berman is an Executive Director, acts as investment advisor to all of
the foregoing entities. Brinson Partners, Inc. and Mr. Berman disclaim any
beneficial interest in any of these common shares.
(7) Includes common shares held by the following entities affiliated with The
Goldman Sachs Group, Inc: GS Capital Partners II, L.P. (3,334,368 shares);
GS Capital Partners II Offshore, L.P. (1,325,549 shares); Goldman, Sachs &
Co. Verwaltungs GmbH (122,986 shares); Bridge Street Fund 1995, L.P.
(281,382 shares); and Stone Street Fund 1995, L.P. (250,051 shares). Mr. Bu
disclaims any beneficial interest in any of these common shares.
(8) Mr. Gelbart did not serve as a director during the period February 1997 to
February 1998.
(9) Includes 2,192,984 common shares held directly and 139,332 common shares
held indirectly.
- 23 -
<PAGE>
(10) Mr. Spencer did not serve as a director during the period January 1996 to
January 1997.
(11) Includes 439,780 common shares held directly and 1,102,773 common shares
held indirectly.
(12) These shares are held by Marin Investments Ltd., of which Mr. Young is the
President and a principal shareholder.
Each of the proposed nominees has been engaged in the principal
occupation indicated above for the past five years, except as follows: (i)
prior to June 1995 Mr. Michelson was Creo's Vice President, Business
Strategy; (ii) prior to June 1995 Mr. Spencer was Creo's Chief Executive
Officer; (iii) prior to June 1998 Mr. Berman held the position of Partner in
the Private Markets Group, Brinson Partners, Inc.; and (iv) prior to November
1999 Mr. Bu held the position of Vice-President, Principal Investments Area,
Goldman, Sachs & Co.
INFORMATION CONCERNING THE COMPENSATION OF DIRECTORS AND OFFICERS
COMPENSATION OF DIRECTORS
Creo's directors do not receive any compensation for serving as
directors, but are eligible to participate in Creo's 1996 Stock Option Plan.
This policy is currently under review by the Compensation, Nominating and
Corporate Governance Committee of the Board of Directors. No options were
granted to non-employee directors in fiscal 1999. During fiscal 1999, Douglas
Richardson, a director and employee of Creo, was awarded options in his
capacity as an employee to purchase 5,846 common shares at a price of C$13.75
per share at any time prior to January 4, 2004.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND INSURANCE
Creo's By-laws provide that Creo will indemnify any of its
directors, former directors, officers and former officers, and certain other
persons, against all costs reasonably incurred by them in any civil, criminal
or administrative proceeding to which they are or may be made a party by
reason of being or having been a director or officer of Creo. The indemnity
covers amounts paid to settle actions or to satisfy judgments, but may only
be paid if the person claiming the indemnity has acted honestly and in good
faith with a view to Creo's best interests and, in the case of a criminal or
civil proceeding, if the person had reasonable grounds for believing that his
or her conduct was lawful. Payment of any indemnity in connection with an
action brought by or on behalf of Creo requires prior court approval. Creo
has also entered into indemnification agreements with each of its directors
and officers.
Creo has purchased insurance for the benefit of its directors and
officers against any liability incurred by them as directors and officers,
subject to certain limitations contained in the CBCA and in the insurance
policy. In fiscal 1999, the policy provided coverage to directors and officers
in the aggregate amount of $10,000,000 in any policy year, subject to a
deductible of $50,000 per occurrence and $75,000 on an aggregate basis in
respect of any loss by Creo. The annual premium under this insurance policy is
$39,555 and is paid by Creo.
EXECUTIVE COMPENSATION
The following table sets out compensation information for the fiscal
years ended September 30, 1999, September 30, 1998 and September 30, 1997 for
Creo's Chief Executive Officer and its four other most highly compensated
executive officers (the "named executive officers"). 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 the named executive officers.
- 24 -
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- ----------------------
NAME AND OTHER ANNUAL SECURITIES UNDER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS GRANTED(#)
- ------------------ ---- -------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Amos Michelson.......... 1999 $105,382 $371,582 $ 4,610 -
Chief Executive 1998 94,435 179,897 4,551 -
Officer 1997 93,782 128,682 4,343 -
Dan Gelbart............. 1999 105,382 371,582 4,610 -
President 1998 94,435 179,897 4,551 -
1997 93,782 128,682 4,343 -
Kevin Joyce............. 1999 201,618 - 6,000 -
Vice President, 1998 145,444 - 7,929 186
Sales, Creo Inc. 1997 243,198 - 12,000 7,334
Michael Ball............ 1999 124,313 - 4,075 12,806
Vice President, 1998 115,047 - - 6,094
Sales and Support, 1997 85,287 - - 4,000
Creo Products, N.V.
Boudewijn Neijens....... 1999 94,173 - 6,434 14,116
General Manager, 1998 82,414 - 7,254 8,186
Creo Products, N.V. 1997 86,301 - 7,377 13,000
</TABLE>
1996 STOCK OPTION PLAN
Creo's 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 Creo's business.
The Plan is administered by Creo's Board of Directors, which acts on
the recommendation of its Compensation, Nominating and Corporate Governance
Committee (the "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. The exercise price of nonstatutory stock options
granted under the Plan is determined by the Board. Payment of the exercise
price may be made in cash or other forms of consideration approved by the
Board, which is also authorized to establish vesting schedules. The term of
options may not exceed ten years. Creo's practice to date has been to grant
options with five-year terms.
Options granted under the plan are generally fully vested at the
time of grant, but 204,956 of the 4,206,526 options outstanding at September
30, 1999 vest on various dates between January 4, 2000 and January 4, 2001.
The outstanding options are exercisable at prices between C$3.75 and C$17.50
per
- 25 -
<PAGE>
share and expire on various dates between August 31, 2000 and January 4,
2004. As at September 30, 1999, 3,446,962 options remained available for
future grant under the Plan.
OPTION GRANTS IN 1999 FISCAL YEAR
The only named executive officers who were granted options during
fiscal 1999 were Michael Ball and Boudewijn Neijens, as follows:
<TABLE>
<CAPTION>
MARKET VALUE OF
% OF TOTAL COMMON SHARES
SECURITIES OPTIONS GRANTED UNDERLYING
UNDER OPTIONS TO EMPLOYEES IN EXERCISE PRICE OPTIONS AT THE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR (C$/SHARE) DATE OF GRANT DATE
---- -------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Ball....... 12,806 0.94% C$13.75 C$13.75 January 4, 2003
Boudewijn Neijens.. 14,116 1.04% C$13.75 C$13.75 January 4, 2003
</TABLE>
- ----------
(1) All options vested and became exercisable on January 4, 1999.
FISCAL YEAR END OPTION VALUES
The following table sets out information relating to unexercised
options held as of September 30, 1999 by each of the named executive
officers. No options were exercised by these officers during fiscal 1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT SEPTEMBER 30, 1999
SEPTEMBER 30, 1999 (#) ($)(1)
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- --------------------------- ---------------------------------
<S> <C> <C>
Amos Michelson............ - -
Dan Gelbart............... - -
Kevin Joyce............... 30,904/52,000 552,106/922,882
Michael Ball.............. 25,184/0 381,301/0
Boudewijn Neijens......... 36,302/0 561,254/0
</TABLE>
- ----------
(1) An option is in-the-money at September 30, 1999 if the market
price of the common shares on that date exceeds the exercise price of
the option. The value of unexercised options at September 30, 1999 is
equal to the difference between the market price of the common shares on
that date and the exercise price of the options. Market price for this
purpose is $24.563 (i.e., the closing price of the common shares on the
Nasdaq National Market, Creo's principal trading market, on September
30, 1999).
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 eligible employees. Employees become eligible to
participate in the Plan after three months of continuous service. The amount
set aside under the Plan is determined by the Compensation Committee, and may
not, in any fiscal year, be greater than 12% of base earnings (which is
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, and the balance may be
distributed at the discretion of the Board of Directors. An aggregate of
C$3,267,603 was distributed under the Plan in respect of fiscal 1999. Amos
Michelson, Creo's Chief Executive Officer, and Dan Gelbart, Creo's President,
do not participate in the Plan.
- 26 -
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
The members of the Compensation Committee of Creo's Board of
Directors during the fiscal year ended September 30, 1999 were Raphael H.
Amit, Thomas D. Berman, John Bu, Amos Michelson and Kenneth Spencer. With the
exception of Amos Michelson, all of the members of the Compensation Committee
were unrelated non-management directors within the meaning of the guidelines
on corporate governance of the TSE. Subsequent to the year end the Committee
was reconstituted to consist of Messrs. Amit, Bu, Spencer and Charles E.
Young, all of whom are unrelated non-management directors. The Compensation
Committee has overall responsibility for, among other matters, the terms of
employment (including compensation arrangements) of senior executives and
succession planning. The Compensation Committee is also responsible for
making recommendations with respect to awards under Creo's 1996 Stock Option
Plan and the amount of any bonuses to be distributed under the Profit Sharing
Plan. The Compensation Committee met once in fiscal 1999, and expects to meet
on a more frequent basis now that Creo has completed its initial public
offering.
The following is the Compensation Committee's report on executive
compensation in respect of fiscal 1999.
COMPENSATION PHILOSOPHY
Creo's goal is to create value for its shareholders. Compensation
for its senior executives is accordingly designed to reflect the following
considerations: to provide a strong incentive to management to achieve Creo's
goals each year; to ensure that the interests of management and of the
shareholders are aligned; and to enable Creo to attract, retain and motivate
the quality of people necessary to its business in the light of competition
for qualified personnel. Creo's approach to compensation for senior
executives and other employees is designed to recognize both corporate and
individual performance, and the fact that competition for highly skilled
employees is both intense and not limited by national boundaries.
The compensation paid to senior executives generally consists of
base salary, stock option allocations, and profit-sharing bonuses. Creo's
compensation policy reflects a belief that a significant portion of total
compensation for its senior executives should be "at risk" in the form of
stock options, so as to create a strong incentive to build shareholder value.
Amos Michelson, Creo's Chief Executive Officer and Dan Gelbart, Creo's
President, do not receive option grants in view of their substantial share
ownership. An attempt is made to provide total compensation for senior
executives in the range of the 75th to 90th percentile of total compensation
paid to persons occupying comparable positions in comparable Canadian
corporations.
BASE SALARY
In general, Creo seeks to provide base salaries to its senior
executives at the median of the range of base salaries paid to persons
occupying comparable positions in comparable Canadian corporations, subject
to variations reflecting the results of an annual corporation-wide peer
review of all Creo employees, including senior executives.
In the case of Messrs. Michelson and Gelbart, base salaries are
determined by the Board of Directors on the recommendation of the
Compensation Committee. For the 1999 calendar year, the Board approved a base
salary of C$165,000 for each of Messrs. Michelson and Gelbart. For the 2000
calendar year, the Board has approved an increase in the base salary paid to
each of Messrs. Michelson and Gelbart to C$250,000, which is more in line
with the base salaries paid to their peer group.
- 27 -
<PAGE>
PROFIT SHARING DISTRIBUTION AND BONUS
At the conclusion of each fiscal year Creo's Board of Directors, on
the recommendation of the Compensation Committee, determines the amount to be
distributed under Creo's Profit Sharing Plan. Three quarters of any amount
set aside is shared equally among all eligible employees, and the balance may
be distributed at the discretion of the Board. It has been Creo's practice to
distribute the entire amount set aside equally among all eligible employees.
Messrs. Michelson and Gelbart do not participate in the Profit
Sharing Plan. Bonuses awarded to Messrs. Michelson and Gelbart are determined
by Creo's Board of Directors, on the recommendation of the Compensation
Committee. For the 1999 calendar year, the Board approved payment to each of
a bonus equal to 2% of Creo's pre-tax income during fiscal 1999, after
adjusting for 12% return on average shareholder equity. The actual amount of
the bonus awarded to each of Mr. Michelson and Mr. Gelbart was $371,582.
Taken together, the base salary and bonus of each of Mr. Michelson and Mr.
Gelbart for the 1999 calendar year placed them at about the 66th percentile
of the market on a total compensation basis.
STOCK OPTIONS
At the conclusion of each fiscal year, Creo's Board of Directors, on
the recommendation of the Compensation Committee, fixes a global number of
options to be made available for distribution to employees under the 1996
Stock Option Plan. In fixing the global number, account is taken of, among
other factors, Creo's financial performance in the immediately preceding
fiscal year, the level of awards in comparable Canadian corporations, overall
compensation levels, and potential dilution to shareholders. The global
allocation is determined in November of each year, and the options allocated
are generally granted to individual employees in January of the following
year. The actual number of options granted to any individual employee is
determined by Creo's Operations Committee, which consists of its senior
management, and is based in part upon the results of the Creo-wide peer
review. The number of options granted to members of the Operations Committee
is determined by the Chief Executive Officer and the Chief Operating Officer.
The exercise price of the options awarded is equal to the fair market value
of Creo's shares on the date of grant. In January 1999, a global allocation
of 1,376,160 options in respect of fiscal 1998 was distributed among
employees, at an exercise price of C$13.75. In January 2000, a global
allocation of 993,000 options in respect of fiscal 1999 was distributed among
employees at an exercise price of C$48.43. Messrs. Michelson and Gelbart do
not participate in 1996 Stock Option Plan.
Submitted by the Compensation, Nominating and Corporate Governance
Committee of the Board of Directors:
Raphael Amit
John Bu
Kenneth Spencer
Charles Young
- 28 -
<PAGE>
PERFORMANCE GRAPH
The following graphs compare the cumulative return, as at September
30, 1999, of $100 invested on August 5, 1999, the date of Creo's initial
public offering, in Creo common shares, with the total cumulative return of
(i) the TSE 300 Composite Index and (ii) the NASDAQ Total Return Index, for
the same period (assuming reinvestment of all dividends).
[GRAPHIC]
[GRAPHIC]
- 29 -
<PAGE>
STATEMENT ON CORPORATE GOVERNANCE PRACTICES
The TSE requires listed companies to disclose their corporate
governance practices with reference to a set of guidelines for effective
corporate governance recommended in the final report of The Toronto Stock
Exchange Committee on Corporate Governance in Canada (the "Guidelines"). The
Guidelines address matters such as the constitution and independence of
corporate boards, the functions to be performed by boards and their
committees and the effectiveness and education of board members. Schedule "E"
to this Circular sets out the principal components of the Guidelines, and
indicates the extent of Creo's compliance with them.
MANDATE OF THE BOARD AND THE BOARD'S EXPECTATIONS FOR MANAGEMENT
Under the CBCA, the directors are required to manage Creo's business
and affairs and in doing so to act honestly and in good faith with a view to
the best interests of the corporation. In addition, each director must
exercise the care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
In discharging this responsibility, Creo's Board of Directors
oversees and monitors significant corporate plans and strategic initiatives.
The Board's strategic management process consists of an annual review of
Creo's business plan and budget, and quarterly reviews of and discussions
with management relating to strategic and budgetary issues. The Board reviews
the principal risks inherent in Creo's business, including financial risks,
and assesses the systems established to manage those risks. Directly, and
through its Audit Committee, the Board also assesses the integrity of Creo's
internal financial control and management information systems.
In addition to those matters which must by law be approved by the
Board, Board approval is required for annual operating and capital budgets;
any material dispositions, acquisitions and investments outside of the
ordinary course of business or not provided for in the approved budgets;
long-term strategy; organizational development plans; and the appointment of
senior executive officers.
The Board expects management to focus on enhancing shareholder value
by formulating and refining Creo's corporate mission and securing the
commitment of Creo employees to that mission, developing strategies
consistent with it and formulating programs and procedures for their
implementation. Management is expected to provide effective leadership in all
aspects of Creo's activities, to maintain its corporate culture and motivate
its employees, and to communicate effectively with employees, customers and
other industry participants. The Board also expects management to provide the
directors on a timely basis with information concerning Creo's business and
affairs, including monthly financial and operating information and
information concerning industry developments as they occur, all with a view
to enabling the Board to discharge its stewardship obligations effectively.
The Board holds regular quarterly meetings. Between the quarterly
meetings, the Board meets as required. In fiscal 1999, the Board met on six
occasions. Creo's management also communicates informally with members of the
Board on a regular basis, and solicits the advice of Board members on matters
falling within their special knowledge or experience.
COMPOSITION OF THE BOARD
At the last annual meeting held in February 1999, Creo's
shareholders elected nine directors, two of whom have subsequently resigned.
Of the nine directors elected or appointed, five were "unrelated" within the
meaning of the Guidelines - that is, they were independent of management and
free from any interest or any business or other relationship which could, or
could reasonably be perceived to, materially interfere with such person's
ability to act with a view to the best interests of the corporation, other
than interests arising from shareholdings. Of the persons proposed for
election as directors at the Meeting,
- 30 -
<PAGE>
only two, Amos Michelson, Creo's Chief Executive Officer, and Dan Gelbart,
Creo's President, are "related" within the meaning of the Guidelines. John Bu
is a Managing Director of Goldman, Sachs & Co. Goldman, Sachs & Co. is a
party to an Investment Banking Services Agreement with Creo under which it
has the right of first refusal to provide Creo with investment banking
services, and from time to time has done so. Creo's Board of Directors does
not consider that Mr. Bu's independence is compromised by this agreement,
which expires in November 2000, or by the fact that Goldman, Sachs & Co. has
acted as Creo's financial advisor in connection with the Acquisition.
Historically, the Board has included one director elected on the
nomination of Creo's employees. The Board has concluded, however, that this
historic practice is not consistent with Creo's status as a public
corporation and should be discontinued. Accordingly, the nominees proposed
for election do not include anyone selected by the general body of Creo
employees.
Creo does not have a "significant shareholder" within the meaning of
the Guidelines, that is, a shareholder with the ability to cast a majority of
the votes for the election of directors.
BOARD COMMITTEES
Creo's Board of Directors has established three committees:
AUDIT COMMITTEE
The Audit Committee is composed of three unrelated directors. The
Audit Committee is responsible for, among other matters:
(a) reviewing and making recommendations for the appointment of
independent auditors and the annual audit of Creo's financial
statements and internal accounting practices and policies; and
(b) reviewing the annual and interim financial statements and any
public disclosure documents containing financial information
prior to their release.
The Audit Committee met twice during fiscal 1999 and will meet on at least a
quarterly basis during fiscal 2000.
COMPENSATION, NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
During fiscal 1999 the Compensation Committee consisted of Messrs.
Raphael H. Amit (Chair), Thomas D. Berman, John Bu, Amos Michelson and
Kenneth A. Spencer. All members of the Compensation Committee during that
period, other than Amos Michelson, were unrelated directors. Subsequent to
the year-end the Compensation Committee was reconstituted to consist of four
members, all of whom are unrelated. The Compensation Committee is responsible
for, among other matters:
(a) reviewing the composition and governance of Creo's Board of
Directors, the effectiveness of the Board as a whole and the
contribution made by each of the directors, and making
recommendations for appointment or election of directors and
the orientation of new directors;
(b) reviewing and making recommendations concerning the membership
and the powers, mandates and performance of committees of the
Board; and
(c) reviewing and making recommendations to the Board for
maintaining an effective working relationship between the
Board and management.
- 31 -
<PAGE>
The Chair of the Board is responsible for overseeing the effective
operation of the Board. The Board is relatively small in size, and all of its
members have been directors or observers at Board meetings for a number of
years and accordingly are fully familiar with Creo's operations. The
Compensation Committee believes that the process for assessing ongoing
performance, while informal, is effective, and formal procedures in this
connection are not currently required.
FINANCE COMMITTEE
The Finance Committee is composed of two unrelated directors. The
Finance Committee maintains general oversight of proposed financing terms,
risk management procedures and other transactions which could materially
affect Creo's financial or corporate structure, and provides general advice
to the Chief Financial Officer concerning these matters. It did not hold any
formal meetings in fiscal 1999, but committee members did consult with the
Chief Financial Officer as the occasion required.
SHAREHOLDER FEEDBACK
The Chief Financial Officer and the corporate financial staff are
responsible for investor relations functions. Inquiries from shareholders and
investment analysts are promptly responded to by these individuals or, when
appropriate, by other Creo executives.
APPOINTMENT OF AUDITORS
The persons named in the accompanying form of proxy intend to vote
for the re-appointment of KPMG LLP, Chartered Accountants, as Creo's
auditors, to hold office until the close of the next annual meeting of
shareholders, and to authorize the Board of Directors to fix the remuneration
of the auditors. KPMG LLP have been Creo's auditors since June 1998. Prior to
June 1998, Creo's auditors were Price Waterhouse, Chartered Accountants (now
PricewaterhouseCoopers LLP).
AMENDMENT TO THE ARTICLES OF INCORPORATION
Shareholders will be asked at the Meeting to consider and, if deemed
fit, to pass a special resolution, the text of which is set forth in Schedule
"F" to this Circular (the "Articles Amendment Resolution") authorizing Creo
to apply for a Certificate of Amendment amending Creo's Articles in order to
permit the Board of Directors to appoint additional directors between
shareholders' meetings, to a maximum of one-third of the number of directors
elected by the shareholders at the previous annual meeting, in accordance
with subsection 106(8) of the CBCA. Creo's Articles do not currently contain
such a provision. The Board believes that the proposed amendment would
provide it ample flexibility to appoint qualified individuals during the
period between shareholders' meetings when such individuals become available
and thus allow Creo to benefit immediately from the contributions of such
persons without having to wait for the next annual shareholders' meeting or
incur the expense of a special shareholders' meeting. Any director so
appointed would have a term ending at the next annual meeting of shareholders.
Creo's Board of Directors believes that the proposed amendment to
the Articles is in the best interests of Creo and its shareholders, and
accordingly recommends that shareholders vote for the Articles Amendment
Resolution, which requires the approval of not less than two-thirds of the
votes cast at the Meeting in respect of that Resolution in order to be
adopted.
- 32 -
<PAGE>
AMENDMENT TO BY-LAW NO. 1
By resolution dated June 2, 1999, Creo's Board of Directors amended
Creo's By-Law No. 1 to provide that a quorum for meetings of shareholders
shall be two shareholders present in person or by proxy and between them
holding not less than 20% of the outstanding common shares. Although such
amendments were effective upon passage by the Board, the amendments are
subject to shareholder confirmation. As a result, shareholders will be asked
at the Meeting to consider, and if deemed fit, to confirm, by simple majority
of votes cast by shareholders in respect of matter at the Meeting, the
amendment to By-Law No. 1.
An extract from By-Law No. 1, as amended, is set out in Schedule "G"
to this Circular.
FINANCIAL STATEMENTS
The consolidated financial statements of Creo for the fiscal year
ended September 30, 1999, together with the auditors' report on these
statements, will be placed before shareholders at the Meeting. These
financial statements form part of Creo's annual report, which has previously
been mailed to shareholders.
OTHER BUSINESS
The accompanying form of proxy confers discretionary authority upon
the persons named therein with respect to any amendments to the matters set
forth in the Notice of Meeting and with respect to any other matters that may
properly come before the Meeting.
The Creo Board of Directors is not aware that any matters are to be
presented for action at the Meeting other than those specifically referred to
in the Notice of Meeting. However, if any other matters properly come before
the Meeting, it is the intention of the persons named in the accompanying
form of proxy to vote on such matters in accordance with their judgement.
On any ballot that may be called for at the Meeting, all common
shares in respect of which the persons named in the accompanying form or
forms of proxy have been appointed to act will be voted or withheld from
voting in accordance with the specification of the holder of common shares
signing the proxy or proxies. If no such specification is made, then the
shares represented by the applicable proxy will be voted as stated above.
GENERAL
The Board of Directors of Creo has approved the contents and the
sending of this Circular.
Dated at Burnaby, British Columbia this 25th day of February, 2000.
/s/ THOMAS A. KORDYBACK
Thomas A. Kordyback
Vice-President, Finance, Chief Financial
Officer and Secretary
- 33 -
<PAGE>
SCHEDULE "A"
OPINION OF GOLDMAN, SACHS & CO.
<PAGE>
[LETTERHEAD]
January 17, 2000
The Board of Directors
Creo Products Inc.
3700 Gilmore Way
Burnaby, B.C.
V5G 4M1
To the Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to Creo Products Inc. (the "Company") of the 13.25 million Common Shares
(the "Consideration") of the Company proposed to be paid by the Company for
the Businesses (as defined below) pursuant to the Asset Purchase Agreement
(the "Agreement"), dated January 17, 2000, among the Company, Scitex
Corporation Ltd. ("Scitex") and Scitex Development Corp. The Agreement
provides that the Company will acquire (the "Transaction") such assets and
assume such liabilities of Scitex specified in the Agreement including the
Digital Preprint and Print-On-Demand business of Scitex comprising, among
other things, the Input Systems Division, Output Systems Division, Iris
Graphics, Inc., and the Print on Demand Systems Division together with the
geographical distribution units for such businesses and the production and
logistics relating to such businesses (collectively, the "Businesses").
This opinion is provided pursuant to our engagement by the Company to provide
financial advice to the Board of Directors of the Company (the "Board")
including our opinion as to the fairness from a financial point of view of
the proposed Consideration.
CREDENTIALS OF GOLDMAN, SACHS & CO.
Goldman, Sachs & Co. is an international investment banking firm, with
operations in corporate and government finance, mergers and acquisitions,
equity and fixed income sales and trading, investment research and investment
management. As part of its investment banking business, Goldman, Sachs & Co.
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, primary and secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. We are familiar with the Company having provided certain
investment banking services to the Company from time to time, including
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. We
also have provided significant investment banking services to Scitex from
time to time. Goldman,
<PAGE>
Creo Products Inc.
January 17, 2000
Page Two
Sachs & Co. provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time
to time effect transactions and hold securities, including derivative
securities, of the Company and Scitex for its own account and for the
accounts of customers. As of the date hereof, entities affiliated with
Goldman, Sachs & Co. own approximately 5.3 million Common Shares
(approximately 15%) of the Company. In addition, John J. Bu, a Managing
Director of Goldman, Sachs & Co., is a member of the Board of Directors of
the Company and Melina E. Higgins, a Vice President of Goldman, Sachs & Co.,
is an observer to the Board of Directors of the Company. As of the date
hereof, entities affiliated with Goldman, Sachs & Co. own approximately 3.6
million Common Shares (approximately 10%) of IDB Holding Corporation Ltd., an
entity which as of the date hereof has the power to vote and dispose of
approximately 16.9 million Common Shares (approximately 40%) of Scitex.
SCOPE OF REVIEW
In connection with rendering our opinion, we have reviewed and relied upon,
or carried out, among other things, the following: (i) the Agreement; (ii)
the Annual Report to Shareholders of the Company for the fiscal year ended
September 30, 1999; (iii) the Registration Statement on Form F-1, including
the Prospectus dated July 28, 1999 relating to the initial public offering of
5,000,000 Common Shares of the Company; (iv) certain internal financial
information, projections and forecasts relating to the Company prepared by
its management; (v) the Annual Report to Shareholders of Scitex for the Year
ended December 31, 1998 and Reports on Form 20-F of Scitex for the five years
ended December 31, 1998; (vi) certain unaudited interim reports of Scitex,
including the unaudited interim report of Scitex for the nine months ended
September 30, 1999; (vii) certain internal financial information, projections
and forecasts relating to the Businesses prepared by Scitex management;
(viii) certain projections and forecasts for the Businesses prepared by the
management of the Company (the "Forecasts for the Businesses"), and certain
cost savings and operating synergies projected by the management of the
Company to result from the Transaction (the "Synergies"); (ix) certain other
information about the business, operations and assets of the Company provided
to us by management of the Company; (x) certain other information about the
Businesses provided to us by Scitex management and certain additional
information about the Businesses provided to us by management of the Company;
(xi) discussions with senior management of the Company regarding their
assessment of the strategic rationale for, and the potential benefits of, the
transaction contemplated by the Agreement and discussions with senior
management of the Company and Scitex regarding the past and current business,
operations, assets and financial condition and future prospects of the
Company and the Businesses; (xii) a letter of representation as to certain
factual matters dated the date hereof provided by senior officers of the
Company and addressed to us; (xiii) discussions with KPMG LLP, auditors and
tax advisors to the Company; (xiv) public information relating to the
business, operations, financial performance and stock trading history of the
Company, Scitex, and other selected public companies we considered relevant;
(xv) information with respect to
<PAGE>
Creo Products Inc.
January 17, 2000
Page Three
selected transactions considered by us to be relevant; and (xvi) such other
information, investigations and analyses as we considered necessary or
appropriate in the circumstances.
ASSUMPTION AND LIMITATIONS
We have not been engaged to prepare and have not prepared a valuation of the
Company, of the Businesses or of Scitex or any of their respective material
assets or liabilities and our opinion should not be construed as such. In
addition, we have not been furnished with any such evaluation or appraisal.
The opinion expressed herein is provided for the information and assistance
of the Board in connection with its consideration of the Transaction. The
opinion expressed herein does not constitute a recommendation as to how any
holder of Common Shares should vote with respect to the Transaction.
We have relied upon, and have assumed the completeness, accuracy and fair
representation of, all information, data, advice, opinions and
representations obtained by us from public sources or provided to us by the
Company, Scitex and their respective advisors or otherwise pursuant to our
engagement. We have not attempted to verify independently the accuracy or
completeness of any such information, data, advice, opinions and
representations. In that regard, we have assumed with your consent that the
Forecasts for the Businesses and the Synergies have been reasonably prepared
on a basis reflecting the best currently available judgments and estimates of
the management of the Company, and that the Forecasts for the Businesses and
the Synergies will be realized in the amounts and time periods contemplated
thereby. We also have assumed that all material governmental, regulatory or
other consents and approvals necessary for the consummation of the
Transaction contemplated by the Agreement will be obtained without any
adverse effect on the Company, or the Businesses or on the contemplated
benefits of the Transaction. Senior officers of the Company have represented
to us, in a letter delivered as of the date hereof, amongst other things,
that the information, data, advice, opinions and other materials (the
"Information") provided to us by or on behalf of the Company was complete and
correct at the date the Information was provided to us, that since the date
of the Information, there has been no material change, financial or
otherwise, in the financial condition, assets, liabilities (contingent or
otherwise), business, operations or prospects of the Company or, to the best
of their knowledge, the Businesses, or and there has been no change in any
material fact which is of a nature as to render the Information untrue or
misleading in any material respect.
This opinion is rendered as of the date hereof and on the basis of securities
markets and economic and general business and financial conditions prevailing
as of the date hereof and the condition and prospects, financial and
otherwise, of the Company and of the Businesses as they were reflected in the
Information and documents reviewed by us and as they were represented to us
in our discussions with management of the Company and of Scitex. Our analyses
and the preparation of this opinion
<PAGE>
Creo Products Inc.
January 17, 2000
Page Four
include assumptions with respect to industry performance, general business,
market and economic conditions and other matters, many of which are beyond
the control of any party involved in the Transaction.
CONCLUSION
Based upon and subject to the foregoing and such other matters as we consider
relevant, it is our opinion that as of the date hereof the Consideration to
be paid by the Company for the Businesses pursuant to the Agreement is fair
from a financial point of view to the Company.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ------------------------------------
(GOLDMAN, SACHS & CO.)
<PAGE>
SCHEDULE "B"
ASSET PURCHASE AGREEMENT
<PAGE>
ASSET PURCHASE AGREEMENT
JANUARY 17, 2000
BY AND AMONG
CREO PRODUCTS INC.
AND
THE WHOLLY-OWNED
DIRECT AND INDIRECT
SUBSIDIARIES OF
CREO PRODUCTS INC.
SIGNATORIES HERETO
AND
SCITEX CORPORATION LTD.
AND
SCITEX DEVELOPMENT CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS ................................................. 1
1.1 Definitions ................................................... 1
ARTICLE II SALE AND PURCHASE OF ASSETS ................................ 10
2.1 Sale and Purchase of the Assets ............................... 10
2.2 Excluded Assets ............................................... 13
2.3 Assumption of Liabilities ..................................... 15
2.4 Excluded Liabilities .......................................... 15
2.5 Determination of Tangible Net Assets; December Balance Sheet .. 16
2.6 Consideration ................................................. 17
2.7 Allocation of Consideration ................................... 17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS ............. 17
3.1 Organization and Qualification ................................ 17
3.2 Subsidiaries .................................................. 18
3.3 Authority; No Breach .......................................... 18
3.4 Financial Statements .......................................... 19
3.5 Assets ........................................................ 20
3.6 Intellectual Property ......................................... 21
3.7 Absence of Undisclosed Liabilities ............................ 22
3.8 Absence of Certain Changes or Events .......................... 22
3.9 Contracts and Commitments ..................................... 24
3.10 Litigation, Etc. .............................................. 24
3.11 Taxes ......................................................... 24
3.12 Compliance with Law; Necessary Authorizations ................. 25
3.13 Labor Matters ................................................. 26
3.14 Employee Benefit Plans ........................................ 28
3.15 No Brokers or Finders ......................................... 29
3.16 Accounts Receivable ........................................... 29
3.17 Inventory ..................................................... 30
3.18 Customers and Suppliers ....................................... 30
3.19 Consents and Approvals of Governmental and Regulatory
Authorities and Third Parties ............................... 30
3.20 Non-Distributive Intent ....................................... 30
3.21 Insurance ..................................................... 31
3.22 Transactions with Affiliates .................................. 31
3.23 Government Grant Programs ..................................... 31
3.24 Environmental Matters ......................................... 32
3.25 Year 2000 ..................................................... 33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS ........... 33
4.1 Organization and Qualification ................................ 33
4.2 Capitalization ................................................ 33
4.3 Authority; No Breach .......................................... 34
4.4 Financial Statements .......................................... 35
4.5 Absence of Undisclosed Liabilities ............................ 35
4.6 No Brokers or Finders ......................................... 35
4.7 Absence of Certain Changes or Events .......................... 35
4.8 Litigation .................................................... 36
4.9 Compliance with Law ........................................... 36
4.10 Consents and Approvals of Governmental Authorities
and Others .................................................. 36
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4.11 Validity of Shares ............................................ 37
4.12 SEC Reports ................................................... 37
ARTICLE V COVENANTS ................................................... 38
5.1 Operation of the Business for the Benefit of the Purchasers ... 38
5.2 Conduct of the Business ....................................... 38
5.3 Post-Closing Cash Payment ..................................... 40
5.4 Conduct of Creo's Business .................................... 41
5.5 Access to Information ......................................... 41
5.6 Non-Compete ................................................... 42
5.7 Solicitation of Employees ..................................... 43
5.8 Discussions with Others ....................................... 43
5.9 Bulk Transfer ................................................. 43
5.10 Confidentiality ............................................... 44
5.11 Regulatory and Other Approvals and Consents ................... 44
5.12 HSR and Anti-Trust Filings .................................... 45
5.13 Board of Directors; Financial Statements ...................... 45
5.14 Trademark and Tradename License Agreement ..................... 46
5.15 Intellectual Property License Agreements ...................... 46
5.16 Treatment of Seller Guaranties and Comfort Letters ............ 46
5.17 Supply and Services Agreement ................................. 47
5.18 Transfer Taxes ................................................ 47
5.19 Termination of Agreements ..................................... 48
5.20 Preparation and Filing of Income Tax Returns; Payment
of Income Taxes ............................................. 48
5.21 Tax Claims .................................................... 50
5.22 Tax-Free Reorganization for Iris Graphics, Inc. and
Merger for Scitex America Corp. ............................. 51
5.23 Employee Benefit Matters ...................................... 51
5.24 Employees ..................................................... 53
5.25 Steering Committee ............................................ 53
5.26 Notices ....................................................... 53
5.27 Fulfillment of Conditions ..................................... 54
5.28 Public Announcements .......................................... 55
5.29 Refunds and Remittances, Etc. ................................. 55
5.30 Meeting of Purchasers' Shareholders; Proxy Statement .......... 55
5.31 Delivery of Financial Statements .............................. 56
5.32 Settlement Matters ............................................ 56
5.33 Encouragement of Research and Development ..................... 57
5.34 Licensed IP Agreement ......................................... 57
5.35 Listing ....................................................... 57
5.36 Aprion Agreement .............................................. 57
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASERS
AND THE SELLERS .......................................... 58
6.1 Standstill and Registration Rights Agreement .................. 58
6.2 Supply and Services Agreement ................................. 58
6.3 Trademark and Tradename License Agreement ..................... 58
6.4 Intellectual Property License Agreements ...................... 58
6.5 Licensed IP Agreement ......................................... 58
6.6 Aprion Assignment and Assumption Agreement .................... 58
6.7 Listing ....................................................... 58
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASERS ..... 59
7.1 Representations and Warranties Accurate ....................... 59
7.2 Performance by the Sellers .................................... 59
7.3 Certificate ................................................... 59
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7.4 Orders and Laws ............................................... 59
7.5 Consents ...................................................... 59
7.6 Approval of Shareholders ...................................... 60
7.7 Material Adverse Change ....................................... 60
7.8 Additional Documents, etc. .................................... 60
7.9 December Financial Statements ................................. 60
ARTICLE VIII ........................................................... 60
8.1 Representations and Warranties Accurate ....................... 61
8.2 Performance by the Purchasers ................................. 61
8.3 Certificate ................................................... 61
8.4 Orders and Laws ............................................... 61
8.5 Consents ...................................................... 61
8.6 Material Adverse Change ....................................... 62
8.7 Additional Documents, Etc. .................................... 62
8.8 Opinion of Counsel ............................................ 62
ARTICLE IX CLOSING .................................................... 62
9.1 The Closing ................................................... 62
9.2 Obligations of the Sellers .................................... 62
9.3 Obligations of the Purchasers ................................. 63
9.4 Merger Documents .............................................. 64
9.5 Further Assurances ............................................ 64
ARTICLE X .............................................................. 64
10.1 Rights to Terminate ........................................... 64
10.2 Consequences .................................................. 65
ARTICLE XI INDEMNIFICATION ............................................ 65
11.1 Termination of Representations and Warranties ................. 65
11.2 Indemnification by the Sellers ................................ 65
11.3 Indemnification by the Purchasers ............................. 66
11.4 Terms and Conditions of Indemnification ....................... 66
11.5 Exclusive Remedy .............................................. 69
ARTICLE XII MISCELLANEOUS ............................................. 69
12.1 Expenses ...................................................... 69
12.2 Amendment ..................................................... 69
12.3 Entire Agreement .............................................. 69
12.4 Warranty ...................................................... 69
12.5 Waivers ....................................................... 70
12.6 Notices ....................................................... 70
12.7 Counterparts .................................................. 71
12.8 Governing Law ................................................. 71
12.9 Consent to Jurisdiction; and Service of Process ............... 71
12.10 Binding Effect; Assignment; No Third Party Beneficiaries ...... 72
12.11 Severability .................................................. 72
12.12 Headings ...................................................... 72
12.13 Further Assurances ............................................ 73
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement") dated January 17, 2000,
by and among Creo Products Inc., a corporation organized and existing under
the laws of Canada ("Creo") and Istobrack Limited, CREO SRL, Luka Holdings
Ltd., CreoSSU Inc. and Creoproofer Inc., all of which are wholly-owned direct
and indirect subsidiaries of Creo (Creo and such subsidiaries, collectively,
the "Purchasers" or the "Purchasing Group") and Scitex Corporation Ltd., a
corporation organized and existing under the laws of Israel ("Scitex
Corporation") and Scitex Development Corp., a Massachusetts corporation
("Scitex Development") (Scitex Corporation and Scitex Development,
collectively the "Sellers").
RECITALS
The Sellers own and operate the Business (as defined herein).
The Purchasers and the Sellers desire to merge the Business with the
Purchasers' business, which merger will take the form of an asset purchase by
the Purchasing Group from the Sellers and a merger of a member of the
Purchasing Group with Scitex America Corp. and a separate merger of a member
of the Purchasing Group with Iris Graphics, Inc. which merger with Iris
Graphics, Inc. shall be structured as a tax free reorganization within the
meaning of Section 368 of the Code (as defined herein) in consideration for
common shares of Creo, subject to the terms and conditions set forth in this
Agreement.
AGREEMENT
THEREFORE, in consideration of the foregoing, of the mutual
agreements hereinafter contained and of other good and valuable
consideration, receipt of which is hereby acknowledged, and subject to and on
the terms and conditions herein set forth, the parties agree as follows:
DEFINITIONS
1.1 DEFINITIONS. The terms defined in this Article I, whenever used
herein shall have the following meanings for all purposes of this Agreement:
(a) "Adjustment Amount" shall have the meaning set forth in
Section 5.3(c) hereof.
(b) "Agreement" means this agreement among the parties set
forth on the first page hereof, including all Exhibits and Schedules hereto.
(c) "Ancillary Agreements" means the Standstill Agreement, the
Registration Rights Agreement, the Supply and Services Agreement, the
Intellectual
<PAGE>
Property License Agreements, the Trademark and Tradename License Agreement,
the Licensed IP Agreement and the Aprion Assignment and Assumption Agreement.
(d) "Aprion" means Aprion Digital, Ltd. (formerly known as
Turaco Ltd.).
(e) "Aprion Agreement" shall have the meaning set forth in
Section 5.6(c) hereof.
(f) "Aprion Assignment and Assumption Agreement" shall have the
meaning set forth in Section 5.36 hereof.
(g) "Assumed Liabilities" shall have the meaning set forth in
Section 2.3 hereof.
(h) "Balance Sheet Date" means September 30, 1999.
(i) "Beneficial Ownership" and correlative terms shall have the
meaning set forth in Section 1.1 of the Standstill Agreement.
(j) "Books and Records" means all lists, files and documents,
including but not limited to, all business records, audit records, tangible
data, computer software, electronic media and management information systems,
disks, files, customer lists, supplier lists, blueprints, specifications,
designs, drawings, operation or maintenance manuals, bids, personnel records,
policy manuals, invoices, credit records, sales literature, tax, financial
and accounting records and all other books and records relating to the
Business.
(k) "Business" means the Sellers' Digital Preprint business and
Print-on-Demand business comprising the Input Systems Division (as described
in the Form 20-F of Scitex Corporation for the year ended December 31, 1998),
Output Systems Division (as described in the Form 20-F of Scitex Corporation
for the year ended December 31, 1998), Iris Graphics, Inc. (as described in
the Form 20-F of Scitex Corporation for the year ended December 31, 1998),
and the Print on Demand Systems Division (as described in the Form 20-F of
Scitex Corporation for the year ended December 31, 1998) together with the
geographical distribution units for such businesses and the production and
logistics units relating to such businesses (other than Blaze Technologies
B.V.). In addition, included within the term "Business" are certain "legacy"
systems businesses, which consist primarily of the workstation business.
Excluded from the "Business" are the Sellers' Internet businesses and the
operations of the Sellers' Digital Graphic Network Group as well as Sellers'
interests in any joint venture (other than Nihon Scitex Ltd.) or any other
corporation or entity (including any options or warrants for such an
interest), unless specifically included herein.
(l) "Business IP" shall have the meaning set forth in Section
2.1(b)(i) hereof.
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(m) "Business Day" means any day other than a Saturday, a
Sunday or a day on which banking institutions in New York City, New York,
Vancouver, Canada or Israel are not open for a full day.
(n) "Canadian Securities Laws" shall have the meaning set forth
in Section 4.12 (b)(ii) hereof.
(o) "Claim Notice" means written notification pursuant to
Section 11.4(a) of a Third Party Claim as to which indemnity under Article XI
is sought by an Indemnified Party, enclosing a copy of all papers served, if
any, and specifying the nature of and basis for such Third Party Claim and
for the Indemnified Party's claim against the Indemnifying Party under
Article XI, together with the amount or estimated amount if then known or
reasonably ascertainable, determined in good faith, of such Third Party Claim.
(p) "Closing" means the closing of the transactions
contemplated by this Agreement.
(q) "Closing Date" shall have the meaning set forth in Section
9.1 hereof.
(r) "Closing Date Cash Amount" shall have the meaning set forth
in Section 5.3(a) hereof.
(s) "Closing Date Financial Statements" shall have the meaning
set forth in Section 5.3(b) hereof.
(t) "Code" means the Internal Revenue Code of 1986, as amended.
(u) "Confidential Information" shall have the meaning set forth
in Section 5.10 hereof.
(v) "Constitutive Documents" means the statutes, articles of
association, memorandum and articles of association, articles of
incorporation and bylaws or other similar documentation of a Person.
(w) "Contracts" means all agreements, contracts, leases,
purchase orders, royalty arrangements, license agreements, incentive
agreements, refund and other arrangements, and any other agreements,
commitments or other legally binding arrangements, whether oral or written,
express or implied, that are related to the Business or to which the Included
Assets (other than the Contracts) are subject, except to the extent included
in the Excluded Assets and including, without limitation, the agreements and
contracts set forth on Schedule 3.9(a) of the Seller Disclosure Schedule.
(x) "Corporations" shall have the meaning set forth in Section
3.24 hereof.
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(y) "Creo Common Shares" means the common shares without par
value of Creo Products Inc.
(z) "Creo Preferred Shares" means the preferred shares without
par value of Creo Products Inc.
(aa) "December Balance Sheet" means the audited balance sheet of
the Business at December 31, 1999, which is included in the December
Financial Statements.
(bb) December Cash Amount" shall have the meaning set forth in
Section 2.1(b)(xxi) hereof.
(cc) "December Financial Statements" means the audited balance
sheet and related statement of operations and cash flows of the Business at
December 31, 1999 and the year then ended prepared in accordance with GAAP
consistently applied, which are included in the Seller Financial Statements.
(dd) "Digital Preprint and Print-on-Demand Group" means the
entities listed on Exhibit 1 hereto.
(ee) "Dispute Period" means the period ending 30 calendar days
following receipt by an Indemnified Party of either a Claim Notice or
Indemnity Notice.
(ff) "Employee Benefit Plan" shall have the meaning set forth in
Section 3.14 hereof.
(gg) "Employees of the Business" shall have the meaning set
forth in Section 5.23 hereof.
(hh) "Encumbrances" means pledges, claims, options, liens,
licenses, charges, encumbrances, security interests and mortgages of any kind
or nature whatsoever.
(ii) "Environmental Claim" means any written or oral notice,
claim, demand, action, suit, complaint, proceeding or other communication by
any person alleging material liability or potential liability (including
without limitation material liability or potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties)
arising out of, relating to, based on or resulting from (x) the presence,
discharge, emission, release or threatened release of any Hazardous Materials
at any location, (y) circumstances forming the basis of any violation or
alleged violation of any Environmental Laws or Environmental Permits, or (z)
otherwise relating to obligations or liabilities under any Environmental Laws.
(jj) "Environmental Laws" means all applicable Laws and Orders
relating in any manner to contamination, pollution or protection of human
health, natural resources or the environment.
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<PAGE>
(kk) "Environmental Permits" means all Permits required under
Environmental Laws.
(ll) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and the regulations thereunder.
(mm) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(nn) "Excluded Assets" shall have the meaning set forth in
Section 2.2 hereof.
(oo) "Excluded Liabilities" shall have the meaning set forth in
Section 2.4 hereof.
(pp) "Fixtures and Equipment" means, whether owned or leased,
all furniture, fixtures, furnishings, leasehold improvements, machinery,
vehicles, computer hardware, equipment (including research and development
equipment) and other tangible personal property related to the Business,
except to the extent included in the Excluded Assets.
(qq) "Foreign Employee Plan" shall have the meaning set forth in
Section 3.14(d) hereof.
(rr) "Former Employees" means persons whose employment in the
Business terminated prior to the Closing Date and who is not employed by the
Purchasers following the Closing Date.
(ss) "GAAP" means United States generally accepted accounting
principles.
(tt) "Governmental or Regulatory Authority" means any court,
tribunal, arbitrator, authority, agency, department, ministry, commission,
official or other instrumentality of Canada, Israel, the United States, any
other country or any domestic or foreign state, county, city, municipality or
other political subdivision.
(uu) "Grants" shall have the meaning set forth in Section 3.23
hereof.
(vv) "Hazardous Materials" means all hazardous, dangerous or
toxic materials, wastes or chemicals, including without limitation, petroleum
and petroleum products, asbestos and asbestos-containing materials, and
polychlorinated biphenyls and all other materials regulated pursuant to any
Environmental Laws or that could result in liability under any Environmental
Laws.
(ww) "Health Plans" shall have the meaning set forth in Section
5.23(b) hereof.
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<PAGE>
(xx) "HSR" means the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended.
(yy) "Included Assets" shall have the meaning set forth in
Section 2.1(a) hereof.
(zz) "Income Taxes" shall mean any and all income or franchise
(or an excise tax based on income) Tax of any country, state or locality,
including a Tax assessed on a corporation by reference to its income, gains
or profits, and in each instance any interest, penalties or addition to tax
attributable to such Tax, whether or not disputed.
(aaa) "Indemnified Party" means any Person claiming
indemnification under Section 11.2 or Section 11.3.
(bbb) "Indemnifying Party" means any Person against whom a claim
for indemnification is being asserted under any provision of Article XI.
(ccc) "Indemnity Notice" means written notification of a claim
for indemnity under Article XI by an Indemnified Party, specifying the nature
of and basis for such claim, together with the amount of such claim if known
by such Indemnified Party.
(ddd) "Infringe" shall have the meaning set forth in Section
3.6(b) hereof.
(eee) "Intellectual Property" means all U.S. and foreign
intellectual property, and, including, without limitation (i) patents,
inventions, discoveries, processes, designs, techniques, developments,
technology, and related improvements, know-how and show-how, whether or not
patented or patentable; (ii) copyrights and works of authorship in any media,
including computer hardware, software, applications (including source code),
systems, networks, databases, documentation and Internet site content; (iii)
trademarks, service marks, trade names, brand names, corporate names,
fictitious names, domain names, e-mail addresses, URLs, logos, trade dress
and other indicators of origin, and the goodwill of any business appurtenant
thereto and/or symbolized thereby ("Trademarks"); (iv) trade secrets,
drawings, blueprints and all non-public, confidential or proprietary
information, documents or materials; (v) all registrations, applications and
recordings related thereto, and including the right to apply for any
renewals, reissues, re-examinations, continuations, continuations in part,
divisions or other legal protections of the foregoing; and (vi) the right to
sue at law or in equity for the infringement, impairment or other
unauthorized use of the foregoing, including the right to receive all damages
and proceeds therefrom.
(fff) "Intellectual Property License Agreements" means each of
the Intellectual Property License Agreements in the forms set forth in
Exhibit 5.15 hereto together with the Aprion Agreement.
6
<PAGE>
(ggg) "Interim Period" shall have the meaning set forth in
Section 5.3 hereof.
(hhh) "Inventory" means all inventory held for resale and all
other raw materials, work in process, finished products, spares, wrapping,
supply and packaging items related to the Business, except to the extent
included in the Excluded Assets.
(iii) "IRS" means the United States Internal Revenue Service.
(jjj) "Laws" means all laws, statutes, rules, regulations,
ordinances and other pronouncements having the effect of law of any country
(including the United States, Canada and Israel) or any domestic or foreign
state, county, city or other political subdivision or of any Governmental or
Regulatory Authority.
(kkk) "Leased Real Property" shall have the meaning set forth in
Section 3.5(b) hereof.
(lll) "Licensed IP" shall have the meaning set forth in Section
2.1(b)(i)(b).
(mmm) "Licensed IP Agreement" means the Licensed IP Agreement
having the principal terms set forth in Section 5.34 hereto and as shall be
agreed to by the parties prior to the Closing.
(nnn) "Losses" means all damages, liabilities, losses,
deficiencies, costs and expenses, including without limitation reasonable
attorney's fees and expenses.
(ooo) "Material Adverse Effect" means an effect that is (i)
materially adverse to the value of the Included Assets taken as a whole or
materially adverse to the business, assets, properties, financial condition
or results of operations of the Business taken as a whole or (ii) materially
impairs or delays the ability of the Sellers to effect the Closing or of the
Purchasers to acquire and operate the Business after the Closing.
(ppp) "Net Non-Cash Assets" shall have the meaning set forth in
Section 5.3 hereof.
(qqq) "Order" means any writ, judgment, decree, injunction or
similar order of any Governmental or Regulatory Authority (in each case
whether preliminary or final).
(rrr) "Owned Real Property" shall have the meaning set forth in
Section 3.5(b) hereof.
(sss) "Permits" shall have the meaning set forth in Section
3.12(b) hereof.
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(ttt) "Person" means any natural person, corporation, general
partnership, limited partnership, proprietorship, other business
organization, trust, union or association, and shall include, as the context
requires, any party to this Agreement and such party's subsidiaries.
(uuu) "Pre-Year End Tax Liabilities" means any and all
liabilities in respect of Income Taxes relating to, pertaining to, or arising
out of the Business or the Included Assets for any taxable period ending on
or before December 31, 1999, or by any member of the Digital Preprint or
Print-on-Demand Group with respect to any taxable period ending on or before
December 31, 1999, in excess of the accruals or reserves for Income Taxes
(other than valuation allowances or accruals or reserves for deferred Income
Taxes reflecting the difference between book and tax basis in assets and
liabilities) as set forth on the books and records of the Business as of
December 31, 1999 and provided therefor on the December Balance Sheet.
(vvv) "Proceeding" shall have the meaning set forth in Section
3.10 hereof.
(www) "Purchaser Disclosure Schedule" means the disclosure
schedule delivered to the Sellers in connection with the execution of this
Agreement, and includes but is not limited to each of the Schedules expressly
referred to in Articles IV and V.
(xxx) "Purchaser Financial Statements" shall have the meaning
set forth in Section 4.4(a) hereof.
(yyy) "Registration Rights Agreement" means the Registration
Rights Agreement substantially in the form of Exhibit 6.1(b) hereof.
(zzz) "Resolution Period" means the period ending 30 calendar
days following receipt by an Indemnified Party of a Dispute Notice.
(aaaa) "SEC" means the United States Securities and Exchange
Commission.
(bbbb) "Securities Act" means the United States Securities Act of
1933, as amended.
(cccc) "Seller Disclosure Schedule" means the disclosure schedule
delivered to the Purchasers in connection with the execution of this
Agreement, and includes but is not limited to each of the Schedules expressly
referred to in Articles III and V.
(dddd) "Seller Guaranties" shall have the meaning set forth in
Section 5.16 hereof.
(eeee) "Seller Indemnified Parties" shall have the meaning set
forth in Section 11.3 hereof.
8
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(ffff) "September Balance Sheet" means the unaudited balance
sheet of the Business at September 30, 1999, which is included in the
September Financial Statements.
(gggg) "September Financial Statements" means the unaudited
balance sheet and related statement of operations of the Business at
September 30, 1999 and for the nine-month period then ended prepared in
accordance with GAAP consistently applied.
(hhhh) "Seller Financial Statements" shall have the meaning set
forth in Section 5.31 hereof.
(iiii) "Shares" shall have the meaning set forth in Section 2.6
hereof.
(jjjj) "Standstill Agreement" means the Standstill Agreement
substantially in the form of Exhibit 6.1(a) hereto.
(kkkk) "Stock Exchanges" means the Toronto Stock Exchange and the
Nasdaq Stock Market.
(llll) "Stock Option" shall have the meaning set forth in Section
5.23(e) hereof.
(mmmm) "Subsidiary" or "subsidiary" means, with respect to any
Person, (a) any corporation of which at least 50% of the securities or
interests having, by their terms, ordinary voting power to elect members to
the board of directors, or other persons performing similar functions with
respect to such corporation, is held directly or indirectly, by such Person,
(b) any partnership or limited liability company of which (i) such Person is
a general partner or managing member or (ii) such Person possesses a 50% or
greater interest in the total capital or total income of such partnership or
limited liability company.
(nnnn) "Supply and Services Agreement" means the Supply and
Services Agreement having the principal terms set forth in Exhibit 5.17
hereto and as shall be agreed to by the parties prior to the Closing.
(oooo) "Taxes" (or "Tax" where the context requires) shall mean
all taxes, charges, fees, levies or other like assessments imposed by any
taxing authority, domestic or foreign (including, without limitation, income,
profits, premium, estimated, excise, sales, use, occupancy, gross receipts,
franchise, ad valorem, value added, severance, capital levy, production,
transfer, withholding, employment and payroll related and property taxes,
import duties and other governmental charges and assessments), and including
additions to tax or interest, and penalties with respect thereto.
(pppp) "Tax Controversy" shall have the meaning set forth in
Section 5.21(b) hereof.
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(qqqq) "Tax Return" means each and every report, return,
declaration or information return or statement required to be supplied to a
taxing or governmental authority with respect to any Tax or Taxes, including
without limitation any schedule or attachment thereto, any combined or
consolidated return for any group of entities including the Sellers, and
including any amendments, thereof.
(rrrr) "Trademark and Tradename License Agreement" means the
Trademark and Tradename License Agreement having the principal terms set
forth in Section 5.14 hereto and as shall be agreed to by the parties prior
to the Closing.
(ssss) "Transfer Taxes" shall have the meaning set forth in
Section 5.18(h) hereof.
(tttt) "Value-Added Taxes" shall have the meaning set forth in
Section 5.18(a) hereof.
(uuuu) "VAT Law" shall have the meaning set forth in
Section 518(b).
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 SALE AND PURCHASE OF THE ASSETS.
(vvvv) On the terms and subject to the conditions set forth
herein, at the Closing, the Sellers shall or shall cause their applicable
subsidiaries to sell, convey, assign, transfer and deliver to the Purchasers,
and the Purchasers will purchase and acquire from the Sellers, all right,
title and interest of the Sellers or such subsidiaries in and to the Business
IP and the other assets related to or used in the Business (except for the
Excluded Assets), whether tangible or intangible, real or personal, as they
existed on December 31, 1999 with such changes, deletions or additions
thereto as have occurred or may occur from December 31, 1999 to the Closing
Date in the ordinary course of business consistent with past practice and
consistent with the terms and conditions of this Agreement (the "Included
Assets").
(wwww) Without limiting the generality of the foregoing, the
Included Assets includes all of the right, title and interest of the Sellers
and, where applicable, their respective subsidiaries in the following:
(i) (a) all the Intellectual Property primarily used in the
Business (the "Business IP"), subject to the Intellectual Property
License Agreements; provided, that with respect to the "Scitex"
Trademark, name and logo, such Intellectual Property shall include
only the exclusive right (subject to the rights of Aprion Digital
Ltd.) to use such name and logo in connection with the Digital
Preprint business and Print-on-Demand business of Creo and its
subsidiaries, including the Business, as set forth in
10
<PAGE>
the Trademark and Tradename License Agreement; and (b) with respect
to any Intellectual Property used in part but not primarily in the
Business, whether or not any such Intellectual Property has been or
can be identified or disclosed as of the date hereof (the "Licensed
IP") the non-exclusive rights to use such Licensed IP as set forth in
Section 5.34 and in the Licensed IP Agreement.
(ii) all assets relating to or used in the Input Systems
Division of the Business;
(iii) all assets relating to or used in the Work-Station
and other legacy businesses of the Business;
(iv) all assets relating to or used in the Output Systems
Division of the Business;
(v) all of the assets of Iris Graphics, Inc. upon the
merger of a member of the Purchasing Group with Iris Graphics, Inc.
as contemplated in Article IX;
(vi) all assets relating to or used in of the POS Division
of the Business;
(vii) all shares of capital stock of the companies directly
or indirectly owned by Scitex Corporation which are engaged in the
distribution of products and services of the Business (other than
Blaze Technologies B.V.), including shares in Scitex Europe S.A.,
Scitex Netherlands B.V., Scitex Finland Oy, Scitex Asia Pacific
(H.K.) Ltd. and Nihon Scitex Ltd., and their respective subsidiaries;
(viii) all the assets of Scitex America Corp. upon the
merger of a member of the Purchasing Group with Scitex America Corp.,
as contemplated in Article IX, it being understood that for all
purposes under this Agreement such assets will not include deferred
income taxes;
(ix) all shares of Scitex Electronic Enterprises
(International) Ltd. and Scitex Electronic Enterprises (Israel) Ltd.,
subject to clause (xx) below;
(x) Inventory and other current assets of the Business;
(xi) the Fixtures and Equipment;
(xii) the Contracts;
(xiii) all accounts and other receivables of the Business;
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(xiv) any other assets related to the Business which are
reflected in the December Balance Sheet (with such changes, deletions
or, additions thereto as may occur from December 31, 1999 to the
Closing Date in the ordinary course of business consistent with past
practice and consistent with the terms and conditions of this
Agreement);
(xv) all internal policy and instruction manuals and
directories relating to the conduct and operations of the Business,
and all sales and promotional literature, customer lists and other
sales-related materials pertaining to the Business;
(xvi) all Books and Records necessary for the conduct of
the Business, wherever located;
(xvii) all third party computer software, including, without
limitation, source code, operating systems and specifications, data,
data bases, files, documentation and other materials related thereto,
pertaining to the Business and necessary to or used in the Business,
wherever located, to the extent transferable;
(xviii) all Permits and licenses held or used by the Sellers
in connection with, or required for, the Business, to the extent
transferable;
(xix) all claims, causes of action, choices in action,
rights of recovery and rights of set-off of any kind pertaining to,
and arising out of, the Included Assets and the Assumed Liabilities
as in existence on the Closing Date;
(xx) at the Purchaser's option, the Sellers shall assign
and convey to the Purchasers either the outstanding shares of capital
stock in Scitex Electronic Enterprises (International) Ltd. or Scitex
Electronic Enterprises (Israel) Ltd., or the real estate assets owned
by either such company;
(xxi) cash or cash equivalents in such amount as is
required to bring the book value of the tangible net assets of the
Business as set forth on the December Balance Sheet to US$221,000,000
(the "December Cash Amount"); and
(xxii) included in the tangible net assets of the Business
in clause (xxi) above shall be a note receivable from Scitex
Corporation to Luka Holdings Ltd. for the amount of the deferred
income tax asset on the books of Scitex America Corp. at December 31,
1999 (this note shall be non-interest bearing and payable within
three years or sooner if, in the sole determination of
PricewaterhouseCoopers and on a first in-first out basis, the tax
losses that generated the deferred income tax asset have been
utilized by the Sellers).
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(xxxx) Without limiting the generality of any other provision of
this Section 2.1, Creo shall cause the Purchasers designated in Exhibit
2.1(c) to acquire specified Included Assets from the Sellers or their
subsidiaries, as set forth on Exhibit 2.1(c). Creo has organized one or more
wholly-owned subsidiaries under the laws of Israel for the purpose of
acquiring all of the Business IP funded by the Office of the Chief Scientist
and shall cause such entities to acquire such Business IP. All such
transactions shall be evidenced by separate instruments between the
Purchasers and the Sellers or their subsidiaries but nothing in such
instruments shall relieve the Purchasers and the Sellers of any obligation
under this Agreement and Creo shall be and remain primarily liable for the
obligations of all of the Purchasers.
(yyyy) Notwithstanding anything to the contrary contained in
this Agreement, to the extent the sale, assignment, transfer, conveyance or
delivery or attempted sale, assignment, transfer, conveyance or delivery to
the Purchasers of any Included Asset is prohibited by any applicable law or
would require any governmental or third-party authorizations, approvals,
consents, or waivers and such authorizations, approvals, consents or waivers
shall not have been obtained prior to the Closing, this Agreement shall not
constitute a sale, assignment, transfer, conveyance or delivery thereof.
Following the Closing, and without limiting the provisions set forth in
Section 5.11 but subject to Section 5.27, the parties shall use reasonable
best efforts, and cooperate with each other, to obtain promptly such
authorizations, approvals, consents or waivers. Pending such authorization,
approval, consent, or waiver, the parties shall cooperate with each other in
any reasonable and lawful arrangements designed to provide to the Purchasers
the benefits and liabilities of use of such Included Asset. Once such
authorization, approval, consent or waiver for the sale, assignment,
transfer, conveyance or delivery of an Included Asset not sold, assigned,
transferred, conveyed or delivered at the Closing is obtained, the applicable
Seller shall promptly assign, transfer convey or deliver, or cause to be
assigned, transferred, conveyed and delivered, such Included Asset to the
applicable member of the Purchasing Group for no additional consideration. To
the extent that any such Included Asset cannot be transferred or the full
benefits and liabilities of use of any such Included Asset cannot be provided
to applicable member of the Purchasing Group following the Closing pursuant
to this Section 2.1(d), subject to Section 5.27 hereof, the applicable
Purchasers and the applicable Seller shall enter into such arrangements for
no additional consideration from the Purchasers (including subleasing or
subcontracting if permitted) to provide to the Purchasers the economic and
operational equivalent of obtaining such authorization, approval, consent or
waiver.
2.2 EXCLUDED ASSETS.
(a) Notwithstanding anything herein to the contrary, from and
after the Closing Date, the Sellers shall retain all of their right, title
and interest in and to, and there shall be excluded from the sale,
conveyance, assignment or transfer to the Purchasers hereunder, all assets of
the Sellers other than the Included Assets (collectively the "Excluded
Assets").
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(b) Without limiting the generality of the foregoing, the
Excluded Assets includes all of the right, title and interest of the Sellers
and, where applicable, their respective subsidiaries in the following:
(i) the shares and assets of Scitex Development Corp.
(other than the shares and assets of Scitex America Corp. and Iris
Graphics, Inc.);
(ii) the shares and assets of Scitex Wide Format Printing
Ltd.;
(iii) the shares and assets of Karat Digital Press B.V. and
Karat Digital Press L.P.;
(iv) the shares and assets of Vio Worldwide Limited, the
Sellers' Digital Graphics Network Group and the Sellers' Internet
businesses;
(v) the shares, options, warrants, convertible debt and
assets of Aprion;
(vi) the shares and assets of Scidel Technologies Ltd.;
(vii) the "Scitex" name, logo, domain name, logo and
related Intellectual Property rights including registered
trademarks and trademark applications with respect thereto and
the goodwill associated therewith (subject to the Purchasers'
rights under the Trademark and Tradename License Agreement);
(viii) all Intellectual Property that is not Business IP
(subject to Purchasers' rights in any Licensed IP under the
Licensed IP Agreement);
(ix) the shares, options and assets of RT image Ltd.;
(x) the shares, options, warrants and assets of Accom,
Inc.;
(xi) the shares and assets of Blaze Technologies B.V.;
(xii) the shares and assets of P. Point Company (1995)
Ltd.;
(xiii) the shares and assets of Pitango Multimedia, Inc.;
and
(xiv) the shares and assets of Scitex Digital Printing
Inc.
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2.3 ASSUMPTION OF LIABILITIES. On the terms and subject to the
conditions set forth herein, at the Closing, the Purchasers agree to assume,
pay, perform and discharge all obligations and liabilities (other than the
Excluded Liabilities) of any nature, whether absolute, accrued, contingent or
otherwise, arising from or related to the Business or the Included Assets
(the "Assumed Liabilities"), including, without limitation, the following:
(i) the Contracts provided, that any Contracts as to which
any required consent to assignment has not been obtained by the
Closing shall not be deemed an Assumed Liability if the Purchasers
have not obtained the benefits of such Contracts;
(ii) all liabilities and obligations under the Permits of the
Business set forth in Schedule 3.12(b) of the Seller Disclosure
Schedule that are transferred or assigned to the Purchasers (but only
to the extent so transferred or assigned);
(iii) all liabilities and obligations in respect of employees
of the Business to the extent set forth in Section 5.23 and Section
5.24;
(iv) all liabilities and obligations owing to Karat Digital
Press B.V., Vio Worldwide Limited and Aprion specifically assumed by
the Purchasers pursuant to Section 5.36, the Supply and Services
Agreement and the Intellectual Property License Agreements; and
(v) all liabilities and obligations, including accounts
payable, set forth or reflected on the December Balance Sheet
(including intercompany indebtedness) or arising or accruing
subsequent thereto in the ordinary course of business consistent with
past practice and consistent with the terms and conditions of this
Agreement.
Notwithstanding anything in this Section 2.3 to the contrary, the Assumed
Liabilities shall not include any liabilities or obligations under any
contract, commitment or agreement that should have been reflected or provided
for on the December Balance Sheet in accordance with GAAP but were not so
reflected on such statement, or which were incurred or assumed after December
31, 1999 in violation of the terms of the Agreement.
2.4 EXCLUDED LIABILITIES. Notwithstanding any other provisions of
this Agreement, it is expressly understood and agreed that the following
liabilities of the Sellers (the "Excluded Liabilities") will not be assumed
by the Purchasers at the Closing but will be retained by the Sellers:
(i) all liabilities arising out of or in respect of the
Excluded Assets;
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(ii) all liabilities and obligations arising out of the
contracts with Karat Digital Press B.V., Vio Worldwide Limited and
Aprion, except to the extent such liabilities and obligations have
been specifically assumed by the Purchasers pursuant to the Supply
and Services Agreement and the Intellectual Property License
Agreements;
(iii) except as otherwise provided in Section 5.18, all of
the Sellers' obligations in respect of costs and expenses incurred in
connection with this Agreement or the Ancillary Agreements;
(iv) all liabilities to Former Employees and all liabilities
and obligations relating to employees of the Sellers and their
subsidiaries not expressly assumed by the Purchasers pursuant to
Section 5.23 and Section 5.24;
(v) the Sellers' obligations in respect of the Sellers' bank
accounts other than obligations after the Closing Date with respect
to bank accounts included as Included Assets;
(vi) all debts, liabilities or obligations whatsoever that
are not Assumed Liabilities, including any debts, liabilities or
obligations that do not arise out of or are not related to the
Business or that do not otherwise arise out of or are not otherwise
related to the Included Assets; and
(vii) any obligation or liability of the Sellers arising from
their failure (either individually or together) to perform any of
their agreements contained in this Agreement or in the Ancillary
Agreements or incurred by the Sellers in connection with the
transactions contemplated by this Agreement and the Ancillary
Agreements.
2.5 DETERMINATION OF TANGIBLE NET ASSETS; DECEMBER BALANCE SHEET.
Prior to February 22, 2000, the Sellers shall, at their expense, prepare, or
cause to be prepared, and deliver to Creo the December Financial Statements
(without any notes thereto), which shall have been audited by Kesselman &
Kesselman (PWC), Certified Public Accountant (Isr.) and which shall be
accompanied by an unqualified opinion expressed thereon by such firm. The
December Financial Statements shall be derived or "carved-out" of the
consolidated financial statements of Scitex Corporation. Scitex Corporation
shall use its best efforts to deliver to Creo prior to March 22, 2000, the
December Financial Statements, including the notes thereto required by
Canadian regulatory authorities in connection with the proxy to be prepared
by Creo pursuant to Section 5.30. The December Financial Statements shall be
prepared in accordance with GAAP on a consistent basis with the principles,
methods, practices and estimation methodologies used in the preparation of
the September Financial Statements, including but not limited to the
methodology for the allocation of overhead, and shall include all adjustments
necessary to fairly present the financial condition of the Business as of
December 31, 1999 and the results of its operations and cash flows for the
year then
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ended. Concurrently with the delivery to Creo of the December Financial
Statements, the Sellers shall deliver a calculation of the aggregate tangible
net assets of the Business as of December 31, 1999 derived from the December
Balance Sheet. Such calculation of tangible net assets shall be calculated
following the same accounting principles as the calculation of tangible net
assets as of September 30, 1999 derived from the September Balance Sheet as
set forth in Schedule 2.5 of the Seller Disclosure Schedule.
2.6 CONSIDERATION.
(a) On the terms and subject to the conditions set forth
herein, as consideration for the Included Assets, at the Closing Creo shall
issue to Scitex Corporation a total of 13,250,000 validly authorized, fully
paid and non-assessable Creo Common Shares (the "Shares"), free and clear of
all Encumbrances. Certain of such Shares shall be issued to Scitex
Corporation in exchange for cash received by the Sellers from the Purchasers
(other than Creo) in accordance with Exhibit 2.1(c).
(b) The consummation of each of the transactions described in
Exhibit 2.1(c) shall be contingent upon the consummation at Closing of each
of the other transactions described in Exhibit 2.1(c) and all of such
transactions shall be deemed to occur simultaneously.
2.7 ALLOCATION OF CONSIDERATION. The consideration for the Included
Assets shall be allocated by the parties among the Included Assets as set
forth in Exhibit 2.1(c) hereto. The parties agree to use the allocations set
forth in Exhibit 2.1(c) hereto for all purposes, including preparing all Tax
Returns and forms, and the parties agree not to take a position inconsistent
with such allocation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby jointly and severally represent and warrant to
the Purchasers as follows, except as otherwise specifically stated in the
Seller Disclosure Schedule. The disclosure of any fact or item in the Seller
Disclosure Schedule (i) shall not be deemed to constitute an acknowledgment
that any such fact or item is required to be disclosed, (ii) does not
represent a determination that such item did not arise in the ordinary course
of business, and (iii) does not represent a determination that such item is
material and shall not be deemed to establish a standard of materiality.
3.1 ORGANIZATION AND QUALIFICATION. Each Seller is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation with corporate power and authority to own the
Included Assets and carry on the Business as presently owned or conducted.
Each Seller is duly licensed or qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction in which, because of
its business conducted there or the nature of its properties there, it would
be required to be so licensed or qualified and in which the
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failure to be so licensed or qualified would have, either individually or in
the aggregate, a Material Adverse Effect.
3.2 SUBSIDIARIES.
(c) Scitex Development is a wholly owned subsidiary of Scitex
Corporation.
(d) Except as set forth in Schedule 3.2(b) of the Seller
Disclosure Schedule, each member of the Digital Preprint and Print-on-Demand
Group is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation with corporate power and
authority to own its properties and carry on its business in all material
respects as presently owned or conducted. Each member of the Digital Preprint
and Print-on-Demand Group is duly licensed or qualified to transact business
and is in good standing as a foreign corporation in each jurisdiction in
which, because of its business conducted there or the nature of its
properties there, it would be required to be so licensed or qualified and in
which the failure to be so licensed or qualified would have, either
individually or in the aggregate, a Material Adverse Effect.
(e) All of the outstanding shares of capital stock of each
member of the Digital Preprint and Print-on-Demand Group have been validly
issued and are fully paid and non-assessable and, except as set forth in
Schedule 3.2(c) of the Seller Disclosure Schedule, are owned by Scitex
Corporation, by a wholly owned subsidiary of Scitex Corporation or by Scitex
Corporation and a wholly owned subsidiary, free and clear of all Encumbrances.
3.3 AUTHORITY; NO BREACH.
(a) Each Seller has all requisite corporate power and authority
to execute and deliver this Agreement and to perform, carry out and
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and each of the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of each Seller
and each subsidiary of such Seller. This Agreement constitutes, and each of
the Ancillary Agreements when executed and delivered by the parties thereto
will constitute, a legal, valid and binding obligation of each Seller,
enforceable against such Seller in accordance with its terms except as
enforceability may be limited or affected by applicable bankruptcy,
insolvency, reorganization or other laws of general applicability relating to
creditors' rights and except as enforceability may be limited by rules of law
governing specific performance, injunctive relief or other equitable remedies.
(b) Except as set forth in Schedule 3.3(b) of the Seller
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement and each of the Ancillary Agreements by any Seller nor the
consummation of the transactions contemplated herein and therein will: (i)
violate any provision of the
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Constitutive Documents of any Seller; (ii) (with or without the giving of
notice or the lapse of time or both) conflict with, result in a breach of or
constitute a default under or result in the invalidity of, or accelerate the
performance required by or cause the acceleration of the maturity of any debt
or obligation pursuant to any Contract which individually or in the aggregate
would have a Material Adverse Effect; (iii) (with or without the giving of
notice or the lapse or time or both) result in the creation of, or give any
party the right to create, any Encumbrances upon any of the Included Assets
which individually or in the aggregate would have a Material Adverse Effect;
(iv) conflict with, violate, result in a breach of or constitute a default
under any judgment, decree, order, or process of any Governmental or
Regulatory Authority binding upon any of the Included Assets or the Business
which individually or in the aggregate would have a Material Adverse Effect;
(v) conflict with or violate any statute, Law or regulation applicable to any
of the Included Assets or the Business, except where such conflicts or
violations (individually or in the aggregate) would not have a Material
Adverse Effect; (vi) terminate or modify, or give any third party the right
to terminate or modify, the provisions or terms of any Contract, except where
any such termination or modification would not have a Material Adverse
Effect; or (vii) require any Seller to obtain any authorization, consent,
approval or waiver from, or to make any filing with, any Person, except where
the failure to obtain such authorization, consent, approval or waiver or make
any filing (individually or in the aggregate) would not have a Material
Adverse Effect other than such as have been obtained or made.
3.4 FINANCIAL STATEMENTS.
(a) Prior to the date hereof, the Sellers have delivered to the
Purchasers the September Financial Statements.
(b) The September Financial Statements have been "carved-out"
of the consolidated financial statements of Scitex Corporation. The September
Financial Statements have been prepared in the ordinary course of business of
the Sellers in accordance with GAAP consistently applied throughout the
periods shown and on a consistent basis with the accounting policies and
practices that have been applied in the preparation of the Scitex Corporation
Annual Report on Form 20-F for the year ended December 31, 1998, as filed
with the SEC and present fairly, in all material respects, the financial
condition of the Business as of the date thereof and the results of
operations of the Business for the nine-month period then ended.
(c) All of the material liabilities reflected on the September
Balance Sheet are related to the Business and arose out of or were incurred
in the conduct of the Business. If the September Balance Sheet were the
Closing Date Balance Sheet, all of the material assets reflected thereon
would constitute Included Assets.
(d) To the best knowledge of the Sellers, the December Balance
Sheet will fairly reflect the assets and liabilities of the Business at
December 31, 1999. To the best knowledge of the Sellers, the December
Financial Statements will fairly reflect the financial condition of the
Business at December 31, 1999 and its results of operations and cash flows
for the year then ended in accordance with GAAP
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consistently applied throughout the periods shown and on a consistent basis
with the accounting policies and practices that have been applied in the
preparation of the Scitex Corporation Annual Report on Form 20-F for the year
ended December 31, 1998, as filed with the SEC. To the best knowledge of the
Sellers, the Closing Date Balance Sheet will fairly reflect the assets and
liabilities of the Business at the Closing Date. To the best knowledge of the
Sellers, the Closing Date Financial Statements will fairly reflect the
financial condition of the Business at the Closing Date and its results of
operations and cash flows for the period from January 1, 2000 to the Closing
in accordance with GAAP consistently applied throughout the periods shown and
on a consistent basis with the accounting policies and practices that have
been applied in the preparation of the Scitex Corporation Annual Report on
Form 20-F for the year ended December 31, 1998, as filed with the SEC.
3.5 ASSETS.
(a) Each Seller has and will transfer to the Purchasers, at the
Closing, good and marketable title to all Owned Real Property, or a valid and
binding leasehold interest in other real property and good and marketable
title to all personal property (tangible and intangible) included in the
Included Assets, in each case free and clear of all title defects and
Encumbrances, except for (i) liens for Taxes, the validity of which are being
contested in good faith by appropriate proceedings for which adequate
reserves on the December Balance Sheet are being maintained in accordance
with GAAP or liens for current Taxes not yet due and payable; (ii)
Encumbrances (if any) reflected on the December Financial Statements; (iii)
imperfections of title and Encumbrances disclosed in Schedule 3.5(a) of the
Seller Disclosure Schedule; (iv) purchase money security interests arising in
the ordinary course of business; (v) any mechanics, materialman, or landlord
liens or Encumbrances which individually or in the aggregate are immaterial;
and (vi) such other imperfections of title or Encumbrances which will not, in
the aggregate, have a Material Adverse Effect.
(b) Schedule 3.5(b)(i) of the Seller Disclosure Schedule sets
forth a list of all of the real property directly or indirectly owned by
either Seller (including ownership of so-called "Chachira") as of December
31, 1999 related to or used in the Business (the "Owned Real Property"). With
respect to such Owned Real Property, the member of the Digital Preprint and
Print-on-Demand Group that owns such Owned Real Property enjoys peaceful
possession thereof. Schedule 3.5(b)(ii) of the Seller Disclosure Schedule
sets forth all real property leased, subleased, or otherwise occupied, by
either Seller or any member of the Digital Preprint and Print-on-Demand
Group, including any buildings, structures and improvements thereon or
appurtenances thereto, related to or used in the Business (the "Leased Real
Property") and a list of all real property leases and subleases related to
such Leased Real Property. All Leased Real property listed in Schedule
3.5(b)(ii) of the Seller Disclosure Schedule are valid, binding and
enforceable in accordance with their terms and are in full force and effect.
No event or condition exists, or to the knowledge of the Sellers, is alleged
by any of the other parties thereto to exist, which constitutes, or with
giving of notice or lapse of time or both would constitute a basis for the
termination of any Leased Real Property listed in Schedule 3.5(b)(ii) of the
Seller Disclosure Schedule.
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(c) There are no condemnation or appropriation proceedings of
any kind pending or, to Sellers' best knowledge, threatened against the Owned
Real Property or Leased Real Property. There are no outstanding Contracts for
the sale of any of the Owned Real Property or any portion thereof or options
or rights of first refusal to purchase the Owned Real Property or any portion
thereof.
(d) The Sellers have the full right to exercise the renewal
options contained in the Leased Real Property on the terms and conditions
contained therein and upon due exercise would be entitled to enjoy the use of
such Leased Real Property for the full term of such renewal options.
(e) The Included Assets constitute all rights, properties and
other assets used in or necessary to enable the Purchasers to conduct the
Business after the Closing in all material respects as the Business has been
and is now being conducted.
(f) Except as set forth in Schedule 3.5(f), all of the Included
Assets have been adequately maintained and repaired for their continued
operation and are in reasonable good condition, subject to normal wear and
tear, and except for the Fixtures and Equipment temporarily under repair or
out of service in the ordinary course of business.
3.6 INTELLECTUAL PROPERTY.
(a) Schedule 3.6(a) of the Seller Disclosure Schedule lists,
all U.S. and foreign patents, patent applications, trademarks and trademark
applications included in the Business IP.
(b) Except as set forth in Schedule 3.6(b) of the Seller
Disclosure Schedule, the Sellers or the applicable member of the Digital
Preprint and Print-on-Demand Group own or have the valid right to use all of
the Business IP and Licensed IP, if any, necessary to conduct the Business as
currently conducted and consistent with past practice, free of all
Encumbrances; (ii) all of the Business IP and Licensed IP, if any, is valid,
enforceable and unexpired, has not been abandoned, and to the knowledge of
the Sellers, the products of the Business do not infringe, impair or make
unauthorized use of ("Infringe") the Intellectual Property rights of any
third party; (iii) no Order or Proceeding is outstanding or pending, or to
the knowledge of Sellers, threatened or imminent, that would limit or
challenge the ownership, use, value, validity or enforceability of any of the
Business IP and Licensed IP, if any; (iv) the Sellers or the applicable
member of the Digital Preprint and Print-on-Demand Group have taken all
reasonable steps to protect, maintain and safeguard the value, validity and
their ownership of the Business IP and Licensed IP, if any, including without
limitation any confidential Business IP and Licensed IP, if any, and have
taken all actions, made all filings, paid all fees and executed all
agreements that are appropriate in connection with the foregoing; (v) to the
knowledge of the Sellers, no employee of it or the applicable member of the
Digital Preprint and Print-on-Demand Group has, in connection with the
provision of services thereto, breached any third-party contract with respect
to any material item of Intellectual Property which breach could reasonably
be expected to have
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a Material Adverse Effect; (vi) without limiting clause (iii), to the
knowledge of the Sellers no current or Former Employee of the Sellers or
current or former consultant or independent contractor retained by the
Sellers has, or has alleged to have any right, title or interest in the
Business IP or Licensed IP, if any; (vii) no party to any material contract
or agreement related to the Business IP is, or is alleged to be, in breach or
default thereunder, and to the knowledge of the Sellers, all material
contracts or agreements related to the Business IP are in full force and
effect; and (viii) the transactions contemplated by this Agreement shall not
impair the rights of the Sellers or the applicable member of the Digital
Preprint and Print-on-Demand Group under any material contract or agreement
related to the Business IP, or cause any new or additional fees to be due
thereunder.
(c) The Sellers have licensed the Business IP and Licensed IP,
if any, set forth in Schedule 3.6(c) of the Seller Disclosure Schedule.
Except as set forth in Schedule 3.6(c) of the Seller Disclosure Schedule, the
Sellers have not licensed any Business IP or Licensed IP, if any, to any
other Persons.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except (i) as set forth in
Schedule 3.7 to the Seller Disclosure Schedule, (ii) for liabilities included
or reflected in the September Financial Statements, (iii) for liabilities not
assumed by the Purchasers under this Agreement, (iv) for liabilities of the
Business that would be required to be specifically disclosed by the terms of
the representations included in Article III hereof absent the limitations
with respect to such disclosure obligations based upon materiality or
Material Adverse Effect contained in such representations, (v) for
liabilities incurred in the ordinary course of business subsequent to the
Balance Sheet Date, and (vi) for liabilities under this Agreement, there are
no liabilities or obligations of any nature, whether absolute, accrued,
contingent or otherwise, which relate to or arise out of the Business or any
of its operations as heretofore or currently conducted, or any of the
Included Assets or the past or present operation, condition or use of any of
the Included Assets, and which individually or in the aggregate are material
to the Business.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 3.8 of the Seller Disclosure Schedule, since the Balance Sheet Date
the Sellers have conducted the Business only in the ordinary and usual
course. Without limiting the generality of the foregoing, except as set forth
in Schedule 3.8 of the Seller Disclosure Schedule, since the Balance Sheet
Date:
(a) there has been no damage, destruction or casualty loss
(whether or not covered by insurance) which, individually or in the
aggregate, have or are reasonably expected to have a Material Adverse Effect;
(b) neither the Sellers nor any member of the Digital Preprint
and Print-on-Demand Group has (i) granted any increase in the rate or terms
of compensation payable or to become payable to the executive officers or
other employees who will be employed by the Purchasers following the Closing,
except, in the case of non-executive officers and other employees, for
increases occurring in the ordinary course of business in accordance with its
customary practices (which shall include normal
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periodic performance reviews and related compensation and benefit increases)
or (ii) granted any increase in the rate or terms of any bonus, insurance,
pension or other employee benefit plan or arrangement covering executive
officers or other employees who will be employed by the Purchasers following
the Closing except, in the case of non-executive officers and other
employees, for increases occurring in the ordinary course of business in
accordance with its customary practices (which shall include normal periodic
performance reviews and related compensation and benefit increases);
(c) neither the Sellers nor any member of the Digital Preprint
and Print-on-Demand Group has entered into any agreement or terminated or
materially amended any agreement material to the Business, except agreements
in the ordinary course of business consistent with past practice or as
permitted by this Agreement;
(d) neither the Sellers nor any member of the Digital Preprint
and Print-on-Demand Group has made any material change in its accounting
methods, principles or practices, except as required by GAAP and concurred in
by the Sellers' independent accountants;
(e) neither the Sellers nor any member of the Digital Preprint
and Print-on-Demand Group has sold, assigned, pledged, hypothecated,
transferred, or otherwise disposed of any of the Included Assets, except in
the ordinary course of business;
(f) the Business has not incurred, nor has it or the Included
Assets assumed or become liable for, any liabilities for borrowed money or
other obligations to the Sellers or their affiliates other than in the
ordinary course, consistent with past practice;
(g) other than acts relating to the transactions contemplated
by this Agreement and the Ancillary Agreements, the Business has been
conducted in all significant respects only in the ordinary course consistent
with past practice; or
(h) neither the Sellers nor any member of the Digital Preprint
or Print-on-Demand Group agreed, whether in writing or otherwise, to take any
action described in this Section 3.8.
3.9 CONTRACTS AND COMMITMENTS.
(a) Schedule 3.9(a) of the Seller Disclosure Schedule sets
forth a list of each written Contract (other than (i) purchase orders in the
ordinary and usual course of business, (ii) any Contract or group of related
Contracts involving the payment of less than $100,000 in the aggregate and
(iii) confidentiality agreements entered into in the usual course of
business) and, notwithstanding clauses (i), (ii) and (iii), such Schedule
3.9(a) does not omit any Contracts that are, individually or in the
aggregate, material to the Business. True and complete copies of all the
Contracts have been delivered to the Purchasers or otherwise made available
for inspection.
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(b) Except as set forth in Schedule 3.9(b) of the Seller
Disclosure Schedule, each material Contract is a valid and binding agreement
of the Seller or its respective subsidiary which is a party thereto and is in
full force and effect, and neither Seller has knowledge of any default under
any Contract listed on Schedule 3.9(a) of the Seller Disclosure Schedule
which default has not been cured or waived and which default would have
individually or in the aggregate, a Material Adverse Effect.
3.10 LITIGATION, ETC. Except as set forth in Schedule 3.10 of the
Seller Disclosure Schedule, there is no claim, action, suit, inquiry,
arbitration, investigation, inquiry or proceeding ("Proceeding") pending, or
to the knowledge of the Sellers threatened against the Sellers, or involving
the Business or any of the Included Assets that could reasonably be expected
to have individually or in the aggregate a Material Adverse Effect or which
questions or challenges the validity of this Agreement or any Ancillary
Agreement or any action taken or to be taken by any Seller pursuant to this
Agreement or any Ancillary Agreement or in connection with the transactions
contemplated hereby or thereby. Except as set forth in Schedule 3.10 of the
Seller Disclosure Schedule, there is no judgment, decree, injunction, rule,
stipulation, settlement, award or Order outstanding or to the knowledge of
the Sellers threatened against the Sellers or with respect to any Included
Asset that could reasonably be expected to have individually or in the
aggregate a Material Adverse Effect.
3.11 TAXES.
(a) Except as set forth in Schedule 3.11(a) of the Seller
Disclosure Schedule, each Seller has duly, timely and properly filed all Tax
Returns required to be filed by it with respect to the Business and the
Included Assets, except where the failure to file such Tax Return would not
have a Material Adverse Effect. Except as set forth in Schedule 3.11(a) of
the Seller Disclosure Schedule, such reports and Tax Returns were complete
and accurate in all material respects. Except as set forth in Schedule
3.11(a) of the Seller Disclosure Schedule, each Seller has duly paid all
Taxes and other charges due from it (whether or not as shown on such reports
or returns) with respect to the income or operations of the Business and the
Included Assets.
(b) Except as set forth in Schedule 3.11(b) of the Seller
Disclosure Schedule, each member of the Digital Preprint and Print-on-Demand
Group to the extent that it is not part of a consolidated, combined or
unitary Tax Return, with any Seller as common parent of such Tax Return, has
duly, timely and properly filed all Tax Returns required to be filed by it
with respect to the Business and the Included Assets, except where the
failure to file such Tax Return would not have a Material Adverse Effect.
Except as set forth in Schedule 3.11(b) of the Seller Disclosure Schedule,
such reports and returns were complete and accurate in all material respects.
Except as set forth in Schedule 3.11(b) of the Seller Disclosure Schedule,
each member of the Digital Preprint and Print-on-Demand Group to the extent
that it is not part of a consolidated, combined or unitary Tax Return with
any Seller as common parent of such Tax Return has duly paid all Taxes and
other charges due from it (whether or not shown on such reports or returns)
with respect to the income or operations of the Business and the Included
Assets.
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(c) Except as set forth in Schedule 3.11(c) of the Seller
Disclosure Schedule, no deficiencies for any Tax have been proposed in
writing, asserted or assessed against the Sellers, the Business, the Included
Assets, or the Digital Preprint or Print-on-Demand Group.
(d) Except as set forth in Schedule 3.11(d) of the Seller
Disclosure Schedule, there are no examinations or audits of any Seller, the
Business and the Included Assets, or the Digital Preprint or Print-on-Demand
Group Tax Return currently underway.
(e) Except as set forth in Schedule 3.11(e) of the Seller
Disclosure Schedule, neither the Sellers nor the Digital Preprint or
Print-on-Demand Group is a party to, bound by or has any material obligation
under any Tax sharing, Tax indemnification, Tax allocation, or similar
contract or arrangement (whether or not written). Except as set forth in
Schedule 3.11(e) of the Seller Disclosure Schedule, neither the Sellers nor
the Digital Preprint or Print-on-Demand Group (i) has been a member of an
affiliated group filing a consolidated, combined or unitary, or similar type
of income Tax Return, or (ii) has any liability for any Taxes of any person
under Treasury regulation Section 1.1502-6(a) (or any comparable foreign,
state, or local law or regulation), or as a transferee or successor, by
contract or otherwise.
(f) Except as set forth in Schedule 3.11(f) of the Seller
Disclosure Schedule, none of the Included Assets are United States real
property interests within the meaning of Section 897 of the Code and the
Treasury Regulations promulgated thereunder.
(g) Each member of the Digital Preprint and Print-on-Demand
Group has a taxable year end of December 31.
3.12 COMPLIANCE WITH LAW; NECESSARY AUTHORIZATIONS.
(a) Each Seller and each member of the Digital Preprint and
Print-on-Demand Group has complied, in all material respects, in respect of
the Business, with and the Business is being conducted in compliance with all
applicable Laws, rules, regulations, Permits (as defined), authorizations,
judgments and decrees of all Governmental and Regulatory Authorities, and the
Sellers have not received notice of any material violation of Laws, except
where the failure to so comply, individually or in the aggregate would not
have a Material Adverse Effect.
(b) Each Seller and each member of the Digital Preprint and
Print-on-Demand Group has all material Federal, state, local and foreign
governmental approvals, authorizations, certificates, franchises, licenses,
permits and rights ("Permits") necessary for it to conduct the Business as
now conducted, except where the failure to so comply would not, individually
or in the aggregate, have a Material Adverse Effect and there has occurred no
default under any such Permit which individually or in the aggregate would
have a Material Adverse Effect. Schedule 3.12(b) of the Seller Disclosure
Schedule sets forth all material Permits.
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3.13 LABOR MATTERS.
(a) Except as set forth in Schedule 3.13 of the Seller
Disclosure Schedule, there is no labor strike, or material labor dispute,
grievance, or arbitration proceeding, relating to the Business, or material
charge of unfair labor practice relating to the Business actually pending or,
to the knowledge of the Sellers threatened, against or affecting the Business.
(b) Except as set forth in Schedule 3.13 of the Seller
Disclosure Schedule, no Seller has, during the 12-month period prior to the
date hereof, experienced any material work stoppage or other material labor
dispute relating to the Business.
(c) Except as set forth in Schedule 3.13 of the Seller
Disclosure Schedule, no unions or other collective bargaining units have been
certified or recognized by any Seller as representing any of the employees of
the Business and to the knowledge of the Sellers there are no existing union
organizing efforts or representation questions with respect to any of the
employees of the Business.
(d) Except as set forth in Schedule 3.13 of the Seller
Disclosure Schedule, and other than pursuant to applicable employment laws
and regulations and extension orders ("tzavei harchava"), none of the Sellers
is subject to, nor do employees of any such corporation benefit from, any
agreement, arrangement, understanding or custom with respect to employment
(including, without limitation, termination thereof) and none of the Sellers
has any custom with respect to termination of employment.
(e) Set forth in Schedule 3.13(e) of the Seller Disclosure
Schedule is a list of certain employees of the Business as previously
discussed between Creo and Scitex Corporation.
(f) Except as set forth in Schedule 3.13 of the Seller
Disclosure Schedule, there are no complaints, charges or Proceeding
(including, without limitation, any claim resulting from a bonus arrangement)
against either Seller pending or, to the knowledge of Sellers, threatened to
be brought or filed with any Governmental or Regulatory Authority by any
employee of the Business, prospective employee, former employee, retiree,
labor organization or other representative of the Seller's employees except
for those which, individually or in the aggregate, would not have a Material
Adverse Effect.
(g) Except as set forth in Schedule 3.13 of the Seller
Disclosure Schedule, each Seller is in compliance with all Laws, regulations
and orders relating to the employment of labor, including all such Laws and
Orders relating to wages, hours, collective bargaining, discrimination, civil
rights, safety and health, workers' compensation and the collection and
payment of withholding and similar Taxes except for non-compliance which,
individually or in the aggregate, would not have a Material Adverse Effect
and each of the Sellers has complied with all applicable
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provisions, whether contractual, customary or otherwise legally required,
relating to employees, and their terms and conditions of employment
including, without limitation, with respect to wages and hours, except where
the failure to comply would not (individually or in the aggregate) have a
Material Adverse Effect.
(h) Except as set forth in Schedule 3.13 of the Seller
Disclosure Schedule, there are no unfair labor practice claims or charges
pending, or to the knowledge of the Sellers, threatened against any of the
Sellers that would have a Material Adverse Effect. None of the Sellers is
engaged in any unfair labor practice, except for any noncompliance or
practice that would not have a Material Adverse Effect. With respect to the
employees of the Business, individually and in the aggregate, no event has
occurred and, to the best knowledge of the Sellers, there exists no condition
or set of circumstances, in connection with which any of the Sellers could be
subject to any liability that is reasonably likely to have a Material Adverse
Effect.
(i) Except as listed in Schedule 3.13(i) of the Seller
Disclosure Schedule, there are no material agreements between the Sellers and
any of its directors, officers, executives or employees who will be employed
by the Purchasers following the Closing which cannot be terminated by the
Sellers by three months notice or less without giving rise to a claim for
damages or compensation (except for statutory severance pay).
(j) The severance pay due to the employees of the Business is
provided or fully funded for in accordance with generally accepted accounting
principles in Israel, consistently applied. All liabilities of the Sellers in
connection with the employees of the Business (excluding illness pay) were
adequately accrued in the September Financial Statements (in accordance with
said principles) and, other than as set forth in Schedule 3.13(j) of the
Seller Disclosure Schedule, the Sellers are not aware of any circumstance
whereby any employee of the Business might demand from the Sellers (whether
legally entitled to or not) any claim for compensation on termination of
employment beyond the statutory severance pay and pension to which such
employee is entitled.
(k) All amounts which the Sellers are legally or contractually
required to deduct from the salaries of the employees of the Business
and/or transfer to such employees' pension or provident, life insurance,
incapacity insurance, continuing education fund or otherwise have been duly
paid into the appropriate fund or funds, and none of the Sellers has any
outstanding obligation to make any such transfer or provision.
3.14 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.14 of the Seller Disclosure Schedule sets forth
a true and complete list of all "employee benefit plans," within the meaning
of Section 3(3) of the ERISA, and all other material bonus, profit sharing,
pension, severance, employment, change-in-control, deferred compensation,
health, life, stock option, disability and all other material employee
benefit plans, programs and arrangements currently maintained, sponsored or
contributed to by the Sellers on behalf of employees or Former Employees of
the Business (each an "Employee Benefit Plan"). True and
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complete copies of each of the Employee Benefit Plans and related documents
have been delivered or made available to Purchasers and, to the extent
applicable: (i) any related trust agreement or other funding instrument; (ii)
the most recent determination letter, if applicable; (iii) any summary plan
description and other written communications by the Sellers or any of their
subsidiaries to their employees concerning the extent of the benefits
provided under an Employee Benefit Plan; and (iv) for the two most recent
years (A) the Form 5500 and attached schedules, (B) audited financial
statements, (C) actuarial valuation reports and (D) attorney's response to an
auditor's request for information.
(b) Except for noncompliance and any failures to maintain and
operate any Employee Benefit Plan as would not individually or in the
aggregate result in a Material Adverse Effect: (i) each Employee Benefit Plan
has been maintained and operated in accordance with its terms and applicable
law, including without limitation ERISA and the Code (including rules and
regulations thereunder); (ii) each Employee Benefit Plan intended to qualify
under Section 401(a) of the Code (or similar provisions for tax-registered or
tax-favored plans of foreign jurisdictions) has received a determination
letter from the U.S. Internal Revenue Service (or, if applicable, any
required approvals of foreign governmental authorities for tax-registered or
tax-favored plans of foreign jurisdictions) to the effect that the Employee
Benefit Plan is qualified under Section 401 of the Code (or similar
provisions for tax-registered or tax-favored plans of foreign jurisdictions)
and nothing has occurred, whether by action or failure to act, that could
reasonably be expected to cause the loss of such qualification; (iii) no
claim, lawsuit, arbitration or other action has been asserted, instituted or,
to the best knowledge of Sellers, threatened against any Employee Benefit
Plan (other than non-material routine claims for benefits, and appeals of
such claims), any trustee or fiduciaries thereof, the Sellers, any director,
officer, or employee thereof, or any of the assets of any trust of any
Employee Benefit Plan and no facts or circumstances exist that could
reasonably be expected to give rise to any such claim, lawsuit, arbitration
or other action; (iv) no Employee Benefit Plan is or expected to be under
audit or investigation by the U.S. Internal Revenue Service, U.S. Department
of Labor, or any other governmental authority (v) no Employee Benefit Plan
provides retiree welfare benefits and neither the Sellers nor any of their
Subsidiaries have any obligation to provide any retiree welfare benefits to
any employees or Former Employees of the Business other than as required by
Section 4980B of the Code; and (vi) neither the Sellers nor any ERISA
Affiliate (as defined below) has engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA.
(c) No Employee Benefit Plan is (i) a "multiemployer plan," as
defined in Section 3(37) of ERISA, or (ii) otherwise subject to Title IV of
ERISA. With respect to each employee benefit plan subject to Title IV of
ERISA or Section 412 of the Code maintained or contributed to by Sellers or
any entity that would be deemed to be a "single employer" with the Sellers
under Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate"),
there is no actual or contingent liability of Sellers or otherwise relating
to the Business under Title IV of ERISA or Section 412 of the Code to such
employee benefit plan or the Pension Benefit Guaranty Corporation (other than
the payment of premiums to the Pension Benefit Guaranty Corporation).
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(d) With respect to severance funds, pension funds and
management insurance ("Bitauch Menahlim") and with respect to each Employee
Benefit Plan that is not subject to United States law and which is maintained
or contributed to by the Sellers governed by Israeli Law (a "Foreign Employee
Plan"), the fair market value of the assets of each funded Foreign Employee
Plan, the liability of each insurer for any Foreign Employee Plan funded
through insurance or the book reserve established for any Foreign Employee
Plan, together with any accrued contributions, is sufficient to procure or
provide for the accrued benefit obligations, as of the date of this
Agreement, with respect to all current and former participants in such
Foreign Employee Plan according to the actuarial assumptions and valuations
most recently used to determine employer contributions to such Foreign
Employee Plan and no transaction contemplated by this Agreement shall cause
such assets or insurance obligations to be less than such benefit obligations.
(e) No Employee Benefit Plan exists that could result in the
payment (other than any governmental mandated payment or payment required by
Law) to any present or Former Employee of the Business of any money or other
property or accelerate or provide any other rights or benefits to any present
or Former Employee of the Business as a result of the transaction
contemplated by this Agreement. There is no contract, plan or arrangement
(written or otherwise) covering any employee or former employee of the
Business that, individually or collectively, could reasonably be expected to
give rise to the payment of any amount that would not be deductible pursuant
to the terms of Section 280G of the Code.
3.15 NO BROKERS OR FINDERS. Neither the Sellers, nor any of their
respective directors or officers, has taken any action that, directly or
indirectly, would obligate the Purchasers to anyone acting as broker, finder,
financial advisor or in any similar capacity in connection with this
Agreement or any transactions contemplated hereby.
3.16 ACCOUNTS RECEIVABLE. Except as set forth in Schedule 3.16 of
the Seller Disclosure Schedule, the accounts receivable arising from the
conduct of the Business as of the Balance Sheet Date and as of the date
hereof, represent sales actually made in the ordinary course of business for
goods or services delivered or rendered in bona fide arms length transactions.
3.17 INVENTORY. Except as set forth in Schedule 3.17 of the Seller
Disclosure Schedule and for inventory reserves consistent with past practice
as of the Balance Sheet Date: all material items of Inventory are of good and
merchantable quality and are fit for the purpose for which they are intended
and are of a quantity usable in the ordinary and usual course of the Business
as currently conducted, and do not consist of obsolete or damaged materials.
The Inventory is valued by the Sellers or their subsidiaries for financial
reporting purposes in accordance with GAAP. Except for Inventory in the hands
of customers, the Sellers or their subsidiaries have good and marketable
title to all of the Inventory free and clear of all material Encumbrances.
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3.18 CUSTOMERS AND SUPPLIERS. Except as set forth in Schedule 3.18
of the Seller Disclosure Schedule, there has not been any material adverse
change and there are no facts known to the Sellers which may reasonably be
expected to indicate that any material adverse change may occur in the
business relationship of any Seller with any material customer or supplier of
the Business and no Seller is engaged in any material dispute with any of the
material customers or suppliers of the Business.
3.19 CONSENTS AND APPROVALS OF GOVERNMENTAL AND REGULATORY
AUTHORITIES AND THIRD PARTIES. Except for (i) the approval of the Office of
the Chief Scientist of the Israeli Ministry of Trade & Industry; (ii) the
approval of the Israeli Investment Centre of the Israeli Ministry of Trade &
Industry; (iii) the approval of the Director of Restrictive Trade Practices
of the Israeli Ministry of Trade & Industry; (iv) the approval of any
Governmental or Regulatory Authorities relating to competition in appropriate
jurisdictions; and (v) as set forth in Schedule 3.19 of the Seller Disclosure
Schedule, no consent, approval or authorization of, or declaration, filing or
registration with, or the giving of notice to, any Governmental or Regulatory
Authority or any other Person or entity is required in connection with the
execution, delivery and performance by the Sellers of this Agreement or the
Ancillary Agreement or the consummation by the Sellers of the transactions
contemplated hereby and thereby except where the failure to secure any of the
foregoing would not (individually or in the aggregate) have a Material
Adverse Effect.
3.20 NON-DISTRIBUTIVE INTENT. Scitex Corporation is acquiring the
Shares to be issued hereunder for its own account (and not for the account of
others) for investment and not with a view to the distribution thereof;
provided that the disposition of its property shall at all times be within
its discretion and control.
3.21 INSURANCE. The insurable properties relating to the Business
and the conduct of the Business by the Sellers, are adequately insured by
financially sound and reputable insurers, except to the extent the Sellers
self-insure on the date hereof, against all risks usually insured against by
persons owning or operating similar properties or businesses. Since January
1, 1998, no material claim by the Sellers or their subsidiaries for coverage
under such policies (or any predecessor policies) has been denied.
3.22 TRANSACTIONS WITH AFFILIATES.
(a) Schedule 3.22(a) of the Seller Disclosure Schedule lists
all material agreements and arrangements related to the Business between the
Sellers and any affiliate of the Sellers or among divisions of the Sellers.
(b) Except as set forth on Schedule 3.22(a) of the Seller
Disclosure Schedule, (i) there are no material intercompany services
currently being provided (x) by any affiliate of the Sellers to the Sellers
or (y) by the Sellers to any of their affiliates relating to the Business,
and (ii) no material contracts between any of the Sellers on the one hand and
any of Sellers' affiliates, on the other, relating to the Business.
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3.23 GOVERNMENT GRANT PROGRAMS. Schedule 3.23 of the Seller
Disclosure Schedule provides a complete list of all material pending and
outstanding grants, incentives and subsidies (collectively, "Grants") from
the Government of the State of Israel or any agency thereof, or from any
foreign governmental or administrative agency, to the Sellers relating to the
Business including, without limitation, (i) Approved Enterprise Status from
the Investment Center and (ii) grants from the Office of the Chief Scientist
of the Israeli Ministry of Trade & Industry. The Sellers have made available
to the Purchasers, prior to the date hereof, correct copies of all
applications for Grants submitted by the Sellers and of all letters of
approval, and supplements thereto, granted to the Sellers. Schedule 3.23 of
the Seller Disclosure Schedule details all material undertakings of the
Sellers given in connection with the Grants. Without limiting the generality
of the above, Schedule 3.23 of the Seller Disclosure Schedule includes the
aggregate amounts of each Grant, and the aggregate outstanding obligations
thereunder of the Sellers with respect to royalties, or the outstanding
amounts to be paid by the Office of the Chief Scientist of the Israeli
Ministry of Trade & Industry to the Sellers and the composition of such
obligations or amount by the product or product family that it relates to.
The Sellers are in compliance, in all material respects, with the terms and
conditions of their respective Grants and, except as disclosed in Schedule
3.23 of the Seller Disclosure Schedule, have duly fulfilled, in all material
respects, all the undertakings relating thereto. The Sellers are not aware of
any event or other set of circumstances that might lead to the revocation or
material modification of any of the Grants.
3.24 ENVIRONMENTAL MATTERS. Except as could not reasonably be
expected, individually or in the aggregate, to result in material liability
under or relating to Environmental Laws and relating to the Included Assets,
the Business or the corporations the shares of which are included among the
Included Assets (hereinafter the "Corporations"):
(a) The Included Assets, the Business and the Corporations
hold, and are in compliance with and have been in continuous compliance with
all Environmental Permits, and are, and have been, otherwise in compliance in
all material respects with all Environmental Laws and, to the knowledge of
the Sellers and the Corporations, there is no condition that would reasonably
be expected to prevent or interfere with compliance with all Environmental
Laws in the future;
(b) No modification, revocation, reissuance, alteration,
transfer, or amendment of the Environmental Permits, or any review by, or
approval of, any third party of the Environmental Permits is required in
connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby or the continuation of
the Business following such consummation;
(c) None of the Sellers and the Corporations has received any
Environmental Claim relating to the Included Assets, the Business or the
Corporations, and none of the Sellers and the Corporations is aware after
reasonable inquiry of any such threatened Environmental Claim nor has any
reason to believe that any such Environmental Claim will be made or
threatened in the future;
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(d) None of the Sellers and the Corporations has entered into,
has agreed to, or is subject to any judgment, decree, order or other similar
requirement of any governmental authority under any Environmental Laws and
relating to the Included Assets, the Business or the Corporations which would
have individually or in the aggregate a Material Adverse Effect;
(e) There are no (i) underground or aboveground storage tanks,
(ii) sumps, (iii) surface impoundments, (iv) landfills (v) sewer or septic
systems or (vi) Hazardous Materials currently or formerly present at or about
any of the Included Assets or any properties or facilities currently or
formerly owned, leased or otherwise used by the Corporations, or any
properties or facilities currently or formerly owned, leased or otherwise
used in connection with the Business, that could reasonably be expected to
give rise to liability under or relating to any Environmental Laws which
would have individually or in the aggregate a Material Adverse Effect; and
(f) Hazardous Materials have not been generated, transported,
treated, stored, disposed of, arranged to be disposed of, released or
threatened to be released at, on, from or under any of the Included Assets,
any properties or facilities currently or formerly owned, leased or otherwise
used by the Corporations, or any properties or facilities currently or
formerly owned, leased or otherwise used in connection with the Business, in
violation of Environmental Laws or in a manner or to a location that could
reasonably be expected to give rise to liability under any Environmental Laws
which would have individually or in the aggregate a Material Adverse Effect.
3.25 YEAR 2000. Except as set forth on Schedule 3.25 of the Seller
Disclosure Schedule, to the best knowledge of the Sellers, the change to the
Year 2000 has not caused, and is not expected to cause, a material disruption
to the operation of the Business or otherwise have a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
The Purchasers hereby jointly and severally represent and warrant as
follows except as otherwise specifically stated in the Purchaser Disclosure
Schedule. The disclosure of any fact or item in the Purchaser Disclosure
Schedule (i) shall not be deemed to constitute an acknowledgment that any
such fact or item is required to be disclosed, (ii) does not represent a
determination that such item did not arise in the ordinary course of
business, or (iii) does not represent a determination that such item is
material and shall not be deemed to establish a standard of materiality.
4.1 ORGANIZATION AND QUALIFICATION. Each Purchaser is a duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization with the requisite power and
authority to own its properties and carry on its business in all material
respects as presently owned or conducted. Each
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Purchaser is licensed or qualified to transact business and is in good
standing in each jurisdiction in which, because of its business conducted
there or the nature of its properties there, it would be required to be so
licensed or qualified and in which the failure to be so licensed or qualified
would have a material adverse effect on the business or operations (as
currently conducted) or on the financial condition of the Purchasers, taken
as a whole.
4.2 CAPITALIZATION.
(g) Creo is authorized to issue an unlimited number of Creo
Common Shares and an unlimited number of Creo Preferred Shares. As of January
13, 2000, (i) 32,471,722 Creo Common Shares were issued and outstanding, (ii)
no Creo Preferred Shares were issued and outstanding and (ii) options to
acquire 5,088,138 Creo Common Shares were outstanding under all stock option
plans of Creo. All of the outstanding Creo Common Shares are duly authorized,
validly issued, fully paid and nonassessable.
(h) Except as set forth on Schedule 4.2(b) of the Purchaser
Disclosure Schedule, as of the date hereof, (i) there is no outstanding
right, subscription, warrant, call, option or other agreement or arrangement
of any kind to purchase or otherwise to receive from Creo any of the
outstanding authorized but unissued or treasury shares of the capital stock
or any other security of Creo or any of its subsidiaries, (ii) there is no
outstanding security of any kind convertible into or exchangeable for such
capital stock and (iii) there is no voting trust or other agreement or
understanding to which Creo or any of its affiliates is a party or is bound
with respect to the voting of the capital stock of Creo.
(i) Each Purchaser other than Creo is a direct or indirect
wholly-owned subsidiary of Creo.
4.3 AUTHORITY; NO BREACH.
(a) Each Purchaser has all requisite power and authority to
execute and deliver this Agreement and the Ancillary Agreements and to
perform, carry out and consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and the
Ancillary Agreements have been duly authorized by all necessary action on the
part of each Purchaser and, subject to the approval of Creo's shareholders
referred to in Section 5.30. This Agreement is the legal, valid and binding
obligation of each Purchaser, enforceable against each Purchaser in
accordance with its terms except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization or other laws of general
applicability relating to creditors' rights and except as enforceability may
be limited by rules of law governing specific performance, injunctive relief
or other equitable remedies.
(b) Neither the execution and delivery of this Agreement by any
Purchaser nor the consummation of the transactions contemplated herein will:
(i) violate any provision of the Constitutive Documents of any Purchaser;
(ii) conflict with,
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result in a breach of or constitute a default under or result in the
invalidity of, or accelerate the performance required by or cause the
acceleration of the maturity of any debt or obligation pursuant to any
material agreement or commitment to which any Purchaser is a party or by
which any Purchaser (or any of its material properties or assets) is subject
or bound; (iii) conflict with, violate, result in a breach of or constitute a
default under any material judgment, decree, order, or process of any
Governmental or Regulatory Authority; (iv) conflict with or violate any
statute, Law or regulation applicable to the business or operations of any
Purchaser, except where such conflicts or violations (individually or in the
aggregate) would not have a material adverse effect on the business or
operations (as currently conducted) or the financial condition of the
Purchasers and their subsidiaries, taken as a whole; (v) terminate or modify
in any material respect, or give any third party the right to terminate or
modify in any material respect, the provisions or terms of any material
contract or agreement to which any Purchaser is a party or by which it (or
any of its material assets) is subject or bound; or (vi) require any
Purchaser to obtain any authorization, consent, approval or waiver from, or
to make any filing with, any Person, except where the failure to obtain such
authorization, consent, approval or waiver or make any filing would not have
a material adverse affect on the business or operations (as currently
conducted) or on the financial condition of the Purchasers and their
subsidiaries, taken as a whole, other than such as have been obtained or made.
4.4 FINANCIAL STATEMENTS.
(a) Prior to the date hereof, Creo has delivered to the Sellers
the audited consolidated balance sheets and related statements of operations
and of changes in financial position of Creo at September 30, 1999 and 1998
and for the three years ended September 30, 1999 (the "Purchaser Financial
Statements").
(b) The Purchaser Financial Statements have been prepared from
the books and records of Creo and present fairly the financial position of
Creo and its consolidated subsidiaries as of the dates thereof and its
consolidated results of operations for the periods then ended in each case in
accordance with generally accepted accounting principles in Canada, which
materially conform with those established in the United States except as
explained in a note to the Purchaser Financial Statements.
4.5 ABSENCE OF UNDISCLOSED LIABILITIES. The Purchasers have no
liabilities or obligations of any nature, whether absolute, accrued,
contingent or otherwise, which individually or in the aggregate are material
to Creo and its subsidiaries, taken as a whole, except for (i) liabilities
included or reflected in the Purchaser Financial Statements; (ii) liabilities
disclosed in the Purchaser Disclosure Schedule; (iii) liabilities incurred in
the ordinary course of business subsequent to September 30, 1999; or (iv)
liabilities under this Agreement.
4.6 NO BROKERS OR FINDERS. Neither the Purchasers, nor any of their
directors or officers, has taken any action that, directly or indirectly,
would obligate the Sellers to anyone acting as broker, finder, financial
advisor or in any similar capacity in connection with this Agreement or the
transactions contemplated hereby.
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4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. From September 30, 1999
through December 31, 1999 the business of Creo has been conducted only in the
ordinary and usual course. Without limiting the generality of the foregoing,
from September 30, 1999 through December 31, 1999 Creo has not:
(a) suffered any damage, destruction or casualty loss (whether
or not covered by insurance) which materially and adversely affects its
business or operations or its financial condition;
(b) made any material change in its accounting methods,
principles or practices;
(c) authorized any stock split or recapitalization;
(d) sold, transferred, or otherwise disposed of any of its
properties or assets, except in the ordinary course of business and
consistent with past practice; or
(e) agreed whether in writing or otherwise, to take any action
described in this Section 4.7.
4.8 LITIGATION. There is no Proceeding pending or, to the knowledge
of the Purchasers, threatened against the Purchasers that could be reasonably
expected to have a material adverse effect on the business or operations (as
currently conducted) or on the financial condition of Creo and its
subsidiaries, taken as a whole, or which questions or challenges the validity
of this Agreement or any Ancillary Agreement or any action taken or to be
taken by the Purchasers pursuant to this Agreement or any Ancillary Agreement
or in connection with the transactions contemplated hereby or thereby. There
is no Order outstanding or to the Purchasers' knowledge, threatened against
the Purchasers which could be reasonably expected to have a material adverse
effect on the business or operations (as currently conducted) or on the
financial condition of Creo and its subsidiaries, taken as a whole.
4.9 COMPLIANCE WITH LAW.
(a) Each Purchaser has complied, in all material respects, in
respect of its business, operations and properties, with all applicable laws,
rules, regulations, Permits, licenses, authorizations, judgments and decrees
of all Governmental and Regulatory Authorities, except where the failure to
so comply would not have a material adverse effect on the business or
operations or financial condition of Creo and its subsidiaries, taken as a
whole.
(b) Each Purchaser has all Permits necessary for it to own,
lease or operate its properties and assets and to carry on its business as
now conducted, except where the failure to so comply would not have a
material adverse effect on the business or operations or financial condition
of Creo and its subsidiaries, taken as a whole and there has occurred no
default under any such Permit which alone or in the
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aggregate would have a material adverse effect on the business, properties or
financial condition of Creo and its subsidiaries, taken as a whole.
4.10 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES AND OTHERS.
Except as set forth in Schedule 4.10 of the Purchaser Disclosure Schedule, no
consent, approval or authorization of, or declaration, filing or registration
with, or the giving of notice to, any Governmental or Regulatory Authority or
any other person or entity is required in connection with the execution,
delivery and performance by the Purchasers of this Agreement or the Ancillary
Agreements or the consummation by the Purchasers of the transactions
contemplated hereby or thereby except where the failure to secure any of the
foregoing would not (individually or in the aggregate) have a material
adverse effect on the business or operations (as currently conducted) or
financial condition of Creo and its subsidiaries, taken as a whole.
4.11 VALIDITY OF SHARES. The Shares to be delivered to Scitex
Corporation pursuant to this Agreement, when issued in accordance with the
terms and provisions of this Agreement, will be validly authorized, validly
issued, fully paid, nonassessable and duly listed on the Stock Exchanges. All
of the Shares issuable to Scitex Corporation will be sold to Scitex
Corporation free and clear of all Encumbrances (other than as contemplated by
the Standstill Agreement and Registration Rights Agreement) and preemptive
rights.
4.12 SEC REPORTS.
(a) Since July 28, 1999, Creo has filed all required forms,
reports and documents with the SEC required to be filed by it pursuant to the
U.S. federal securities laws and the SEC's rules and regulations thereunder,
all of which complied as of their respective filing dates in all material
respects with all applicable requirements of the Securities Act and Exchange
Act and the rules promulgated thereunder except where the failure to file any
such reports or to comply with such requirements could not reasonably be
expected to have a material adverse effect on Creo and its subsidiaries taken
as a whole. None of such forms, reports or documents at the time filed with
the SEC contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of Creo included in such forms
and reports (including the notes thereto) at the time filed with the SEC
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto.
(b) Since July 28, 1999, Creo has:
(i) been and is currently a reporting issuer not in
default in each of the provinces of British Columbia, Ontario and
Manitoba;
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(ii) complied in all material respects with the
securities laws, regulations, rules and published policy statements
of the securities regulatory authorities in each of the provinces of
British Colombia, Ontario and Manitoba (the "Canadian Securities
Laws");
(iii) not been the subject of any order preventing or
suspending trading in its securities by the securities regulatory
authority in any jurisdiction; and
(iv) filed all forms, reports and documents required
under Canadian Securities Laws except where the failure to file any
such reports could not reasonably be expected to have a material
adverse effect on Creo and its subsidiaries, taken as a whole and all
such forms, reports and documents are true, correct and complete in
all material respects and do not contain any misrepresentation (as
defined in Canadian Securities Laws).
(b) The issued and outstanding Creo Common Shares are listed
and posted for trading on the Stock Exchanges and Creo has complied in all
material respects with the rules and policies of the Stock Exchanges.
ARTICLE V
COVENANTS
5.1 OPERATION OF THE BUSINESS FOR THE BENEFIT OF THE PURCHASERS.
From January 1, 2000 until the Closing, the Sellers shall operate the
Business (i) exclusively, to the extent possible and permitted by applicable
Law, as a separate entity for the benefit of the Purchasers and (ii) in
accordance with the provisions of Section 5.2. In furtherance of the
foregoing, all profits (losses) of the Business from January 1, 2000 shall be
for the benefit (expense) of the Purchasers. Notwithstanding the foregoing,
if this Agreement is terminated prior to Closing, any profits (losses) of the
Business from January 1, 2000 shall be for the benefit (expense) of the
Sellers.
5.2 CONDUCT OF THE BUSINESS. Each of the Sellers hereby covenants
(i) that since December 31, 1999 it has conducted the Business in the
ordinary and usual course and (ii) that from the date hereof until the
Closing, and except as contemplated by this Agreement or expressly consented
to by the Purchasers, each Seller and member of the Digital Preprint and
Print-on-Demand Group will and will cause their respective subsidiaries that
are involved in the Business or that own any Included Assets to conduct the
Business in the ordinary and usual course, and use their reasonable best
efforts to preserve intact the Business as conducted as of December 31, 1999.
Without limiting the generality of the foregoing, from the date hereof and
until the Closing each Seller and member of the Digital Preprint and
Print-on-Demand Group will, and will cause their respective subsidiaries that
are involved in the Business with respect to the Business and the Included
Assets to:
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(c) use reasonable best efforts to maintain the assets and
properties of the Business in reasonably good working order and condition,
ordinary wear and tear excepted;
(d) use reasonable best efforts to maintain adequate insurance
upon the properties and assets of the Business in such amounts and of such
kinds as are comparable to those in effect on the date of this Agreement;
(e) use reasonable best efforts to keep available (subject to
dismissals and retirements in the ordinary course of business consistent with
past practice), the services of the current officers and employees of the
Business;
(f) use reasonable best efforts to preserve the current
advantageous relationships with persons having business dealings with the
Business;
(g) use reasonable best efforts to maintain its Books and
Records in the ordinary course, consistent with past practice, comply in all
material respects with all Laws and contractual obligations applicable to the
Included Assets or the Business and perform all of its material obligations
relating to the Business;
(h) not, except as required by the terms of an employment
contract entered into prior to the date of this Agreement and disclosed in
the Seller Disclosure Schedule or except (in the case of non-executive
officers and other employees only) in the ordinary course of business
consistent with past practice, make any increase in the salary, wages or
other compensation of any officer or employee of the Business;
(i) not adopt, enter into, terminate or materially amend or
modify any Benefit Plan relating to the Business, except to the extent
required by applicable law;
(j) not modify or change in any material respect any Contract
relating to the Business other than in the ordinary course of business
consistent with past practice, or enter into any Contract relating to the
Business other than in the ordinary course of business consistent with past
practice;
(k) not make, or enter into commitments to make, capital
expenditures other than in the ordinary course of business consistent with
past practice;
(l) not sell, transfer, or otherwise dispose of or voluntarily
encumber any fixed asset of the Business other than in the ordinary course of
business, consistent with past practice;
(m) not sell, transfer, or otherwise dispose of or voluntarily
encumber or agree to sell, transfer, or otherwise dispose of or voluntarily
encumber, any Owned Real Property or Leased Real Property;
(n) not sell, transfer, license or otherwise dispose of, any
Business IP;
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(o) not settle any lawsuit or claim if such settlements of
lawsuits and claims impose any continuing liability or non-monetary
obligation on the Business or any of the Included Assets or if such
settlement payments (net of any insurance recoveries) exceeds the reserves
therefor set forth in the December Balance Sheet unless such lawsuit or claim
is not an Assumed Liability and other than the settlement of claims listed in
Schedule 5.32 of the Seller Disclosure Schedule;
(p) not enter into or agree to enter into any employment
agreement or collective bargaining agreement for the benefit of the employees
of the Business or amend or modify or agree to amend or modify any existing
employment or collective bargaining agreement for the benefit of the
employees of the Business;
(q) not make any material changes in Sellers' accounting
methods, practices or procedures as they relate to the Business (except as
required by GAAP and approved in writing by Sellers' independent accountants);
(r) not make any changes in Sellers' methods, practices or
procedures relating to accounts receivable, accounts payable or credit
policies of the Business (including without limitation extending its trade
receivables or making any changes to its receivables write-off policies or
changing its payables cycle policies);
(s) not make any material changes in its marketing programs,
sales promotion, pricing policies or product lines relating to the Business;
(t) not enter into any other material transaction relating to
the Business; and
(u) not enter into any agreement to do or engage in any of the
foregoing.
5.3 POST-CLOSING CASH PAYMENT.
(a) On the Closing and as part of the Included Assets, the
Sellers shall deliver to Creo an amount in cash equal: to the cash at
December 31, 1999, as reflected on the December Balance Sheet, PLUS the
December Cash Amount, LESS all cash in the bank accounts of the Digital
Preprint and Print-on-Demand Group and their respective subsidiaries as of
the Closing Date (the "Closing Date Cash Amount").
(b) Within 45 calendar days of the Closing, the Sellers shall
prepare or cause to be prepared, and deliver to Creo a balance sheet and
statement of operations of the Business as of the Closing Date and for the
period from January 1, 2000 to the Closing (the "Interim Period") (the
"Closing Date Financial Statements"), which shall have been audited by
Kesselman & Kesselman (PWC), Certified Public Accountants (Isr.) and which
shall be accompanied by an unqualified opinion expressed thereon by such
firm. The Closing Date Financial Statements shall be derived or "carved-out"
of the consolidated financial statements of Scitex Corporation. The Closing
Date Financial Statements shall be prepared in accordance with GAAP on a
basis consistent with the principles, methods, practices and estimation
methodologies used in
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the preparation of the December Financial Statements, including but not
limited to the methodology for the allocation of overhead.
(c) Concurrently with the delivery to Creo of the Closing Date
Financial Statements, Kesselman & Kesselman (PWC) shall deliver to Creo and
the Sellers a calculation of the adjustment amount (the "Adjustment Amount").
The Adjustment Amount for the Interim Period shall be calculated in
accordance with the following formula:
Any net income after tax earned by the Business during the Interim
Period as reflected in the Closing Date Financial Statements (if the Business
incurs a net loss after tax during the Interim Period this amount shall be
negative)
minus: any increase in the non-cash tangible assets net of
liabilities of the Business during the Interim Period ("Net Non-Cash Assets")
or plus: any decrease in the Net Non-Cash Assets.
(d) If the Adjustment Amount is positive, within 5 Business
Days of the receipt of the calculation of the Adjustment Amount, the Sellers
shall pay to Creo an amount in cash equal to the Adjustment Amount. If the
Adjustment Amount is negative, within 5 Business Days of the receipt of the
calculation of the Adjustment Amount, Creo shall pay to the Sellers an amount
in cash equal to the Adjustment Amount.
(e) The calculation of Net Non-Cash Assets shall be made
following the same accounting principles as the calculation of tangible net
assets as of December 31, 1999 pursuant to Section 2.5.
5.4 CONDUCT OF CREO'S BUSINESS. Creo covenants and agrees that from
the date hereof and until the earlier of the Closing or the date on which
this Agreement is terminated, and except as contemplated by this Agreement or
expressly consented to by the Sellers, it will:
(a) not declare, set aside or pay any dividend on, or make any
other distribution in respect of (whether in cash, stock or property),
outstanding Creo Common Shares;
(b) not effect any reorganization or recapitalization; or
split, combine or reclassify any of the capital stock or other equity
interests in Creo or issue or authorize or propose the issuance of any
securities in respect of, in lieu of or in substitution for, shares of such
capital stock or such equity interests; and
(c) not enter into any agreement to do or engage in any of the
foregoing.
5.5 ACCESS TO INFORMATION. From and after the date hereof until the
earlier of the Closing Date or the date on which this Agreement is
terminated, each party
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will (i) afford the other Party and its representatives reasonable access to
all of its offices and other facilities and properties, (ii) permit the other
party to make such inspections thereof as it may reasonably request, and
(iii) furnish the other party hereto with such financial and operating data
and other information as it may from time to time reasonably request, and
(iv) make its employees available to the other party hereto for such
consultation as it may from time to time reasonably request. Notwithstanding
the foregoing, the Sellers shall have no obligation to furnish the Purchaser
or its representatives with the Seller's customer lists or minutes of the
boards of directors of the Sellers and their subsidiaries. In furtherance of
the foregoing, the Sellers shall provide Creo and its representatives
reasonable access to its Books and Records and to the work papers and audit
files prepared by the Sellers and their independent accountants in connection
with the preparation of the December Financial Statements and the Closing
Date Financial Statements. All information obtained by or on behalf of the
Purchasers pursuant to this Section 5.5 shall be kept confidential in
accordance with the provisions of Section 5.10 and the Non-Disclosure
Undertaking, dated November 22, 1999 between Creo and Scitex Corporation. All
information obtained by or on behalf of the Sellers pursuant to this Section
5.5 shall be kept confidential in accordance with the provisions of Section
5.10.
5.6 NON-COMPETE.
(a) In order that the Purchasers may have and enjoy the full
benefit of the Included Assets, during the period commencing on the Closing
and ending on the later of the fifth anniversary thereof and the date upon
which Scitex Corporation Beneficially Owns less than 15% of the outstanding
Creo Common Shares, Scitex Corporation agrees that it shall not, and shall
cause its subsidiaries not to, without the prior written consent of Creo,
manage, own, operate, advise or be otherwise directly or indirectly
interested in or engage in any business entity which is engaged, directly or
indirectly, in the development, use or sale of products or services of the
Business anywhere in the world, either as principal, manager, agent,
consultant, stockholder, partner, investor or lender; provided, however, that
the foregoing shall not prevent the Sellers from acquiring up to 49% of the
outstanding capital stock of any company (and provided that neither Scitex
Corporation nor its subsidiaries has more than one director on the board of
directors of such company and does not have any involvement in the business
of such company other than such stock ownership and board representation).
Scitex Corporation and its subsidiaries shall be under no obligation not to
compete with Creo in businesses outside the Business. For the purposes of the
foregoing, the term "subsidiary" shall mean any subsidiary controlled by
Scitex Corporation. "Control" shall mean on the ownership of 50% or more of
the voting stock or the right to nominate the majority of the board of
directors.
(b) The Sellers agree that the covenant not to compete
contained in this Section 5.6 is a reasonable covenant under the
circumstances, and further agree that if in the opinion of any court of
competent jurisdiction such restraint is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended. The
Sellers
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agree that any breach of this covenant would irreparably injure the
Purchasers. Accordingly, the Sellers agree that the Purchasers may, in
addition to pursuing any other remedies they may have in law or in equity,
obtain an injunction against the Sellers from any court having jurisdiction
over the matter restraining any further violation of this covenant by such
Person.
(c) In the event that Aprion shall breach its non-compete
obligations under Section 11.3 of the Asset Purchase and Licensing Agreement
dated September 23, 1999 between Aprion and Scitex Corporation (the "Aprion
Agreement") as it relates to the Business, Scitex Corporation shall indemnify
and hold harmless Creo for its material damages resulting from such breach.
Scitex Corporation's obligation under this Section 5.6(c) shall expire upon
the occurrence of the earlier of the following events (i) the expiration of
the license granted to Aprion under the Aprion Agreement and assumed by Creo
under the Intellectual Property License Agreements; (ii) Scitex Corporation
Beneficially Owns less than 15% of the outstanding Creo Common Shares; or
(iii) February 23, 2002; provided; however, in the event that Scitex
Corporation acquires control (as such term is defined in Section 5.6(a)) of
Aprion, and the non-compete term provisions under Section 5.6(a) above shall
apply to Aprion as a subsidiary of Scitex Corporation.
5.7 SOLICITATION OF EMPLOYEES. Each party will cooperate with the
other party to identify the employees who, consistent with Section 3.13(e)
and the Schedule thereto will become employees of the Purchasers following
the Closing. Each of the Sellers and Purchasers agrees that for a period of
two years from and after the Closing Date they shall not, and they shall
cause each of its respective subsidiaries not to, without the prior consent
of the other party, employ or solicit for employment any person employed by
the other party, or any of its subsidiaries, or Aprion, unless such person's
employment with the other party or its subsidiaries was terminated by such
other party or its subsidiaries prior to such action, provided, however, that
the foregoing restriction shall not apply to the solicitation or employment
by (i) the Sellers of (x) the marketing, sales and distribution and services,
employees of the Wide Format, Karat and SDP businesses of the Sellers and (y)
certain administrative employees of Scitex Corporation as mutually agreed by
the parties prior to the Closing and (ii) the Purchasers of employees of the
Business, consistent with Section 3.13(e) and the Schedule thereto and as
mutually agreed by the parties prior to the Closing and shall be set forth in
the Supply and Services Agreement.
5.8 DISCUSSIONS WITH OTHERS. Except as otherwise permitted by this
Agreement, from the date of this Agreement until the Closing Date, neither of
the Sellers nor any of their subsidiaries or affiliates, nor any of their
officers, employees, representatives or agents, will, directly or indirectly,
solicit, encourage, or initiate any discussions or negotiations with, or
provide any information to, any corporation, partnership, person or other
entity or group other than the Purchasers and their employees,
representatives and agents, concerning any transaction involving the sale of
the Included Assets or the Business.
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5.9 BULK TRANSFER. The parties hereby waive compliance with any
bulk transfer law applicable to any of the transactions contemplated hereby.
5.10 CONFIDENTIALITY. Each party hereto shall, and shall use its
best efforts to cause its subsidiaries to, and shall use reasonable best
efforts to cause its representatives to: (a) hold in strict confidence and
not utilize in its respective business all non-public information and
documents concerning the other party hereto or any of its subsidiaries
furnished to it by such other party or its representatives in connection with
this Agreement or the transactions contemplated hereby, including the
delivery by the Sellers of the Books and Records or copies thereof, to the
extent such Books and Records contain non-public information which is not
related to the Business ("Confidential Information"), except where disclosure
may be required by judicial or administrative process or by Law or as may be
necessary for each party to enforce its rights under this Agreement or the
Ancillary Agreements (or any documents or instruments executed pursuant
hereto or thereto) provided that, if disclosure is required by Law or
judicial or administrative process, the party that is required to disclose
the Confidential Information shall notify the non-disclosing party of such
requirement as soon as possible. Notwithstanding the foregoing, the following
will not constitute "Confidential Information" for purposes of this
Agreement: (i) information which was already in the possession of the
receiving party or its subsidiaries prior to the date hereof and which was
not acquired or obtained from the other party or its subsidiaries, (ii)
information which is independently developed by the receiving party or any
subsidiary thereof without access to the Confidential Information, (iii)
information which is obtained or was previously obtained by the receiving
party or its subsidiaries from a third person who, insofar as is known to the
receiving party or its subsidiaries, is not prohibited from transmitting the
information to the receiving party or its subsidiaries by a contractual,
legal or fiduciary obligation to any other party or its subsidiaries and (iv)
information which is or becomes generally available to the public other than
as the result of a disclosure by the receiving party or any subsidiary
thereof or their agents or employees. Notwithstanding the foregoing,
following the Closing, the foregoing restrictions shall not apply to the use
by the Purchasers of documents or information concerning the Business
furnished by the Sellers hereunder.
5.11 REGULATORY AND OTHER APPROVALS AND CONSENTS. Each party hereto
will (a) take all reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all reasonable best efforts, as promptly
as practicable to obtain all consents, approvals or actions of, to make all
filings with and to give all notices to any Governmental or Regulatory
Authorities or any other Person required of each party to consummate the
transactions contemplated hereby, including, without limitation, those
described on Schedule 4.10 of the Purchasers Disclosure Schedule, as to the
Purchasers, and on Schedule 3.19 of the Seller Disclosure Schedule, as to the
Sellers, and (b) provide such other information and communications to such
Governmental or Regulatory Authorities or other Persons as either the
Purchasers or the Sellers or such Governmental or Regulatory Authorities or
other Persons may reasonably request. Subject to Section 5.27 each Seller
agrees to use its reasonable best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable to assist the Purchasers in obtaining prior to the Closing Date all
Permits and Orders as are
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necessary in order to enable the Purchasers to conduct the Business in the
ordinary course as of and from the opening of business on the Closing Date.
Where the consent of any third party is required under the terms of any of
the Contracts to be assumed by the Purchasers hereunder each Seller or any of
its subsidiaries which is a party to such Contract will take, subject to
Section 5.27, all reasonable and necessary steps to obtain such consent on
terms and conditions not materially less favorable than as in effect on the
date hereof. Each Seller or such subsidiary and the Purchasers shall
cooperate fully with each other to the extent reasonably required to obtain
such consents. To the extent that any such consent is not so obtained with
respect to any such lease, contract, license or agreement, this Agreement
shall not constitute an assignment or an attempted assignment thereof. In
each such case, each Seller agrees to cooperate, and to cause its
subsidiaries to cooperate with the Purchasers in any reasonable arrangement
designed to provide for the Purchasers the benefits under any such Contract,
including enforcement of any and all rights of each Seller or its applicable
subsidiary against the other party thereto arising out of the breach or
cancellation thereof by such other party or otherwise. If and to the extent
that such arrangement cannot be made, the Purchasers shall not have any
obligation with respect to any such lease or contract.
5.12 HSR AND ANTI-TRUST FILINGS. In addition to and without limiting
the Purchasers' and the Sellers' covenants contained in Section 5.11, each
party hereto will (a) take promptly all actions necessary to make the filings
required of such party or their respective subsidiaries or Affiliates under
the HSR Act and the competition or other similar Laws of all other
jurisdictions in which notices, filings or approvals are necessary to
consummate the transactions contemplated by this Agreement, (b) comply at the
earliest practicable date with any request for additional information
received by such party or their respective affiliates from any Governmental
or Regulatory Authority pursuant to applicable Law and (c) cooperate with the
other party in connection with the other party's filing under the HSR Act and
the competition or other similar Laws of all other jurisdictions in which
notices, filings or approvals are necessary to consummate the transactions
contemplated by this Agreement.
5.13 BOARD OF DIRECTORS; FINANCIAL STATEMENTS.
(a) Concurrently with the Closing, Creo shall cause (i) Rimon
Ben-Shaoul and Yoav Z. Chelouche (or such replacements for such individuals,
reasonably acceptable to Creo, as the Sellers may designate prior to the
Closing) to be elected to Creo's Board of Directors, and (ii) one of such
individuals to be appointed to the nominating committee and each other
significant committee of Creo's Board of Directors. From and after the
Closing and for as long as the Sellers own Creo Common Shares representing
15% or more of the outstanding Creo Common Shares, Creo will (i) cause two
designees of the Sellers reasonably acceptable to Creo to be included in the
slate of nominees proposed by Creo's management for election to its Board of
Directors, (ii) use its best efforts to obtain the election of such designees
to Creo's Board of Directors, and (iii) if so elected, cause one of such
individuals to be appointed to the nominating committee and each other
significant committee of Creo's Board of Directors. If the Sellers own Creo
Common Shares representing 7.5% or more but less than 15% of the outstanding
Creo Common Shares, Creo's obligations under the
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preceding sentence shall be limited to one designee of the Scitex
Corporation. During the periods referred to in the preceding sentences, Creo
shall take all necessary action to cause a designee of the Sellers who is
reasonably acceptable to Creo's Board of Directors to be appointed a
Co-Chairman of Creo. After the Closing and for so long as the Sellers own
more than 7.5% of the outstanding Creo Common Shares, Creo shall maintain a
Board of Directors of no more than nine directors; provided however that Creo
may increase the size of its Board of Directors, if the number of directors
that Scitex Corporation has the right to designate is proportionately
increased. From and after such time as the Sellers own Creo Common Shares
representing less than 7.5% of outstanding Creo Common Shares, all of the
Creo's obligations under this Section 5.13 shall terminate.
(b) Creo shall use its reasonable best efforts to prepare or
cause to be prepared and provide to the Sellers in a timely manner (for the
Sellers' reporting purposes) its interim and annual financial statements.
5.14 TRADEMARK AND TRADENAME LICENSE AGREEMENT. Effective as of the
Closing Date, the Sellers and their respective subsidiaries (to the extent
necessary) hereby grant to the Purchasers the exclusive (even as against the
Sellers and their affiliates and subject to the existing license to Aprion),
worldwide, perpetual, royalty-free, paid-up, non-assignable (except in the
case of a merger, reorganization, change of control or other sale of all or
substantially all of the assets or equity of Creo), non-sublicensable (except
the right to sublicense end-users to use products or distributors and OEMs to
sell products, but under no circumstances for independent manufacture, sale
or development) right and license to use the trademark, service mark and
trade name "Scitex," the Scitex logo, and all current variations,
stylizations, abbreviations and derivations of same that are used in
connection with the Digital Preprint business and Print-on-Demand business,
including the Business. Prior to Closing, the parties shall execute a
Trademark and Tradename License Agreement that embodies these terms and
contains all other commercially reasonable terms for a license of this nature.
5.15 INTELLECTUAL PROPERTY LICENSE AGREEMENTS. The parties shall
enter into the Intellectual Property License Agreements at or prior to
Closing.
5.16 TREATMENT OF SELLER GUARANTIES AND COMFORT LETTERS. The
Purchasers shall use their reasonable best efforts to have released and
cancelled as of the Closing Date each of the guaranties and comfort letters
of the Sellers set forth in Schedule 5.16 of the Seller Disclosure Schedule
(the "Seller Guaranties"); provided, however, that to the extent that any
Seller Guaranty cannot be so released and cancelled, Creo shall (a) use its
reasonable best efforts to cause itself or any of its subsidiaries or
affiliates to be substituted for the Sellers and each of its subsidiaries or
affiliates directly affected thereby in respect of such Seller Guaranty (or
if not possible, added as the primary obligor with respect thereto), and (b)
if Creo is not able to either release and cancel such Seller Guaranty or
cause itself or any of its subsidiaries or affiliates to be so substituted in
all respects in respect of such Seller Guaranty, then the Purchasers must
indemnify, defend and hold harmless each such Seller entity with respect to
any such
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Seller Guaranty. Creo hereby acknowledges and agrees that on the Closing
Date, the Sellers will terminate any Seller Guaranties that they have the
right to terminate.
5.17 SUPPLY AND SERVICES AGREEMENT. The parties shall enter into the
Supply and Services Agreement having the principal terms set forth in Exhibit
5.17 at or prior to the Closing.
5.18 TRANSFER TAXES.
(a) All value-added taxes incurred in connection with the
transactions contemplated hereby (the "Value-Added Taxes") shall be borne by
the Purchasers, with no reduction in the consideration to be paid to the
Sellers. The Sellers shall cooperate with the Purchasers to cause the amount
of the Value-Added Taxes to be refunded by the applicable Governmental or
Regulatory Authority to the Purchasers as soon as reasonably practicable.
Subject to paragraph (c) below, payment of the Value-Added Taxes shall be
made against presentation to the Purchasers of a valid value added tax
invoice and shall be made on the due date for payment of the Value-Added
Taxes by the Sellers to the value added tax authorities.
(b) For the avoidance of doubt, no Value-Added Taxes shall be
due in respect of (i) the sale of cash or securities (other than shares in a
"real estate association" as defined in the Value Added Tax Law 1975 ("VAT
Law")); (ii) the sale of assets situated outside Israel; (iii) the export of
goods out of Israel; or (iv) the sale of intangible assets to a foreign
corporation which is not required to make notification to the value added tax
authorities under Section 60 of the VAT Law.
(c) At Creo's option and request, Creo's Israeli subsidiaries
which are purchasing assets under the transactions contemplated herein shall
be entitled to register together with Scitex Corporation under a joint value
added tax registration or to request the consent of the value added tax
authorities to bear any Value-Added Taxes due in connection with the purchase
of assets by those subsidiaries in accordance with Section 20 of the VAT Law.
In either case, Scitex Corporation shall give the Purchasers such assistance
as they may reasonably request in connection with such procedures.
(d) In the event that the Purchasers elect to purchase the real
estate assets of Scitex Electronic Enterprises (International) Ltd. instead
of the shares in that company and Scitex Corporation acquires those assets
from Scitex Electronic Enterprises (International) Ltd. prior to selling them
to the Purchasers, the Purchasers shall indemnify Scitex Corporation in
respect of any Israeli Real Property Acquisition Tax incurred by Scitex
Corporation on that acquisition.
(e) The Sellers shall present the Purchasers at Closing with a
certificate of exemption from withholding tax in respect of the sale of the
Included Assets, which are located in Israel.
(f) All of the Israeli Real Property Purchase Tax on the sale
of the shares of Scitex Electronic Enterprises (Israel) Ltd. to the
Purchasers (if applicable) shall be borne by the Purchasers.
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(g) All of the Israeli Real Property Acquisition Tax on the
sale of the shares of Scitex Electronic Enterprises (Israel) Ltd. to the
Purchasers (if applicable) shall be borne by the Sellers.
(h) All transfer, documentary, sales, use, registration, stamp
and other similar taxes, including any penalties, interest and additions to
tax, incurred in connection with the transactions contemplated hereby other
than as specifically provided in Section 5.18(a), (d), (f) and (g) ("Transfer
Taxes") shall be borne equally by the Sellers and the Purchasers,
respectively. The Purchasers shall reimburse the Sellers for one-half of the
Transfer Taxes paid by the Sellers within five Business Days of written
request for such payment. The Sellers and the Purchasers shall cooperate in
timely making and filing all Tax Returns as may be required to comply with
the provisions of any Transfer Tax Laws. To the extent legally able to do so,
the Purchasers shall deliver to the Sellers exemption certificates
satisfactory in form and substance to the Sellers, and the Sellers will make
such elections reasonably requested by the Purchasers, with respect to
Transfer Taxes if such delivery or elections would reduce the amount of
Transfer Taxes that would otherwise be imposed.
5.19 TERMINATION OF AGREEMENTS. The Sellers shall terminate and
shall cause the termination by the Closing of any agreements, arrangements or
practices relating to Taxes between any of the Sellers or any of their
respective subsidiaries (other than a member of the Digital Preprint and
Print-on-Demand Group), on the one hand, and any member of the Digital
Preprint and Print-on-Demand Group, on the other hand, provided, however,
that notwithstanding anything to the contrary in this Agreement, any member
of the Digital Preprint and Print-on-Demand Group shall pay to the Sellers
within 10 Business Days after the Closing Date any liability to the Sellers
or their respective subsidiaries (other than a member of the Digital Preprint
and Print-on-Demand Group) in connection with Taxes to the extent such
liabilities are reflected on the Closing Date Balance Sheet.
5.20 PREPARATION AND FILING OF INCOME TAX RETURNS; PAYMENT OF INCOME
TAXES.
(a) The Sellers shall file any consolidated, combined or
unitary Income Tax Returns that include any member of the Digital Preprint
and Print-on-Demand Group for taxable periods ending on or prior to the
Closing Date consistent with past practice and pay all Pre-Year End Tax
Liabilities due thereon. The Purchasers shall pay all other Income Taxes
relating to any member of the Digital Preprint and Print-on-Demand Group on
such Tax Returns (other than Income Taxes imposed upon any gain from the sale
of the Business, the Included Assets of any member of the Digital Preprint
and Print-on-Demand Group (the "asset purchase transactions") contemplated in
this Agreement). Purchasers shall have a reasonable opportunity to review and
comment on such Tax Returns and all reasonable comments shall be incorporated
into such Tax Returns as related to any member of the Digital Preprint and
Print-on-Demand Group, the Business or the Included Assets. The Sellers shall
have the right to file amended consolidated, combined or unitary Income Tax
Returns that include any member of the Digital Preprint and Print-on-Demand
Group for the period ending on or prior to
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December 31, 1999 and shall have the right to receive and retain any Income
Tax refund or credit resulting from such Returns or from the resolution of
any Tax Controversy, other than, (i) any refund or credit accrued on the
Books and Records of the Company as of December 31, 1999 or (ii) as a result
of a net operating loss or other Tax attribute carryback arising from the
operation of the Business after December 31, 1999. In the event that (i) any
income or other activity of a member of the Digital Preprint and
Print-on-Demand Group is included in a consolidated, combined or unitary
return filed by Sellers or any of their subsidiaries for periods beginning
after December 31, 1999 or (ii) any income or activity of the Business or the
Included Assets are included in any other return of Sellers or any of their
subsidiaries, the Purchasers shall pay to the Scitex Corporation promptly
upon request an amount equal to the Taxes such member of the Digital Preprint
and Print-on-Demand Group or the Business or Included Assets (if considered a
separate taxable entity) would pay on the income or activity included in the
return of Seller or its subsidiary, but only with respect to the period
beginning after December 31, 1999 and to the extent such payment is not
otherwise included in the calculation of the Adjustment Amount provided in
Section 5.3. Such Taxes will be computed on a separate return basis using the
effective tax rate on such Tax Return as determined by PricewaterhouseCoopers
and reviewed by KPMG (without taking into account any carryover tax losses
and carryover benefits other than such losses or benefits from Iris Graphics,
Inc.). To the extent that any member of the Digital Preprint or
Print-on-Demand Group, the Included Assets or the Business generates a loss
during such period from January 1, 2000 through the Closing Date, and as a
result of being included in an Income Tax Return by any Seller or one of its
subsidiaries, that results in a tax benefit to any Seller or one of its
subsidiaries, Sellers shall pay over to Purchasers such tax benefit to the
extent actually realized and to the extent such payment is not included in
the calculation of the Adjustment Amount provided in Section 5.3.
(b) The Purchasers shall file or cause to be filed all Income
Tax Returns other than consolidated, combined or unitary Income Tax Returns
that include any of the Sellers and are required to be filed by or on behalf
of any member of the Digital Preprint and Print-on-Demand Group for taxable
periods ending on or prior to the Closing Date, and all amendments of such
returns, that have not been filed as of the close of business on the Closing
Date. The Purchasers shall have the right to receive and retain any Income
Tax refund or credit resulting from such Returns.
(c) The Purchasers shall timely prepare and file (or cause to
be prepared and filed) all other Tax Returns required by Law for all Taxes
covering any member of the Digital Preprint and Print-on-Demand Group for all
Tax periods and the Purchasers shall timely pay or cause to be paid all Taxes
relating to such Tax Returns (other than Income Taxes imposed upon any gain
from the asset purchase transactions contemplated in this Agreement).
(d) The Purchasers and the Sellers shall use reasonable best
efforts to agree prior to the Closing on those intercompany obligations which
are to be satisfied prior to Closing.
5.21 TAX CLAIMS.
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(a) The Sellers and the Purchasers shall each provide the other
with such assistance as may be reasonably requested and shall use their
reasonable best efforts to cooperate with each other (including making
employees reasonably available to provide information) in connection with the
preparation of any Tax Return, any Tax Controversy), or the determination of
liability for Taxes with respect to the member of the Digital Preprint and
Print-on-Demand Group or the income or operations of the Business. Each party
shall, and shall use its reasonable best efforts to cause its subsidiaries
to, cooperate with the other in preparing and pursuing any claims for refunds
or credits of Taxes (including refunds or credits for prepayments of Taxes)
to which it is entitled under this Agreement. Each of the Sellers and each of
the Purchasers shall, and shall use its reasonable best efforts to cause
their subsidiaries to, retain until 7 years after the Closing Date all Tax
Returns, schedules, work papers and other records that are owned by such
Person immediately after the Closing and that relate to the Business or the
member of the Digital Preprint and Print-on-Demand Group; after the end of
such period, before disposing of any such Tax Returns, schedules, work papers
or other records, each shall give notice to such effect to the other, and
shall give the other, at the other's cost and expense, a reasonable
opportunity to remove and retain all or any part of such Tax Returns,
schedules, work papers or other records as the other may select.
(b) The parties shall, in the event that they receive notice
(whether orally or in writing) of any examination, claim, proposed
settlement, proposed adjustment or related matter with respect to any Income
Taxes for which the other party may be indemnified under this Agreement (the
"Tax Controversies") promptly notify such other party, provided, however,
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent that such other party shall have been
actually prejudiced as a result of such failure (except that such other party
shall not be liable for any expenses incurred during the period in which the
first party failed to give such notice).
(c) A party shall be entitled at its sole discretion and
expense to handle, control and compromise or settle any Tax Controversies for
which such party has an indemnification obligation under this Agreement
(unless such settlement would have a material adverse effect on the Tax
liability of another party or parties) and the parties shall reasonably
inform each other of the Tax Controversies. If such settlement would have a
material adverse effect, the indemnifying party shall not agree to such
settlement without the consent of the indemnified party, which consent will
not be unreasonably delayed or withheld.
5.22 TAX-FREE REORGANIZATION FOR IRIS GRAPHICS, INC. AND MERGER FOR
SCITEX AMERICA CORP.
(a) Each of the Sellers and the Purchasers shall use its best
efforts (unless prohibited by law) to cause the purchase and sale of Iris
Graphics Inc. to be treated as a reorganization within the meaning of Section
368 of the Code, including without limitation taking the actions required by
Section 367 of the Code. Such tax-free reorganization shall be effected
pursuant to a merger agreement to be entered into among the applicable
parties, which agreement shall set forth the specific structure of such
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reorganization and shall contain, without limitation, indemnification of the
Sellers and their subsidiaries for any United States Income Taxes payable
solely as a result of the disposition by the Purchasers of any stock of Iris
Graphics, Inc. or any successor corporation within the meaning of Section 367
of the Code.
(a) Each of the Sellers and the Purchasers agree that the
Purchasers shall purchase and acquire the assets of and assume the
liabilities of Scitex America Corp. through a merger of Scitex America Corp.
and a subsidiary of Creo. Such merger shall be effected pursuant to a merger
agreement which shall provide that Scitex America Corp. will merge with and
into a subsidiary of Creo organized under the laws of one of the states of
the United States and pursuant to which Scitex Development Corp. will receive
$1 in exchange for the stock of Scitex America Corp. The parties agree that
such transaction will be treated for United States Income Tax purposes as a
sale of the assets of Scitex America Corp. for the assumption of the
liabilities (at their respective fair market values) of Scitex America Corp.
The Sellers will include any gain or loss from such transaction on their Tax
Returns and shall pay any Income Tax as a result of such transaction. In the
event that the Israeli tax authorities challenge the deduction of loss
relating to the sale of the intercompany debt of Scitex America Corp. owed to
Scitex Corporation and as a result Scitex Corporation is required to pay
additional Income Taxes each of the Purchaser and the Seller shall pay 50% of
the net amount of additional Income Taxes to the extent necessary; provided,
however, such amount shall be reduced by the amount of any Income Tax refund,
reduction or other tax benefit to Scitex Corporation or its subsidiaries
relating thereto. The Purchasers shall indemnify the Sellers and their
respective subsidiaries for any U.S. Income Tax liabilities (net of any Tax
benefits) resulting from a valuation of Scitex America Corp. or its business
or assets in excess of the amount of debt owed by Scitex America Corp. to
Scitex as of December 31, 1999; provided, however, such amount shall be
reduced by the amount of any Income Tax refund, reduction or other tax
benefit to Scitex Corporation or its subsidiaries relating thereto.
5.23 EMPLOYEE BENEFIT MATTERS.
(a) For a period of at least 18 months following the Closing
Date, the Purchasers shall provide or cause to be provided compensation and
benefits to all of the officers and employees who are employed by the Sellers
or members of the Digital Preprint and Print-on-Demand Group and who are
employed by the Purchasers or any of its subsidiaries after the Closing Date
("Employees of the Business") that, while employed by the Purchasers or their
subsidiaries, are no less favorable in the aggregate than the compensation
and benefits provided to the Employees of the Business immediately prior to
the Closing Date.
(b) To the extent Employees of the Business are provided with
health coverage under health plan(s) maintained or established by the
Purchasers or their subsidiaries, the Purchasers or their subsidiaries shall
cause their health plan(s): (A) to waive any pre-existing condition
exclusions, evidence of insurability provisions and waiting periods (except
to the extent that such exclusions would have then applied or waiting periods
were not satisfied under the health plans in which the Sellers are
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participating employers immediately prior to the Closing Date (the "Health
Plans")); and (B) to credit or otherwise consider any monies paid (or
accrued) under the Health Plans by the Employees of the Business prior to the
Closing Date toward any deductibles, co-pays or other maximums under
Purchasers' health plan(s) during the first plan year in which the Closing
Date occurs.
(c) The Purchasers shall cause each employee benefit plan or
compensation arrangement established, maintained or contributed to by the
Purchasers or the Sellers to grant full credit for all service or employment
with, or recognized by, the Sellers and any of their subsidiaries (i) for
purposes of eligibility and vesting with respect to any pension plan or
scheme, including, without limitation, any employee benefit pension plan
within the meaning of Section 3(2) of ERISA, and (ii) for purposes of
eligibility and determining the amount of any benefit with respect to any
vacation program and any employee welfare benefit plan or scheme, including
without limitation any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, including without limitation any severance plan or
sick plan. The foregoing provisions shall apply to the employee benefit plan
or compensation arrangement established, maintained or contributed to by the
Purchasers in a jurisdiction in the United States, as well as other foreign
jurisdictions, mutatis mutandis.
(d) The Purchasers shall be responsible for satisfying any and
all obligations under the Consolidated Omnibus Budget Reconciliation Act of
1985 to provide COBRA continuation coverage to the Employees of the Business
and their beneficiaries. The Purchasers shall be responsible for any
severance or other obligation that becomes payable to or due any Employee of
the Business as a result of a termination of employment on or after the
Closing Date.
(e) 50% of the outstanding unvested options to purchase
Ordinary Shares of Scitex Corporation (each an "Unvested Stock Option") held
by the Employees of the Business listed in Schedule 5.23(e) of the Seller
Disclosure Schedule shall be cancelled by Scitex Corporation as of the
Closing Date. To the extent the Employees of the Business have Unvested Stock
Options under different stock option plans, or Unvested Stock Options at
different exercise prices, 50% of such Unvested Stock Options shall be
canceled on a pro rata basis. The remaining Unvested Stock Options shall be
exercisable by the Employees of the Business to the same extent as if the
transactions contemplated by this Agreement had not occurred. As of the
Closing Date, or as soon as practicable thereafter, in consideration for such
cancellation each holder of an Unvested Stock Option shall receive an option
(the "Replacement Option"), with an exercise price equal to the fair market
value of the Creo Common Shares on the date of grant, to purchase a number of
Creo Common Shares such that the Black Scholes value of such Replacement
Option equals 50% of the product of (A) the number of ordinary shares of
Scitex Corporation subject to the Unvested Stock Option and (B) the excess of
the fair market value of an ordinary Share of Scitex Corporation as of the
date of this Agreement over the exercise price per share of such Unvested
Stock Option. The Replacement Options shall expire five years from the date
of grant, subject to continued employment, and shall be subject to the same
vesting conditions of the Unvested Stock Option. The Sellers agree to take
all corporate or other action as shall be necessary to
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effectuate the foregoing and the Sellers shall use their reasonable best
efforts to obtain, if required, prior to the Closing Date, such consent of
each holder of an Unvested Stock Option as shall be necessary to effectuate
the foregoing.
5.24 EMPLOYEES. The Sellers shall assign and the Purchasers shall,
or shall cause their respective subsidiaries to, assume as of the Closing
Date, continuation of employment to all employees of the Business as of the
Closing Date, including any employee on a disability (long-term or
short-term) or authorized temporary leave as of the Closing Date, and the
Purchasers shall provide compensation and benefits to such employees in
accordance with Section 5.23(a). The Sellers and the Purchasers shall notify
the Employees of the Business that (i) the Purchasers are the successor
employer, (ii) all employment agreements have been assigned to the Purchasers
and (iii) the Purchasers will assume all of the Sellers' obligations under
such employment agreements as of the Closing Date. The Purchasers, as a
successor employer, shall perform and honor all of the Sellers' obligations
under the employment and collective bargaining agreements covering the
Employees of the Business and all associated obligations under Israeli Law or
other applicable Law. Nothing herein shall be construed to require the
Purchasers or their respective subsidiaries to continue the employment of
such employees for any particular length of time after the Closing Date.
5.25 STEERING COMMITTEE. The parties shall form a steering committee
to assist in the integration of the Business and the Purchasers' business and
to coordinate planning for the operations of the Business following the
Closing. The members of the steering committee shall consist of Amos
Michelson and Yoav Z. Chelouche and such other Persons as the parties shall
jointly appoint.
5.26 NOTICES.
(a) Each of the Purchasers and the Sellers will notify the
other parties promptly in writing of, and contemporaneously will provide the
other parties with true and complete copies of any and all information or
documents relating to, and will use all reasonable best efforts to cure
before the Closing, any event, transaction or circumstance occurring after
the date of this Agreement that causes or is reasonably likely to cause any
covenant or agreement of such party under this Agreement to be breached in
any material respect or that renders or will render untrue in any material
respect any representation or warranty of such party contained in this
Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. No notice given pursuant to this Section 5.26
shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining
satisfaction of any condition contained herein.
(b) Each of the Purchasers and the Sellers shall promptly
notify the others of:
(i) any material notice or other material communication
of which such party has knowledge from any Person alleging that the
consent of such Person is or may be required in
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connection with the transactions contemplated by this Agreement or
the Ancillary Agreements;
(ii) any material notice or other material communication
of which such party has knowledge from any Governmental or Regulatory
Authority in connection with the transactions contemplated by this
Agreement or the Ancillary Agreements;
(iii) any actions, suits, charges, complaints, claims,
investigations or proceedings commenced or to the knowledge of such
party threatened against, relating to, involving or otherwise
affecting, the Business which, if pending on the date of this
Agreement, would individually or in the aggregate have a Material
Adverse Effect or which relate to the consummation of the
transactions contemplated by this Agreement and the Ancillary
Agreements; or
(iv) any other material adverse effect or of any event
that would materially impair such party's ability to perform its
obligations under this Agreement or the Ancillary Agreements.
The notification to the other party of any of the events set forth
above in accordance with this Section 5.26 shall not be deemed to cure any
related breaches of the representations, warranties, covenants or agreements
contained in this Agreement, nor shall the failure of the non-notifying party
to take any action with respect to such notice be deemed a waiver of any such
breaches.
5.27 FULFILLMENT OF CONDITIONS. Each of the Purchasers and the
Sellers will use their respective best efforts to and take all reasonable
steps necessary or desirable and proceed diligently and in good faith to
satisfy each condition to the obligations of the other parties contained in
this Agreement and will not take or fail to take any action that could
reasonably be expected to result in the nonfulfillment of any such condition.
Notwithstanding the foregoing, neither the Purchasers nor any of the Sellers
shall be required to expend any material amount of money or agree to make any
material concession or give any material undertaking in order to obtain the
consent of any Governmental or Regulatory Authority or other third party
necessary to consummate the transactions contemplated by this Agreement.
5.28 PUBLIC ANNOUNCEMENTS. All announcements, press releases or
other publications relating to this Agreement or the transactions
contemplated hereby prior to the Closing, including announcements to
employees, will be made only with the prior written approval as to form and
content by the other party, provided, however, that with respect to any
public disclosure which is deemed necessary by such party's counsel in order
to comply with applicable Law or Stock Exchange rules, no such approval or
consent shall be required, provided that the parties shall to the fullest
extent practicable consult with each other prior to making any such
announcement, press release or other publication. Notwithstanding the
foregoing, the parties agree that the initial press release
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announcing the execution and delivery of this Agreement shall be in a form
mutually agreed by the parties hereto.
5.29 REFUNDS AND REMITTANCES, ETC.
(a) In the event that the Sellers or their subsidiaries receive
any amount which is reflected as an Included Asset on the December Balance
Sheet or is otherwise properly due and owing to the Purchasers in accordance
with the terms of this Agreement, the Sellers shall cause same to be promptly
remitted to the Purchasers as the Purchasers may direct.
(b) In the event the Purchasers or their respective
subsidiaries receive any amount that is an Excluded Asset or is otherwise
properly due and owing to the Sellers in accordance with the terms of this
Agreement, the Purchasers shall cause same to be promptly remitted to the
Sellers as the Sellers may direct.
(c) In the event that there are any assets of any of the
corporations acquired by the Purchasers that belong to the Sellers, at the
Purchasers' option, exercisable within 90 days after the Closing, the
Purchasers shall transfer such assets to the Sellers, at book value and shall
be reimbursed therefor by the Sellers.
5.30 MEETING OF PURCHASERS' SHAREHOLDERS; PROXY STATEMENT.
(a) To the extent required by applicable Law or Stock Exchange
rules, Creo shall promptly after the execution of this Agreement, take all
action necessary in accordance with its Constitutive Documents, applicable
Law and Stock Exchange rules to convene a shareholder meeting to consider and
vote upon the issuance of the Shares contemplated by this Agreement. Creo's
Board of Directors shall recommend that Creo's shareholders vote to approve
the issuance of the Shares if such vote is necessary, and shall use its
reasonable best efforts to solicit from the shareholders proxies in favor of
the issuance of the Shares, including, without limitation, hiring a proxy
solicitor.
(b) If required by applicable Law or Stock Exchange rules, Creo
shall prepare a proxy statement and file it with the appropriate Governmental
or Regulatory Authority as promptly as practicable after the execution of
this Agreement. As promptly as practicable after it has been filed with the
appropriate Governmental or Regulatory Authority, Creo shall mail the proxy
statement to the Purchasers' shareholders as of the record date for the
shareholder meeting.
5.31 DELIVERY OF FINANCIAL STATEMENTS. Prior to February 22, 2000,
the Sellers shall, at their expense, prepare, or cause to be prepared, and
deliver to Creo, the consolidated balance sheets and related statements of
operations and cash flows of the Business at December 31, 1997, 1998 and 1999
and for each of the three years ended December 31, 1999 (the "Seller
Financial Statements") (without any notes thereto), which shall have been
audited by Kesselman & Kesselman (PWC) Certified Public Accountants (Isr.)
and which shall be accompanied by an unqualified opinion expressed thereon by
such firm. The Seller Financial Statements shall be derived from or
"carved-
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out" of the consolidated financial statements of Scitex Corporation. Scitex
Corporation shall use its best efforts to deliver to Creo prior to March 22,
1999, the Seller Financial Statements, including the notes thereto required
by Canadian regulatory authorities in connection with the proxy to be
prepared by Creo pursuant to Section 5.30. The Seller Financial Statements
shall have been prepared in accordance with GAAP consistently applied
throughout the periods shown, (which shall include applying reasonable
methods of allocation of overhead and other general corporate expenses to the
Business), and shall present fairly, in all material respects, the pro forma
financial condition of the Business as of the dates thereof and the pro forma
results of operations of the Business for the three year period then ended.
5.32 SETTLEMENT MATTERS. The Sellers shall use their reasonable best
efforts to settle or otherwise resolve prior to the Closing on terms
(including the monetary settlement amount) reasonably acceptable to the
Purchasers, the matter referred to in Schedule 5.32 of the Seller Disclosure
Schedule. If the such settlement occurs prior to the Closing, 100% of the
monetary settlement amount owed by the Sellers pursuant to any final and
binding agreement of settlement shall be an expense of the Business and the
Sellers shall be obligated to reimburse the Purchasers for an amount equal to
50% of the monetary settlement amount (less any amount reserved on the
December Financial Statements with respect to such matter). The monetary
settlement amount shall include, in addition to amounts paid in settlement,
the legal fees, disbursements and other out-of-pocket costs reasonably
incurred by the Sellers in connection with defending the matter and shall
include costs and expenses of the Sellers (including without limitation,
legal fees and disbursements and other out-of-pocket costs reasonably
incurred by the Sellers in connection with defending and settling such
matters).
5.33 ENCOURAGEMENT OF RESEARCH AND DEVELOPMENT. The Purchasers will
undertake directly towards the Office of the Chief Scientist of the Israeli
Ministry of Trade & Industry to observe all the requirements of the
Encouragement of Research and Development in Industry Law, 5744-1984 and, in
particular, the restrictions on transfer of technology and production rights
with respect to all Business IP, which has been funded by the Office of the
Chief Scientist of the Israeli Ministry of Trade & Industry.
5.34 LICENSED IP AGREEMENT. Effective as of the Closing Date, the
Sellers hereby grant to the Purchasers the non-exclusive worldwide,
perpetual, royalty-free, paid-up, non-assignable (except in the case of a
merger, reorganization, change in control or other sale of all or
substantially all of the assets or equity of Creo), non-sublicensable (except
the right to sublicense end-users to use products or distributors and OEMs to
sell products, but under no circumstances for independent manufacture, sale
or development) right and license to use the Licensed IP, if any, in
connection with Purchasers' current and future Digital Preprint and
Print-on-Demand businesses. Prior to the Closing, the parties shall execute a
Licensed IP Agreement that embodies these terms and contains all other
commercial reasonable terms for a license of this nature (the "Licensed IP
Agreement").
5.35 LISTING. Creo shall use its reasonable best efforts to have the
Shares listed or approved for listing on the Stock Exchanges prior to the
Closing.
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5.36 APRION AGREEMENT. Effective as of the Closing Date, Creo shall
assume the obligations of Scitex Corporation to Aprion under Sections 9.1 and
9.2 of the Aprion Agreement, solely as such obligations of Scitex Corporation
relate to the Business IP. Except with respect to the foregoing sentence,
Creo shall have no obligation to provide any other Intellectual Property to
Aprion (including any Intellectual Property developed by Creo prior to or
after the Closing). At the Closing, Creo and Scitex Corporation shall execute
an assignment and assumption agreement (the "Aprion Assignment and Assumption
Agreement") that embodies the terms and conditions set forth in this Section
5.36 and includes commercially reasonable terms acceptable to Creo and Scitex
Corporation.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE PURCHASERS AND THE SELLERS
The obligation of the Purchasers and the Sellers under this Agreement
to consummate the purchase and sale of the Assets at the Closing shall be
subject to the satisfaction, at or prior to the Closing, of all of the
following conditions, any one or more of which may be waived by the
Purchasers or the Sellers, as the case may be.
6.1 STANDSTILL AND REGISTRATION RIGHTS AGREEMENT. Each of the
applicable Sellers and Purchasers shall have executed and delivered to the
other party each of the Standstill Agreement and Registration Rights
Agreement, in substantially the forms of Exhibits 6.1(a) and 6.1(b) hereto.
6.2 SUPPLY AND SERVICES AGREEMENT. Each of the applicable Sellers
and Purchasers shall have executed and delivered to the other party the
Supply and Services Agreement.
6.3 TRADEMARK AND TRADENAME LICENSE AGREEMENT. Each of the
applicable Sellers and Purchasers shall have executed and delivered to the
other party the Trademark and Tradename License Agreement.
6.4 INTELLECTUAL PROPERTY LICENSE AGREEMENTS. Each of the
applicable Sellers and Purchasers shall have executed and delivered to the
other party the Intellectual Property License Agreements.
6.5 LICENSED IP AGREEMENT. Each of the applicable Sellers and
Purchasers shall have executed and delivered to the other party the Licensed
IP Agreement.
6.6 APRION ASSIGNMENT AND ASSUMPTION AGREEMENT. Each of the
applicable Sellers and Purchasers shall have executed and delivered to the
other party the Assignment and Assumption Agreement.
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6.7 LISTING. The Stock Exchanges shall, at or prior to the Closing,
have listed or approved the listing on official notice of issuance of the
Shares to be issued and delivered to Scitex Corporation pursuant to this
Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASERS
The obligation of the Purchasers under this Agreement to consummate
the purchase of the Assets at the Closing shall be subject to the
satisfaction, at or prior to the Closing, of all of the following conditions,
any one or more of which may be waived by the Purchasers:
7.1 REPRESENTATIONS AND WARRANTIES ACCURATE. All representations
and warranties of the Sellers contained in this Agreement (after reading out
any materiality qualifications) shall be true and accurate in all material
respects on and as of the Closing Date.
7.2 PERFORMANCE BY THE SELLERS. The Sellers shall have performed
and complied in all material respects with all agreements, covenants and
conditions required by this Agreement to be performed and complied with by
them prior to or on the Closing Date.
7.3 CERTIFICATE. The Purchasers shall have received a certificate,
dated the Closing Date, signed on behalf of each Seller by a principal
corporate officer of such Seller, to the effect that the conditions set forth
in Sections 7.1 and 7.2 have been satisfied.
7.4 ORDERS AND LAWS. No Order or Law shall be in effect on the
Closing Date that restrains, enjoins, or otherwise prohibits or makes illegal
the consummation of the transactions contemplated by this Agreement and no
action or proceeding shall be pending or overtly threatened before or by any
Governmental or Regulatory Authority which could reasonably be expected to
result in the issuance of any such Order or the enactment or promulgation of
any such Law.
7.5 CONSENTS.
(c) All consents, approvals and actions of, filings with, and
notices to, all Governmental or Regulatory Authorities required to be
obtained or made in order to consummate the transactions contemplated by this
Agreement and which could reasonably be expected to have a Material Adverse
Effect if not obtained, including, without limitation those set forth in
Schedule 3.19 of the Seller Disclosure Schedule and Schedule 4.10 of the
Purchaser Disclosure Schedule, shall have been made and obtained and shall be
in full force and effect, and all terminations or expirations of waiting
periods imposed by any Governmental or Regulatory Authority with regard to
those consents, approvals, filings and notices shall have occurred and no
such consents or approvals or similar actions from any Governmental or
Regulatory Authority shall impose terms or
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conditions or qualifications that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(d) All third party consents (or in lieu thereof waivers) set
forth in Schedule 3.19 of the Seller Disclosure Schedule (in form and
substance reasonably satisfactory to the Purchasers) and Schedule 4.10 of the
Purchaser Disclosure Schedule to the performance by the Sellers of their
obligations under this Agreement and the Ancillary Agreements or the
consummation of the transactions contemplated hereby and thereby (including
transfer of the Included Assets and the Contracts to the Purchasers), shall
have been obtained, shall not be subject to the satisfaction of any condition
that has not been satisfied or waived and shall be in full force and effect.
7.6 APPROVAL OF SHAREHOLDERS. The issuance of the Shares
contemplated by this Agreement shall have been approved and adopted by the
requisite vote or consent of the shareholders of Creo in accordance with
applicable Law, the rules of the Stock Exchanges and Creo's Constitutive
Documents.
7.7 MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
there shall have been no change, circumstance or occurrence in the Included
Assets or the Business or financial condition of the Business that would have
a Material Adverse Effect; provided, however, that any adverse effect
attributable to: (i) general economic, business or industry conditions; or
(ii) the announcement of this Agreement, shall be disregarded.
7.8 ADDITIONAL DOCUMENTS, ETC. The Sellers shall have delivered to
the Purchasers such other documents, instruments and certificates as shall be
reasonably requested by the Purchasers for the purpose of effecting the
transactions provided for and contemplated by this Agreement.
7.9 DECEMBER FINANCIAL STATEMENTS. The December Financial
Statements shall reflect Operating Income of not less than $35 million for
the year ended December 31, 1999, which shall be calculated on a consistent
basis with the principles, methods, practices and estimation methodologies
used in the preparation of the September Financial Statements.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers under this Agreement to consummate the
sale of the Assets at the Closing shall be subject to the satisfaction, at or
prior to the Closing, of all of the following conditions, any one or more of
which may be waived by the Sellers.
8.1 REPRESENTATIONS AND WARRANTIES ACCURATE. All representations
and warranties of the Purchasers contained in this Agreement (after reading
out any
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materiality qualifications) shall be true and accurate in all
material respects on and as of the Closing Date.
8.2 PERFORMANCE BY THE PURCHASERS. The Purchasers shall have
performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and
complied with by them prior to or on the Closing Date.
8.3 CERTIFICATE. The Sellers shall have received a certificate,
dated the Closing Date, signed on behalf of the Purchasers by a principal
corporate officer of Creo, to the effect that the conditions set forth in
Sections 8.1 and 8.2 have been satisfied.
8.4 ORDERS AND LAWS. No Order or Law shall be in effect on the
Closing Date that restrains, enjoins, or otherwise prohibits or makes illegal
the consummation of the transactions contemplated by this Agreement and no
action or proceeding shall be pending or overtly threatened before or by any
Governmental or Regulatory Authority which could reasonably be expected to
result in the issuance of any such Order or the enactment or promulgation of
any such Law.
8.5 CONSENTS.
(e) All the consents, approvals and actions of, filings with,
and notices to, all Governmental or Regulatory Authorities required to be
obtained or made in order to consummate the transactions contemplated by this
Agreement, and which could reasonably be expected to have a material adverse
effect on Creo and its subsidiaries, taken as a whole if not obtained,
including, without limitation those set forth in Schedule 3.19 of the Seller
Disclosure Schedule and Schedule 4.10 of the Purchasers Disclosure Schedule
shall have been made and obtained and shall be in full force and effect, and
all terminations or expirations of waiting periods imposed by any
Governmental or Regulatory Authority with regard to those consents,
approvals, filings and notices shall have occurred.
(f) All third party consents (or in lieu thereof waivers) set
forth in Schedule 3.19 of the Seller Disclosure Schedule and Schedule 4.10 of
the Purchasers Disclosure Schedule (in form and substance reasonably
satisfactory to the Sellers), to the performance by the Sellers of their
obligations under this Agreement and the Ancillary Agreements or the
consummation of the transactions contemplated hereby (including transfer of
the Included Assets and the Contracts to Purchasers) shall have been
obtained, shall not be subject to the satisfaction of any condition that has
not been satisfied or waived and shall be in full force and effect.
8.6 MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
there shall have been no change, circumstance or occurrence in the business,
results of operations or financial condition of the Purchasers that would
have a material adverse effect on the business or operations (as currently
conducted) or financial condition of Creo and its subsidiaries, taken as a
whole; provided, however, that any adverse effect
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directly attributable to: (i) general economic, business conditions and
industry conditions; and (ii) the announcement of this Agreement, shall be
disregarded.
8.7 ADDITIONAL DOCUMENTS, ETC. The Purchasers shall have delivered
to the Sellers such other documents, instruments and certificates as shall be
reasonably requested by the Sellers for the purpose of effecting the
transactions provided for and contemplated by this Agreement.
8.8 OPINION OF COUNSEL. The Sellers shall have received the written
opinion of Getz Prince Wells with respect to Creo as to the matters set forth
in Sections 4.3(a), clause (i) and the first sentence of 4.11 and such other
matters as shall be reasonably requested by the Sellers.
ARTICLE IX
CLOSING
9.1 THE CLOSING. The Closing shall take place at 10:00 A.M. local
time on the date (the "Closing Date") which is the first Business Day of the
calendar month following the month during which all of the conditions to
Closing set forth in Articles VI, VII and VIII are satisfied or waived (other
than those conditions which by their terms are to be satisfied at the
Closing) at the offices of Scitex Corporation, or at such other time, date or
place as the parties may mutually agree. The actual time and date of the
Closing are herein called the "Closing Date".
9.2 OBLIGATIONS OF THE SELLERS. At the Closing, the Sellers shall
deliver to the Purchasers the following:
(g) such deeds, bills of sale, endorsements, consents,
assignments, and other good and sufficient instruments of conveyance and
assignment, all in recordable form, where applicable, in form and substance
reasonably acceptable to the Purchasers, as shall be effective to vest in the
Purchasers all right, title and interest of the Sellers and their
subsidiaries in and to the Included Assets, including stock certificates
representing all shares of stock which are included in the Included Assets,
with appropriate share transfer forms attached, duly endorsed in blank or
otherwise complying with the requirements of the applicable jurisdiction for
the transfer of securities;
(h) all Books and Records (or, in the case of Books and Records
not exclusively related to the Business or where the delivery of original
Books and Records is prohibited by law, copies thereof);
(i) a general warranty deed, in form and substance reasonably
acceptable to the Purchasers, in proper form for recording, transferring to
the Purchasers good and marketable title to the Owned Real Property;
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(j) the certificate and other documents required by Article VII
hereof;
(k) the cash received by the Sellers in consideration for the
sale of certain assets in exchange for shares of Creo, as provided in Section
2.6 and as listed in Exhibit 2.1(c), as well as the cash amounts contemplated
by Sections 5.3(a) and 2.1(b)(xxi);
(l) appropriate receipts; and
(m) such other instruments or documents, in form and substance
reasonably acceptable to the Purchasers, as may be necessary to carry out the
provisions of this Agreement.
9.3 OBLIGATIONS OF THE PURCHASERS.
(a) At the Closing, the Purchasers shall deliver to the Sellers:
(i) the consideration set forth in Section 2.6 and as
listed in Exhibit 2.1(c);
(ii) the certificate and other documents required by
Article VIII hereof;
(iii) appropriate receipts;
(iv) such instruments of assumption and other instruments
or documents, in form and substance reasonably acceptable to the
Sellers, as may be necessary to effect the assumption of the Assumed
Liabilities by Purchasers or Purchasers; and
(v) such other instruments and documents, in form and
substance reasonably acceptable to Sellers, as may be necessary to
carry out the provisions of this Agreement.
(b) At the Closing, Creo shall deliver to the Sellers
certificates representing the Shares registered in the name of Scitex
Corporation or its subsidiaries.
9.4 MERGER DOCUMENTS. At or prior to the Closing, the Sellers and
the Purchasers shall execute and deliver such certificates of merger and
other documents, in customary form, as shall be necessary or appropriate to
effect the mergers contemplated by Section 5.22 and Exhibit 2.1(c), and shall
cause such certificates and other documents to be filed with the applicable
Governmental or Regulatory Authorities in order to consummate such mergers
concurrently with the Closing.
9.5 FURTHER ASSURANCES. From time to time after the Closing Date,
the Sellers will execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, such other instruments of conveyance, assignment,
transfer and delivery
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and will take or cause to be taken such other actions as the Purchasers may
reasonably request in order to more effectively sell, transfer, convey,
assign and deliver to the Purchasers any of the Included Assets or to enable
the Purchasers to exercise and enjoy all rights and benefits with respect
thereto, and as otherwise may be appropriate to carry out the transactions
contemplated by this Agreement.
ARTICLE X
TERMINATION
10.1 RIGHTS TO TERMINATE. This Agreement may be terminated at any
time prior to the Closing Date:
(n) by mutual consent of the Purchasers and the Sellers;
(o) by the Purchasers or the Sellers if there has been a
material breach of this Agreement on the part of the other party and such
other party has failed to cure such material breach after not less than 30
days' notice of such material breach;
(p) by the Purchasers or the Sellers, upon two Business Days'
prior written notice to the Sellers, if the transactions contemplated by this
Agreement shall fail to receive the required vote by Creo's stockholders at
the meeting of Creo's stockholders held for such purpose (including any
adjournment thereof); or
(q) by the Purchasers or the Sellers if the transactions
contemplated herein shall not have been consummated by September 20, 2000;
provided, however, that this Section 10.1 will not be available to any party
whose failure to perform any of its obligations under this Agreement results
in the failure of the transactions contemplated herein to be consummated by
such time.
10.2 CONSEQUENCES. In the event of termination of this Agreement
pursuant to Section 10.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of any party except (a)
to the extent that such termination results from a material breach of this
Agreement by such party, (b) Section 5.7 (Solicitation of Employees) shall
survive the termination for two years after the termination date, and (c)
Sections 5.10 (Confidentiality) and 12.1 (Expenses) shall survive the
termination date. The Sellers or the Purchasers may seek such remedies,
including damages and fees of attorneys, against the other with respect to
any such breach described in the prior sentence as are provided in this
Agreement or as are otherwise available at Law or in equity.
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ARTICLE XI
INDEMNIFICATION
11.1 TERMINATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in Articles III and IV shall
terminate at the Closing and shall have no force or effect following the
Closing, except as follows:
(r) the representations and warranties of the Sellers contained
in Section 3.4(d) (Financial Statements) shall survive until December 31,
2000;
(s) the representations and warranties of the Sellers contained
in Section 3.5(a) and (e) (Assets) shall have no expiration date;
(t) the representations and warranties of the Sellers contained
in Section 3.11 (relating only to Income Taxes) shall survive until the
expiration of the 30 day period following the expiration of the statute of
limitations including extensions thereof; and
(u) the representations and warranties of the Purchasers
contained in Section 4.11 (Validity of Shares) shall have no expiration date.
11.2 INDEMNIFICATION BY THE SELLERS. From and after the Closing, the
Sellers shall jointly and severally indemnify and save the Purchasers and
their subsidiaries and affiliates (collectively, "Purchasers Indemnified
Parties") harmless from and defend each of them from and against any and all
demands, claims, actions, liabilities, losses, costs, damages or expenses
whatsoever (including reasonable attorneys' fees) asserted against, imposed
upon or incurred by the Purchasers Indemnified Parties resulting from or
arising out of (i) any Pre-Year End Tax Liabilities, (ii) any Excluded
Liabilities, (iii) any breach of the representations and warranties of the
Sellers contained in Section 3.4(d), Section 3.5(a) and (e) or Section 3.11
(but only with respect to Income Taxes) but only for the period such
representation or warranty survives pursuant to Section 11.1(a), 11.1(b) and
11.1(c) above (iv) the breach of any covenant or agreement of either Seller
contained in this Agreement, or (v) any Income Taxes imposed upon gain from
the asset purchase transaction under this Agreement. In the event notice of a
claim for indemnification under Section 11.2 is given by the Purchasers
within the applicable survival period, the representations and warranties
that are the subject of such indemnification claim shall survive until such
time as such claim is finally resolved.
11.3 INDEMNIFICATION BY THE PURCHASERS. From and after the Closing,
the Purchasers shall indemnify and save the Sellers and their subsidiaries or
affiliates (collectively, "Seller Indemnified Parties") harmless from and
defend each of them from and against any and all demands, claims, actions,
liabilities, losses, costs, damages or expenses whatsoever (including
reasonable attorneys' fees) asserted against, imposed upon or incurred by the
Seller Indemnified Parties resulting from or arising out of (i) any Assumed
Liabilities, (ii) any liabilities arising from or with respect to the
operations of the Business from and after the Closing , (iii) any breach of
the representations and
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warranties of the Purchasers contained in Section 4.11 but only for the
period such representation or warranty survives pursuant to Section 11.1(d)
above or (iv) the breach of any covenant or agreement of the Purchasers
contained in this Agreement. In the event notice of a claim for
indemnification under this Section 11.3 is given by the Sellers within the
applicable survival period, the representations and warranties that are the
subject of such indemnification claim shall survive until such time as such
claim is finally resolved.
11.4 TERMS AND CONDITIONS OF INDEMNIFICATION. All claims for
indemnification by any Indemnified Party under Section 11.2 and Section 11.3
will be asserted and resolved as follows, except for claims for
indemnification for any Pre-Year End Tax Liabilities, which shall be asserted
and resolved as provided in Section 5.21:
(a) In the event any claim or demand in respect of which an
Indemnifying Party might seek indemnity under Section 11.2 or Section 11.3 is
asserted against or sought to be collected from such Indemnified Party by a
Person other than a Seller, the Purchasers or any subsidiary or affiliate of
the Sellers or the Purchasers (a "Third Party Claim"), the Indemnified Party
shall deliver a Claim Notice with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such
Third Party Claim, the Indemnifying Party will not be obligated to indemnify
the Indemnified Party with respect to such Third Party Claim to the extent
that the Indemnifying Party's ability to defend against the claim has been
actually and materially prejudiced by such failure of the Indemnified Party.
The Indemnifying Party will notify the Indemnified Party as soon as
practicable within the Dispute Period whether the Indemnifying Party disputes
its liability to the Indemnified Party under Section 11.2 or Section 11.3, as
the case may be, and whether the Indemnifying Party desires, at its sole cost
and expense, to defend the Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
Section 11.4, then the Indemnifying Party will have the right to defend, with
counsel reasonably satisfactory to the Indemnified Party, at the sole cost
and expense of the Indemnifying Party, such Third Party Claim by all
appropriate proceedings, which proceedings will be prosecuted by the
Indemnifying Party in a reasonable manner and in good faith or will be
settled at the discretion of the Indemnifying Party (but only with the
consent of the Indemnified Party, which shall not be unreasonably withheld or
delayed, in the case of any settlement that provides for any relief other
than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party will not be indemnified in
full pursuant to Section 11.2 or Section 11.3, as applicable). The
Indemnifying Party will have full control of such defense and proceedings,
including (subject to the preceding sentence) any compromise or settlement
thereof; provided, however, that if requested by the Indemnifying Party, the
Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense
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or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause, and except as provided in the preceding sentence,
the Indemnified Party will bear its own costs and expenses with respect to
such participation. Notwithstanding the foregoing, the Indemnified Party may
take over the control of the defense or settlement of a Third Party Claim at
any time if it irrevocably waives its right to indemnity under Section 11.2
or Section 11.3, as the case may be, with respect to such Third Party Claim.
(c) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party does not desire to
defend the Third Party Claim pursuant to Section 11.4(a), or if the
Indemnifying Party fails to give any notice whatsoever within the Dispute
Period, or if the Indemnified Party reasonably concludes that it may have
separate or different defenses available to it that are not available to the
Indemnifying Party, then the Indemnified Party will have the right to defend,
at the sole cost and expense of the Indemnifying Party, the Third Party Claim
by all appropriate proceedings, which proceedings will be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or will be settled
at the discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including (subject to the preceding sentence) any compromise or settlement
thereof; provided, however, that if requested by the Indemnified Party, the
Indemnifying Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnified Party and its
counsel in contesting any Third Party Claim which the Indemnified Party is
contesting. Notwithstanding the foregoing provisions of this Section 11.4(c),
if the Indemnifying Party has notified the Indemnified Party within the
Dispute Period that the Indemnifying Party disputes its liability hereunder
to the Indemnified Party with respect to such Third Party Claim and if such
dispute is resolved in favor of the Indemnifying Party in the manner provided
in Section 11.4(d) below, the Indemnifying Party will not be required to bear
the costs and expenses of the Indemnified Party's defense pursuant to this
Section 11.4(c) or of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party will reimburse the
Indemnifying Party in full for all reasonable costs and expenses incurred by
the Indemnifying Party in connection with such litigation. The Indemnifying
Party may participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this Section 11.4(c), and the
Indemnifying Party will bear its own costs and expenses with respect to such
participation.
(d) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability to the Indemnified Party with respect
to the Third Party Claim under Section 11.2 or Section 11.3 or fails to
notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnified Party with
respect to such Third Party Claim, the Indemnifying Party shall indemnify the
Indemnified Party for such liability. If the Indemnifying Party has timely
disputed its liability with respect to such claim, the Indemnifying Party and
the Indemnified Party will proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by litigation in a court of competent
jurisdiction. Pending such resolution the
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Indemnifying Party shall nevertheless be obligated to indemnify the
Indemnified Party as provided in Section 11.4(c).
(e) In the event any Indemnified Party should have a claim
under Section 11.2 or Section 11.3 against any Indemnifying Party that does
not involve a Third Party Claim, the Indemnified Party shall deliver an
Indemnity Notice with reasonable promptness to the Indemnifying Party. The
failure by any Indemnified Party to give the Indemnity Notice shall not
impair such party's rights hereunder except to the extent that an
Indemnifying Party demonstrates that it has been actually and materially
prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute the claim described in such Indemnity Notice or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes the claim described in such Indemnity Notice, the
Losses in the amount specified in the Indemnity Notice will be conclusively
deemed a liability of the Indemnifying Party under Section 11.2 or Section
11.3, as the case may be, and the Indemnifying Party shall pay the amount of
such Losses to the Indemnified Party on demand. If the Indemnifying Party has
timely disputed its liability with respect to such claim, the Indemnifying
Party and the Indemnified Party will proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through negotiations within
the Resolution Period, such dispute shall be resolved in a court of competent
jurisdiction.
11.5 EXCLUSIVE REMEDY.
(a) The indemnification provided for under this Article XI
shall be each Purchasers Indemnified Parties' exclusive remedy for any and
all liability, Losses, cost, damage and expense whatsoever resulting from or
arising out of or relating to this Agreement or any of the transactions
contemplated by this Agreement, absent fraud or other willful misconduct.
(b) The indemnification provided under this Article XI shall be
each Seller Indemnified Parties exclusive remedy for any and all liability,
Losses, cost, damage and expense whatsoever resulting from or arising out of
or relating to this Agreement or any of the transactions contemplated by this
Agreement, absent fraud or other willful misconduct.
ARTICLE XII
MISCELLANEOUS
12.1 EXPENSES. All costs, fees or expenses (including, without
limitation, legal and accounting fees), incurred in connection with this
Agreement and the Ancillary Agreements and in connection with all obligations
required to be performed by each party hereto under this Agreement and the
Ancillary Agreements shall be borne by the party incurring such costs, fees
or expenses, except as expressly provided herein.
66
<PAGE>
12.2 AMENDMENT. This agreement may not be modified, amended, altered
or supplemented except by a written agreement executed by the Purchasers and
the Sellers.
12.3 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
Schedules hereto, contain all of the agreements, covenants, terms, conditions
and representations and warranties agreed upon by the parties relating to the
subject matter of this Agreement and supersede all prior and contemporaneous
agreements, negotiations, correspondence, undertakings, representations,
warranties and communications of any kind of or between the parties and their
representatives, whether oral or written, respecting each subject matter.
12.4 WARRANTY. WITHOUT LIMITATION, THE SELLERS MAKE NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER ORAL OR WRITTEN, EXPRESS
OR IMPLIED, INCLUDING ANY WARRANTY OF TITLE, MERCHANTABILITY, OR FITNESS FOR
A PARTICULAR PURPOSE, EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE III OF THIS
AGREEMENT; AND THE PURCHASERS MAKE NO REPRESENTATIONS OR WARRANTIES OF ANY
KIND, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, EXCEPT AS EXPRESSLY SET
FORTH IN ARTICLE IV OF THIS AGREEMENT.
12.5 WAIVERS. Waiver by any party of any breach of or failure to
comply with any provision of this Agreement by the other parties shall not be
construed as, or constitute, a continuing waiver of such provision, or a
waiver of any other breach of, or failure to comply with, any other provision
of this Agreement. No waiver of any such breach or failure or of any term or
condition of this Agreement shall be effective unless in a written notice
signed by the waiving party and delivered, in the manner required for notices
generally, to each affected party.
12.6 NOTICES. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Agreement ("notice") shall be sufficiently given or
made if in writing and delivered in person with receipt acknowledged, sent by
registered or certified mail, receipt requested, posted prepaid, sent by
overnight courier with guaranteed next day delivery or sent by telex or
facsimile to the party to whom directed at the following address:
If to the Sellers, to:
Scitex Corporation Ltd.
POB 330, 46103 Herzlia B Israel
Facsimile No.: 972-9-597722
Attn: Yoav Z. Chelouche
With copies to:
Proskauer Rose LLP
67
<PAGE>
1585 Broadway
New York, New York 10036-8299
Facsimile No.: (212) 969-2900
Attn: Stanley Komaroff, Esq.
If to the Purchasers, to:
Creo Products Inc.
3700 Gilmore Way
Burnaby, B.C.
V5G 4M1 Canada
Facsimile No.: (604)
Attn: Amos Michelson
with copies to:
Simpson Thacher & Bartlett
485 Lexington Avenue
New York, New York 10017
Facsimile No.: (212) 455-2502
Attn: Lee Meyerson
and
Getz Prince Wells
Suite 1810 - 111 West Georgia Street
Vancouver, B.C.
V6E 4M3 Canada
Facsimile No.: (604) 685-9798
Attn: Leon Getz
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice shall be
deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, one Business Day after sent by
overnight (next day) courier, two Business Days after sent by international
(two day) courier or on the day telexed or faxed.
12.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same document.
12.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
68
<PAGE>
12.9 CONSENT TO JURISDICTION; AND SERVICE OF PROCESS. Each Seller
hereby irrevocably appoints Proskauer Rose LLP at its office at 1585
Broadway, New York, New York 10036, and each Purchaser hereby irrevocably
appoints CT Corporation System at its office at 1633 Broadway, New York, New
York 10019, its lawful agent and attorney to accept and acknowledge service
of any and all process against it in any Order or Proceeding arising out of
or relating to this Agreement or any of the transactions contemplated hereby
and upon whom such process may be served, with the same effect as if such
party were a resident of the State of New York and had been lawfully served
with such process in such jurisdiction, and waives all claims of error by
reason of such service; provided that in the case of any service upon such
agent and attorney, the party effecting such service shall also deliver a
copy thereof to the other party at the address and in the manner specified in
Section 12.7. Each Seller and each Purchasers will enter into such agreements
with such agents as may be necessary to constitute and continue the
appointment of such agents hereunder. Each party hereby irrevocably submits
to the non-exclusive jurisdiction of the United States District Court for the
Southern District of New York or any court of the State of New York located
in the Borough of Manhattan in the City of New York in any such Order or
Proceeding arising out of or relating to this Agreement or any of the
transactions contemplated hereby; provided, however, that such consent to
jurisdiction is solely for the purpose referred to in this Section 12.09 and
shall not be deemed to be a general submission to the jurisdiction of said
courts or in the State of New York other than for such purpose. Each party
hereby irrevocably waives, to the fullest extent permitted by Law, any
objection that it may now or hereafter have to the laying of the venue of any
such Order or Proceeding brought in such a court and any claim that any such
Order or Proceeding brought in such a court has been brought in an
inconvenient forum. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by Law or to commence legal
proceedings or otherwise proceed against the other in any other jurisdiction.
12.10 BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon, inure to the benefit of, and be enforceable
by, the parties hereto and their respective legal representatives, successors
and permitted assigns; provided, that the Sellers shall not assign or
transfer this Agreement nor any right or obligation hereunder by operation of
law or otherwise; provided further, that the Purchasers may prior to the
Closing Date assign all or a portion of their rights under this Agreement to
this subsidiaries; provided, further that no assignment by the Purchasers
shall relieve such Purchaser of its obligations hereunder. Neither this
Agreement nor any of the Ancillary Agreements shall be construed to confer
any benefits or rights on, or be enforceable by, any Person other than the
parties that are signatories hereto.
12.11 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction, and any such provision, to the extent invalid or
unenforceable, shall be replaced by a valid and enforceable provision which
comes closest to the intention of the parties underlying such invalid or
unenforceable provision.
69
<PAGE>
12.12 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.13 FURTHER ASSURANCES. After the Closing Date, without further
consideration, the Sellers and the Purchasers shall take such further action
and shall execute and deliver such further instruments and documents as
either party shall reasonably request in order to carry out the provisions
and purposes of this Agreement.
70
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
CREO PRODUCTS INC.
By: "MARK DANCE"
-------------------------------
Name: Mark Dance
Title: Chief Operating Officer
ISTOBRACK LIMITED
By: "TOM KORDYBACK"
-------------------------------
Name: Tom Kordyback
Title: Chief Financial Officer
CREO SRL
By: "TOM KORDYBACK"
-------------------------------
Name: Tom Kordyback
Title: Chief Financial Officer
LUKA HOLDINGS LTD.
By: "TOM KORDYBACK"
-------------------------------
Name: Tom Kordyback
Title: Chief Financial Officer
CREOSSU INC.
By: "TOM KORDYBACK"
-------------------------------
Name: Tom Kordyback
Title: Chief Financial Officer
CREOPROOFER INC.
By: "TOM KORDYBACK"
-------------------------------
Name: Tom Kordyback
Title: Chief Financial Officer
71
<PAGE>
SCITEX CORPORATION LTD.
By: "R. BEN-SHAOUL"
-------------------------------
Name: R. Ben-Shaoul
Title: Chairman
By: "Y. CHELOUCHE"
-------------------------------
Name: Y. Chelouche
Title: President and Chief Executive Officer
SCITEX DEVELOPMENT CORP.
By: "R. BEN-SHAOUL"
-------------------------------
Name: R. Ben-Shaoul
Title: Chairman
By: "Y. CHELOUCHE"
-------------------------------
Name: Y. Chelouche
Title: President and Chief Executive Officer
72
<PAGE>
SCHEDULE "C"
COMBINED FINANCIAL STATEMENTS OF THE SCITEX BUSINESS
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
1999 COMBINED FINANCIAL STATEMENTS
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
1999 COMBINED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT AUDITORS 2
COMBINED FINANCIAL STATEMENTS:
Balance sheets 3-4
Statements of operations 5
Statements of changes in equity 6-7
Statements of cash flows 8-9
Notes to financial statements 10-32
</TABLE>
THE AMOUNTS ARE STATED IN U.S. DOLLARS ($).
---------------
-------------------------
---------------
1
<PAGE>
[LETTERHEAD]
KESSELMAN & KESSELMAN
Certified Public Accountants
Trade Tower, 25 Hamered Street
Tel Aviv 68125 Israel
P.O Box 452 Tel Aviv 61003
Telephone +972-3-7954555
Facsimile +972-3-7954556
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
SCITEX CORPORATION LTD.
We have audited the accompanying combined balance sheets of Scitex - The
Graphic Arts Business (the "Business") (which comprises Certain Business
Units of Scitex Corporation Ltd. and its subsidiaries ("Scitex")) as of
December 31, 1999 and 1998 and the related combined statements of operations,
changes in equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
Scitex's Board of Directors and management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We did not audit the financial statements of an associated company, the
Business's interest in capital deficiency of which amounted to $ 1,138,000 as
of December 31, 1999 and the Business's interest in the losses of which for
the year ended December 31, 1999 amounted to $ 2,504,000. Those statements
were audited by other independent auditors, whose report thereon has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for the associated company, is based solely on the report of the
other independent auditors.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and
perform the audit to obtain reasonable assurance about 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 Scitex's Board of Directors
and management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other
independent auditors provide a fair basis for our opinion.
In our opinion, based upon our audits and the report of other independent
auditors, the aforementioned financial statements present fairly, in all
material respects, the combined financial position of the Business as of
December 31, 1999 and 1998 and the results of its operations, the changes in
equity and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally
accepted ("GAAP") in the United States of America. As applicable to these
financial statements, U.S. GAAP and Canadian GAAP are similar in all material
respects, except as described in note 14.
Tel-Aviv, Israel (signed) "Kesselman & Kesselman"
February 2, 2000 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member of PricewaterhouseCoopers International
Limited, a company limited by guarantee registered in England and Wales.
2
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
--------- ---------
U.S. DOLLARS IN THOUSANDS
-------------------------
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 16,784 17,864
Short-term investments 363 350
Trade receivables (including related party
of $13,321,000 at December 31, 1999 and
$10,040,000 at December 31, 1998) (note 3) 134,691 105,726
Other receivables 21,123 16,971
Inventories:
Systems and components (note 2) 47,867 49,021
Spare parts and supplies 40,121 37,873
Deferred income taxes (note 10c) 33,383 30,761
-------- --------
T o t a l current assets 294,332 258,566
-------- --------
NON-CURRENT ASSETS (note 12) 3,147 2,627
-------- --------
PROPERTY, PLANT AND EQUIPMENT (note 4):
Cost 249,584 238,746
L e s s - accumulated depreciation and
amortization (202,124) (185,250)
-------- --------
47,460 53,496
-------- --------
GOODWILL AND OTHER INTANGIBLE ASSETS
net of accumulated amortization (note 5) 1,355 4,365
-------- --------
346,294 319,054
======== ========
</TABLE>
(signed) "Rimon Ben-Shaoul" Chairman of the Board
- ----------------------------- of Directors
(signed) "Yoaz Z. Chelouche" President, Chief Executive Officer
- ----------------------------- and Director
3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
--------- ---------
U.S. DOLLARS IN THOUSANDS
-------------------------
<S> <C> <C>
L I A B I L I T I E S A N D E Q U I T Y
CURRENT LIABILITIES (NOTE 12):
Short-term bank credit 2
Trade payables 48,576 38,516
Accrued and other liabilities (note 6) 64,649 76,731
------- -------
T o t a l current liabilities 113,225 115,249
------- -------
LONG-TERM LIABILITIES 21
-------
COMMITMENTS AND CONTINGENT LIABILITIES
(note 8)
------- -------
T o t a l liabilities 113,225 115,270
------- -------
EQUITY (note 9) 233,069 203,784
------- -------
346,294 319,054
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED
FINANCIAL STATEMENTS.
4
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1999 1998 1997
------- ------- -------
U.S. DOLLARS IN THOUSANDS
-------------------------------
<S> <C> <C> <C>
REVENUES (note 13a):
Product sales 336,883 303,274 322,190
Services 104,784 103,716 103,173
Sale of supplies 49,854 47,157 48,222
------- ------- -------
T o t a l revenues 491,521 454,147 473,585
COST OF REVENUES:
Cost of sales 181,599 163,907 190,778
Cost of service 82,616 80,785 88,449
Cost of supplies 25,951 25,430 23,101
------- ------- -------
T o t a l cost of revenues 290,166 270,122 302,328
------- ------- -------
GROSS PROFIT 201,355 184,025 171,257
RESEARCH AND DEVELOPMENT COSTS -
net (note 13b) 40,122 39,679 34,381
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (note 13c) 117,758 131,178 138,194
AMORTIZATION OF GOODWILL AND OTHER
INTANGIBLE ASSETS 3,010 3,022 2,880
------- ------- -------
OPERATING INCOME (LOSS) 40,465 10,146 (4,198)
FINANCIAL INCOME - net (note 13d) 214 392 129
OTHER INCOME (EXPENSES) - net 54 401 (894)
------- ------- -------
INCOME (LOSS) BEFORE TAXES ON INCOME 40,733 10,939 (4,963)
TAXES ON INCOME (note 10) 4,994 6,410 1,484
SHARE IN LOSSES OF ASSOCIATED COMPANY -
net (note 6) 3,108 5,666 2,132
------- ------- -------
NET INCOME (LOSS) 32,631 (1,137) (8,579)
======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED
FINANCIAL STATEMENTS.
5
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
COMBINED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
U.S. DOLLARS IN
THOUSANDS
---------------
<S> <C>
BALANCE AT JANUARY 1, 1997 250,032
-------
CHANGES DURING THE YEAR ENDED DECEMBER 31, 1997:
Net loss (8,579)
Other comprehensive income component - currency translation
adjustments (166)
-------
Total comprehensive loss (8,745)
-------
Elimination of surplus in respect of employee stock
options due to forfeiture, net of surplus arising
from employee stock options (1,109)
Funds transferred to Scitex, net of contribution from Scitex (50,143)
-------
BALANCE AT DECEMBER 31, 1997 190,035
-------
CHANGES DURING THE YEAR ENDED DECEMBER 31, 1998:
Net loss (1,137)
Other comprehensive income component - currency translation
adjustments (343)
-------
Total comprehensive loss (1,480)
-------
Elimination of surplus in respect of employee stock
options due to forfeiture, net of surplus arising
from employee stock options (125)
Contribution from Scitex, net of funds transferred to Scitex 15,354
-------
BALANCE AT DECEMBER 31, 1998 203,784
-------
CHANGES DURING THE YEAR ENDED DECEMBER 31, 1999:
Net income 32,631
Other comprehensive income component - currency translation
adjustments 18
-------
Total comprehensive income 32,649
-------
Elimination of surplus in respect of employee stock
options due to forfeiture, net of surplus arising
from employee stock options (20)
Funds transferred to Scitex, net of contribution from Scitex (3,344)
-------
BALANCE AT DECEMBER 31, 1999 233,069
=======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED
FINANCIAL STATEMENTS.
6
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1999 1998 1997
------- ------- -------
U.S. DOLLARS IN THOUSANDS
-------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 32,631 (1,137) (8,579)
Adjustments to reconcile net income or net loss to net
cash provided by (used in) operating activities:
Share in losses of equity investment 3,108 5,666 2,132
Depreciation and amortization 23,036 22,222 23,744
Compensation resulting from employee stock options (20) (125) (1,109)
Deferred income taxes - net (3,708) (11,001) (1,958)
Loss (gain) on disposal of fixed assets 5 100 (505)
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables
(including non-current portion) (28,965) 3,687 4,088
Decrease (increase) in other receivables (4,152) (48) 1,653
Increase (decrease) in trade payables 10,060 2,343 (2,024)
Increase (decrease) in accrued and other liabilities (8,664) (16,919) 26,078)
Decrease (increase) in inventories (1,094) 288 45,021
------- ------- -------
Net cash provided by (used in) operating activities (10,394) 6,213 44,964
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (15,312) (20,952) (11,668)
Proceeds from sale of fixed assets 1,318 1,220 1,911
Equity investments and other non current assets (5,943) (308) (1,093)
Purchase of short-term investments (13) (681) (1,112)
------- ------- -------
Net cash used in investing activities (19,950) (20,721) (11,962)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in long-term liabilities (21) (20)
Net decrease in short-term bank credit (2) (15) (3)
Transfers from (to) Scitex, net (3,344) 15,354 (50,143)
------- ------- -------
Net cash provided by (used in) financing activities (3,367) 15,339 (50,166)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,080) (306) (25,743)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,864 18,170 43,913
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 16,784 17,864 18,170
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid 388 1,066 2,144
======= ======= =======
Income taxes paid (tax refund) 693 9,003 (902)
======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED
FINANCIAL STATEMENTS.
7
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN U.S. DOLLARS)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The combined financial statements are prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"). As applicable to
these financial statements U.S. GAAP and Canadian GAAP are similar in
all material respects, except as described in note 14:
a. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Scitex Corporation Ltd. (Scitex) is an Israeli corporation which
together with its subsidiaries designs, manufactures and markets
digital visual information communication systems for the digital
preprint and digital printing markets.
On January 17, 2000 Scitex and Creo Products Inc. ("Creo"), a
Canadian company, entered into an agreement to combine their
prepress businesses in the worldwide market for digital preprint
equipment.
Under the terms of the agreement, Scitex will sell to Creo
substantially all of the assets, liabilities and operations
related to its Graphic Arts Business (the "Business") (i.e. -
digital preprint and print-on demand business, input business,
output business, Iris business, workstation business and other
Legacy system business). The Business presented herein is not a
separate legal entity.
These combined financial statements reflect the financial
position, results of operations, changes in equity and cash flows
of the Business that will be transferred to Creo as if the
Business were a separate entity for all years presented. The
combined financial statements have been prepared using the
historical basis of the assets and liabilities and historical
results of operations related to the Business. Changes in equity
represent Scitex's contribution, after giving effect to the net
income (loss) of the Business, plus net cash transfers to or from
Scitex.
The combined financial statements also include allocations of
certain Scitex corporate headquarters' assets, liabilities and
expenses related to the Business. This allocation is based on the
ratio of the Business's revenues and operating expenses to
Scitex's revenues and operating expenses. Management believes
these allocations are reasonable. However, the cost of these
services charged to the Business is not necessarily indicative of
the costs that would have been incurred if the Business had
performed these functions as a stand-alone entity.
Transactions entered into between entities comprising the Business
and the balances resulted therefrom have been eliminated.
The financial information included herein may not necessarily
reflect the combined results of operations, financial position,
changes in equity and cash flows of the Business in the future or
what they would have been had it been a separate, stand-alone
entity during the years presented.
8
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
b. FUNCTIONAL CURRENCY
The currency of the primary economic environment in which most the
operations of the Business are conducted is the U.S. dollar
("dollar" or "$"); thus, the dollar is the functional currency of
most of the entities combining the Business.
For those entities whose functional currency is the dollar,
transactions and balances denominated in dollars are presented at
their original amounts. Balances in non-dollar currencies are
translated into dollars using historical and current exchange
rates for non-monetary and monetary balances, respectively. For
non-dollar transactions reflected in the statements of operations,
the exchange rates at transaction dates are used, except for
expenses deriving from non-monetary items, which are translated
using historical exchange rates. The currency transaction gains or
losses are carried to financial income or expenses, as
appropriate.
The financial statements of certain entities, whose functional
currency is their local currency, are translated into dollars in
accordance with the principles set forth in Statement of Financial
Accounting Standards ("FAS") No. 52 of the Financial Accounting
Standards Board of the United States ("FASB") - "Foreign Currency
Translation": assets and liabilities are translated using the
year-end rate of exchange; results of operations are translated at
average exchange rates during the year. The resulting aggregate
translation adjustments are reported as an "other comprehensive
income" component.
c. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses
during the reporting years. Actual results could differ from those
estimates.
d. CASH EQUIVALENTS
The Business considers all highly liquid debt instruments
purchased with a maturity of three months or less at time of
investment, that are not restricted as to withdrawal or use, to be
cash equivalents. Bank deposits with a maturity of more than three
months but less than one year (from the date of deposit) are
included in short-term investments.
e. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined as follows: components and supplies - on the moving
average basis; labor and overhead - on the basis of actual
manufacturing costs.
9
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
f. EQUITY INVESTMENT
Investment in associated company controlled to the extent of 50%
is accounted for by the equity method.
g. PROPERTY, PLANT AND EQUIPMENT
These assets are stated at cost and are depreciated by the
straight-line method over their estimated useful lives.
Annual rates of depreciation are as follows:
<TABLE>
<CAPTION>
%
---
<S> <C>
Machinery and equipment 10-33 (mainly 20)
Building 4
Office furniture and equipment 6-33 (mainly 20)
Motor vehicles 15-25 (mainly 15)
</TABLE>
Leasehold improvements are amortized by the straight-line method
over the term of the lease or the estimated useful life of the
improvements, whichever is shorter.
h. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, representing the difference between the cost of the
investment in combined entities and the fair value of their
underlying net assets at time of acquisition, and acquired
goodwill, are amortized by the straight-line method over a period
of 7 years.
Acquired technology and other intangible assets are stated at cost
and amortized by the straight-line method over a period of 5-7
years.
i. IMPAIRMENT OF LONG-LIVED ASSETS
When indicators of impairment are presented, the Business
evaluates the carrying value of the foregoing assets and
intangibles in relation to the operating performance and future
undiscounted cash flows of the underlying assets.
10
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
j. REVENUE RECOGNITION:
1) Sale of products
The Business recognizes revenue from sale of its products upon
shipment. Cost of sales includes an estimate of costs
associated with warranty.
2) Service revenue
Service revenue is recognized ratably over the contractual
period or as services are performed.
3) Sale of supplies
The Business recognizes revenue from sale of supplies upon
shipment.
k. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to income as incurred.
Government funding for development of approved projects is
recognized as a reduction of expenses as the related costs are
incurred.
l. ADVERTISING
These costs are expensed as incurred.
m. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance is partly determined for specific accounts doubtful
of collection and partly based on past experience.
n. INCOME TAXES:
1) Deferred income taxes are computed for temporary differences
between the assets and liabilities as measured in the
financial statements and for tax purposes. Deferred taxes are
computed using the tax rates expected to be in effect when
these differences reverse; as to the main factors in respect
of which deferred taxes have been included - see note 10c.
2) The Business may incur an additional tax liability in the
event of an intercompany dividend distribution; no additional
tax has been provided, since the Business does not intend to
distribute, in the foreseeable future, dividends which would
result in additional tax liability.
11
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
3) Taxes which would apply in the event of disposal of
investments in investee entities have not been taken into
account in computing the deferred taxes, as it is the policy
to hold these investments, not to realize them.
4) Upon the distribution of dividends from the tax-exempt income
of "approved enterprises" (see also note 10a), the amount
distributed will be subject to tax at the rate that would have
been applicable had this income not been exempted from payment
thereof. If such distribution is made, the amount of the
related tax is to be charged as an expense in the statements
of operations. Since Scitex intended to permanently reinvest
the amounts of tax exempt income and not intended to cause
distribution of such dividends, no deferred income taxes have
been provided in respect of such tax-exempt income.
o. DERIVATIVES
Scitex on behalf of the Business enters into forward exchange
contracts and purchases and writes currency options to hedge
existing non-dollar assets and liabilities as well as certain firm
commitments. The written options are part of the hedging policy.
Scitex also purchases currency options to hedge anticipated sales
for the coming year, which are probable and which are expected to
be denominated in non-dollar currencies. None of the held or
issued derivative financial instruments is for trading purposes.
All of the above mentioned foreign exchange derivatives are
designated as, and effective as, a hedge. A derivative is
qualified as a hedge if: (1) the item to be hedged exposes the
Business to a risk, (2) the related derivative reduces that
exposure and is inversely correlated to the hedged item, and (3)
the derivative is designated at inception for hedging purposes.
Gains and losses on derivatives that are hedging existing assets
or liabilities are recognized in income commensurate with the
results from those assets or liabilities; balances receivable or
payable in respect of such derivatives are included in the balance
sheets among other accounts receivable or payable, as appropriate.
Gains and losses related to derivatives that are hedging firm
commitments or anticipated sales are deferred, and ultimately
recognized in income as part of the measurement of the results of
the underlying hedged transactions. Cash flows from derivatives
are recognized in the statements of cash flows together with
results from the hedged item.
p. STOCK-BASED COMPENSATION
Stock-based compensation arrangements are accounted for in
accordance with provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees", and
complies with the disclosure provisions of FAS No. 123,
"Accounting for Stock-Based Compensation."
12
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
q. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
1) In June 1998, the FASB issued FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 established a new model for accounting for derivatives
and hedging activities. FAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it
qualifies for hedge accounting. FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15,
2000.
The Business is currently evaluating the impact FAS 133 will
have on its financial statements.
2) In December 1999, the SEC issued SAB 101, "Revenue Recognition
in Financial Statements". SAB 101 summarizes some of SEC's
interpretations of the application of generally accepted
accounting principles (GAAP) to revenue recognition.
The Business expects that any impact SAB 101 may have on its
financial statements will be immaterial.
NOTE 2 - INVENTORIES - SYSTEMS AND COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1999 1998
------ ------
$ IN THOUSANDS
------------------
<S> <C> <C>
Components for manufacturing
of systems 28,853 22,822
Work in process 7,306 6,580
Finished products 11,708 19,619
------ -------
47,867 49,021
====== ======
</TABLE>
NOTE 3 - TRADE RECEIVABLES:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1999 1998
------ ------
$ IN THOUSANDS
------------------
<S> <C> <C>
The item is net of allowance
for doubtful accounts 12,927 17,773
====== ======
</TABLE>
13
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Grouped by major classifications, the assets are composed as follows:
<TABLE>
<CAPTION>
ACCUMULATED
DEPRECIATION
C O S T AND AMORTIZATION
----------------- -----------------
DECEMBER 31 DECEMBER 31
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
$ IN THOUSANDS
--------------------------------------
<S> <C> <C> <C> <C>
Machinery and equipment 192,839 183,858 158,987 143,940
Building (including land) 8,755 8,755 2,196 1,918
Leasehold improvements 27,383 26,142 24,460 23,525
Office furniture and
equipment 19,257 18,309 15,400 14,750
Motor vehicles 1,350 1,682 1,081 1,117
------- ------- ------- -------
249,584 238,746 202,124 185,250
======= ======= ======= =======
</TABLE>
Depreciation and amortization of property, plant and equipment
totaled $20,026,000, $19,200,000 and $20,864,000 in 1999, 1998 and
1997, respectively.
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1999 1998
------ ------
$ IN THOUSANDS
------------------
<S> <C> <C>
Original amount:
Goodwill in invested entities and
acquired goodwill 25,696 25,696
Acquired technology and other
intangible assets 4,684 4,684
------ ------
30,380 30,380
------ ------
L e s s - accumulated amortization:
Goodwill in invested entities and
acquired goodwill 24,830 22,229
Acquired technology and other
intangible assets 4,195 3,786
------ ------
29,025 26,015
------ ------
1,355 4,365
====== ======
</TABLE>
14
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 6 - ACCRUED AND OTHER LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1999 1998
------ ------
$ IN THOUSANDS
------------------
<S> <C> <C>
Employees and related liabilities 19,865 21,433
Taxes on income, net of advances 1,011 1,825
Advances from customers 1,695 3,270
Allowance in respect of sales financed
by third parties (see note 8b(1)) 3,774 6,680
Accrued warranties 5,696 5,059
Accrued royalties 4,958 7,346
Share in losses of associated company
over investment therein 1,448 4,865
Sundry 26,202 26,253
------ ------
64,649 76,731
====== ======
</TABLE>
NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT:
a. Israeli labour laws and agreements require payment of severance
pay upon dismissal of an employee or upon termination of
employment in certain other circumstances. The liability, based
upon the length of service and the latest monthly salary (one
month's salary for each year worked), is mainly funded with
severance pay and pension funds and with insurance companies
(principally with an affiliate of two of the major shareholders of
Scitex), for which the Business makes monthly payments.
The amounts funded for the purchase of insurance policies for
employees are reflected as plan assets since substantially all
employees are entitled to irrevocably receive such funds under the
terms of an employment contract or the employers' policy and these
insurance policies cannot ordinarily be withdrawn by the employer.
b. The U.S. entities offer 401(k) matching plans to all eligible
employees. The U.S. entities' matching contributions range from
50% to 200% of the first 3% of a participant's earnings, depending
upon years of service, up to a maximum employer contribution of 6%
of a participant's qualifying earnings.
c. Substantially all of the European entities make contributions to
pension plans administered by insurance companies. Since the
control and management of these funds are independent of the
European entities, the amounts funded are not included in the
balance sheets.
15
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT (continued):
d. The balance sheet liability for employee rights upon retirement
and the amount funded - plan assets, are composed as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1999 1998
------ ------
$ IN THOUSANDS
------------------
<S> <C> <C>
In respect of Israeli employees:
Liability 21,484 20,086
Less - plan assets 18,525 17,683
------ ------
Unfunded balance 2,959 2,403
====== ======
</TABLE>
The amounts not funded are included among accrued liabilities.
e. Severance pay, pension and defined contribution plan expenses
totaled $7,480,000, $7,650,000 and $7,787,000 in 1999, 1998 and
1997, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES:
a. COMMITMENTS:
1) Royalty commitments:
(a) The Business is committed to pay royalties of 2%-5% to the
Government of Israel on sales of products in the research
and development of which the Government participates by
way of grants, up to the amount of the grants received (in
dollar terms). At the time the funding was received,
successful development of the related projects was not
assured. In the case of failure of a project that was
partly financed by royalty - bearing Government
participation, the Company is not obligated to pay any
such royalties to the Israeli Government.
At December 31, 1999, the maximum contingent royalty
payable is $30.5 million.
(b) The Business is obligated to pay royalties to certain
parties, based on agreements which allow it to use
technologies developed by these parties. Such royalties
are based on the revenues from sales of products which
incorporate these technologies or on quantities of such
products sold.
16
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):
2) Lease commitments
Most of the premises occupied by the Business are rented under
various operating lease agreements. Most of the premises in
Israel are leased from an affiliate of two of the major
shareholders of Scitex.
Minimum lease commitments under the above leases at rates in
effect in December 1999, are as follows:
<TABLE>
<CAPTION>
$ IN THOUSANDS
--------------
<S> <C>
Year ending December 31:
2000 8,468
2001 7,812
2002 6,408
2003 4,183
2004 2,799
2005 and thereafter 3,309
</TABLE>
The rental payments for the premises in Israel, which
constitute approximately 18.0 % of the above amounts, are
payable in Israeli currency, partially linked to the Israeli
consumer price index (the "Israeli CPI") and partially to the
U.S. dollar. The balance of the contracts is denominated in
U.S. dollars.
Rental expense totaled $6,769,000, $7,759,000 and
$8,707,000 in 1999, 1998 and 1997, respectively.
b. CONTINGENT LIABILITIES:
1) The Business has entered into certain agreements with
third-party financing companies (hereafter - the agreements)
under which long-term financing (generally five years) is
provided to customers in connection with the purchase of the
Business's equipment.
Under the terms of the agreements, the third-party financing
companies have recourse against the Business in an amount
equal to either a fixed amount established at the time of
financing or a percentage of the outstanding balance,
including interest, owed by the customers to the financing
company.
During the years ended December 31, 1999, 1998 and 1997,
approximately $16,378,000, $20,414,000 and $24,136,000,
respectively, of revenue were financed under these agreements.
At December 31, 1999, the Business was contingently liable to
the financing companies for a portion of the total of the
outstanding balance of $42 million.
17
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):
The Business has established provisions ($3,774,000 and
$6,680,000 at December 31, 1999 and 1998, respectively) for
potential losses which may be incurred in the event of default
under the agreements. The level of provisions is determined
based upon an analysis of the individual transactions and past
experience.
2) Lawsuits have been lodged against Scitex, as it relates to the
Business, in the ordinary course of business. Scitex intends
to defend itself vigorously against those lawsuits. Management
does not expect that the Business will incur substantial
expenses in respect thereof; therefore, no provision has been
made for the lawsuits.
NOTE 9 - EQUITY:
a. SHARE INCENTIVE AND STOCK OPTION PLANS (THE "PLANS"):
Employees of the Business participate in stock-based compensation
plans that are administered through Scitex and involve options to
acquire Scitex shares. Accordingly, option and expense information
presented herein represents the Business's portion of the overall
plans.
1) Scitex has two current share incentive and stock option plans
- the Scitex Israel Key Employee Share Incentive Plan 1991
(with various sub-plans), mainly for directors, officers and
other key employees, and the Scitex International Key Employee
Stock Option Plan 1991 (as amended, 1995), for officers and
non - Israeli other key employees. Option awards may be
granted under the plans up to September 2001. The maximum term
of an option may not exceed ten years. Each option can be
exercised to purchase one share of Scitex having the same
rights as the other ordinary shares of Scitex.
The grant of options under the Israeli plan is subject to the
terms stipulated by the Israeli Income Tax Ordinance. Inter
alia, the Ordinance provides that Scitex may be allowed to
claim as an expense for tax purposes the amounts credited to
the employees as a benefit, when the related tax is payable by
the employee.
18
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 9 - EQUITY (continued):
2) The total number of options authorized under the plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
--------- ---------
NUMBER OF OPTIONS
-------------------------
<S> <C> <C>
Outstanding 1,968,689 2,167,034
Exercised and paid 346,597 262,742
--------- ---------
2,315,286 2,429,776
========= =========
</TABLE>
The options granted are exercisable for the purchase of
shares as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
--------- ---------
NUMBER OF OPTIONS
-------------------------
<S> <C> <C>
At balance sheet date 1,119,502 553,920
During first year thereafter 630,022 872,892
During second year thereafter 102,335 680,447
During third year thereafter 69,000 34,175
During fourth year thereafter 47,830 25,600
--------- ---------
1,968,689 2,167,034
========= =========
</TABLE>
The rights to exercise options are generally conditional upon
continuous employment by the Business.
19
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 9 - EQUITY (continued):
3) A summary of the status of the plans, as it relates to the
Business's employees at December 31, 1999, 1998 and 1997,
and changes during the years ended on those dates, is
presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
1999 1998 1997
--------------------- ----------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
--------- -------- --------- -------- --------- --------
$ $ $
--- --- ---
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 2,108,667 9.81 2,419,823 9.73 1,645,936 9.18
Changes during the year:
Granted 200,920 *10.85 182,400 11.58 1,659,359 *7.62
Exercised and paid (84,374) 9.13 (241,842) 9.06
Forfeited (256,524) *11.61 (233,347) 10.76 (815,918) *6.86
--------- --------- ---------
Options outstanding
at end of year 1,968,689 *9.72 2,167,034 9.87 4,424,186 3.86
========= ========= =========
Options exercisable
at end of year 1,119,502 *9.36 553,920 9.37 28,375 *20.46
========= ========= =========
</TABLE>
* In 1999, 48,000 options awarded in earlier years to a related
party, with an exercise price of $14.75 per option, were repriced
to an exercise price of $11.6875 per option. In 1997, 794,953
options awarded in earlier years, with a weighted average exercise
price of $18.13 per option, were repriced to an exercise price of
$9.06 per option subject to a revised vesting schedule. All data
in this note assume election by the relevant grantees of the
revised exercise price and the revised vesting schedule.
The weighted average fair value of options granted during 1999, 1998
and 1997 is $3.32, $5.51 and $3.11, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yield per share - in dollars -,- -,- -,-
==== ==== ====
Expected volatility 40% 64% 25%
==== ==== ====
Risk-free interest rate 6.2% 5.2% 6.1%
==== ==== ====
Expected life - in years 2.62 2.38 2.09
==== ==== ====
</TABLE>
20
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 9 - EQUITY (continued):
4) The following table summarizes information about options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ --------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 CONTRACTUAL LIFE PRICE 1999 PRICE
- ---------------- -------------- ---------------- -------- -------------- --------
$ YEARS $ $
--- ----- --- ---
<S> <C> <C> <C> <C> <C>
9.00 to 10.00 1,499,191 5.8 9.12 982,183 9.06
11.00 to 11.99 361,434 7.6 11.43 86,111 11.11
12.00 to 13.00 108,064 6.8 12.22 51,208 12.03
--------- ---------
9.00 to 13.00 1,968,689 6.2 9.40 1,119,502 9.40
========= =========
</TABLE>
5) Accounting treatment of share incentive and stock option plans
The compensation income - which reflects the reversal of
compensation cost charged to income in earlier years in
respect of employee stock options due to forfeiture, net
of compensation cost in respect of the current year - in
the years ended December 31, 1999, 1998 and 1997, was
$ 20,000, $ 125,000 and $ 1,109,000 respectively. Had
compensation for the plans been determined based on the
fair values at the grant dates for awards made under the
Plans in 1995, and thereafter, consistent with the method
of FAS 123, the Business's net income (loss), would have
been changed to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1999 1998 1997
------ ------ -------
$ IN THOUSANDS
----------------------------
<S> <C> <C> <C>
Net income (loss) - in thousands
of dollars:
As reported 32,631 (1,137) (8,579)
====== ====== =======
Pro-forma 32,021 (3,722) (11,326)
====== ====== =======
</TABLE>
6) Creo and Scitex will require all permanent employees who
transfer with the Business to Creo, to participate in a
program involving the cancellation of 50% of their unvested
options to purchase Scitex common shares and the issuance
by Creo of new options to acquire Creo's common shares.
21
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 9 - EQUITY (continued):
b. DIVIDEND
The distribution cash dividends out of tax exempt income, would
subject the Business to payment of 15% or 20% tax on the amount
distributed, effectively reducing the dividend distribution by the
amount of the tax (see also notes 1n(4) and 10a(1)).
NOTE 10 - TAXES ON INCOME:
a. THE BUSINESS FACILITIES IN ISRAEL:
1) Tax benefits under the Law for the Encouragement of Capital
Investments, 1959
The Business's production facilities in Israel have been
granted "approved enterprise" status under the above law. The
main benefit arising from such status is the reduction in tax
rates on income derived from "approved enterprises". Also
being a "foreign investors' company" as defined by that law
and as such the Business is entitled to a ten-year period of
benefits and to an additional reduction in tax rates to 15% or
20% (based on the percentage of foreign shareholding in each
tax year).
For "approved enterprises", income derived therefrom is tax
exempt for a period of two or four years out of the ten-year
period of benefits. Based on the percentage of foreign
shareholding in Scitex, income derived during the remaining
six or eight years of benefits is taxable at the rate of 15%
or 20%. The period of benefits relating to the "approved
enterprises" will expire in the years 2000 through 2006.
In the event of distribution of cash dividends from income
which was tax exempt as described above, the amount
distributed will be subject to 15% or 20% tax.
The entitlement to the above benefits is conditional upon the
Business's fulfilling the conditions stipulated by the above
law, regulations published thereunder and the certificates of
approval for the specific investments in "approved
enterprises". In the event of failure to comply with these
conditions, the benefits may be cancelled and the Business may
be required to refund the amount of the benefits, in whole or
in part, with the addition of linkage differences and
interest.
2) Measurement of results for tax purposes under the Income Tax
(Inflationary Adjustments) Law, 1985 (hereafter - the
Inflationary Adjustments Law)
Under this law, results for tax purposes are measured in real
terms, in accordance with the changes in the Israeli CPI, or
in the exchange rate of the dollar for a "foreign investors'
company". The Israeli entities elected to measure their
results on the basis of the changes in the Israeli CPI.
22
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 10 - TAXES ON INCOME (continued):
3) Tax benefits under the Law for the Encouragement of Industry
(Taxes), 1969
Scitex is an "industrial company" as defined by this law and
therefore the Business is entitled to certain tax benefits,
mainly accelerated depreciation of machinery and equipment, as
prescribed by regulations published under the Inflationary
Adjustments Law, and the right to claim public issuance
expenses and amortization of patents and other intangible
property rights as a deduction for tax purposes.
4) Tax rates applicable in Israel to income from other sources
Income not eligible for "approved enterprise" benefits
mentioned in (1) above is taxed at the regular rate of 36%.
b. CARRYFORWARD TAX LOSSES AND DEDUCTIONS
Carryforward tax losses and deductions that will be transferred to
Creo with the Business approximated $ 6 million at December 31,
1999. Most of the carryforward amounts have no expiration date.
c. DEFERRED INCOME TAXES:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1999 1998
------ -------
$ IN THOUSANDS
--------------------
<S> <C> <C>
Computed in respect of the following:
Allowance for accounts receivable 15,061 17,223
Carryforward tax losses and credits 27,931 31,945
Inventories 5,255 3,636
Accrued liabilities and deferred income 4,664 5,655
Other 469 (1,161)
------ -------
53,380 57,298
L e s s - valuation allowance 18,839 26,465
------ -------
34,541 30,833
====== =======
Deferred taxes are included in the
Balance sheets as follows:
Current assets 33,383 30,761
Non-current assets 1,158 72
------ -------
34,541 30,833
====== =======
</TABLE>
23
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 10 - TAXES ON INCOME (continued):
d. INCOME (LOSS) BEFORE TAXES ON INCOME:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1999 1998 1997
------ ------ -------
$ IN THOUSANDS
-------------------------------
<S> <C> <C> <C>
Israeli 22,166 (853) (18,643)
Non-Israeli 18,567 11,792 13,680
------ ------ -------
40,733 10,939 (4,963)
====== ====== =======
</TABLE>
e. TAXES ON INCOME INCLUDED IN THE STATEMENTS OF OPERATIONS:
1) As follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1999 1998 1997
----- ------ -----
$ IN THOUSANDS
----------------------------
<S> <C> <C> <C>
Current: Israeli 41 2
Non-Israeli 1,286 (4,632) 472
----- ------ -----
1,286 (4,591) 474
----- ------ -----
Deferred, see c. above:
Israeli 515 (199)
Non-Israeli 3,708 10,486 1,209
----- ------ -----
3,708 11,001 1,010
----- ------ -----
4,994 6,410 1,484
===== ====== =====
</TABLE>
2) Following is a reconciliation of the theoretical tax
expense (benefit), assuming all income is taxed at the
regular tax rate applicable to Israeli corporations (see
a(4) above) and the actual tax expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1999 1998 1997
------ ------ ------
$ IN THOUSANDS
----------------------------
<S> <C> <C> <C>
Income (loss) before taxes on income 40,733 10,939 (4,963)
====== ====== ======
Theoretical tax expense (tax benefit)
on the above amount 14,664 3,938 (1,786)
Effect of lower tax rate for
"approved enterprises" (4,655) 179 3,915
------ ------ ------
10,008 4,117 2,129
Increase in taxes resulting from
permanent differences 2,943 3,458 1,730
Change in valuation allowance (7,626) 618 (1,433)
Other* (331) (1,783) (942)
------ ------ ------
Actual tax expense 4,994 6,410 1,484
====== ====== ======
</TABLE>
24
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 10 - TAXES ON INCOME (continued):
* Resulting mainly from the difference between the changes in the
Israeli CPI (the basis for computation of taxable income of the
Israeli entities, see a(2) above) and the changes in the
exchange rate of the Israeli currency relative to the dollar.
f. TAX AUDITS
Scitex has received final tax assessments through the 1991 tax
year.
The audits of the tax returns of the U.S. companies and the main
European company have been completed through the 1991 and 1995 tax
years, respectively.
NOTE 11 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
a. GENERAL
The Business operates internationally, which gives rise to
significant exposure to market risks, mainly from changes in
foreign exchange rates. Derivative financial instruments
(hereafter derivatives) are utilized by the Business to reduce
these risks.
The Business is exposed to losses in the event of non-performance
by counterparties to the derivatives, but it does not expect any
counterparties to fail to meet their obligations, since the
counterparties are major Israeli and European banks and major U.S.
brokers. The Business does not require or place collaterals for
these financial instruments.
b. FOREIGN EXCHANGE RISK MANAGEMENT
As stated in note 1o, the Business uses foreign currency
derivatives for hedging purposes. All such derivatives are for the
conversion of non-dollar currencies into dollar. The writing of
options is part of a comprehensive hedging strategy and is
designed to effectively swap the currencies relating to existing
assets and liabilities. Each of the options written is combined
with purchase of an option for the same period and the same
notional amount. The term of all those contracts is less than one
year.
The notional amounts of foreign currency derivatives as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
U.S. DOLLARS
IN MILLIONS
------------
<S> <C>
Forward exchange contracts 53
===
Currency options purchased 95
===
Currency options written 140
===
</TABLE>
25
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 11 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):
c. CONCENTRATIONS OF CREDIT RISK
At December 31, 1999 and 1998, the Business held cash and cash
equivalents, most of which were deposited with major Israeli,
European and U.S. banks. The Business considers the inherent
credit risks to be remote.
Most of the Business's sales are made in the United States and in
Europe, to a large number of customers. Consequently, the exposure
to concentrations of credit risks relating to individual customer
receivables is limited. The Business performs ongoing credit
evaluations of its customers and generally does not require
collateral from its customers in Europe and in the United States.
In respect of certain sales to customers in emerging economies,
the Business requires letters of credit.
d. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Business and its subsidiaries
consist mainly of non-derivative assets and liabilities (items
included in working capital, non-current assets); the Business
also uses some derivatives.
In view of their nature, the fair value of the financial
instruments included in working capital is usually identical or
close to their carrying amount. The fair value of non-current
assets approximates their carrying value, since they bear interest
at rates close to the prevailing market rates.
The fair value and the carrying amount of derivatives at December
31, 1999 and 1998 is an asset of approximately $ 1.8 million and a
liability of approximately $ 3.3 million, respectively. The fair
value of the derivatives is determined based on a quoted market
price or on the estimated amounts that the Business would receive
or pay upon termination of the contracts at the reporting dates.
NOTE 12 - MONETARY BALANCES IN NON-DOLLAR CURRENCIES
Comprise at December 31, 1999:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
$ IN THOUSANDS
<S> <C> <C>
ISRAELI CURRENCY UNLINKED (a) 11,213 27,212
====== ======
OTHER ON-DOLLAR CURRENCIES (b) 81,403 25,161
====== ======
</TABLE>
(a) The above does not include balances in Israeli currency linked
to the dollar.
(b) As to hedging transactions entered into by the Business in order
to maintain the dollar value of net assets in non-dollar
currencies, see note 11.
26
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 13 - SELECTED STATEMENT OF OPERATIONS DATA:
a. SEGMENTED INFORMATION:
1) General
As described in note 1a, the Business designs, manufactures
and markets digital visual information communication systems
for the Graphic arts market.
The Business reportable segments are strategic business units
which are distinguished by the geographical areas in which
they generate revenues. Although the products sold and the
services rendered are mostly the same, gross margins differ
significantly in the various geographical areas.
The revenues are attributed to geographical segments based on
location of the customers.
2) Information about reported segment profit:
a) Measurement of segment profit:
The accounting policies of the segments are the same as
those described in the significant accounting policies.
The Business evaluates performance mainly based on gross
profit. Segment assets information is not given in (b)
below, since the Business does not evaluate performance
based on such assets.
27
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 13 - SELECTED STATEMENT OF OPERATIONS DATA (continued):
b) Reportable segment operating data:
<TABLE>
<CAPTION>
NORTH FAR
AND SOUTH EAST &
AMERICA EUROPE OTHER TOTAL
--------- ------- ------ -------
$ IN THOUSANDS
--------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Revenues from external customers 224,882 203,104 63,535 491,521
======= ======= ====== =======
Segment gross profit 95,033 82,333 23,989 201,355
======= ======= ====== =======
Depreciation and amortization 9,646 3,338 10,052 23,036
======= ======= ====== =======
Year ended December 31, 1998:
Revenues from external customers 200,200 190,905 63,042 454,147
======= ======= ====== =======
Segment gross profit 77,249 79,047 27,729 184,025
======= ======= ====== =======
Depreciation and amortization 9,293 3,368 9,538 22,199
======= ======= ====== =======
Year ended December 31, 1997:
Revenues from external customers 185,144 197,222 91,219 473,585
======= ======= ====== =======
Segment gross profit 66,859 74,122 30,276 171,257
======= ======= ====== =======
Depreciation and amortization 10,368 3,273 10,103 23,744
======= ======= ====== =======
</TABLE>
28
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
c) Geographic information
Information about geographic areas, classified by the
Business's country of domicile and by foreign countries,
is as follows:
1) Revenues from external customers:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1999 1998 1997
------- ------- -------
$ IN THOUSANDS
---------------------------
<S> <C> <C> <C>
United States 224,878 199,259 183,996
Europe (mainly Western
Europe) 203,104 190,905 197,222
Other countries 63,535 63,983 92,367
------- ------- -------
491,521 454,147 473,585
======= ======= =======
</TABLE>
Revenues are attributed to countries based on the
location of the customers.
2) Long-lived assets:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1999 1998 1997
------ ------ ------
$ IN THOUSANDS
--------------------------
<S> <C> <C> <C>
Israel 20,013 24,022 21,470
United States 13,766 14,588 16,703
Other countries 13,681 14,886 14,892
------ ------ ------
47,460 53,496 53,065
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1999 1998 1997
------ ------ ------
$ IN THOUSANDS
--------------------------
<S> <C> <C> <C>
b. RESEARCH AND DEVELOPMENT COSTS - net:
Expenses incurred 44,697 47,706 42,814
L e s s - royalty-bearing
participations from the Government
of Israel (note 8a(1)(a)) 4,575 8,027 8,433
------ ------ ------
40,122 39,679 34,381
====== ====== ======
</TABLE>
29
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 13 - SELECTED STATEMENT OF OPERATIONS DATA (continued):
<TABLE>
<S> <C> <C> <C>
c. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling* 66,559 71,439 72,654
General and administrative** 51,199 59,739 65,540
------ ------- -------
117,758 131,178 138,194
======= ======= =======
* Including advertising costs 1,591 1,922 1,961
======= ======= =======
** Including net change in
allowance for doubtful
accounts and direct
write-off of bad debts 7,159 3,606 21,824
======= ======= =======
</TABLE>
d. FINANCIAL INCOME - net:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1999 1998 1997
----- ----- -----
$ IN THOUSANDS
-------------------------
<S> <C> <C> <C>
Income:
Interest 896 547 1,225
Non-dollar currency gains
and losses - net 409 1,014 2,269
----- ----- -----
1,305 1,561 3,494
----- ----- -----
Expenses:
Interest 75 2,111
Bank charges 467 474 412
Cost of hedging transactions 624 620 842
----- ------ -----
1,091 1,169 3,365
----- ------ -----
214 392 129
===== ====== =====
</TABLE>
30
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 14 - EFFECT OF MATERIAL DIFFERENCES BETWEEN U.S. GAAP AND CANADIAN GAAP:
The combined financial statements are prepared in accordance with U.S.
GAAP. As applicable to these financial statements U.S. GAAP and
Canadian GAAP are similar in all material respects, except as indicated
below:
a. DEVELOPMENT COST
Under U.S. GAAP, development costs are charged as expense as
incurred.
Under Canadian GAAP, development costs are capitalized and
amortized over their estimated useful life, unless they do not
meet certain criteria for deferral and amortization. The Business
has determined that it has not incurred any expenditures which
would meet the criteria for capitalization and amortization under
Canadian GAAP.
b. PROPORTIONATE CONSOLIDATION OF A JOINT VENTURE COMPANY
The Business has a 50% investment in a Japanese corporate joint
venture. Under US GAAP, this investment has been accounted for
using the equity method. Based on the lack of any contractual
arrangement which would establish joint control over the Japanese
joint venture, management have concluded that this investment does
not meet the definition of a joint venture under Canadian GAAP and
consequently, the use of the equity method is appropriate.
31
<PAGE>
SCITEX - THE GRAPHIC ARTS BUSINESS
(CERTAIN BUSINESS UNITS OF SCITEX CORPORATION LTD.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN U.S. DOLLARS)
NOTE 14 - EFFECT OF MATERIAL DIFFERENCES BETWEEN U.S. GAAP AND CANADIAN GAAP
(continued):
C. STOCK BASED COMPENSATION
Under U.S. GAAP, compensation cost for employee stock option plans
is measured using the intrinsic value based method of accounting.
Under the intrinsic value based method compensation cost is the
excess, if any, of the quoted market price of the stock at the
grant date or other measurement date over the amount an employee
must pay to acquire the stock. Compensation cost is expensed over
the period between the date of granting the option and the date of
vesting (the date it is first exercisable).
Under Canadian GAAP, no compensation expenses in respect of stock
option compensation plan to employees should be accrued.
Had compensation cost for the share option plan described in note
9a(5) were eliminated the effect of applying these elimination on
the operating results of the combined financial statements is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1999 1998 1997
------ ------ ------
U.S. DOLLARS IN THOUSANDS
--------------------------
<S> <C> <C> <C>
Net income (loss), as reported in the
combined statements of operations 32,631 (1,137) (8,579)
Effect of the treatment of stock based
compensation under Canadian GAAP (20) (125) (1,109)
------ ------ ------
Net income (loss) under Canadian GAAP 32,611 (1,262) (9,688)
====== ====== ======
</TABLE>
32
<PAGE>
SCHEDULE "D"
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
CREO PRODUCTS INC.
<PAGE>
Unaudited Pro Forma Consolidated Financial Statements
CREO PRODUCTS INC.
<PAGE>
COMPILATION REPORT
The Board of Directors
Creo Products Inc.
We have reviewed, as to compilation only, the accompanying pro forma
consolidated balance sheet of Creo Products Inc. as at September 30, 1999 and
the pro forma consolidated statement of operations of Creo Products Inc. and
the Scitex Business for the year then ended. These pro forma financial
statements have been prepared for inclusion in the management proxy circular
relating to the issue of common shares. In our opinion, the pro forma
consolidated financial statements have been properly compiled to give effect
to the proposed transactions and assumptions described in note 2 thereto.
(signed) "KPMG LLP"
Chartered Accountants
Vancouver, Canada
February 23, 2000
<PAGE>
CREO PRODUCTS INC.
Unaudited Pro Forma Consolidated Balance Sheet (note 3)
(In thousands of United States dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Scitex Pro Forma Pro Forma
Creo Business Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $103,075 $ 16,784 (ii) (4,715) $115,144
Accounts receivable 38,736 155,814 194,550
Inventories 32,247 87,988 (ii) 3,000 123,235
Prepaid expenses and other 3,312 363 3,675
Future income taxes - 33,383 (ii) (25,982) 7,401
-------- -------- --------
177,370 294,332 444,005
Note receivable - - (iii) 14,094 14,094
Capital assets, net 40,718 47,460 (ii) 9,500 97,678
Future income taxes 2,067 1,158 (iv) (3,225) -
Other - 1,989 (ii) 1,770 3,759
Goodwill and other intangibles - 1,355 (ii) 322,328 323,683
-------- -------- --------
$220,155 $346,294 $883,219
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 30,144 $113,225 (ii) 13,000 $156,369
Income taxes payable 3,486 - 3,486
Future income taxes 862 - (ii) (862) -
Deferred revenue and deposits 19,047 - 19,047
Current portion of long-term debt 296 - 296
-------- -------- --------
Total current liabilities 53,835 113,225 179,198
Long-term debt 6,364 - 6,364
Other liabilities - - (ii) 2,959 2,959
Future income taxes - - (ii) 7,742 7,742
-------- -------- --------
Total liabilities 60,199 113,225 196,263
SHAREHOLDERS' EQUITY
Share capital 138,202 - (i) 527,000 665,202
Retained earnings 21,754 233,069 (ii) (233,069) 21,754
-------- -------- --------
Total shareholders' equity 159,956 233,069 686,956
-------- -------- --------
Total liabilities and shareholders'
equity $220,155 $346,294 $883,219
======== ======== ========
</TABLE>
<PAGE>
CREO PRODUCTS INC.
Unaudited Pro Forma Consolidated Statement of Operations (note 3)
(In thousands of United States dollars, except per share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Scitex Pro Forma Pro Forma
Creo Business Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Revenues $178,323 $491,521 $669,844
Cost of sales 94,465 290,166 (iii) (6,128) 378,503
-------- -------- --------
Gross profit 83,858 201,355 291,341
-------- -------- --------
OPERATING EXPENSES:
Research and development, net 13,805 40,122 53,927
Selling, general and administrative
expenses 40,517 117,758 (iv) (20) 158,255
Financing costs - - (ii) 1,409 1,409
Amortization of goodwill and other
intangibles - 3,010 (i) 29,358 32,368
-------- -------- --------
Total operating expenses 54,322 160,890 245,959
-------- -------- --------
Earnings from operations 29,536 40,465 45,382
Share in losses of equity investments - (3,108) (3,108)
Other income 1,358 268 1,626
-------- -------- --------
Earnings before income taxes 30,894 37,625 43,900
Income tax expense 12,334 4,994 (v) (3,963) 13,365
-------- -------- --------
NET EARNINGS $18,560 $ 32,631 $ 30,535
======== ======== ========
NET EARNINGS PER SHARE
Basic $ 0.73
========
Fully diluted $ 0.68
========
</TABLE>
<PAGE>
CREO PRODUCTS INC.
Notes to Unaudited Pro Forma Consolidated Financial Statements
(see Compilation Report)
(Tabular amounts in thousands of United States dollars)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION:
The accompanying unaudited pro forma consolidated financial statements of
Creo Products Inc. ("Creo") are based upon the historical financial
statements of Creo giving effect to the transaction described in note 2.
These pro forma financial statements do not purport to represent Creo's
financial position and results of operations that would have been attained
had the transactions actually taken place at the dates indicated and do not
purport to be indicative of the effects that may be expected to occur in
the future. These pro forma financial statements also do not give effect to
any events, including any synergies that Creo is able to achieve, other
than those discussed in the notes to the pro forma financial statements.
The pro forma financial statements have been compiled from financial
information in the:
(a) audited consolidated financial statements of Creo as at and for the
year ended September 30, 1999;
(b) audited consolidated financial statements of the Graphic Arts Business
of Scitex Corporation Ltd. (hereinafter called the "Scitex Business")
as at and for the year ended December 31, 1999; and
(c) the additional information set out in note 2.
These pro forma financial statements should be read in conjunction with the
financial statements of Creo and the Scitex Business included elsewhere in
this management proxy circular.
Creo's consolidated financial statements are prepared by management in
accordance with Canadian generally accepted accounting principles. The
Scitex Business amounts disclosed in the pro forma consolidated balance
sheet and the pro forma combined statement of operations have been
extracted from the financial statements of the Scitex Business prepared
under United States generally accepted accounting principles ("GAAP") and
have been reconciled to Canadian GAAP in the pro-forma adjustments column
(see note 3).
2. PRO FORMA TRANSACTIONS AND ASSUMPTIONS:
On January 17, 2000, Creo entered into an asset purchase agreement with
Scitex Corporation Ltd. and Scitex Development Corp. to acquire the Scitex
Business for share consideration equal to 13,250,000 common shares of Creo.
Upon completion of the transaction, Scitex will enter into a five-year
standstill agreement which, amongst other things, includes restrictions on
acquiring additional Creo shares, as well as customary transfer, voting and
other restrictions.
<PAGE>
CREO PRODUCTS INC.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands of United States dollars)
- -------------------------------------------------------------------------------
2. PRO FORMA TRANSACTIONS AND ASSUMPTIONS (CONTINUED):
The Scitex Business includes shares and assets of various Scitex
subsidiaries, and all of the tangible and intangible assets, including
intellectual property (including patents, trademarks and know-how), used in
the Scitex Business. In addition, Creo will assume the liabilities of the
Scitex Business. The asset purchase agreement provides that the acquired
assets will include that amount of cash or cash equivalents which will
bring the book value of the acquired net tangible assets of the Scitex
Business to $221 million. The closing of the Acquisition will take place on
the first day of the month following the month in which all closing
conditions, including shareholder and regulatory approvals, and the
expiration of all required waiting periods, are satisfied or waived.
The acquisition of the Scitex Business will be accounted for under the
purchase method at closing with Creo identified as the acquirer. The
aggregate purchase price, including costs, is estimated at $540 million and
will be adjusted for income or losses of the Scitex Business from January
1, 2000 to the closing date and for other changes to certain assets and
liabilities during the period from January 1, 2000 to the closing date. The
purchase price will be assigned to the specific assets acquired and
liabilities assumed at closing. Based on the estimated fair values of the
assets and liabilities of the Scitex Business at December 31, 1999, the
purchase price will be allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets (other than future income taxes) $ 259,234
Note receivable non-interest bearing, due within
three years discounted at 10% per annum 14,094
Capital assets 56,960
Other non-current assets 3,759
Intangible assets and goodwill 323,683
-----------------------------------------------------------------
657,730
Current liabilities (113,225)
Other liabilities (2,959)
Future income taxes, net (1,546)
-----------------------------------------------------------------
Purchase price $ 540,000
=================================================================
</TABLE>
The actual dollar amount of the purchase price will be calculated and
assigned to the assets and liabilities of the Scitex Business based on fair
values at the date of closing. Certain of the asset valuations are subject
to agreement between the parties to the transaction or independent
valuation. Accordingly, the allocation set above is preliminary only and
may be materially different from the actual closing amounts.
<PAGE>
CREO PRODUCTS INC.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands of United States dollars)
- -------------------------------------------------------------------------------
3. PRO FORMA ADJUSTMENTS:
(a) The pro forma consolidated balance sheet gives effect to the following
transactions as if they occurred on September 30, 1999:
(i) Issuance of common shares for the Scitex Business as
described in note 2;
(ii) the acquisition of the Scitex Business, as described in note
2;
(iii) the receipt of a non-interest bearing note receivable of
$18,760,000 due within three years in consideration of the
value of future income tax assets. The note receivable has
been discounted at 10% per annum for three years resulting in
a balance of $14,094,000.
(iv) reclassification of certain amounts for presentation in the
financial statements.
(b) The pro forma combined statement of operations gives effect to the
transactions described in note 3(a) as if they had occurred on
October 1, 1998, and includes the following adjustments:
(i) additional amortization expense of $29,358,000 representing
the value assigned to intangible assets and goodwill on the
acquisition amortized over their average estimated future
life of 10 years;
(ii) financing expense of $1,409,000 representing the amortization
of the discount on the non-interest note receivable which has
been discounted at 10% per annum;
(iii) reduction in depreciation expense of $9,128,000 to reflect
the application of Creo's depreciation accounting policies to
the capital assets acquired and to recognize the fair value
increment to inventory of $3,000,000 as if that inventory was
sold in the current year;
(iv) adjustment of $20,000 to reflect certain expenses on a
Canadian GAAP basis; and
(v) adjustments to income tax expense incurred by the Scitex
Business to recognize the benefit of the additional
deductions recorded in (i), (ii) and (iii).
4. SHARE CAPITAL:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Number of
common Stated
shares values
-------------------------------------------------------------------
<S> <C> <C>
Share capital, Creo Products Inc.,
September 30, 1999 32,418,694 $138,202
Shares issued on acquisition, net
of estimated share issue costs 13,250,000 527,000
-------------------------------------------------------------------
Balance 45,668,694 $665,202
===================================================================
</TABLE>
<PAGE>
CREO PRODUCTS INC.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands of United States dollars)
- -------------------------------------------------------------------------------
4. SHARE CAPITAL (CONTINUED):
Pro forma net income per share has been calculated by dividing pro forma
net income by the weighted average number of shares outstanding. The
weighted average number of shares outstanding represents Creo's weighted
average number of shares outstanding for the period ended September 30,
1999 plus the shares issued for the acquisition of the Scitex Business
assuming such shares were issued on October 1, 1998.
<PAGE>
SCHEDULE "E"
TORONTO STOCK EXCHANGE CORPORATE GOVERNANCE GUIDELINES
<TABLE>
<CAPTION>
DOES CREO
TSE GUIDELINES COMPLY? COMMENTS
-------------- --------- --------
<S> <C> <C> <C>
1. The Board should explicitly assume
responsibility for stewardship of
the corporation, and specifically
for:
(a) adoption of a strategic
planning process Yes The Board maintains oversight of
management's strategic planning
initiatives through annual and quarterly
budgetary reviews and approvals.
Extraordinary initiatives not provided
for in the approved budget require
separate Board approval.
(b) identifying the principal
risks of Creo's business Yes The Board has established a Finance
and implementing risk Committee which gives general advice from
management systems time to time to the Chief Financial
Officer and reports to the Board,
which also receives monthly progress
and financial reports from management.
(c) succession planning and
monitoring senior management Yes The mandate of the Board's Compensation,
Nominating and Corporate Governance
Committee includes succession planning
and monitoring the performance of senior
management.
(d) communications policy
Yes The Board reviews periodically the
arrangements initiated by management,
under the general supervision of the
Chief Financial Officer, to ensure
effective communication with its
stakeholders and the public.
(e) integrity of internal
control and management Yes The Board's Audit Committee reviews
information systems compliance with financial reporting
obligations, applicable accounting
principles and appropriate internal
controls. It meets with Creo's external
auditors at least once in each fiscal
quarter, reviews interim results, and
reports to the Board.
(i)
<PAGE>
<CAPTION>
DOES CREO
TSE GUIDELINES COMPLY? COMMENTS
-------------- --------- --------
<S> <C> <C> <C>
2. Majority of directors should
be "unrelated" Yes Directors during 1999:
Raffi Amit - Unrelated
David A. Bennett - Unrelated
Thomas Berman - Unrelated
John Bu - Unrelated
Dan Gelbart - Related (President of Creo)
Amos Michelson - Related (Chief Executive
Officer of Creo)
Douglas Richardson - Related (Creo
employee)
Kenneth A. Spencer - Unrelated
Charles Young - Unrelated
The determination as to whether a
director is related was reached by a
review and analysis of the financial,
contractual and other relationships of
each director and their associates and
affiliates with Creo, and an assessment
of the materiality of any such
relationships and the effect, if any,
on the independence of each individual
director.
3. Appoint a committee composed
exclusively of unrelated, Yes The Compensation, Nominating and
non-management directors responsible Corporate Governance Committee is
for appointment/assessment of responsible for recommending potential
directors. new directors and assessing the
performance and contribution of
directors. All of the current members of
the Committee are unrelated,
non-management directors.
4. Implement a process for assessing
the effectiveness of the board, its Yes These are all responsibilities entrusted
committees and individual directors to the Compensation, Nominating and
Corporate Governance Committee.
5. Provide orientation and education
programs for new directors No Creo intends to prepare and maintain a
"Directors' Policy Manual" to assist new
and existing board members
(ii)
<PAGE>
<CAPTION>
DOES CREO
TSE GUIDELINES COMPLY? COMMENTS
-------------- --------- --------
<S> <C> <C> <C>
6. Consider the size of the board, with
a view to improving effectiveness Yes The Board is specifically mandated to fix
its size, subject to shareholders
approval. The Compensation, Nominating
and Corporate Governance Committee is
charged with the duty of assisting the
Board in matters pertaining to, among
other things, the organization and
composition of the Board. The Board has
determined that an appropriate size for
Creo's Board, given its current
position, is in the range of seven to
nine directors.
7. Review compensation of directors in
light of risks and responsibilities Yes During fiscal 1999 the directors did not
receive any remuneration for acting as
such. This policy is currently under
review by the Compensation, Nominating
and Corporate Governance Committee.
8. Committees should generally be
composed of non-management directors Yes During fiscal 1999, all Board committees
except for the Compensation, Nominating
and Corporate Governance Committee of
which Amos Michelson was a member, were
composed entirely of non-management
directors. The Committee has since been
reconstituted and Mr. Michelson is no
longer a member.
9. Appoint a committee responsible for
approach to corporate governance Yes The Compensation, Nominating and
issues Corporate Governance Committee is
responsible for developing and monitoring
the Corporation's approach to corporate
governance issues.
10. Define limits to management's
responsibilities by developing
mandates for:
(iii)
<PAGE>
<CAPTION>
DOES CREO
TSE GUIDELINES COMPLY? COMMENTS
-------------- --------- --------
<S> <C> <C> <C>
(a) the board
Yes The Board has plenary power and
responsibility. Any responsibility
which is not delegated to senior
management or a board committee remains
with the entire Board. Terms of
reference for the Board have been
established.
(b) the Chief Executive Officer
Yes The limits to the authority and the
corporate objectives of the Chief
Executive Officer are defined by Creo's
annual plan and budget, and by terms of
reference established for the position.
11. Establish structures and procedures
to enable the board to function Yes The Chairman of the Board is independent
independently of management of Creo's management. The Board and its
committee meet independently of
management when warranted. In addition,
when appropriate, IN CAMERA sessions
are held at Board meetings in the
absence of management.
12. Establish an audit committee with a
specifically defined mandate Yes The mandate of the Audit Committee, all
of whose members are non-management
directors, includes monitoring the audit
and the preparation of financial
statements, reviewing all prospectuses,
annual and quarterly reports, annual
information forms and other similar
documents, and meeting with the outside
auditors independently of management.
13. Implement a system to enable
individual directors to engage Yes Individual directors may engage outside
outside advisers, at corporation's advisors at the expense of the
expense corporation, with the approval of a
majority of the non-management directors.
</TABLE>
(iv)
<PAGE>
SCHEDULE "F"
SPECIAL RESOLUTION TO AMEND ARTICLES OF INCORPORATION
RESOLVED, AS A SPECIAL RESOLUTION, THAT:
1. the Articles of the Corporation be and the same are hereby amended by
the addition of the following:
"the directors may from time to time appoint one or more
persons to be directors, who shall hold office for a term
expiring not later than the close of the next annual meeting
of shareholders, but the total number of directors so
appointed may not exceed one third of the number of directors
elected at the previous annual meeting of shareholders of the
Corporation."
2. any one director or officer of the Corporation is hereby authorized and
directed, acting for and in the name of and on behalf of the
Corporation, to execute or cause to be executed, with or without the
corporate seal of the Corporation affixed, and to deliver or cause to be
delivered, all such documents, agreements, authorizations, certificates
or instruments, and to take or cause to be taken any and all such
further action as such director or officer deems necessary or desirable,
in his or her sole discretion, in order to carry out the intent of the
foregoing paragraph of this resolution and the matter authorized
thereby, such determination to be conclusively evidenced by such
director's or officer's execution and delivery of such documents,
agreements, authorizations, certificates or instruments, or the taking
of any such further action.
<PAGE>
SCHEDULE "G"
EXTRACT FROM BY-LAW NO. 1 OF CREO PRODUCTS INC.
10.10 QUORUM. Subject to the provisions of the Act, a quorum for the
transaction of business at any meeting of shareholders shall be two persons
present in person, each being a shareholder entitled to vote thereat or a
duly appointed representative or proxy holder for an absent shareholder so
appointed, and holding or representing in the aggregate not less than 20% of
the outstanding shares of the Corporation entitled to vote at the meeting. If
a quorum is present at the opening of any meeting of shareholders, the
shareholders present or represented may proceed with the business of the
meeting notwithstanding that a quorum is not present throughout the meeting.
If a quorum is not present at the opening of any meeting of shareholders, the
shareholders present or represented may adjourn the meeting to a fixed time
and place but they may not transaction any other business.
<PAGE>
This is your ADMISSION TICKET to the Creo Products Inc.
Annual and Special Meeting to be held on Thursday, March 30, 2000 at 2:00
p.m. (local time) at the Executive Inn, 4201 Lougheed Highway, Burnaby,
British Columbia.
Please present this ticket at the Meeting to avoid registration delays.
TEAR HERE
IMPORTANT NOTICE
QUARTERLY REPORTS - DO YOU WISH TO RECEIVE THEM?
Creo Products Inc. (Creo) provides information to the investment community
the day our quarterly results are announced. Consequently many registered
shareholders do not wish to receive subsequent quarterly reports by mail. By
mailing only to those shareholders who request the reports, Creo can achieve
savings in both paper usage and expense.
To assist with this program, PLEASE CHECK THE BOX BELOW ONLY IF YOU WISH TO
RECEIVE QUARTERLY REPORTS. Return this card, together with your proxy, in the
envelope provided.
If this card is not returned we will assume you do not wish to receive these
reports; however, you will continue to receive the annual report and
associated proxy material.
/ / If you wish to receive Creo Products Inc. quarterly reports in fiscal
2000, please check here.
If you received more than one copy of the annual report it could be that you
are registered on the share register in more than one way. To reduce multiple
mailings you must submit a written request to Montreal Trust to consolidate
your accounts. This cannot be done without written instruction. This
consolidation may not be possible if you hold common shares that are
registered in your broker's name.
CREO PRODUCTS INC.
This proxy is solicited by the management of Creo Products Inc. ("Creo" or
the "Corporation") for use at the annual and special meeting of the holders
of common shares of the Corporation (the "Meeting") to be held at 2:00 p.m.
(local time) on Thursday, March 30, 2000, at the Executive Inn, 4201 Lougheed
Highway, Burnaby, British Columbia.
PROXY
I am entitled to execute this proxy in respect of common shares of Creo
Products Inc., and I appoint AMOS MICHELSON or, failing him, DAN GELBART or
____________________________ ("my proxyholder") to attend, vote and act on my
behalf at the Annual Meeting of holders of common shares of Creo Products
Inc. to be held on March 30, 2000 or at any adjournment of that meeting as if
I were personally present. I direct my proxyholder to vote my common shares
on any ballot that may be called for on all matters properly brought before
the meeting and specifically as set out below:
<TABLE>
<S> <C> <C> <C>
(a) on the resolution to approve the issuance of For / / Against / /
13,250,000 common shares to Scitex Corporation
Ltd. in connection with the acquisition by
Creo of certain assets of Scitex
Withhold
(b) on the election of the following persons as For from voting
directors of Creo:
Amos Michelson ............................. / / / /
Dan Gelbart ................................ / / / /
John Bu .................................... / / / /
Raphael Amit ............................... / / / /
Thomas D. Berman ........................... / / / /
Kenneth A. Spencer ......................... / / / /
Charles E. Young ........................... / / / /
(c) on the appointment of KPMG LLP as Creo's For / / Withhold vote / /
auditors
(d) on the special resolution to amend Creo's For / / Against / /
Articles of Incorporation to authorize the
Board of Directors to appoint additional
directors between shareholders' meetings
up to a maximum of 1/3 of the number of
directors elected at the previous annual
meeting
(e) on the resolution to confirm an amendment For / / Against / /
to Creo's By-Law No. 1 to provide for a
quorum at meetings of shareholders of at
least two shareholders present in person
or by proxy and between them holding not
less than 20% of the outstanding common
shares
</TABLE>
With respect to amendments or variations to the matters described above or
other matters which may properly come before the meeting, I hereby confer
discretionary authority on my proxyholder to vote as he or she thinks fit. I
hereby revoke all former proxies and ratify everything my proxyholder may do
at the meeting or any adjournment of it.
Signature of registered holder
(or duly authorized officer if a corporation) ________________________________
Please Print Name _______________________________ Date ___________________2000
<PAGE>
CREO PRODUCTS INC.
Instructions:
1. IF YOU ARE UNABLE TO ATTEND THE MEETING BUT WISH TO BE REPRESENTED, YOU
HAVE THE RIGHT TO APPOINT A PERSON, WHO NEED NOT OWN COMMON SHARES, TO
ATTEND AND VOTE ON YOUR BEHALF. IF YOU USE THIS FORM OF PROXY BUT WANT TO
APPOINT SOMEONE OTHER THAN AMOS MICHELSON OR DAN GELBART AS YOUR PROXY
HOLDER, YOU SHOULD CROSS OUT THEIR NAMES AND INSERT THE NAME OF YOUR
PREFERRED PROXYHOLDER IN THE BLANK SPACE PROVIDED. Your proxyholder should
then attend the meeting to vote on your behalf.
2. YOU SHOULD INDICATE YOUR CHOICE FOR EACH ITEM LISTED BY CHECKING THE
APPROPRIATE BOX. IF YOU DO NOT SPECIFY A CHOICE, YOUR COMMON SHARES WILL
BE VOTED IN FAVOUR OF each of the matters identified BELOW. IF YOU WISH
THE COMMON SHARES REPRESENTED BY THIS PROXY TO BE VOTED FOR OR AGAINST THE
MOTIONS SET OUT BELOW OR, IN THE CASE OF THE ELECTION OF DIRECTORS AND THE
APPOINTMENT OF AUDITORS, WITHHELD FROM VOTING, YOU SHOULD MARK THE
APPROPRIATE BOX WITH AN X OR A TICK (X).
3. In order to be valid, this proxy must be dated and signed by you as
registered holder or by your properly appointed attorney. If the registered
holder is a corporation, this proxy must be signed by an authorized officer
or attorney of the corporation. Proxies must be received by Montreal Trust
Company of Canada at 510 Burrard Street, Vancouver, British Columbia,
V6C 3B9 no later than 2:00 p.m. (local time) on March 29, 2000, or if the
Meeting is adjourned, 24 hours (excluding Saturdays, Sundays and holidays),
before the time the adjourned Meeting is to be reconvened. The fax number
for Montreal Trust Company of Canada is (604) 683-3694. If you do fax the
proxy, you should also mail the original in the envelope provided. If not
dated, the proxy will be deemed to be dated March 29, 2000.
[LOGO]
ADMISSION TICKET TO THE
2000 ANNUAL AND SPECIAL MEETING OF CREO PRODUCTS INC.
TEAR HERE
[LOGO]
IMPORTANT NOTICE TO SHAREHOLDERS
REGARDING QUARTERLY REPORTS ON REVERSE
