As filed with the Securities and Exchange Commission on July 13, 2001
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM F-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------------
EXFO ELECTRO-OPTICAL ENGINEERING INC./
EXFO INGENIERIE ELECTRO-OPTIQUE INC.
(Exact name of Registrant as specified in its charter)
CANADA 98-0131231
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
----------------------
465 GODIN AVENUE
VANIER, QUEBEC G1M 3G7, CANADA
(418) 683-0211
(Address and telephone number of Registrant's principal executive offices)
----------------------
EXFO AMERICA INC.
1201 RICHARDSON DRIVE, SUITE 260
RICHARDSON, TEXAS 75080
(800) 663-3936
(Name, address and telephone number of agent for service)
----------------------
WITH COPIES TO:
EDWIN S. MAYNARD, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
----------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE(1)
- -------------------------------------------------------------------------------------------------------------------------------
Subordinate voting shares....... 6,488,816 shares $14.225 $92,303,407.60 $23,075.85
- -------------------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rule 457(c), the offering price and registration fee are
computed on the basis of the average of the high and low prices of the
subordinate voting shares as reported by The Nasdaq Stock Market's National
Market on July 6, 2001.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
The information in this prospectus is not complete and may be amended. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 13, 2001
PROSPECTUS
- ----------
6,488,816 SHARES
EXFO ELECTRO-OPTICAL ENGINEERING INC.
SUBORDINATE VOTING SHARES
This prospectus relates to the resale of up to an aggregate of
6,488,816 subordinate voting shares of EXFO Electro-Optical Engineering Inc. by
Robert G. Klimasewski, William G. May, Jr., David J. Farrell and William S.
Gornall, the former shareholders of Burleigh Instruments, Inc. The selling
shareholders acquired our subordinate voting shares when Burleigh was acquired
by us in December 2000. The selling shareholders may sell their subordinate
voting shares from time to time in regular brokerage transactions, in
transactions directly with market makers or in privately negotiated transactions
at fixed prices that may be changed, at market prices prevailing at the time of
sale or at negotiated prices.
We will not receive any proceeds from the sale of subordinate voting
shares by the selling shareholders.
Our subordinate voting shares are listed and posted for trading on The
Toronto Stock Exchange under the symbol "EXF" and are quoted on the Nasdaq
National Market under the symbol "EXFO." On July 12, 2001, the closing sale
price of our subordinate voting shares was C$24.39 on The Toronto Stock Exchange
and was U.S.$15.87 on The Nasdaq National Market.
----------------------------
Investing in our subordinate voting shares involves risks. See "Risk
Factors" beginning on page 3 of this prospectus.
----------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------
The date of this prospectus is July , 2001.
TABLE OF CONTENTS
Risk Factors...................................................................3
Cautionary Statement Regarding Forward-Looking Statements.....................13
EXFO..........................................................................14
Use of Proceeds...............................................................17
Determination of Offering Price...............................................17
Selling Shareholders..........................................................18
Plan of Distribution..........................................................18
Legal Matters.................................................................19
Experts.......................................................................19
Where You Can Find More Information...........................................20
Incorporation of Documents by Reference.......................................20
Index to Financial Statements................................................F-1
----------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.
----------------------
In this prospectus, "we," "us," "our" and "EXFO" refer to EXFO
Electro-Optical Engineering Inc. and its subsidiaries.
----------------------
Our head office is located at 465 Godin Avenue, Vanier, Quebec, Canada,
G1M 3G7 and our telephone number is (418) 683-0211.
2
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AS WELL AS THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE. IN PARTICULAR, YOU SHOULD REVIEW THE DISCUSSION UNDER "ITEM
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS" AND OUR AUDITED CONSOLIDATED
FINANCIAL STATEMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS FROM OUR
ANNUAL REPORT ON FORM 20-F BEFORE MAKING AN INVESTMENT IN THE SUBORDINATE VOTING
SHARES OFFERED BY THIS PROSPECTUS.
RISKS RELATED TO OUR INDUSTRY AND BUSINESS
IF WE ARE UNABLE TO APPROPRIATELY INTEGRATE THE TECHNOLOGIES OF OUR RECENT
ACQUISITIONS WITH OUR OWN TECHNOLOGIES, WE MAY NOT BE ABLE TO INTRODUCE NEW AND
ENHANCED PRODUCTS ON A TIMELY BASIS, WHICH COULD PREVENT US FROM ACHIEVING OUR
GROWTH STRATEGY AND ADVERSELY AFFECT OUR OPERATING RESULTS.
Any failure by us to appropriately integrate the technologies of
Burleigh Instruments, Inc. ("Burleigh"), EFOS Inc. ("EFOS") and Vanguard
Technical Solutions, Inc. ("Vanguard") with our own technologies in a manner
that anticipates or responds to new technological developments and customer
requirements on a timely basis could have a material adverse effect on our
business, financial condition and results of operations.
WE CANNOT ASSURE THAT WE WILL BE ABLE TO SUCCESSFULLY INTEGRATE ANY BUSINESSES,
PRODUCTS, TECHNOLOGIES OR PERSONNEL THAT WE MIGHT ACQUIRE IN THE FUTURE, WHICH
MAY HARM OUR BUSINESS.
We may not be able to realize the potential benefits of our future
acquisitions.
In order for our future transactions to be successful, we must
coordinate the operations and technologies of our wholly owned subsidiaries with
our own operations and technologies and manage the geographically dispersed
operations. Integration will require the dedication of management resources that
may distract their attention from our day-to-day business and operations. If we
fail to integrate the companies quickly and efficiently, we may not be able to
realize the benefits we expect from these transactions.
IF THE SUPPLY OF HIGH-BANDWIDTH TRANSMISSION NETWORKS SHOULD CONTINUE TO SURPASS
DEMAND, OR IF OPTICAL FIBER IS REPLACED BY ANOTHER MEDIUM AS THE PRIMARY
SOLUTION FOR BANDWIDTH-INTENSIVE APPLICATIONS, WE COULD EXPERIENCE A SIGNIFICANT
LONG-TERM LOSS OF SALES.
Fiber-optic deployment and network capacity increases have slowed
during recent months which has affected optical component and network equipment
manufacturers and operators causing reduced demand for fiber-optic test,
measurement and automation equipment. If such reduced demand should continue
over the mid or long term, or if optical fiber is replaced by a higher
performance medium, this could have a material adverse effect on our business,
financial condition and results of operations.
IF WE ARE UNABLE TO ADAPT TO CURRENT AND FUTURE CHANGES IN TECHNOLOGY, OUR
PRODUCTS MAY BECOME OBSOLETE.
Any failure by us to anticipate or respond to new technological
developments and customer requirements could have a material adverse effect on
our business, financial condition and results of operations. Moreover, the
markets addressed by our current and planned products are rapidly evolving and
are characterized by emerging standards and competing technological platforms.
There can be no assurance that products destined by us for sale into these
markets will adequately address the requirements dictated by evolving standards,
or that we will be able to adapt our products to changes in
3
technology. Accordingly, we may invest in products and technologies that never
gain market acceptance. Such investments could have a material adverse effect on
our business, financial condition and results of operations.
WE MUST CONTINUE TO OVERCOME SIGNIFICANT AND INCREASING COMPETITION IN OUR
INDUSTRY IN ORDER TO CONTINUE OUR GROWTH AND PRODUCTIVITY.
The market for fiber-optic test, measurement and automation equipment
is rapidly evolving and is marked by intense competition and technical
innovations. We expect the pace of change to accelerate in the future. We also
expect many new competitors to emerge as the market for fiber-optic test,
measurement and automation equipment expands and evolves in response to
technical innovations.
Some of our current and potential competitors are global electronic
test and measurement manufacturers who complement their broad range of products
with fiber-optic test, measurement and monitoring equipment. Competitors, such
as ANDO Corporation, Anritsu Corporation, Agilent Technologies Inc., GN Nettest
and Acterna Corporation, may have greater financial, technical and marketing
resources. Consequently, these competitors may be able to devote greater
resources to the development, marketing, sale and support of their products.
They may also be better positioned than we are to acquire companies and new
technologies that may displace our products or make them obsolete.
WE DEVOTE CONSIDERABLE TIME AND RESOURCES TO SECURING NEW CUSTOMERS AND
IMPROVING SALES TO EXISTING CUSTOMERS. IF WE ARE UNSUCCESSFUL, OUR FUTURE
OPERATING RESULTS MAY SUFFER.
The long sales cycle for some of our products may cause our sales and
operating results to vary significantly from period to period. The period of
time between our initial contact with a customer and the receipt of a purchase
order may span a year or more. In addition, customers perform and require us to
perform, extensive product evaluation and testing of new instruments before
purchasing them. If we are unable to satisfy customer demands, considerable
resources would have been expended without deriving corresponding sales.
OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY ARE IMPORTANT TO THE
CONTINUED SUCCESS OF OUR BUSINESS. OUR FAILURE TO PROTECT THIS PROPRIETARY
TECHNOLOGY MAY SIGNIFICANTLY IMPAIR OUR COMPETITIVE POSITION.
Our success and ability to compete depend to a significant extent on
our proprietary technology, since that is how we attempt to keep others from
using the innovations that are central to our existing and future products. We
currently hold five U.S. and two Canadian issued patents, one foreign issued
patent and have seven U.S. and nine Canadian patent applications pending. In
addition, Burleigh has five U.S. and one Canadian issued patents and has five
U.S. patent applications pending and EFOS has seven U.S. and four Canadian
issued patents and seven U.S., eight Canadian and one international patent
pending. We also rely on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures, contractual provisions and license
agreements to protect our proprietary technology. We may have to engage in
litigation in order to protect our patents and other intellectual property
rights, or to determine the validity or scope of the proprietary rights of
others. This kind of litigation can be time-consuming and expensive, regardless
of whether we win or lose. Because it is critical to our success that we are
able to prevent competitors from copying our innovations, we intend to continue
to seek patent and trade secret protection for our technologies. The process of
seeking patent protection can be long and expensive and we cannot be certain
that any currently pending or future applications will actually result in issued
patents, or that, even if patents are issued, they will be of sufficient scope
or strength to provide meaningful protection or any commercial advantage to us.
Furthermore, others may develop technologies that are similar or superior to our
technology, or design around the patents that we own. We also rely on
4
trade secret protection for our technology, in part through confidentiality
agreements with our employees, consultants, distributors and third parties.
However, these agreements may be breached or otherwise not effective and we may
not have adequate remedies for any breach or shortfall of these agreements. In
any case, others may come to know about our trade secrets through a variety of
methods. In addition, our foreign issued patent only covers Japan, and the laws
of some territories in which we sell our products may not protect our
intellectual property rights to the same extent as do the laws of Canada and the
United States.
Despite our efforts, our intellectual property rights, particularly our
existing or future patents, may be invalidated, circumvented, challenged or
required to be licensed to others. Furthermore, others may develop technologies
that are similar or superior to our technology, duplicate or reverse engineer
our technology, or design around the patents owned or licensed by us. We cannot
be sure that the steps that we take to protect our technology will prevent
misappropriation or infringement. If we fail to protect our technology so that
others may copy or use it, we will be less able to differentiate our products
and our sales will decline.
IF OTHERS CLAIM THAT OUR PRODUCTS INFRINGE UPON THEIR INTELLECTUAL PROPERTY
RIGHTS, WE MAY BE FORCED TO SEEK EXPENSIVE LICENSES, RE-ENGINEER OUR PRODUCTS,
ENGAGE IN EXPENSIVE AND TIME-CONSUMING LITIGATION OR STOP MARKETING THE
CHALLENGED PRODUCTS, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR
PRODUCTS AND COULD INCREASE OUR COSTS.
Litigation regarding intellectual property rights is common in the
technology industry and, for this reason, we expect that third-party
infringement claims involving technologies may increase. If an infringement
claim is filed against us, we may be prevented from using some of our
technologies and may incur significant costs to resolve the claim.
We could incur substantial costs in defending ourselves and our
customers against infringement claims. Litigation could also adversely affect
sales of the challenged product or technology and divert the efforts of our
management and technical personnel. In the event of a claim of infringement, we
may be required to obtain one or more licenses from third parties. We cannot
assure you that we, or our customers, could obtain necessary licenses from third
parties at a reasonable cost or at all. If we fail to obtain a license where one
is required, we could incur substantial liabilities and be forced to suspend the
marketing and sales of the challenged products.
WE REQUIRE EMPLOYEES WHO ARE KNOWLEDGEABLE ABOUT THE SPECIALIZED NATURE OF OUR
BUSINESS. IF WE ARE UNABLE TO ATTRACT AND RETAIN SUFFICIENT NUMBERS OF HIGHLY
SKILLED TECHNICAL, SALES AND MARKETING AND OTHER PERSONNEL, OUR OPERATIONS AND
FINANCIAL RESULTS WOULD SUFFER.
Due to the specialized nature of our business, we are highly dependent
on the continued service of and on the ability to attract and retain, qualified
engineering, sales, marketing and senior management personnel in the area of
fiber optics. The competition for such personnel is intense. The loss of key
employees or management personnel could have a material adverse effect on our
business and operating results. We may not be able to continue to attract and
retain the qualified personnel necessary for the development of our business. In
addition, if we are unable to hire additional qualified personnel as needed, we
may not be able to adequately manage and complete our existing sales commitments
and to bid for and execute additional sales.
We must provide significant training for our employee base due to the
highly specialized nature of fiber-optic test, measurement and automation
equipment. Our current engineering personnel may be inadequate and we may fail
to assimilate and train new employees. Highly skilled employees with the
5
education and training that we require, especially employees with significant
experience and expertise in fiber optics, are in high demand. Once trained, our
employees may be hired by our competitors.
OUR BUSINESS STRATEGY AND OUR ABILITY TO OPERATE PROFITABLY DEPEND ON THE
CONTINUED SERVICES OF OUR SENIOR MANAGEMENT TEAM LED BY GERMAIN LAMONDE, OUR
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER. THE LOSS OF ANY
MEMBER OF THE SENIOR MANAGEMENT TEAM WOULD ADVERSELY AFFECT OUR BUSINESS.
Our ability to maintain our competitive position depends to a
significant extent on the efforts and abilities of our senior management,
particularly Germain Lamonde, our Chairman of the Board, President and Chief
Executive Officer. Although we have entered into an employment agreement with
Mr. Lamonde, Mario Larose, Vice President, Marketing, Bruce Bonini, Vice
President, North American Sales, Juan-Felipe Gonzalez, Vice President,
International Sales, Jean-Francois Boulet, Vice President, Human Resources and
Stephen Bull, Vice President, Research and Development, we do not have
employment agreements with our other key executives. Their managerial, technical
and other services would be difficult to replace and if we lose the services of
one or more of our executive officers, or if one of them decides to join a
competitor or otherwise compete directly or indirectly against us, our business
would be seriously harmed. The loss of their services would jeopardize our
ability to maintain our competitive position. We do not have "key person" life
insurance policies covering any of our employees.
IF WE ARE NOT ABLE TO MANAGE OUR GROWTH EFFECTIVELY AND TO ADAPT TO AN EVOLVING
ECONOMY, WE MAY NOT BE ABLE TO MAINTAIN OR IMPROVE OUR CURRENT LEVEL OF
PROFITABILITY.
We expect our business and the industry in which we compete to continue
to undergo rapid change. We plan to continue to expand our distribution and
marketing capabilities by opening additional international sales offices and
service centers, by bolstering our key account management program, by hiring
application engineers and by increasing our sales network worldwide. Finally, we
have had a significant increase in our number of employees from 671 on May 31,
2000 to 1,243 on June 30, 2001. Our ability to be profitable depends on our
ability to manage this growth and to adapt to an evolving economy. The failure
of our management to respond effectively to and manage changing technological
and business conditions could have a material adverse impact on our business,
financial condition and results of operations.
WE MAY BE SUBJECT TO CERTAIN LIABILITIES ASSUMED IN CONNECTION WITH OUR
ACQUISITIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS.
We conduct due diligence in connection with our acquisitions and
incorporate indemnification provisions in our acquisition agreements. To the
extent that prior owners of any acquired businesses failed to comply with or
otherwise violated applicable laws, we may be financially responsible for these
violations or otherwise be adversely affected. The discovery of any material
liabilities after the closing of the transaction could have a material adverse
effect on our financial condition and results of operations. In connection with
our acquisition of Burleigh and EFOS, there may be liabilities that we failed to
discover at the time of the acquisition or that we inadequately assessed in our
due diligence efforts.
WE DEPEND ON A SINGLE SUPPLIER OR A LIMITED NUMBER OF SUPPLIERS FOR SOME OF THE
KEY COMPONENTS AND MATERIALS IN OUR PRODUCTS, WHICH MAKES US SUSCEPTIBLE TO
SUPPLY SHORTAGES OR PRICE FLUCTUATIONS THAT COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
We depend on a limited number of suppliers for some of the parts used
to manufacture our products. All our orders are placed through individual
purchase orders and, therefore, our suppliers may stop supplying parts to us at
any time. The reliance on a single source or limited number of suppliers
6
could result in delivery problems and reduced control over product pricing and
quality. The process of qualifying a new contract manufacturer for complex
products, designed to our specifications, such as our optical and mechanical
parts, is lengthy and would consume a substantial amount of time of our
technical personnel and management. If we sought to change manufacturers in a
short period of time, our business would be disrupted. In addition, we may be
unsuccessful in identifying a new manufacturer capable of and willing to meet
our needs on terms that we would find acceptable.
WE EXPECT THE PRICE OF OUR EXISTING PRODUCTS TO DECLINE AND IF WE DO NOT REDUCE
OUR MANUFACTURING COSTS OR INTRODUCE NEW PRODUCTS WITH HIGHER MARGINS, OUR GROSS
MARGINS WILL DECLINE AND WE COULD INCUR OPERATING LOSSES.
Reduced demand for fiber-optic test, measurement and automation
equipment, in addition to competitiveness in our industry will likely result in
the decline of prices for fiber-optic test, measurement and automation
equipment. These price declines result from factors such as:
o increased competition for business;
o reduced demand;
o a limited number of potential customers;
o competition from companies with lower labor and production
costs;
o introduction of new products by competitors; and
o greater economies of scale for higher-volume manufacturers.
As prices of our existing products are expected to decline, we may have
to increase our unit volume sold in order to maintain our existing sales level.
Our increased capacity will result in an increase in fixed costs. As a result,
we will have to increase the level of sales to maintain operating margins. If we
are unable to continuously reduce our manufacturing costs or introduce new
products with higher margins, our gross margins would decline.
IF WE FAIL TO ADAPT APPROPRIATELY TO THE CHALLENGES ASSOCIATED WITH OPERATING
INTERNATIONALLY, THE GROWTH OF OUR BUSINESS MAY BE IMPEDED AND OUR OPERATING
RESULTS MAY BE AFFECTED.
For the fiscal year ended August 31, 2000, customers outside of the
United States and Canada accounted for 38.4% of our sales and for the nine
months ended May 31, 2001, these customers accounted for 40.5% of our sales. We
plan to increase our international sales activities and have recently opened
offices in Great Britain, China, Japan, and Singapore. Our international sales
will be limited if we cannot establish relationships with international
distributors, establish additional foreign operations, expand international
sales channel management, hire additional personnel and develop relationships
with international service providers. Even if we are able to successfully
continue our international operations, we may not be able to maintain or
increase international market demand for our products. Our international
operations are subject to a number of risks, including:
o unexpected changes in regulatory requirements, tax rates or
tariffs that make our products and services more expensive and
therefore less attractive to present and potential customers;
7
o challenges in staffing and managing foreign operations due to
the limited number of qualified candidates, employment laws
and practices in foreign countries, any of which could
increase the cost and reduce the efficiency of operating in
foreign countries;
o technology standards that differ from those on which our
products are based, which could require expensive redesign and
retention of personnel familiar with those standards;
o longer accounts receivable payment cycles and possible
difficulties in collecting payments which may increase our
operating costs and hurt our financial performance;
o political and economic instability; and
o certification requirements.
Any of these factors could harm our international operations and
negatively affect our financial performance. For example, we currently face
problems with increasing, and constantly changing, certification requirements.
In addition, although the amounts involved were not material and substantial
efforts were deployed for collection purposes, we have in the past encountered
difficulties recovering accounts receivable in countries experiencing economic
instability. The recurrence of weakness in these economies or of weakness in
other foreign economies could have a significant negative effect on our future
operating results.
OUR PRODUCTS MAY HAVE UNFORESEEN DEFECTS THAT COULD HARM OUR REPUTATION, IMPEDE
MARKET ACCEPTANCE OF OUR PRODUCTS AND NEGATIVELY IMPACT OUR RESULTS OF
OPERATIONS.
As a result of their complexity, our products may contain undetected
errors or compatibility problems or regulatory compliance issues, particularly
when they are first introduced or when new versions are released. There can be
no assurance that, despite our testing, errors will not be found in new products
after they have been fully deployed and operated under peak stress conditions.
If we are unable to fix defects or other problems, we could experience, among
other things:
o loss of customers;
o damage to our brand reputation;
o failure to attract new customers or achieve market acceptance;
o diversion of development and engineering resources;
o legal actions by our customers, including claims for
consequential damages and loss of profits; and
o legal actions by governmental entities, including actions to
impose product recalls and/or forfeitures.
The occurrence of any one or more of the foregoing could seriously harm
our business, financial condition and results of operations.
8
OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS. A SUCCESSFUL CLAIM EXCEEDING OUR POLICY LIMIT WILL REDUCE OUR
WORKING CAPITAL, INCREASE OUR EXPENSES AND HAVE A NEGATIVE EFFECT ON OUR
OPERATING RESULTS.
Our products are designed to help telecommunications carriers and
manufacturers of optical components, value-added optical modules and optical
networking systems ensure network reliability. The failure of our products to
perform to client expectations could give rise to product liability and warranty
claims. We carry product liability insurance and take accounting reserves that
we consider adequate in view of industry practice. However, a successful claim
against us for an amount exceeding our policy limit would force us to use our
own resources to pay the claim, which could result in a reduction of our working
capital available for other uses, increase our expenses and have a negative
effect on our financial condition and results of operations.
AS OUR COMPETITORS CONSOLIDATE, THEY MAY OFFER PRODUCTS OR PRICING THAT WE
CANNOT MEET, WHICH COULD CAUSE OUR SALES TO DECLINE.
Consolidation in the fiber-optic test, measurement and automation
industry could intensify the competitive pressures that we face. Recently, some
of our competitors have merged or have been acquired by larger companies. These
combined companies could produce more high-performance products and offer them
at more competitive prices.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND YOU
SHOULD NOT RELY ON THEM AS AN INDICATION OF OUR FUTURE PERFORMANCE.
Our sales and operating results have fluctuated from quarter to quarter
in the past and may fluctuate significantly in the future. In addition, our
revenue and operating results generally depend on the volume and timing of the
orders we receive from customers as well as our ability to fulfill the orders
received. Our operating expenses, which include research and development, and
selling and administrative expenses, are relatively fixed in the short term. If
our revenue is lower than we expect because we sell fewer products than we
anticipate or if there is a delay in the release of new products, we may not be
able to quickly reduce our operating expenses in response. Factors that could
affect the amount and timing of our revenue, and cause quarterly fluctuations in
our operating results include:
o the length of our product sales cycle for certain products,
especially those that are higher priced and more complex;
o our ability to sustain product volumes and high levels of
quality across all product lines;
o the timing of shipments for large orders;
o the timing of introduction and market acceptance of new
products by us, our competitors or our suppliers; and
o the effect of potential seasonality in sales.
Our operating results could also be affected by the following factors over which
we have little or no control:
o demand for fiber-optic test, measurement and automation
equipment;
9
o changes in the capital budgets of our customers, which may
cause seasonal or other fluctuations in the product mix,
volume, timing and number of orders we receive from our
customers;
o difficulties in collecting accounts receivable; and
o general economic conditions.
Due to these factors, you should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of our future
performance.
IF WE FAIL TO PREDICT OUR SUPPLY REQUIREMENTS ACCURATELY, WE WILL HAVE EXCESS
INVENTORY OR INSUFFICIENT INVENTORY, EITHER OF WHICH COULD CAUSE US TO INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.
We provide forecasts of our requirements to some of our suppliers up to
six months prior to scheduled delivery of products to our customers. If we
overestimate our requirements, we may have excess inventory, which could
increase our costs and harm our relationships with our suppliers due to reduced
future orders. If we underestimate our requirements, we may have an inadequate
inventory of parts. Inadequate inventory could interrupt manufacturing of our
products and result in delays in shipments. In addition, lead times for
materials and parts that we order are long and depend on factors such as the
procedures of, or supply terms with, a specific supplier and demand for each
part at a given time. In the case of some parts in short supply, suppliers have
imposed strict allocations that limit the number of these parts that they will
supply to a given customer in a specified time period. Although to date
suppliers have not made selective allocations that adversely affected us, these
suppliers may choose, in the future, to increase allocations to larger, more
established companies, which could reduce our allocations and harm our ability
to manufacture our products.
WE MAY NOT BE ABLE TO INTRODUCE NEW AND ENHANCED PRODUCTS ON A TIMELY BASIS,
WHICH COULD PREVENT US FROM ACHIEVING OUR GROWTH STRATEGY AND ADVERSELY AFFECT
OUR OPERATING RESULTS.
The development of proprietary technologies entails significant
technical and business risks and requires substantial expenditures and lead
time. If we experience product delays in the future, we may face:
o customer dissatisfaction;
o cancellation of orders;
o negative publicity;
o loss of sales;
o slower market acceptance of our products; and
o legal actions by customers.
In the future, our efforts to remedy product delays may not be
successful and we may lose customers as a result. Delays in bringing to market
new products or product enhancements could be exploited by our competitors. If
we lose market share as a result of lapses in our product development, our
business would suffer.
10
FLUCTUATIONS IN THE EXCHANGE RATES BETWEEN THE CANADIAN DOLLAR AND THE U.S.
DOLLAR MAY ADVERSELY AFFECT OUR OPERATING MARGINS.
The majority of our sales is denominated in US dollars. However, a
large portion of our operating expenses and capital expenditures are denominated
in Canadian dollars. As a result, we are exposed to fluctuations in the exchange
rates between the Canadian dollar and the US dollar. Even though we hold forward
exchange contracts to partially hedge that risk, an increase in the value of the
Canadian dollar relative to the US dollar could have a material adverse effect
on our operating margins.
AS OUR CUSTOMERS CONSOLIDATE, THEY MAY REDUCE PURCHASES OF OUR PRODUCTS, WHICH
WOULD CAUSE OUR SALES TO DECLINE.
Consolidation in the telecommunications industry could reduce the
number of customers to whom our products could be sold. Some of our customers
have merged. Although to date we have not experienced any adverse effects as a
result of these mergers, these merged customers could, in the future, reduce
their future orders, renegotiate pricing and obtain products from a source other
than us, which would cause our sales to decline. In addition, some of our
manufacturer customers may merge with or acquire our competitors and, as a
result, discontinue their relationships with us.
OUR CUSTOMERS ARE NOT OBLIGATED TO BUY MATERIAL AMOUNTS OF OUR PRODUCTS AND MAY
CANCEL OR DEFER PURCHASES ON SHORT NOTICE.
Our customers typically purchase our products under individual purchase
orders and may cancel or defer purchases on short notice without significant
penalty. Accordingly, sales in a particular period are difficult to predict.
Decreases in purchases, cancellations of purchase orders, or deferrals of
purchases may have a material adverse effect on our operating results,
particularly if we do not anticipate them.
WE MAY NOT BE ABLE TO SUSTAIN OUR RESEARCH AND DEVELOPMENT ACTIVITIES AS OUR
RESEARCH AND DEVELOPMENT CREDITS AND GRANTS DECLINE, CAUSING AN INCREASE OF THE
EFFECTIVE COST OF OUR FUTURE RESEARCH AND DEVELOPMENT ACTIVITIES.
Our historical operating results reflect substantial benefits from
programs sponsored by federal, provincial and state governments for the support
of research and development. Research and development tax credits and grants
represented 31.7% of our gross research and development expenses for the year
ended August 31, 2000 and 25.8% for the nine months ended May 31, 2001. These
tax credits and grants will decline as our assets grow and as grant programs
expire. Accordingly, the effective cost of our future research and development
activities will increase.
UNEXPECTED DECLINES IN OUR RESEARCH AND DEVELOPMENT CREDITS AND GRANTS MAY HAVE
AN ADVERSE EFFECT ON OUR BUSINESS.
If unexpected changes in the laws or government policies terminate or
adversely modify the Canadian or Quebec government programs under which we
receive the major part of our research and development tax credits and grants,
or if we unexpectedly become unable to participate in or take advantage of these
programs, then our net research and development expenses will materially
increase. To the extent that we increase our research and development activities
outside Canada or Quebec, which could result from, among other things, future
acquisitions, the increased activities may not be eligible for these programs.
If we are required to decrease our research and development activities, we may
be unable to compete effectively.
11
WE MAY NOT BE ABLE TO MAKE THE NECESSARY ACQUISITIONS NEEDED FOR THE DEVELOPMENT
OF OUR BUSINESS AND ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM
OUR FINANCIAL CONDITION.
We intend to aggressively seek acquisitions of businesses, products and
technologies that are complementary to ours. There can be no assurance that we
will ultimately make any such acquisition. The consolidation of our competitors
may improve their capacity to acquire the same businesses, products and
technologies that we wish to acquire.
We have in the past made strategic acquisitions, such as our
acquisitions of GAP Optique S.A., Burleigh and EFOS. We anticipate that in the
future, as part of our business strategy, we will continue to make strategic
acquisitions of complementary companies, products and technologies. In the event
of any future acquisition, we could:
o issue shares that would dilute individual shareholder
percentage ownership;
o incur debt;
o assume liabilities; or
o incur expenses related to in-process research and development,
amortization of goodwill and other intangible assets.
These acquisitions also involve numerous risks, including:
o problems combining the acquired operations, technologies or
products;
o unanticipated costs or liabilities;
o diversion of management's attention from our core business;
o adverse effects on existing business relationships with
suppliers and customers;
o risks associated with entering markets in which we have no or
limited prior experience; and
o potential loss of key employees, particularly those of
acquired organizations.
Recently, our subsidiary Nortech Fibronic Inc., acquired in February
2000, shut down its business operations, though the impact of this closure is
not significant, we cannot assure that we will be able to successfully integrate
the other businesses, products, technologies or personnel that we might acquire
in the future and further divestitures or closures could be necessary, which may
harm our business.
OUR SALES WOULD SUFFER IF A KEY SALES REPRESENTATIVE OR DISTRIBUTOR STOPPED
SELLING OR REDUCED SALES OF OUR PRODUCTS.
We sell substantially all of our products through a network of
independent sales representatives and distributors, the majority of whom have
exclusive rights to sell our products in specific territories or markets. If we
are unable to provide competitive sales commissions, maintain an appropriate
sales volume, or offer sufficient channel-support, our independent sales
representatives and distributors may discontinue sales of our products and
switch to representing one or more of our competitors, which would result in
reduced sales for us.
12
WE MAY NEED ADDITIONAL CAPITAL, AND MAY NOT BE ABLE TO RAISE ADDITIONAL CAPITAL
ON FAVORABLE TERMS OR AT ALL, WHICH COULD LIMIT OUR ABILITY TO GROW AND COULD
INCREASE OUR COSTS.
Our future liquidity and capital requirements are difficult to predict
because they depend on numerous factors, including the success of our existing
and new product offerings as well as competing technological and market
developments. As a result, we may not be able to generate sufficient cash from
our operations to meet additional working capital requirements, support
additional capital expenditures or take advantage of acquisition opportunities.
Accordingly, we may need to raise additional capital in the future.
Our ability to obtain additional financing will be subject to a number
of factors, including market conditions and our operating performance. These
factors may render the timing, amount, terms and conditions of additional
financing unattractive for us. If we raise additional funds by selling equity
securities, the relative ownership of our existing investors could be diluted or
the new investors could obtain terms more favorable than previous investors. If
we raise additional funds through debt financing, we could incur significant
borrowing costs. If we are unable to raise additional funds when needed, our
ability to operate and grow our business could be impeded.
OUR PRODUCTS MAY BE REQUIRED TO CONFORM TO NEW AND UNFORESEEN REGULATORY
REQUIREMENTS WHICH COULD INCREASE OUR COSTS AND REDUCE OUR MARKET SHARE.
Our products are designed to conform to the regulatory requirements of
the countries in which they are marketed. In the event that the technical
regulations applicable in a given country are in any way changed, we may be
required to modify, redesign or recall some or all of our products in order to
continue participating in that market. These changes likely would increase
manufacturing costs and could create technical advantages for products marketed
by our competitors.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes or incorporates forward-looking statements
within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section
21E of the U.S. Securities Exchange Act of 1934. You can identify these
forward-looking statements by our use of words such as "intend," "plan," "may,"
"will," "project," "estimate," "anticipate," "believe," "expect," "continue,"
"potential," "opportunity," and similar expressions, whether in the negative or
affirmative. We cannot guarantee that we actually will achieve these plans,
intentions or expectations. All statements regarding our expected financial
position, business and financing plans are forward-looking statements.
Actual results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking statements we make.
We have included important facts in various cautionary statements in this
prospectus that we believe could cause our actual results to differ materially
from the forward-looking statements that we make. These include, but are not
limited to, those under the heading "Risk Factors" in this prospectus and the
discussion under "Item 3.D. Risk Factors" in our Annual Report on Form 20-F.
The forward-looking statements do not reflect the potential impact of
any future acquisitions, mergers or dispositions. We undertake no obligation to
update or revise any forward-looking statements because of new information,
future events or otherwise.
13
EXFO
We are a leading designer, manufacturer and marketer of fiber-optic
test, measurement and automation solutions for the telecommunications industry.
We believe that we are the largest manufacturer of test, measurement and
automation equipment that is exclusively dedicated to fiber optics. Fiber-optic
test, measurement and automation equipment is mainly used by telecommunications
carriers, optical component and system manufacturers, as well as research and
development laboratories to measure the physical characteristics of optical
fiber and related hardware.
We were founded in 1985 in Quebec City. We have grown from a
two-employee supplier of portable handheld test instruments to a leading
designer, manufacturer and marketer of an extensive line of fiber-optic test,
measurement and automation equipment. As of May 31, 2001, we had a workforce of
1,407 employees and our products are distributed in over 70 countries.
We, along with our wholly owned subsidiaries, develop products mainly
for two markets. Our Portable and Monitoring Division provides handheld and
modular instruments primarily to telecommunications carriers. Our Industrial and
Scientific Division and our subsidiaries, Burleigh, Burleigh Automation and
EFOS, design an extensive line of high-performance instruments and automated
manufacturing equipment for optical component and system vendors as well as for
research and development labs.
We have received more than 40 industry and commerce awards during our
16-year history. In March 2001, Burleigh was honored by Fiberoptic Product News.
Burleigh's WA-7000 Multi-Line WAVEMETER(R) Optical Channel Analyzer was named a
2000 Technology Award winner by readers of the magazine.
In August 2000, we were named winner of the Outstanding Corporate
Innovator Award by the U.S.-based Product Development and Management Association
(PDMA). Prior to becoming a public company in June 2000, we were recognized as
one of the 50 Best-Managed Private Companies in Canada by Arthur Andersen
Consulting and the Financial Post for five consecutive years. We have maintained
ISO 9001 certification since 1994.
ANNOUNCEMENT OF THIRD QUARTER RESULTS
On June 27, 2001, we announced our financial results for the third
quarter ended May 31, 2001. Sales increased 136% to US$45.8 million in the third
quarter of fiscal 2001 from US$19.4 million for the same period in fiscal 2000,
and 26% from US$36.3 million in the second quarter of 2001. Net earnings,
excluding after-tax effect of amortization of intangible assets and amortization
of goodwill ("adjusted net earnings"), increased 115% to US$6.2 million, or
$0.11 per share, for the third quarter from US$2.9 million, or $0.07 per share,
for the same period in fiscal 2000. Compared to the second quarter of fiscal
2001, adjusted net earnings in the third quarter dropped 17% from US$7.5 million
or $0.14 per share. Including amortization of intangible assets and goodwill, we
recorded a net loss of US$8.6 million, or US$0.15 per share, in the third
quarter of fiscal 2001, compared to net earnings of US$2.7 million, or $0.07 per
share, for the same period in fiscal 2000 and net earnings of US$24,000, or
$0.00 per share, in the second quarter of 2001. The non-cash charges related to
acquisitions include US$4.2 million in amortization of intangible assets and
US$12.0 million in amortization of goodwill in the third quarter of 2001. The
financial results of our acquisition of EFOS were reflected in our financial
results for the third quarter as the acquisition closed on March 15, 2001.
14
FURTHER ACTIONS
In light of current market conditions, a plan to reduce costs and
increase efficiencies has been implemented. Among other things:
o we are reducing non-customer-related expenses;
o we are postponing plans to build a new facility in the Quebec
Metro High-Tech Park;
o we are reducing our workforce by 15%, but continuing to
recruit specific talent for strategic initiatives; and
o Nortech Fibronic Inc., a subsidiary that specialized in
manufacturing fiber-optic temperature sensors, is
discontinuing operations.
We expect to incur a one-time charge relating to this plan of
approximately US$2.0 million in the quarter ending August 31, 2001.
RECENT ACQUISITIONS
VANGUARD TECHNICAL SOLUTIONS, INC.
On March 16, 2001, we purchased substantially all the assets of
Vanguard, a wholly-owned subsidiary of DT Industries Inc. for a purchase price
of approximately US$600,000 paid in cash. Vanguard, an automation equipment
manufacturer in Tucson, Arizona, specializes in the design and manufacturing of
ultra-precision assembly equipment for sensitive process and critical assembly
challenges on the production floor.
EFOS INC.
On March 15, 2001, we acquired all of the issued and outstanding shares
of EFOS at an aggregate purchase price of approximately US$110.1 million
comprised of 3.7 million of our subordinate voting shares and US$25.2 million in
cash.
EFOS, a privately held company in Toronto, Ontario operating since 1984
and having 118 employees as of June 30, 2001, is recognized as a leader in
precision light-based adhesive spot curing as well as curing process control for
the global optical component manufacturing market. Its products deliver precise
doses of the appropriate spectral light into photo-sensitive and heat-cured
adhesives to significantly reduce bonding time and increase repeatability in
optical component manufacturing. EFOS' light-based curing technologies are
supported by an extensive understanding of bonding and material sciences and by
a broad intellectual property portfolio, including 11 patents and 16 patents
pending.
BURLEIGH INSTRUMENTS, INC.
On December 20, 2000, we acquired all of the issued and outstanding
shares of common stock of Burleigh, Burleigh Instruments GmBH and Burleigh
Instruments (U.K.) Ltd. at an aggregate purchase price of approximately US$189.3
million, comprised of 6,488,816 of our subordinate voting shares and
approximately US$42.5 million in cash pursuant to the terms of an Agreement of
Merger and Plan of Reorganization among us, EXFO Sub, Inc. and the selling
shareholders, dated November 4, 2000, as amended on December 20, 2000.
15
Burleigh, which has been in operation for 29 years and had 141
employees as of May 31, 2001, has received industry recognition for its
high-performance optical wavelength meters and precision positioning equipment.
Its Wavemeter(R) instruments offer one of the highest wavelength measurement
accuracy in the industry. These products are able to determine the absolute
wavelength of a laser under test within 0.3 picometers at 1500 nm. Its
Inchworm(R) precision positioning equipment provides nanometer accuracy, which
is critical for precision alignment in the optical component manufacturing
process. Both of these product lines are supported by a broad proprietary
intellectual property portfolio.
16
USE OF PROCEEDS
The selling shareholders are offering all of the subordinate voting
shares covered by this prospectus. We will not receive any proceeds from the
sale of these shares.
DETERMINATION OF OFFERING PRICE
The selling shareholders have advised us that they may sell these
shares from time to time on the Nasdaq National Market or any other national
securities exchange or automated interdealer quotation system on which our
subordinate voting shares are listed or quoted, through negotiated transactions,
through a combination of such methods of sale or otherwise, including private
sales. They may also sell these shares, directly or through one or more
underwriters, brokers, dealers or agents from time to time in one or more
transactions in the open market. See "Plan of Distribution." Any of these
transactions may be effected at market prices prevailing at the time of sale, at
prices related to those prevailing market prices, at varying prices determined
at the time of sale or at negotiated or fixed prices, in each case as determined
by agreement between the selling shareholders and underwriters, brokers, dealers
or agents, or purchasers.
17
SELLING SHAREHOLDERS
The 6,488,816 subordinate voting shares offered under this prospectus
are being sold by Robert G. Klimasewski, William G. May, Jr., David J. Farrell
and William S. Gornall, the former shareholders of Burleigh. The selling
shareholders received their 6,488,816 subordinate voting shares as part of the
merger consideration when we acquired Burleigh in December 2000, and hold such
subordinate voting shares as of record.
To our knowledge, the selling shareholders do not own, directly or
indirectly, any other of our shares other than the 6,488,816 subordinate voting
shares. The following table sets forth the number of subordinate voting shares
owned by the selling shareholders and offered under this prospectus:
NUMBER OF SUBORDINATE VOTING
SHARES HELD BEFORE THE DISTRIBUTION
-----------------------------------
NAME OF SELLING SHAREHOLDERS
Robert G. Klimasewski............................. 2,379,623
William G. May, Jr................................ 2,379,623
David J. Farrell.................................. 1,135,949
William S. Gornall................................ 593,621
---------
Total........................................ 6,488,816
=========
PLAN OF DISTRIBUTION
The selling shareholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale.
The selling shareholders may sell their subordinate voting shares
covered by this prospectus from time to time in transactions, including block
transactions, on the Nasdaq National Market, The Toronto Stock Exchange or any
other securities exchange or automated interdealer quotation system on which our
subordinate voting shares are listed or quoted, in negotiated transactions,
through a combination of such methods of sale or otherwise, including private
sales, at fixed prices that may be changed, at market prices prevailing at the
time of sale at prices related to those prevailing market prices, at varying
prices determined at the time of sale or at negotiated prices. The selling
shareholders may effect those transactions by selling their subordinate voting
shares directly to purchasers, through broker-dealers acting as agents of the
selling shareholders, or to broker-dealers acting as agents for selling
shareholders, or to broker-dealers acting as principals and thereafter sell the
shares from time to time in transactions, including block transactions, on the
Nasdaq National Market and The Toronto Stock Exchange, in negotiated
transactions, through a combination of such methods of sale or otherwise. In
effecting sales, broker-dealers engaged by the selling shareholders may arrange
for other broker-dealers to participate. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions or commissions from
the selling shareholders and/or the purchasers of the shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or
both, which compensation as to particular broker-dealer might be in excess of
customary commissions.
In connection with distributions of shares or otherwise, the selling
shareholders may enter into hedging transactions with broker-dealers. In those
transactions, broker-dealers may engage in short sales of our subordinate voting
shares in the course of hedging the positions they assume with the selling
shareholders. The selling shareholders also may sell our subordinate voting
shares short and redeliver
18
shares to close out those short positions. The selling shareholders may enter
into option, forward or other transactions with broker-dealers which require the
delivery of subordinate voting shares to the broker-dealer. The broker-dealer
may then resell or otherwise transfer those subordinate voting shares under this
prospectus. The selling shareholders may also loan or pledge shares to the
broker-dealer. The broker-dealer may sell the shares so loaned, or upon default
the broker-dealer may sell the shares so pledged, under this prospectus.
The selling shareholders and any broker-dealers or agents that
participate with the selling shareholders in the distribution of the subordinate
voting shares may be deemed to be "underwriters" within the meaning of Section
2(11) of the U.S. Securities Act of 1933. Any commissions paid or any discounts
or concessions allowed to any such persons, and any profits received on the
resale of the subordinate voting shares purchased by them may be deemed to be
underwriting commission or discounts under the U.S. Securities Act of 1933.
We have agreed to bear all expenses of registration of the shares other
than legal fees and expenses, if any, of counsel or other advisors of the
selling shareholders. The selling shareholders will bear any commissions,
discounts, concessions or other fees, if any, payable to broker-dealers in
connection with any sale of their subordinate voting shares.
Because each of the selling shareholders may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the U.S. Securities Act of
1933, the selling shareholders will be subject to the prospectus delivery
requirements of the U.S. Securities Act of 1933. We have informed the selling
shareholders that the anti-manipulative provisions of Regulation M under the
U.S. Securities Exchange Act of 1934 may apply to its sales in the market.
In addition to sales of our subordinate voting shares under the
registration statement of which this prospectus is a part, the selling
shareholders may sell their subordinate voting shares in compliance with Rule
144 under the U.S. Securities Act of 1933.
LEGAL MATTERS
The validity of the subordinate voting shares will be passed upon for
us by Fasken Martineau DuMoulin LLP, Montreal, Canada. Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York has acted as U.S. counsel for us in
connection with the filing of the registration statement of which this
prospectus forms a part.
EXPERTS
The consolidated financial statements incorporated in this prospectus
by reference to the Annual Report on Form 20-F of EXFO Electro-Optical
Engineering Inc. for the year ended August 31, 2000 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The combined consolidated financial statements of Burleigh Instruments,
Inc. and subsidiaries as of December 19, 2000 and December 31, 1999 and 1998,
and for the period from January 1, 2000 to December 19, 2000 and for the years
ended December 31, 1999 and 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG, LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
19
The financial statements of EFOS, Inc. as at October 31, 2000 and 1999,
and for each of the years in the three-year period ended October 31, 2000,
appearing in this registration statement have been audited by Ernst & Young LLP,
chartered accountants, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, and file reports and other information with the SEC. We
have also filed with the SEC a registration statement on Form F-3 to register
the securities offered in this prospectus. This prospectus, which forms part of
the registration statement, does not contain all of the information included in
that registration statement. For further information about us and the securities
offered in this prospectus, you should refer to the registration statement and
its exhibits. You may read and copy any document we file with the SEC at the
SEC's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the SEC's regional offices in New York (7 World Trade Center, 13th Floor, New
York, New York 10048) and Chicago (Citicorp Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60661). Copies of these reports, proxy statements and
information may be obtained at prescribed rates from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
Public Reference Room. In addition, the SEC maintains a web site that contains
reports, proxy statements and other information regarding registrants, such as
us, that file electronically with the SEC. The address of this web site is
http://www.sec.gov.
We are currently exempt from the rules under the Exchange Act that
prescribe the furnishing and content of proxy statements, and our officers,
directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the Exchange
Act. We are not required under the Exchange Act to publish financial statements
as frequently or as promptly as are United States companies subject to the
Exchange Act. We will, however, continue to furnish our shareholders with annual
reports containing audited financial statements and will issue quarterly press
releases containing unaudited results of operations as well as such other
reports as may from time to time be authorized by our board of directors or as
may be otherwise required.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC into this prospectus. This means that we can disclose important
information to you by referring you to another document filed by us with the
SEC. Information incorporated by reference is deemed to be part of this
prospectus. The following documents, filed with the SEC, are specifically
incorporated by reference and form an integral part of this prospectus:
(a) our Annual Report on Form 20-F for the year ended August 31,
2000, dated January 18, 2001;
(b) pages 5 to 30 of our Report on Form 6-K, dated June 28, 2001,
reporting certain information relating to our financial
condition and results of operations for the third quarter
ended May 31, 2001;
20
(c) pages 3 to 23 of our Report on Form 6-K, dated March 22, 2001,
reporting certain information relating to our financial
condition and results of operations for the second quarter
ended February 28, 2001;
(d) our Report on Form 6-K, dated January 4, 2001, setting forth
the Management Proxy Circular, dated December 1, 2000, for our
annual general and special meeting of the shareholders held on
January 17, 2001, excluding from such Management Proxy
Circular the sections entitled "Report on Executive
Compensation by the Human Resources Committee," "Performance
Graph," "Modification of the Subscription Price of the Options
Granted to Employees, Officers, Consultants and Directors in
June, September and October 2000" and "Statement of Corporate
Governance Practices"; and
(e) the description of our subordinate voting shares contained in
our Form 8-A, dated June 26, 2000.
In addition, all subsequent annual reports on Form 20-F, Form 40-F or
Form 10-K, and any subsequent filings on Form 10-Q and 8-K filed by us pursuant
to the Exchange Act and, to the extent, if at all, designated therein, certain
reports on Form 6-K furnished by us, after the date of this prospectus and
before the termination of the offering shall be deemed to be incorporated by
reference in this prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for the purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document which also is
or is deemed to be incorporated by reference in this prospectus modifies or
supersedes that statement. The modifying or superseding statement need not state
that it has modified or superseded a prior statement or include any other
information set forth in the document that it modifies or supersedes. The making
of a modifying or superseding statement shall not be deemed an admission for any
purposes that the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in light of the circumstances in which it was made.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
You may request a copy of any of these documents, at no cost, by
contacting us in writing or by telephone at our principal executive office:
465 Godin Avenue
Vanier, Quebec G1M 3G7, Canada
(418) 683-0211
Attention: Corporate Secretary
EXCEPT AS DESCRIBED ABOVE, NO OTHER INFORMATION IS INCORPORATED BY
REFERENCE IN THIS PROSPECTUS (INCLUDING, WITHOUT LIMITATION, INFORMATION ON OUR
WEBSITE).
21
INDEX TO FINANCIAL STATEMENTS
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
(in US dollars)
Auditors' Report.............................................................F-2
Combined consolidated balance sheets as of December 19, 2000 and
December 31, 1999 and 1998 ..................................................F-3
Combined consolidated statements of income for the period from
January 1, 2000 to December 19, 2000 and for the years ended
December 31, 1999 and 1998 ..................................................F-4
Combined consolidated statements of stockholders' equity for the
period from January 1, 2000 to December 19, 2000 and for the years
ended December 31, 1999 and 1998 ............................................F-5
Combined consolidated statements of cash flows for the period from
January 1, 2000 to December 19, 2000 and for the years ended
December 31, 1999 and 1998 ..................................................F-6
Notes to the combined consolidated financial statements......................F-7
EFOS INC.
(in Canadian dollars)
Auditors' Report............................................................F-18
Balance sheets as at October 31, 2000 and 1999..............................F-19
Statements of income and retained earnings for the years ended
October 31, 2000, 1999 and 1998 ............................................F-20
Statements of cash flows for the years ended October 31, 2000,
1999 and 1998 ..............................................................F-21
Notes to financial statements...............................................F-22
Unaudited interim balance sheets as at October 31, 2000
and January 31, 2001 .......................................................F-31
Unaudited comparative statement of earnings and retained earnings
for the three months ended January 31, 2001 ................................F-32
Unaudited comparative statement of cash flows for the three
months ended January 31, 2001 ..............................................F-33
Notes to unaudited interim financial statements.............................F-34
PRO-FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
OF EXFO ELECTRO-OPTICAL ENGINEERING INC.
(in US dollars)
Pro-forma unaudited consolidated statement of earnings
for the nine months ended May 31, 2001 .....................................PF-1
Pro-forma unaudited consolidated statement of earnings
for the year ended August 31, 2000 .........................................PF-2
Notes to pro-forma consolidated statements of earnings......................PF-3
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Burleigh Instruments, Inc.:
We have audited the accompanying combined consolidated balance sheets of
Burleigh Instruments, Inc. and subsidiaries as of December 19, 2000 and December
31, 1999 and 1998, and the related combined consolidated statements of income,
stockholders' equity and cash flows for the period from January 1, 2000 to
December 19, 2000 and for the years ended December 31, 1999 and 1998. These
combined consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Burleigh
Instruments, Inc. and subsidiaries as of December 19, 2000 and December 31, 1999
and 1998, and the results of their operations and their cash flows for the
period from January 1, 2000 to December 19, 2000 and for the years ended
December 31, 1999 and 1998 in conformity with accounting principles generally
accepted in the United States of America.
/s/KPMG LLP
April 13, 2001
F-2
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 19, 2000 AND DECEMBER 31, 1999 AND 1998
ASSETS 2000 1999 1998
----------------- ----------------- -----------------
Current assets:
Cash and cash equivalents $ 73,741 462,030 80,984
Trade receivables, less allowance for doubtful
accounts of $70,000 in 2000, $4,261 in
1999 and $13,634 in 1998 3,776,123 2,795,232 2,145,497
Inventories (notes 2 and 6) 3,203,897 2,950,291 2,411,643
Current portion of notes receivable (notes 3 and 6) -- 19,859 18,291
Prepaid expenses 39,853 15,895 15,931
----------------- ----------------- -----------------
Total current assets 7,093,614 6,243,307 4,672,346
Property, plant and equipment, net (notes 4 and 6) 4,366,287 1,720,997 1,792,650
Property held for sale -- -- 162,496
Notes receivable from stockholders and
other long-term notes (notes 3 and 6) -- 17,585 445,862
Other assets 88,499 74,719 71,124
----------------- ----------------- -----------------
$ 11,548,400 8,056,608 7,144,478
================= ================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit (note 6) 990,750 1,174,600 550,000
Current portion of long-term debt (note 7) 187,991 -- 122,775
Current portion of capital lease obligations (note 5) 186,623 74,876 66,646
Accounts payable 2,888,447 1,304,909 714,459
Accrued expenses 818,448 777,818 385,956
Warranty reserve 160,000 65,000 110,000
----------------- ----------------- -----------------
Total current liabilities 5,232,259 3,397,203 1,949,836
Obligations under capital leases,
excluding current portion (note 5) 3,073,122 918,760 993,636
Long-term debt, excluding current portion (note 7) 751,964 -- --
Other liabilities 10,196 51,302 44,241
----------------- ----------------- -----------------
Total liabilities 9,067,541 4,367,265 2,987,713
----------------- ----------------- -----------------
Stockholders' equity:
Common stock $.02 par value. Authorized
1,000,000 shares; issued and outstanding
50,000 shares in 2000, 1999 and 1998 1,000 1,000 1,000
Retained earnings 2,479,859 3,688,343 4,155,765
----------------- ----------------- -----------------
Total stockholders' equity 2,480,859 3,689,343 4,156,765
----------------- ----------------- -----------------
Commitments, concentrations and contingencies
(notes 1, 5 and 11)
$ 11,548,400 8,056,608 7,144,478
================= ================= =================
See accompanying notes to combined consolidated financial statements.
F-3
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF INCOME
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
DECEMBER 19, DECEMBER 31, DECEMBER 31,
2000 1999 1998
---- ---- ----
Sales $ 20,713,876 14,214,099 11,373,212
Cost of sales 7,662,671 5,899,781 4,660,208
------------- ------------ ------------
Gross profit 13,051,205 8,314,318 6,713,004
------------- ------------ ------------
Selling expenses 3,351,772 2,981,055 2,312,382
General and administrative expenses 3,568,677 2,540,376 1,799,489
Research and development expenses 2,580,650 2,014,464 1,908,673
------------- ------------ ------------
9,501,099 7,535,895 6,020,544
------------- ------------ ------------
Operating income 3,550,106 778,423 692,460
Interest expense (255,740) (198,343) (158,758)
Interest income 121,842 56,156 20,942
Other income 54,566 32,854 32,572
------------- ------------ ------------
Income before New York
State franchise taxes 3,470,774 669,090 587,216
New York State franchise taxes 32,000 8,610 10,896
------------- ------------ ------------
Net income $ 3,438,774 660,480 576,320
============= ============ ============
Net income per share:
Basic and diluted $ 68.78 13.21 11.53
============= ============ ============
Weighted average shares used in
calculating net income per share:
Basic and diluted 50,000 50,000 50,000
============= ============ ============
Pro forma data:
Net income before income
tax expense 3,438,774 660,480 576,320
Pro forma provision for income
tax expense (unaudited) (1,321,000) (174,000) (136,000)
------------- ------------ ------------
Pro forma net income
(unaudited) $ 2,117,774 486,480 440,320
============= ============ ============
Pro forma net income per share
(unaudited):
Basic and diluted $ 42.35 9.73 8.81
============= ============ ============
Weighted average shares outstanding
in calculating pro forma basic and
diluted net income per share 50,000 50,000 50,000
============= ============ ============
See accompanying notes to combined consolidated financial statements.
F-4
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
COMMON STOCK TOTAL
------------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- ------
Balances at December 31, 1997 50,000 $ 1,000 3,847,786 3,848,786
Stockholders' distributions -- -- (268,341) (268,341)
Net income for the year -- -- 576,320 576,320
--------- --------- --------- ---------
Balances at December 31, 1998 50,000 1,000 4,155,765 4,156,765
Stockholders' distributions -- -- (1,127,902) (1,127,902)
Net income for the year -- -- 660,480 660,480
--------- --------- --------- ---------
Balances at December 31, 1999 50,000 1,000 3,688,343 3,689,343
Stockholders' distributions -- -- (4,647,258) (4,647,258)
Net income for the period -- -- 3,438,774 3,438,774
--------- --------- --------- ---------
Balances at December 19, 2000 50,000 $ 1,000 2,479,859 2,480,859
========= ========= ========= =========
See accompanying notes to combined consolidated financial statements.
F-5
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
DECEMBER 19, DECEMBER 31, DECEMBER 31,
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $3,438,774 660,480 576,320
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 434,124 356,559 325,369
Gain on sale of property held for sale -- (10,142) --
Provision for obsolete inventory 510,000 141,000 20,000
Provision for warranty costs 233,356 230,380 296,551
Change in assets and liabilities:
(Increase) decrease in:
Trade receivables (980,891) (649,735) (524,728)
Inventories (763,606) (679,648) 162,947
Prepaid expenses (23,958) 36 (2,025)
Other assets (13,780) (3,595) (3,589)
(Decrease) increase in:
Accounts payable 1,583,538 590,450 363,851
Accrued expenses 40,630 391,862 (260,594)
Warranty reserve (138,356) (275,380) (236,551)
Other liabilities (41,106) 7,061 (31,721)
---------- ---------- ----------
Net cash provided by operating activities 4,278,725 759,328 685,830
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures, net of minor disposals (731,467) (284,906) (224,864)
Proceeds from property held for sale -- 172,638 --
---------- ---------- ----------
Net cash used in investing activities (731,467) (112,268) (224,864)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings under line of credit 9,301,389 902,700 1,450,000
Repayments under line of credit (9,485,239) (278,100) (1,700,000)
Proceeds received from payments of notes
receivable from stockholders and other
long-term notes 37,444 426,709 302,742
Borrowings under long-term debt 939,955 -- --
Advances under notes receivable from stockholders -- -- (410,000)
Net decrease in advances to unconsolidated affiliated company -- -- 45,280
Stockholders' distributions (4,647,258) (1,127,902) (268,341)
Principal payments on long-term debt -- (122,775) (3,394)
Principal payments on capital lease obligations (81,838) (66,646) (69,685)
---------- ---------- ----------
Net cash used in financing activities (3,935,547) (266,014) (653,398)
---------- ---------- ----------
Net increase (decrease) in cash (388,289) 381,046 (192,432)
Cash balance at beginning of year 462,030 80,984 273,416
---------- ---------- ----------
Cash balance at end of year/period $ 73,741 462,030 80,984
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year/period for interest $ 259,370 189,542 158,758
Cash paid during the year/period for New York State franchise taxes 12,027 8,610 10,896
========== ========== ==========
Supplemental disclosure of non cash investing and financing activities:
Capital lease obligation for office space $2,347,947 -- --
========== ========== ==========
Increase in capital lease obligation for office space
due to extension of lease term and minimum monthly payment amounts -- -- 491,250
========== ========== ==========
See accompanying notes to combined consolidated financial statements.
F-6
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
(1) DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF THE COMPANY
Burleigh Instruments, Inc. (the Company) was founded in 1972 and is a
leading manufacturer of precision scientific instruments used in basic
and applied research, engineering and production test applications in a
variety of fields. The Company sells its products to domestic and
international customers.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The combined consolidated financial statements include the accounts of
the Company's wholly-owned subsidiaries, Burleigh Instruments Ltd.
(Ltd.) and Burleigh Instruments GmbH (GmbH), as well as Burleigh DISC
Inc. (DISC), a Domestic International Sales Corporation which is under
common control and ownership. The subsidiaries, Ltd. and GmbH, were
established to sell Burleigh and third party manufactured products in
the United Kingdom and Germany. The DISC acts exclusively as an export
commission agent for the Company and is therefore combined with
Company's consolidated financial statements.
On December 31, 1995, the Company discontinued GmbH operations. On
December 31, 1996, the Company discontinued Ltd. operations. In
February 2000, in final liquidation of Burleigh Instruments, Ltd.
(Ltd.), receivables of $223,597 were transferred to Burleigh
Instruments, Inc. Additionally cash totalling $124,543 was distributed
to shareholders of Ltd. Although these subsidiaries have no continuing
operations, the Company has maintained the legal entities for future
opportunities.
In November 1999, the Company sold the Ltd. office building used prior
to ceasing operations. Ltd.'s only source of income during 1999 and
1998 was rental income earned on the building. In 2000, 1999 and 1998,
Burleigh Instruments Inc. continued to sell equipment in the United
Kingdom through independent distributors.
All significant intercompany balances have been eliminated in
consolidation and combination.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at lower of cost or market determined on a
first-in, first-out (FIFO) basis.
F-7
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUE RECOGNITION
Revenue is recognized upon transfer of title which occurs upon
shipment.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is provided over the estimated useful
lives of the respective assets computed under the straight-line method.
Buildings, equipment and software under capital leases and leasehold
improvements are amortized over the shorter of the lease term or
estimated useful life of the related asset.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter
S of the Internal Revenue Code (the "Code"). Accordingly, the taxable
income of the Company is reported on the individual income tax returns
of the stockholders.
The Company distributed $1.8 million in cash on December 20, 2000 to
its former shareholders, representing the estimated individual tax
liability for each of the former shareholders for the period beginning
January 1, 2000 and ending on the date of the sale of the Company
(December 19, 2000).
PRO FORMA NET INCOME
The unaudited pro forma net income and per share amounts are presented
in the combined consolidated statements of operations to reflect the
pro forma effects for income taxes as if the Company had been a taxable
entity for all periods presented.
BASIC NET INCOME PER SHARE
The Company has presented net income per share pursuant to SFAS No.
128, EARNINGS PER SHARE and the Securities and Exchange Commission
Staff Accounting Bulletin No. 98.
Basic net income per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding for each
period presented.
ROYALTIES
The Company licenses certain software and technology which is
integrated into its proprietary products. Royalty costs associated with
these arrangements are generally recognized as expense on a per unit
sales basis when products are shipped.
F-8
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
WARRANTY RESERVE
The Company accrues costs related to warranty obligations incurred in
connection with the sale of goods. Management's estimate of the
required warranty reserve is based upon historical experience and known
or expected future obligations.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to earnings in
the period incurred. The Company periodically receives
government-sponsored research and development contracts. These
contracts are for cost reimbursement only. It is the Company's policy
to offset all such research and development cost incurred with the
related reimbursement. Total costs reimbursed under the contracts for
the period from January 1 to December 19, 2000 and the years ended
December 31, 1999 and 1998 were $371,360, $344,000 and $70,000,
respectively.
COMPREHENSIVE INCOME
There are no differences between the Company's reported net income and
comprehensive income.
USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and revenues and
expenses to prepare these financial statements in conformity with
accounting principles generally accepted in the United States of
America. Such estimates primarily relate to allowance for
excess/obsolete inventory, allowance for doubtful accounts receivable,
and warranty reserves. Actual results could differ from these
estimates.
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
SFAS 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE
DISPOSED OF establishes accounting standards to account for the
impairment of long-lived assets, and certain identifiable intangibles.
Under SFAS 121 the Company reviews assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
may not be recoverable.
At December 31, 1996, the Company announced its decision to discontinue
Ltd. operations and consequently wrote the building and associated
leasehold improvements down to estimated fair value. On November 30,
1999, the Company sold the building and associated leasehold
improvements for (pound)108,000, which approximated $172,638. The
disposal resulted in a gain of $10,142. The Company used the proceeds
from the sale of the building to repay the outstanding foreign bank
term loan (see note 7).
F-9
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
ADVERTISING
Advertising costs are expensed as incurred and included within selling,
general and administrative expenses. Total advertising expenses were
$444,745, $430,808 and $382,213 for the period from January 1 to
December 19, 2000 and the years ended December 31, 1999 and 1998,
respectively.
RECLASSIFICATION
Certain accounts have been reclassified from the prior year to conform
with the current year presentation.
(2) INVENTORIES
Components of inventories at December 19, 2000, December 31, 1999 and
1998 are as follows:
2000 1999 1998
----------- ----------- -----------
Raw materials $ 2,694,697 2,355,262 2,106,122
Work-in process 1,032,665 766,630 432,281
Finished goods 243,645 212,618 195,516
----------- ----------- -----------
3,971,007 3,334,510 2,733,919
Allowance for excess/
obsolete inventory (767,110) (384,219) (322,276)
----------- ----------- -----------
$ 3,203,897 2,950,291 2,411,643
=========== =========== ===========
F-10
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
(3) NOTES RECEIVABLE FROM STOCKHOLDERS AND OTHER LONG-TERM NOTES
Notes receivable from stockholders and other long-term notes at
December 19, 2000, December 31, 1999 and 1998 consist of the following:
2000 1999 1998
----------- ----------- -----------
Promissory notes receivable
from stockholders, payable
on demand and bearing
interest at 9%. These notes
were paid in full in 1999. $ -- -- 410,000
Note receivable associated
with the sale of assets of
Burleigh Northwest Optical
(BNWO) to a non-related party,
due in monthly installments
of $1,840 including interest
at 8.25%, through September 1,
2001. This receivable is secured
by the underlying assets sold.
This note was paid in full
during 2000. -- 37,444 54,153
----------- ----------- -----------
-- 37,444 464,153
Less current portion -- 19,859 18,291
----------- ----------- -----------
Notes receivable - long-term $ -- 17,585 445,862
=========== =========== ===========
F-11
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 19, 2000,
December 31, 1999 and 1998 is as follows:
DECEMBER 19, DECEMBER 31, DECEMBER 31, ESTIMATED
2000 1999 1998 USEFUL LIFE
---- ---- ---- -----------
Machinery and equipment $ 2,208,425 1,778,364 1,531,484 7 years
Furniture and fixtures 139,240 137,520 135,384 7 years
Transportation equipment 84,019 84,019 112,351 6 years
Leased building 2,769,305 1,441,250 1,441,250 15 years
Leased furniture/equipment 697,947 -- -- 7 years
Leasehold improvements 824,129 524,443 487,101 10-20 years
----------- ----------- -----------
6,723,065 3,965,596 3,707,570
Less accumulated
depreciation and
amortization (2,356,778) (2,244,599) (1,914,920)
----------- ----------- -----------
Net property, plant and
equipment $ 4,366,287 1,720,997 1,792,650
=========== =========== ===========
On September 30, 2000, the Company entered into a new capital lease
agreement (note 5) with a related party for additional office and
manufacturing space. The additional building space was capitalized in
the amount of $1,650,000 which approximated the fair value of the
building space.
On October 24, 2000 and December 11, 2000, the Company entered into
lease agreements for furniture and equipment. The furniture and
equipment was capitalized in the amount of $269,269 and $428,678,
respectively, which approximates its fair value.
(5) LEASING ARRANGEMENTS
The Company has a lease agreement with a related party for its
manufacturing plant and office complex. This lease is classified as a
capital lease for financial statement purposes. Monthly payments under
the lease are $15,600 through April 2008.
On September 30, 2000, the Company entered a new lease agreement, also
with a related party, for an addition to its existing manufacturing
plant and office complex. Monthly payments are $15,833 with a lease
term through September 2020. The lease is classified as a capital lease
for financial statement purposes.
On October 24, 2000 and December 11, 2000, the Company entered into new
lease agreements for furniture and equipment. Monthly payments are
$4,455 and $7,042, respectively. The lease terms extend through
December 2007. Both leases are classified as capital leases for
financial statement purposes.
F-12
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
Future minimum capital lease payments at December 19, 2000 are as
follows:
Year ending December 31:
2001 $ 515,175
2002 515,175
2003 515,175
2004 515,175
2005 515,175
Thereafter 3,506,339
------------
6,082,214
Less amounts representing
effective interest and executory
costs ranging from 9.92% to 11.7% (2,822,469)
------------
Present value of minimum capital
lease payments 3,259,745
Less current portion of capital
lease obligations (186,623)
------------
Capital lease obligations, excluding
current portion $ 3,073,122
============
The Company has several operating leases for vehicles and equipment.
Future minimum lease payments are $12,342 for 2001 and $470 for 2002.
Rental expense for all operating leases charged against earnings
amounted to $20,104, $19,634 and $15,049 for the period from January 1
to December 19, 2000 and the years ended December 31, 1999 and 1998,
respectively.
(6) BANK LINE OF CREDIT
The Company has a $3,000,000 bank line of credit. Amounts borrowed are
payable on demand, bear interest at the bank's prime rate (9.5%, 8.50%
and 7.75% at December 19, 2000, December 31, 1999 and 1998) or LIBOR
plus 1.77%, and are secured by accounts receivable, inventories and
equipment. At December 19, 2000, December 31, 1999 and 1998, the
Company had $990,750, $1,174,600 and $550,000, respectively,
outstanding in borrowings on its bank line of credit. Maximum
outstanding borrowings under the line of credit arrangement amounted to
$2,855,000, $1,342,500 and $800,000 for the period from January 1 to
December 19, 2000 and the years ended December 31, 1999 and 1998,
respectively. The weighted average interest rates on outstanding
borrowings for the period from January 1 to December 19, 2000 and the
years ended December 31, 1999 and 1998 were 8.4%, 8.0% and 8.4%,
respectively.
F-13
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
(7) LONG-TERM DEBT
Long-term debt at December 19, 2000, December 31, 1999 and 1998
consists of the following:
2000 1999 1998
---- ---- ----
Bank term loan, due in 60 monthly
installments of $15,666, excluding
interest at LIBOR plus 2.0%. Principal
payments begin February 1, 2001.
Subsequent to December 19, 2000, the
Company paid the term loan in full with
proceeds from EXFO (see note 13) $ 939,955 -- --
Foreign bank term loan, due in monthly
installments of (pound)776 which approximated
$1,288 at December 31, 1998, including
interest at the bank's base rate plus 2.5%.
Repayment of the debt was made in full
in 1999 through proceeds from the sale
of the building securing this loan (see
note 13). -- -- 122,775
--------- --------- ---------
939,955 -- 122,775
Less current portion (187,991) -- (122,775)
--------- --------- ---------
$ 751,964 -- --
========= ========= =========
(8) NEW YORK STATE FRANCHISE TAXES
The Company is subject to New York State franchise tax as an S
corporation. The calculation of this tax rate is the difference between
the total franchise tax rate and the highest personal income tax rate.
Tax expense amounted to $32,000 for the period from January 1 to
December 19, 2000, $8,610 for the year ended December 31, 1999 and
$10,896, including taxes for Ltd., for the year ended December 31, 1998
(effective rates of 0.9%, 1.1% and 1.7%, respectively).
(9) PROFIT SHARING AND RETIREMENT SAVINGS PLAN
The Company has a non-contributory tax qualified profit sharing plan
covering substantially all employees. Contributions to the plan are at
the discretion of the Board of Directors. Plan contributions were
$178,553, $142,199 and $115,392 for the period from January 1 to
December 19, 2000 and for the years ended December 31, 1999 and 1998,
respectively.
The Company's benefit plan includes a retirement savings option
covering substantially all of its employees which allows participants
to make contributions, via salary reduction, pursuant to
F-14
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
section 401(k) of the Internal Revenue Code. The plan also allows
participants to contribute up to 15% of their compensation, with the
employer matching a portion of this elective deferral. The current
matching contribution rate is 50 cents for every dollar contributed, up
to a limit of 3% of a participant's compensation. The Company's
contribution was $154,135 for the period from January 1 to December 19,
2000, $105,050 for the year ended December 31, 1999 and $80,093 for the
year ended December 31, 1998.
Participants vest in Company contributions at 20% after two years and
20% each year thereafter until fully vested. Employee contributions are
fully vested.
(10) STOCKHOLDERS' EQUITY
In April 2000, the principal shareholders of the Company sold 11,066
shares of their own stock to certain officers of the Company for $504 a
share, which approximated fair value at the date of sale based on an
independent third party appraisal. Payment of the stock was in the form
of a full recourse promissory note which is payable in various
installments through 2010 at an annual interest rate of 6.42%. The
stock also included a fair value put option beginning eighteen months
after the issuance of the stock as a possible form of repaying the
promissory note.
(11) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business. If the plaintiff's claims are
probable, the appropriate amount is accrued in the consolidated
financial statements. In the opinion of management, the ultimate
disposition of matters not accrued will not have a material adverse
effect on the Company's combined consolidated financial position
results of operations or liquidity.
(12) SEGMENTED INFORMATION
The Company has no reportable business segments, however, it does have
reportable geographic segments for the period from January 1 to
December 19, 2000, and the years ended December 31, 1999 and 1998. The
accounting policies of the segments are the same as those described in
the summary of significant accounting policies.
F-15
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
------------------------------------------------------------------------------
UNITED
STATES JAPAN EUROPE OTHER TOTAL
------ ----- ------ ----- -----
Revenues from external
customers $ 12,635,464 1,323,617 3,314,220 3,440,575 20,713,876
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------
UNITED
STATES JAPAN EUROPE OTHER TOTAL
------ ----- ------ ----- -----
Revenues from external
customers $ 8,244,177 1,279,269 2,558,538 2,132,115 14,214,099
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------
UNITED
STATES JAPAN EUROPE OTHER TOTAL
------ ----- ------ ----- -----
Revenues from external
customers $ 7,165,124 1,251,053 1,933,446 1,023,589 11,373,212
The Company's largest customers are located in the United Kingdom,
Germany and Japan. These customers are distributors of Company
products. The Company's assets in locations outside the United States
were immaterial for all periods presented.
(13) SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to December 19, 2000, EXFO provided a $3.3 million
intercompany loan to the Company for the repayment of its term loan
(see note 7) and to purchase the Company's manufacturing plant and
office complex (see note 4) leased from a related party.
On February 21, 2001, Burleigh Automation Inc., a newly created,
wholly-owned subsidiary of Burleigh Instruments, Inc. entered into a
definitive agreement to acquire Vanguard Technical Solutions Inc., a
wholly-owned subsidiary of DT Industries, Inc. for approximately
$600,000 in cash.
(14) FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, trade receivables,
borrowings under line of credit, accounts payable and accrued expenses
approximates fair value because of the short maturity of the financial
instruments. The carrying value of long-term debt which has variable
interest rates based on market rates approximates fair value of those
financial instruments. The fair value of the Company's obligations
under capital leases which was based on the amount of future cash flows
associated with each instrument discounted using borrowing rates
currently available for similar debt instruments of similar maturity
approximated the carrying value.
F-16
BURLEIGH INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1 TO DECEMBER 19, 2000
AND YEARS ENDED DECEMBER 31, 1999 AND 1998
(15) NEW ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 140, ACCOUNTING
FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES ("SFAS No. 140"). SFAS No. 140 is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and effective for recognition and
reclassification of collateral for fiscal years ending after December
15, 2000. The Company does not believe that the adoption of SFAS No.
140 will have any impact on the Company's financial reporting.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES ("SFAS No. 133"). This statement establishes accounting and
reporting standards for derivative instruments and requires recognition
of all derivatives assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. This
statement, as amended under SFAS 138, ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES ("SFAS No. 138), is
effective for the fiscal years beginning after June 15, 2000. The
Company does not believe the adoption of SFAS No. 133 and SFAS No. 138
will have a significant impact on the Company's financial reporting.
(16) RECONCILIATION TO CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The combined consolidated financial statements have been prepared
according to United States generally accepted accounting principles.
The combined consolidated financial statements comply, in all material
respects, with Canadian generally accepted accounting principles.
F-17
AUDITORS' REPORT
To the Directors of
EFOS INC.
We have audited the balance sheets of EFOS INC. as at October 31, 2000 and 1999
and the statements of income and retained earnings and cash flows for each of
the years in the three-year period ended October 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian and United States generally
accepted auditing standards for the year ended October 31, 2000 and Canadian
generally accepted auditing standards for each of the years in the three-year
period ended October 31, 2000. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at October 31, 2000 and 1999
and the results of its operations and its cash flows for each of the years in
the three-year period ended October 31, 2000 in accordance with Canadian
generally accepted accounting principles.
Toronto, Canada, /s/ Ernst & Young LLP
November 29, 2000 Chartered Accountants
[except as to Note 10 which
is as of May 7, 2001].
F-18
EFOS INC.
Incorporated under the laws of Ontario
BALANCE SHEETS
As at October 31
(in Canadian dollars)
2000 1999
$ $
- --------------------------------------------------------------------------------
ASSETS
CURRENT
Cash 169,104 --
Accounts receivable 4,738,892 2,680,677
Inventories [NOTE 2] 4,205,684 2,259,993
Investment tax credits recoverable [NOTE 4] 949,088 1,023,882
Prepaid expenses and deposits 174,076 220,198
Due from affiliated companies [NOTE 6] 183,506 177,335
Deferred income taxes -- 16,000
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 10,420,350 6,378,085
- --------------------------------------------------------------------------------
Capital assets, net [NOTE 3] 1,311,056 615,495
- --------------------------------------------------------------------------------
11,731,406 6,993,580
================================================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT
Bank indebtedness [NOTE 8[C]] 75,000 --
Accounts payable and accrued liabilities 3,847,259 1,664,100
Income taxes payable 1,510,927 378,763
Deferred income taxes 100,000 --
Deferred leasehold inducements -- 52,866
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,533,186 2,095,729
- --------------------------------------------------------------------------------
Due to affiliated companies [NOTE 6] 3,329,341 3,997,151
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 8,862,527 6,092,880
- --------------------------------------------------------------------------------
COMMITMENTS [NOTE 8]
SHAREHOLDERS' EQUITY
Share capital 1,000 1,000
Authorized
Unlimited common shares
Issued and outstanding in 2000, 1999 and 1998
49 common shares 1,000 1,000
- --------------------------------------------------------------------------------
Retained earnings 2,867,879 899,700
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,868,879 900,700
- --------------------------------------------------------------------------------
11,731,406 6,993,580
================================================================================
SEE ACCOMPANYING NOTES
F-19
EFOS INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended October 31
(in Canadian dollars)
2000 1999 1998
$ $ $
- ------------------------------------------------------------------------------------------------------------
SALES 24,867,997 13,891,637 15,621,423
Cost of sales 11,855,892 7,373,326 9,781,975
- ------------------------------------------------------------------------------------------------------------
GROSS PROFIT 13,012,105 6,518,311 5,839,448
- ------------------------------------------------------------------------------------------------------------
EXPENSES
General and administrative 2,952,481 2,310,947 2,566,452
Selling 4,330,895 2,424,964 1,701,075
Research and development, net of investment
tax credits [NOTE 4] 1,871,087 959,970 843,232
Depreciation and amortization 428,411 423,479 490,664
Interest on loans from related parties [NOTE 6] 194,052 163,444 --
- ------------------------------------------------------------------------------------------------------------
9,776,926 6,282,804 5,601,423
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 3,235,179 235,507 238,025
- ------------------------------------------------------------------------------------------------------------
Provision for income taxes [NOTE 5]
Current 1,151,000 70,344 39,000
- ------------------------------------------------------------------------------------------------------------
Deferred 116,000 8,000 7,000
- ------------------------------------------------------------------------------------------------------------
1,267,000 78,344 46,000
- ------------------------------------------------------------------------------------------------------------
NET INCOME FOR THE YEAR 1,968,179 157,163 192,025
Retained earnings, beginning of year 899,700 742,537 550,512
- ------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR 2,867,879 899,700 742,537
============================================================================================================
SEE ACCOMPANYING NOTES
F-20
EFOS INC.
STATEMENTS OF CASH FLOWS
For the years ended October 31
(in Canadian dollars)
2000 1999 1998
$ $ $
- ------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income for the year 1,968,179 157,163 192,025
Add items not involving cash
Depreciation and amortization 428,411 423,479 490,664
Deferred income taxes 116,000 8,000 7,000
- ------------------------------------------------------------------------------------------------------------
2,512,590 588,642 689,689
Net change in non-cash working capital
balances related to operations [NOTE 9] (626,704) (730,051) (164,803)
- ------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,885,886 (141,409) 524,886
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from disposal of capital assets -- 38,610 --
Purchase of capital assets (1,123,972) (295,482) (141,279)
- ------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (1,123,972) (256,872) (141,279)
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in bank indebtedness 75,000 -- --
Loans from shareholders -- (2,813,424) 2,813,424
Due to affiliated companies (667,810) 1,780,886 1,051,575
- ------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (592,810) (1,032,538) 3,864,999
- ------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH DURING THE YEAR 169,104 (1,430,819) 4,248,606
Cash position, beginning of year __ 1,430,819 (2,817,787)
- ------------------------------------------------------------------------------------------------------------
CASH POSITION, END OF YEAR 169,104 -- 1,430,819
============================================================================================================
SEE ACCOMPANYING NOTES
F-21
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management on the historical
costs basis in accordance with Canadian generally accepted accounting principles
applied on a consistent basis within the framework of the significant accounting
policies summarized below. The significant differences between generally
accepted accounting principles in Canada and the United States are disclosed in
note 10.
INVENTORIES
Raw materials, which consist of components for assembly, and work-in-process are
stated at the lower of cost and replacement cost, while finished goods are
stated at the lower of cost and net realizable value. Cost is determined on a
weighted average cost basis.
CAPITAL ASSETS
Capital assets are recorded at acquisition cost, net of any related investment
tax credits ["ITCs"] and accumulated depreciation and amortization. EFOS Inc.
[the "Company"] provides for depreciation and amortization at rates which are
expected to charge operations with the cost of the assets on a straight-line
basis over their estimated useful lives as follows:
Computer equipment 5 years
Computer software 2 years
Office furniture and equipment 5 years
Production equipment 5 years
Tooling 2 years
Leasehold improvements over the term of the lease
REVENUE RECOGNITION
Revenue from sales of products is recognized upon shipment to customers.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at the exchange rates prevailing at the balance sheet
dates. Revenue and expenses are translated at exchange rates prevailing on the
transaction dates. The Company enters into forward exchange contracts to hedge
anticipated sales. Foreign exchange gains (losses) are recorded on settlement of
these contracts. Exchange gains (losses) on translation are included in income
[2000 -- $ 148,431; 1999 -- ($ 74,172); 1998 -- $ 265,939].
F-22
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
INCOME TAXES
The deferral method is used in accounting for income taxes whereby timing
differences between income reported in the financial statements and taxable
income result in deferred income taxes. Deferred income taxes result primarily
from timing differences relating to scientific research and development ["SRED"]
expenditures and depreciation and amortization claimed for income tax purposes
and recorded for accounting purposes.
The required implementation of the new accounting standard issued by The
Canadian Institute of Chartered Accountants in respect of income taxes has been
deferred for privately owned companies until fiscal years starting on or after
January 1, 2002. The Company has not early adopted this new standard. The
implementation of this standard is not expected to have a material impact on the
Company's financial statements.
RESEARCH AND DEVELOPMENT
Research expenditures [except for capital assets] are charged to expenses as
incurred. Development expenditures are expensed unless they meet generally
accepted criteria for deferral and amortization. No development costs have been
deferred to date. ITCs earned as a result of incurring eligible SRED
expenditures are recorded as a reduction of the related current year's expense
or as a reduction of the related capital asset.
2. INVENTORIES
Inventories consist of the following:
2000 1999
$ $
- --------------------------------------------------------------------------------
Raw materials 1,852,791 952,200
Work-in-process 299,087 94,454
Finished goods 2,053,806 1,213,339
- --------------------------------------------------------------------------------
4,205,684 2,259,993
================================================================================
F-23
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
3. CAPITAL ASSETS
Capital assets consist of the following:
2000
- --------------------------------------------------------------------------------------------
ACCUMULATED
DEPRECIATION/ NET BOOK
COST AMORTIZATION VALUE
$ $ $
- --------------------------------------------------------------------------------------------
Computer hardware and software 1,066,651 876,162 190,489
Office furniture and equipment 989,561 653,346 336,215
Production equipment 927,315 654,480 272,835
Tooling 107,063 107,063 --
Leasehold improvements 1,410,505 898,988 511,517
- --------------------------------------------------------------------------------------------
4,501,095 3,190,039 1,311,056
============================================================================================
1999
- --------------------------------------------------------------------------------------------
ACCUMULATED
DEPRECIATION/
COST AMORTIZATION NET BOOK VALUE
$ $ $
- --------------------------------------------------------------------------------------------
Computer hardware and software 978,395 769,987 208,408
Office furniture and equipment 734,284 567,293 166,991
Production equipment 657,471 577,995 79,476
Tooling 107,063 107,063 --
Leasehold improvements 899,910 739,290 160,620
- --------------------------------------------------------------------------------------------
3,377,123 2,761,628 615,495
============================================================================================
F-24
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
4. INVESTMENT TAX CREDITS
The Company is eligible for ITCs on its qualifying current and capital
expenditures incurred in each year. These credits are recorded in the year that
realization is reasonably assured.
The Company applies the cost reduction method of accounting for these ITCs.
Research and development expenses during the year have been reduced by ITCs of
approximately $631,000 [1999 - $648,000; 1998 - $592,259].
5. INCOME TAXES
The Company's effective income tax rate has been determined as follows:
2000 1999 1998
% % %
- ------------------------------------------------------------------------------------------------
Canadian statutory income tax rate 44.1 44.6 44.6
Small business deduction (1.4) (19.8) (14.3)
Manufacturing and processing tax credit (4.7) -- --
Losses for which no tax benefit is recognized -- 29.9 6.3
Reduction for Ontario superallowance (3.1) (37.6) (12.3)
Permanent difference - other 4.3 16.1 (5.0)
- ------------------------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATE 39.2 33.2 19.3
================================================================================================
F-25
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
6. RELATED PARTY TRANSACTIONS
Related party transactions and balances include the following:
2000 1999 1998
$ $ $
- --------------------------------------------------------------------------------
Purchases 29,295 39,188 347,895
================================================================================
In the normal course of business, the Company engages various professional and
consulting firms for professional and consulting services. During the year,
approximately $31,000 [1999 - $50,000; 1998 - $124,000] was paid to a legal
professional firm in which a partner was a director of the company. Terms of
these transactions are the same as those with unrelated parties.
2000 1999
$ $
- --------------------------------------------------------------------------------
Loans and advances from parent company 3,312,985 3,888,333
Interest payable 16,356 108,818
- --------------------------------------------------------------------------------
Due to affiliated companies 3,329,341 3,997,151
================================================================================
Advances from the parent company are not interest bearing. Loans to the parent
company bear interest at approximately 8%. These advances and loans had no fixed
terms of repayment as at October 31, 2000 and have been classified as long term.
2000 1999
$ $
- --------------------------------------------------------------------------------
Due from EFOS International 102,008 98,577
Due from parent company 81,498 78,758
- --------------------------------------------------------------------------------
183,506 177,335
================================================================================
Due from affiliated companies consist of amounts paid by the Company on behalf
of affiliated companies in the normal course of business.
The above related party transactions are measured at the exchange amount, that
is the actual amount of consideration given for the items transferred or the
service provided.
7. FINANCIAL INSTRUMENTS
RISK MANAGEMENT ACTIVITIES
The Company manages credit risk in respect of trade accounts receivable by
primarily dealing with large creditworthy customers. Management is of the view
that the Company is not subject to a significant concentration of credit risk.
F-26
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
FAIR VALUES
The carrying values of cash, accounts receivable, investment tax credits
recoverable, bank indebtedness, accounts payable and accrued liabilities and
amounts due to and from affiliated companies approximate their fair values due
to the relatively short periods to maturity of these instruments.
8. COMMITMENTS
[a] Future minimum annual lease payments under operating leases relating
primarily to the Company's head office and plant facilities and equipment
are as follows:
[as at October 31, 2000] $
- --------------------------------------------------------------------------------
2001 318,968
2002 316,107
2003 283,382
2004 268,244
2005 271,090
- --------------------------------------------------------------------------------
Thereafter 565,046
================================================================================
[b] The Company has net cash inflows denominated in U.S. dollars. The Company
utilizes foreign exchange contracts to hedge these exposures. As at October
31, 2000, the Company has outstanding foreign exchange contracts
representing a net commitment to sell approximately U.S.$14,000,000 [1999 -
U.S.$6,800,000; 1998 - U.S.$3,400,000] at rates ranging from Cdn.$1.4415 to
Cdn.$1.5465 [1999 rates ranging from Cdn.$1.4694 to Cdn.$1.5556; 1998 rates
ranging from Cdn.$1.3292 to Cdn$1.5556]. These contracts mature on various
dates through September 2002. The Company has provided the bank with an
assignment of term deposits and credit balances, to a maximum of
U.S.$887,500, as collateral for these contracts.
[c] The Company has an operating line of credit with a major Canadian chartered
bank for up to $3,000,000, which bears interest at the bank's prime based
loan rate of 7.5% at October 31, 2000 and is repayable on demand. As at
October 31, 2000, the Company has drawn down the operating line of credit
by $75,000 [1999 - nil] The line of credit is collateralized by a general
security agreement, assignment of adequate fire insurance and an unlimited
guarantee of advances from the Company. Under the terms of the credit
agreement the Company has undertaken to maintain certain financial
covenants. As at October 31, 2000, the Company was in compliance with these
covenants.
F-27
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
9. STATEMENTS OF CASH FLOWS
The net change in non-cash working capital balances related to operations
consists of the following:
2000 1999 1998
$ $ $
- ----------------------------------------------------------------------------------------------------
DECREASE (INCREASE) IN
CURRENT ASSETS
Accounts receivable (2,058,215) (155,127) 1,896,493
Inventories (1,945,691) (818,096) 788,688
Investment tax credits recoverable 74,794 (96,949) 984,742
Prepaid expenses and deposits 46,122 (91,728) 236,550
Due from affiliated companies (6,171) (14,503) (87,043)
- ----------------------------------------------------------------------------------------------------
(3,889,161) (1,176,403) 3,819,430
====================================================================================================
INCREASE (DECREASE) IN CURRENT LIABILITIES
Accounts payable and accrued liabilities 2,183,159 460,310 (4,019,416)
Income taxes payable 1,132,164 34,744 83,983
Deferred leasehold inducements (52,866) (48,702) (48,800)
- ----------------------------------------------------------------------------------------------------
3,262,457 446,352 (3,984,233)
- ----------------------------------------------------------------------------------------------------
(626,704) (730,051) (164,803)
====================================================================================================
Cash interest paid was $243,000 [1999 - $127,000; 1998 - $231,599]. Cash income
taxes paid were $848,000 [1999 - $ 35,000; 1998 - $27,000].
10. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada ["Canadian GAAP"] which differ in
certain material respects from those applicable in the United States ["US
GAAP"]. The material differences as they apply to the financial statements of
the Company are as follows:
F-28
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
FORWARD EXCHANGE CONTRACTS
Under U.S. GAAP, in accordance with Statement of Financial Accounting Standard
("SFAS") 52, certain of the forward exchange contracts held for hedging and
other purposes in 1998, 1999 and 2000, for which the underlying transactions are
not firmly committed, have not been designated by management for hedge
accounting. Consequently, unrealized exchange gains or losses on these contracts
at each balance sheet date would be reflected in income for the corresponding
year. Under Canadian GAAP, the Company's forward exchange contracts held for the
purpose of hedging net cash inflows qualify for hedge accounting and any
unrealized gains or losses are deferred and recognized in the statement of
income upon settlement of the related transactions.
NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities" and its subsequent amendments, SFAS 137 and 138. The
standard, which must be applied prospectively, is effective for all fiscal
quarters of all fiscal years beginning after June 30, 2000. The only derivatives
held by the company are forward exchange contracts. The new standard is
effective commencing with the Company's fiscal 2001 year end and will be applied
prospectively, as required. The forward exchange contracts do not qualify as
hedging instruments and the method of accounting for these derivatives will not
change as a result of the application of SFAS 133.
On December 31, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition". SAB 101, as amended by
SAB 101B, is effective no later than the fourth fiscal quarter of the first
fiscal year beginning after December 15, 1999. The implementation of this SAB is
not expected to have any material effect on the Company's financial statements
or revenue recognition policy in future years.
F-29
EFOS INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(in Canadian dollars)
RECONCILIATION OF NET INCOME TO CONFORM TO U.S. GAAP
The following summary sets out the material adjustments to the Company's
reported net income which would be made to conform to U.S. GAAP.
2000 1999 1998
$ $ $
- ----------------------------------------------------------------------------------------------------------------------
Net income for the year in accordance with Canadian GAAP 1,968,179 157,163 192,025
Unrealized gains (losses) on forward exchange contracts (737,480) 389,410 85,470
Deferred income tax (expense) recovery on forward 170,000 (86,000) (19,000)
exchange contracts
- ----------------------------------------------------------------------------------------------------------------------
Net income and comprehensive income for the year in
accordance with U.S. GAAP 1,400,699 460,573 258,495
======================================================================================================================
BALANCE SHEET ITEMS USING U.S. GAAP
2000 1999
----------------------- ------------------------
CANADIAN U.S. GAAP CANADIAN U.S. GAAP
GAAP $ GAAP $
$ $
- ----------------------------------------------------------------------------------------------------------------------
Foreign exchange asset (liability) -- (42,100) -- 695,380
Deferred tax (liability) asset (100,000) (84,000) 16,000 (138,000)
Shareholders' equity 2,868,879 2,842,779 900,700 1,442,080
======================================================================================================================
F-30
EFOS INC.
Interim Balance Sheets
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
AS AT AS AT
OCTOBER 31, 2000 JANUARY 31, 2001
---------------------------------------------
$ $
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash 169,104 --
Accounts receivable 4,738,892 7,209,881
Inventories 4,205,684 4,526,637
Investment tax credits recoverable 949,088 1,149,040
Prepaid expenses and deposits 174,076 328,588
Due from affiliated companies 183,506 100,707
---------------------------------------------
10,420,350 13,314,853
CAPITAL ASSETS, net 1,311,056 1,472,800
---------------------------------------------
11,731,406 14,787,653
=============================================
LIABILITIES
CURRENT LIABILITIES
Operating loan 75,000 2,662,920
Accounts payable and accrued liabilities 3,847,259 3,697,059
Due to affiliated companies (Note 5) -- 2,898,958
Income taxes payable 1,510,927 1,888,534
Future income taxes 100,000 100,000
---------------------------------------------
5,533,186 11,247,471
Due to affiliated companies (Note 5) 3,329,341 --
---------------------------------------------
8,862,527 11,247,471
=============================================
SHAREHOLDERS' EQUITY
SHARE CAPITAL 1,000 1,000
RETAINED EARNINGS 2,867,879 3,539,182
---------------------------------------------
2,868,879 3,540,182
---------------------------------------------
11,731,406 14,787,653
=============================================
F-31
EFOS INC.
Interim Statements of Earnings and Retained Earnings
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
THREE MONTHS ENDED JANUARY 31,
---------------------------------------
2000 2001
$ $
(UNAUDITED) (UNAUDITED)
SALES 4,580,956 9,350,506
COST OF SALES 2,280,891 4,492,010
---------------------------------------
GROSS PROFIT 2,300,065 4,858,496
---------------------------------------
EXPENSES
General and administrative 496,532 930,698
Selling 725,259 1,882,583
Research and development, net of
investment tax credits 390,204 802,161
Depreciation and amortization 119,000 150,000
Interest on loans from related parties 38,187 44,144
---------------------------------------
1,769,182 3,809,586
---------------------------------------
EARNINGS BEFORE INCOME TAXES 530,883 1,048,910
INCOME TAXES 212,350 377,607
---------------------------------------
NET EARNINGS FOR THE PERIOD 318,533 671,303
RETAINED EARNINGS - BEGINNING OF PERIOD 899,700 2,867,879
---------------------------------------
RETAINED EARNINGS - END OF PERIOD 1,218,233 3,539,182
=======================================
F-32
EFOS INC.
Interim Statements of Cash Flows
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
THREE MONTHS ENDED JANUARY 31,
---------------------------------------
2000 2001
$ $
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings for the period 318,533 671,303
Depreciation and amortization not
affecting cash 119,000 150,000
---------------------------------------
437,533 821,303
---------------------------------------
Change in non-cash operating working
capital items
Increase in accounts receivable (124,909) (2,470,989)
Increase in inventories (351,756) (320,953)
Increase in investment tax credits
recoverable (91,321) (199,952)
Increase in prepaid expenses and deposits (24,056) (154,512)
Decrease in due from affiliated companies 2,737 82,799
Decrease in accounts payable and accrued
liabilities (97,213) (150,200)
Increase in income taxes payable 212,350 377,607
Decrease in deferred leasehold inducements (12,298) --
---------------------------------------
(486,466) (2,836,200)
---------------------------------------
(48,923) (2,014,897)
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (40,005) (311,744)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Variation in operating loan -- 2,587,920
Variation in due to affiliated companies 234,468 (430,383)
---------------------------------------
234,468 2,157,537
---------------------------------------
NET CHANGE IN CASH 145,530 (169,104)
CASH - BEGINNING OF PERIOD -- 169,104
---------------------------------------
CASH - END OF PERIOD 145,530 --
=======================================
SUPPLEMENTARY INFORMATION
Interest paid 4,167 25,613
Income taxes paid -- --
F-33
EFOS INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
1. INCORPORATION AND NATURE OF ACTIVITIES
EFOS Inc. (EFOS) is incorporated under the laws of the Province of
Ontario. EFOS' mandate is to research, develop and manufacture systems and
equipment that make innovative use of light energy in applications such as
light-based curing, precise area illumination and biomedical research.
2. INTERIM FINANCIAL INFORMATION
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP) applicable to
interim financial statements and do not include all of the information and
note disclosures required in annual financial statements. Except as noted
below, the principal accounting policies of the Company have been applied
on a basis consistent with the Company's October 31, 2000 audited
financial statements, which should be referred to for a description of the
Company's significant accounting policies. The information presented as at
January 31, 2001 and for the interim periods ended January 31, 2001 and
2000 is unaudited. In the opinion of management, all adjustments
considered necessary for a fair presentation of results for the reported
periods have been included.
3. NEW ACCOUNTING STANDARDS
Effective November 1, 2000, the Company implemented section 3465 of the
Canadian Institute of Chartered Accountants (CICA) Handbook entitled
"Income Taxes." Under these recommendations, income taxes are now
accounted for using the liability method whereby future income taxes arise
from differences between the book value of assets and liabilities and
their respective tax bases, using income tax rates expected to be in
effect for the periods in which the differences are expected to reverse.
The implementation had no effect on the Company's prior period earnings or
shareholders' equity.
On November 1, 2000, the Company adopted new standard 3461 "Employee
Future Benefits" which is effective for fiscal years beginning on or after
January 1, 2000. Adopting this standard has not had any effect on the
Company's earnings or shareholders' equity.
4. DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP
These interim financial statements are prepared in accordance with
Canadian GAAP which differ in certain respects from U.S. GAAP. Note 10 of
the Company's most recent annual financial statements describes the
material differences between Canadian and U.S. GAAP. This note describes
additional changes occurring since the most recent annual financial
statements and provides a quantitative analysis of the material
differences. All disclosures required for annual financial statements
under U.S. GAAP have not been included in these interim financial
statements.
FORWARD EXCHANGE CONTRACTS
On November 1, 2000, the Company adopted Statement of Financial Accounting
Standard No. 133, Accounting for Derivative Instruments and Hedging
Activities and its amendments (SFAS 138), which requires all derivatives
to be carried on the balance sheet at fair value. The forward exchange
contracts used by the Company have not qualified for hedging accounting
treatment during the period ended January 31, 2001, accordingly changes in
the fair value of the derivatives have been charged to earnings during the
period. Under Canadian GAAP, these forward exchange contracts
F-34
EFOS INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
have been designated as hedges of anticipated sales and the related
accounts receivable and unrealized gains and losses are not reflected in
the financial statements until the sale occurs.
F-35
EFOS INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
RECONCILIATION OF NET EARNINGS TO CONFORM WITH U.S. GAAP
THREE MONTHS ENDED JANUARY 31,
-----------------------------------------
2000 2001
$ $
(UNAUDITED) (UNAUDITED)
Net earnings for the period in accordance with Canadian GAAP 318,533 671,303
Unrealized gains (losses) on forward exchange contracts (1,008,010) 270,740
Future income taxes on forward exchange contracts 110,000 (68,700)
-----------------------------------------
Net earnings (loss) for the period in accordance with U.S. GAAP (579,477) 873,343
=========================================
COMPREHENSIVE INCOME (LOSS)
For the three months ended January 31, 2000 and 2001, there are no
differences between the Company's reported net earnings (loss) and
comprehensive income (loss).
BALANCE SHEETS
The following table summarizes the material differences in balance sheet
items between Canadian GAAP and U.S. GAAP:
AS AT OCTOBER 31, 2000 AS AT JANUARY 31, 2001
---------------------------------------- ----------------------------------------
AS REPORTED U.S. GAAP AS REPORTED U.S. GAAP
$ $ $ $
(UNAUDITED) (UNAUDITED)
Foreign exchange asset (liability) -- (42,100) -- 228,640
============ ============ ============ ============
Future income tax liability 100,000 84,000 100,000 152,700
============ ============ ============ ============
Shareholders' equity
Retained earnings 2,867,879 2,841,779 3,539,182 3,715,122
============ ============ ============ ============
STATEMENTS OF CASH FLOWS
For the three months ended January 31, 2000 and 2001, there are no
material differences between the statements of cash flows under Canadian
GAAP as compared to U.S. GAAP.
5. SUBSEQUENT EVENTS
On March 14, 2001, the Company sold some of its intellectual properties to
EXFO Electro-Optical Engineering Inc. (EXFO) for gross cash consideration
of $38,832,500 (US$25,000,000), the net proceeds of which were immediately
paid by dividend to the existing shareholders.
On March 15, 2001, EXFO purchased all of the issued and outstanding shares
of the Company for a total consideration of $131,391,000 (US$85,146,000).
F-36
EFOS INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(expressed in Canadian dollars)
Accordingly, the sale of the Company's intellectual properties will be
accounted for as a related party transaction at the original carrying
value of $nil, and the related difference between fair value and carrying
value will be credited directly to retained earnings, net of related
income taxes.
On May 15, 2001, the Company repaid its due to affiliated companies with
the proceeds of a non-interest-bearing demand loan received from EXFO.
Consequently, the due to affiliated companies has been reclassified to
current liabilities as at January 31, 2001.
F-37
EXFO ELECTRO-OPTICAL ENGINEERING INC.
Pro-forma Unaudited Consolidated Statement of Earnings
FOR THE NINE MONTHS ENDED MAY 31, 2001
(in thousands of US dollars, except share and per share data)
EXFO
ELECTRO-OPTICAL BURLEIGH
ENGINEERING INSTRUMENTS, PRO-FORMA
INC. INC. EFOS INC. ADJUSTMENTS NOTE PRO-FORMA
-------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(NOTE 1b)) (NOTE 1e)) (NOTE 1f)) (UNAUDITED) (UNAUDITED)
SALES $ 110,593 $ 7,440 $ 12,826 $ (525) 2 d) $ 130,334
COST OF SALES 40,513 2,529 5,552 (525) 2 d) 48,069
--------------------------------------------------------- ---------------
GROSS MARGIN 70,080 4,911 7,274 - 82,265
--------------------------------------------------------- ---------------
OPERATING EXPENSES
Selling and administrative 34,159 2,687 3,822 - 40,668
Net research and development 9,747 885 1,196 - 11,828
Amortization of capital assets 2,263 154 158 - 2,575
Amortization of intangible
assets 5,873 - - 3,606 2a)and 2 b) 9,479
--------------------------------------------------------- ---------------
TOTAL OPERATING EXPENSES 52,042 3,726 5,176 3,606 64,550
--------------------------------------------------------- ---------------
EARNINGS FROM OPERATIONS 18,038 1,185 2,098 (3,606) 17,715
Interest expense (income), net (5,371) (75) 27 1,618 2c) (3,801)
Foreign exchange loss (gain) (3,018) - (130) 1,090 2c) (2,058)
--------------------------------------------------------- ---------------
EARNINGS BEFORE INCOME TAXES
AND AMORTIZATION OF
GOODWILL 26,427 1,260 2,201 (6,314) 23,574
2a), 2b), 2c)
INCOME TAXES 8,972 - 786 (11,602) and 2e) 8,156
--------------------------------------------------------- ---------------
EARNINGS BEFORE AMORTIZATION
OF GOODWILL 17,455 1,260 1,415 (712) 15,418
AMORTIZATION OF GOODWILL 18,556 - - 18,985 2a) and 2b) 37,541
--------------------------------------------------------- ---------------
NET EARNINGS (LOSS) FOR THE
PERIOD $ (1,101) $ 1,260 $ 1,415 $(23,697) $ (22,123)
========================================================= ===============
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE
Earnings before amortization
of goodwill $ 0.34 2f) $ 0.27
Net loss $ (0.02) 2f) $ (0.39)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
(000's)
Basic 51,689 2f) 56,946
Diluted 52,023 2f) 57,551
PF-1
EXFO ELECTRO-OPTICAL ENGINEERING INC.
Pro-forma Unaudited Consolidated Statement of Earnings
FOR THE YEAR ENDED AUGUST 31, 2000
(in thousands of US dollars, except share and per share data)
EXFO
ELECTRO-OPTICAL BURLEIGH
ENGINEERING INSTRUMENTS, PRO-FORMA
INC. INC. EFOS INC. ADJUSTMENTS NOTE PRO-FORMA
-------------------------------------------------------------------------------------
(AUDITED) (UNAUDITED) UNAUDITED) UNAUDITED) (UNAUDITED)
(NOTE 1a)) (NOTE 1c)) ( (NOTE 1d))
SALES $ 71,639 $ 19,652 $ 15,490 $ (904) 2 d) $ 105,877
COST OF SALES 24,712 7,645 7,602 (904) 2 d) 39,055
--------------------------------------------------------- ---------------
GROSS MARGIN 46,927 12,007 7,888 - 66,822
--------------------------------------------------------- ---------------
OPERATING EXPENSES
Selling and administrative 24,304 6,635 4,607 - 35,546
Net research and development 6,402 2,231 1,149 - 9,782
Amortization of capital assets 1,451 364 265 - 2,080
Amortization of intangible
assets 47 - - 15,125 2a) and 2 b) 15,172
--------------------------------------------------------- ---------------
TOTAL OPERATING EXPENSES 32,204 9,230 6,021 15,125 62,580
--------------------------------------------------------- ---------------
EARNINGS FROM OPERATIONS 14,723 2,777 1,867 (15,125) 4,242
Interest expense (income), net (1,480) 177 160 5,073 2c) 3,930
Foreign exchange loss (gain) 684 - (81) (951) 2c) (348)
--------------------------------------------------------- ---------------
EARNINGS BEFORE INCOME TAXES
AND AMORTIZATION OF
GOODWILL 15,519 2,600 1,788 (19,247) 660
2a), 2b), 2c)
INCOME TAXES 5,298 - 709 (5,740) and 2e) 267
--------------------------------------------------------- ---------------
EARNINGS BEFORE AMORTIZATION
OF GOODWILL 10,221 2,600 1,079 (13,507) 393
AMORTIZATION OF GOODWILL 297 - - 50,573 2a) and 2b) 50,870
--------------------------------------------------------- ---------------
NET EARNINGS (LOSS) FOR THE
YEAR $ 9,924 $ 2,600 $ 1,079 $ (64,080) $ (50,477)
========================================================= ===============
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE
Earnings before amortization
of goodwill $ 0.26 2f) $ (0.01)
Net earnings (loss) $ 0.25 2f) $ (1.01)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
(000's)
Basic 39,951 2f) 50,140
Diluted 40,086 2f) 50,525
PF-2
EXFO ELECTRO-OPTICAL ENGINEERING INC.
Notes to Pro-forma Consolidated Statements of Earnings
(Unaudited)
FOR THE NINE MONTHS ENDED MAY 31, 2001 AND FOR THE YEAR ENDED AUGUST 31, 2000
(tabular amounts in thousands of US dollars, except share and per share
data and as otherwise noted)
1 BASIS OF PRESENTATION
On December 20, 2000, the company acquired a 100% interest in Burleigh
Instruments, Inc. ("Burleigh") for a cash consideration of
US$42,461,000 and the issuance of 6,488,816 subordinate voting shares
valued at US$146,809,000. Furthermore, on March 15, 2001, the company
acquired a 100% interest in EFOS Inc. ("EFOS") for a cash consideration
of US$25,194,000 and the issuance of 3,700,000 subordinate voting
shares valued at CAN$131,100,000 (US$84,952,000).
The accompanying pro-forma consolidated statements of earnings for the
nine months ended May 31, 2001 and for the year ended August 31, 2000
were prepared by management to give effect to the acquisitions of
Burleigh and EFOS as if the acquisitions had occurred on September 1,
1999 and on the basis of the assumptions described in note 2
hereinafter.
The pro-forma consolidated statements of earnings have been prepared
from the following:
a) The audited consolidated statement of earnings of the company
for the year ended August 31, 2000, prepared in accordance
with Canadian generally accepted accounting principles
("GAAP");
b) The unaudited consolidated statement of earnings of the
company for the nine months ended May 31, 2001, prepared in
accordance with Canadian GAAP;
c) The unaudited statement of earnings of Burleigh for the twelve
months ended August 31, 2000, prepared in accordance with
Canadian GAAP;
d) The unaudited statement of earnings of EFOS for twelve months
ended August 31, 2000, prepared in accordance with Canadian
GAAP;
e) The unaudited statement of earnings of Burleigh for the 110
days ended December 19, 2000, prepared in accordance with
Canadian GAAP;
f) The unaudited statement of earnings of EFOS for the 195 days
ended March 14, 2001, prepared in accordance with Canadian
GAAP.
The pro-forma consolidated statements of earnings are not intended to
reflect the results of operations of the company which would actually
resulted had the acquisitions and pro-forma adjustments been effected
on the dates indicated. Furthermore, the pro-forma consolidated
statements of earnings are not necessarily indicative of results which
may be attained in the future.
PF-3
EXFO ELECTRO-OPTICAL ENGINEERING INC.
Notes to Pro-forma Consolidated Statements of Earnings
(Unaudited)
FOR THE NINE MONTHS ENDED MAY 31, 2001 AND FOR THE YEAR ENDED AUGUST 31, 2000
(tabular amounts in thousands of US dollars, except share and per share
data and as otherwise noted)
2 PRO-FORMA ASSUMPTIONS
a) Acquisition of Burleigh
The acquisition of Burleigh has been accounted for using the
purchase method in the accompanying pro-forma consolidated
statements of earnings. For the purposes of these pro-forma
consolidated statements of earnings, the purchase price has
been allocated as follows:
$
Purchase price 189,270
Net tangible assets acquired (6,446)
Intangible assets acquired 27,050
Goodwill 168,666
As part of the acquisition of Burleigh, the company
established a restricted stock award plan for employees of
Burleigh. Under that plan, stock awards entitling employees to
receive subordinate voting shares at a purchase price of nil
have been granted. In accordance with Canadian GAAP, no
compensation cost has been recognized for this stock-based
compensation plan.
The intangible assets acquired are amortized on a
straight-line basis over periods varying from eight months to
five years. Goodwill is amortized on a straight-line basis
over a five-year period.
The pro-forma consolidated statements of earnings for the nine
months ended May 31, 2001 and for the year ended August 31,
2000 reflect adjustments in order to provide for additional
amortization of intangible assets and goodwill during the
period from September 1, 1999 to December 19, 2000.
For the nine months ended May 31, 2001, the adjustments for
additional amortization of intangible assets and goodwill were
$732,000 and $10,259,000 respectively. For the year ended
August 31, 2000, the adjustments for additional amortization
of intangible assets and goodwill were $7,850,000 and
$33,717,000 respectively.
b) Acquisition of EFOS
The acquisition of EFOS has been accounted for using the
purchase method in the accompanying pro-forma consolidated
statements of earnings. For the purposes of these pro-forma
consolidated statements of earnings, the purchase price has
been allocated as follows:
$
Purchase price 110,146
Net tangible assets acquired 2,097
Intangible assets acquired 27,624
Goodwill 80,425
PF-4
EXFO ELECTRO-OPTICAL ENGINEERING INC.
Notes to Pro-forma Consolidated Statements of Earnings
(Unaudited)
FOR THE NINE MONTHS ENDED MAY 31, 2001 AND FOR THE YEAR ENDED AUGUST 31, 2000
(tabular amounts in thousands of US dollars, except share and per share
data and as otherwise noted)
The purchase price and net identifiable assets acquired have
been translated at the exchange rate prevailing on March 15,
2001 of CAN$1.00 = US$0.648. The intangible assets acquired
are amortized on a straight-line basis over periods varying
from five months to five years. Goodwill is amortized on a
straight-line basis over a five-year period.
The pro-forma consolidated statements of earnings for the nine
months ended May 31, 2001 and for the year ended August 31,
2000 reflect adjustments in order to provide for additional
amortization of intangible assets and goodwill during the
period from September 1, 1999 to March 14, 2001.
For the nine months ended May 31, 2001, the adjustments for
additional amortization of intangible assets and goodwill were
$2,874,000 and $8,726,000 respectively. For the year ended
August 31, 2000, the adjustments for additional amortization
of intangible assets and goodwill were $7,275,000 and
$16,856,000 respectively.
(c) Interest expense (income), net and foreign exchange loss
(gain)
Interest expense (income), net has been adjusted to reflect
the financing costs related to the cash payments of the
acquisitions totaling US$67,461,000 since the company did not
have sufficient cash on hand for such cash payments as at
September 1, 1999. For the period from September 1, 1999 to
June 29, 2000, an interest rate of the average prime rate plus
0.75% (7.77%) has been used to compute the interest expense,
which represents the expected interest rate at which the
company would have been able obtain short-term financing. For
the period from June 30, 2000 to March 14, 2001, an interest
rate of 6.15% has been used to compute interest expense. This
rate represents the average interest rate on short-term
investments denominated in US dollars which would have been
used to repay the short-term financing after the company's
initial public offering on June 29, 2000.
Furthermore, foreign exchange loss (gain) for the nine months
ended May 31, 2001 and for the year ended August 31, 2000 has
been adjusted to reflect the use of short-term financing in US
dollars and the use of short-term investments denominated in
US dollars to repay the short-term financing.
d) Elimination of intercompany transactions
For the purposes of the pro-forma consolidated statements of
earnings, adjustments have been effected to the results of the
company and Burleigh in order to eliminate the effect of the
transactions entered into between the two companies during the
year ended August 31, 2000 and the 110 days ended December 19,
2000.
PF-5
EXFO ELECTRO-OPTICAL ENGINEERING INC.
Notes to Pro-forma Consolidated Statements of Earnings
(Unaudited)
FOR THE NINE MONTHS ENDED MAY 31, 2001 AND FOR THE YEAR ENDED AUGUST 31, 2000
(tabular amounts in thousands of US dollars, except share and per share
data and as otherwise noted)
e) Income taxes
Adjustments have been made to reflect the income tax effects
of the adjustments described above in notes 2a), 2b), 2c) and
2d). Also, adjustments have been effected to the results of
Burleigh for the 110 days ended December 19, 2000 and for the
year ended August 31, 2000 in order to reflect the new tax
status of the subsidiary which is, since December 20, 2000, a
taxable entity in the United States. The effective income tax
rate used is 33% and has been applied to the net earnings of
Burleigh for the said periods.
f) Earnings (loss) per share
The basic weighted average number of shares outstanding used
for the computation of basic and diluted earnings (loss) and
adjusted net earnings per share has been adjusted to reflect
the issuance of the subordinate voting shares in connection
with the acquisitions described above, as if these
transactions had occurred on September 1, 1999. Basic and
diluted earnings (loss) and adjusted net earnings per share
have been adjusted accordingly. Adjusted net earnings exclude
the after-tax effect of the amortization of intangible assets
and the amortization of goodwill.
The following table summarizes the adjusted net earnings and the basic and
diluted adjusted net earnings per share:
NINE MONTHS ENDED YEAR ENDED
MAY 31, 2001 AUGUST 31, 2000
-------------------------------------- --------------------------------------
EXFO EXFO
Electro-Optical Electro-Optical
Engineering Inc. Pro forma Engineering Inc. Pro forma
---------------- --------- ---------------- ---------
(unaudited) (unaudited)
Adjusted net earnings $ 21,331 $ 21,674 $ 10,252 $ 10,407
Basic and diluted adjusted net
earnings per share $ 0.41 $ 0.38 $ 0.26 $ 0.21
3 PRO-FORMA RECONCILIATION OF THE NET LOSS TO CONFORM WITH U.S. GAAP
The pro-forma reconciliation of the net loss for the nine months ended
May 31, 2001 and the year ended August 31, 2000 has been prepared from
the pro-forma consolidated statements of earnings for the nine months
ended May 31, 2001 and for the year ended August 31, 2000 prepared in
accordance with Canadian GAAP, the reconciliation items in the
unaudited consolidated statement of earnings for the nine months ended
May 31, 2001 and the audited consolidated statement of earnings for the
year ended August 31, 2000 and also from the following assumptions:
PF-6
EXFO ELECTRO-OPTICAL ENGINEERING INC.
Notes to Pro-forma Consolidated Statements of Earnings
(Unaudited)
FOR THE NINE MONTHS ENDED MAY 31, 2001 AND FOR THE YEAR ENDED AUGUST 31, 2000
(tabular amounts in thousands of US dollars, except share and per share
data and as otherwise noted)
a) Stock-based compensation costs related to stock-based
compensation plans
Stock-based compensation costs have been adjusted in order to
provide for additional compensation costs related to the
restricted stock award plan starting from September 1, 1999.
b) Future income taxes on acquired in process research and
development
The future income tax expense has been adjusted to eliminate
future income taxes on acquired in process research and
development since no future income taxes are recognized for
this asset upon the purchase price allocation process for U.S.
GAAP purposes. Under Canadian GAAP, acquired in-process
research and development has been fully amortized during the
year ended August 31, 2000.
c) Amortization of goodwill
The amortization of goodwill has been adjusted to provide for
additional amortization during the period from September 1,
1999 to March 14, 2001.
PF-7
EXFO ELECTRO-OPTICAL ENGINEERING INC.
Notes to Pro-forma Consolidated Statements of Earnings
(Unaudited)
FOR THE NINE MONTHS ENDED MAY 31, 2001 AND FOR THE YEAR ENDED AUGUST 31, 2000
(tabular amounts in thousands of US dollars, except share and per share
data and as otherwise noted)
PRO-FORMA RECONCILIATION OF THE NET LOSS TO CONFORM WITH U.S. GAAP
NINE MONTHS
ENDED YEAR ENDED
MAY 31, AUGUST 31,
2001 NOTE 2000 NOTE
----------------- ----------------- ----------------- ------------
(UNAUDITED) (UNAUDITED)
Pro-forma net loss for the period in
accordance with Canadian GAAP $ (22,123) $ (50,477)
Stock-based compensation costs related to
stock-based compensation plans
Under U.S. GAAP (2,603) (2,002)
Pro-forma adjustment (5) 3a) (4,385) 3a)
Unrealized gains on forward exchange
contracts, net of related future income
taxes, under U.S. GAAP 62 --
Pro-forma adjustment for future income taxes
on acquired in process research and
development -- (951) 3b)
Amortization of goodwill
Under U.S. GAAP (5,161) --
Pro-forma adjustment (4,493) 3c) (12,944) 3c)
------------- -------------
Pro-forma net loss for the period in
accordance with U.S. GAAP $ (34,323) $ (70,759)
============= =============
Basic and diluted net loss per share in
accordance with U.S. GAAP $ (0.60) $ (1.41)
============= =============
PF-8
================================================================================
6,488,816 SHARES
EXFO ELECTRO-OPTICAL ENGINEERING INC.
SUBORDINATE VOTING SHARES
----------------------------
Prospectus
----------------------------
July 2001
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth expenses, other than underwriting fees and
commissions, expected to be borne by the Registrant in connection with the
distribution of the securities being registered:
Securities and Exchange Commission registration fee.......... $ 23,076
Legal fees and expenses (1).................................. 35,000
Accounting fees and expenses (1)............................. 50,000
Miscellaneous expenses (1)................................... 100,000
---------
Total (1)............................................... $ 208,076
- ------------------------
(1) Estimated.
All amounts listed above, except for the SEC registration fee, are
estimates. All expenses of the distribution, other than selling discounts,
commissions and legal fees and expenses incurred separately by the selling
shareholders, will be paid by the Registrant.
ITEM 15 - INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's by-laws provide that the Registrant will indemnify any
of its directors, former directors, officers and former officers and other
parties specified by the by-laws, against all costs reasonably incurred by them
for any civil, criminal or administrative action or proceeding to which they are
or may be made a party by reason of having been a director or officer. The
indemnity covers amounts paid to settle actions or to satisfy judgments.
However, the Registrant may only indemnify these persons, if such person acted
honestly and in good faith with a view to the Registrant's best interests and,
in the case of a criminal or administrative action or proceeding, if such person
has reasonable grounds for believing that his or her conduct was lawful. The
CANADA BUSINESS CORPORATIONS ACT provides that court approval is required for
the payment of any indemnity in connection with an action brought by or on the
Registrant's behalf.
A policy of directors' and officers' liability insurance is maintained
by the Registrant which insures directors and officers of the Registrant and its
subsidiaries against liability incurred by, arising from or against them for
certain of their acts, errors or omissions.
Reference is made to Item 17 for the undertakings of the Registrant
with respect to indemnification for liabilities arising under the U.S.
Securities Act of 1933.
ITEM 16 - EXHIBITS
4.1 Share Purchase Agreement, dated as of March 5, 2001, among EXFO
Electro-Optical Engineering, Inc., John Kennedy, Glenn Harvey and EFOS
Corporation.
4.2 Amendment Number One, dated as of March 15, 2001, to Share Purchase
Agreement, dated as of March 5, 2001, among EXFO Electro-Optical
Engineering, Inc., John Kennedy, Glenn Harvey and EFOS Corporation.
4.3 Intellectual Property Assignment and Sale Agreement between EFOS Inc.,
EXFO Electro-Optical Engineering, Inc., John Kennedy, Glenn Harvey and
EFOS Corporation.
II-1
4.4 Agreement of Merger and Plan of Reorganization, dated as of November 4,
2000, by and among EXFO Electro-Optical Engineering, Inc., EXFO Sub,
Inc., Burleigh Instruments, Inc., Robert G. Klimasewki, William G. May,
Jr., David J. Farrell and William S. Gornall (incorporated by reference
to Exhibit 4.1 of the Registrant's Annual Report on Form 20-F, dated
January 18, 2001).
4.5 Amendment No. 1 to Agreement of Merger and Plan of Agreement, dated as
of December 20, 2000, by and among EXFO Electro-Optical Engineering,
Inc., EXFO Sub, Inc., Burleigh Instruments, Inc., Robert G.
Klimasewski, William G. May, Jr., David J. Farrell and William S.
Gornall (incorporated by reference to Exhibit 4.2 of the Registrant's
Annual Report on Form 20-F, dated January 18, 2001).
4.6 Offer to purchase shares of Nortech Fibronic Inc., dated February 6,
2000 among EXFO Electro-Optical Engineering, Inc., Claude Adrien Noel,
9086-9314 Quebec inc., Michel Bedard, Christine Bergeron and Societe en
Commandite Capidem Quebec Enr. and Certificate of Closing, dated
February 7, 2000 among the same parties (including summary in English)
(incorporated by reference to Exhibit 10.2 of the Registrant's
Registration Statement on Form F-1, File No. 333-38956).
5.1 Opinion of Fasken Martineau DuMoulin LLP regarding the legality of the
securities.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG.
23.3 Consent of Ernst & Young.
23.4 Consent of Fasken Martineau DuMoulin LLP (contained in Exhibit 5.1).
24.1 Powers of Attorney (included on page II-4).
ITEM 17 - UNDERTAKINGS
The Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of a prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement;
II-2
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering;
4. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
5. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
6. (i) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of this registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein and this offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vanier, Province of Quebec, Canada, on July 13, 2001.
EXFO ELECTRO-OPTICAL ENGINEERING INC.
By: /s/ Germain Lamonde
---------------------------------------
Name: Germain Lamonde
Title: Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of EXFO Electro-Optical
Engineering Inc. constitutes and appoints Germain Lamonde and Pierre Plamondon
and each or any of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and any subsequent
registration statement for the same offering which may be filed under Rule
462(b) increasing the number of securities for which registration is sought, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the United States Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to enable the registrant to comply with the Securities Act and all requirements
of the United States Securities and Exchange Commission, as fully to all intents
and purposes as he might or could do in person, thereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Germain Lamonde Chairman of the Board, President July 13, 2001
- ------------------------------------ and Chief Executive Officer
Germain Lamonde (Principal Executive Officer)
/s/ Pierre Plamondon Vice President, Finance July 13, 2001
- ------------------------------------ and Chief Financial Officer
Pierre Plamondon (Principal Financial and Accounting Officer)
/s/ Pierre Marcouiller Director July 4, 2001
- ------------------------------------
Pierre Marcouiller
/s/ David A. Thompson Director July 5, 2001
- ------------------------------------
David A. Thompson
II-4
/s/ Andre Tremblay Director July 5, 2001
- ------------------------------------
Andre Tremblay
Director
- ------------------------------------
Michael Unger
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, the
undersigned certifies that it is the duly authorized United States
representative of EXFO Electro-Optical Engineering Inc. and has duly caused this
Registration Statement to be signed on behalf of each of them by the
undersigned, thereunto duly authorized, in the City of Vanier, Province of
Quebec, Canada, on July 13, 2001.
EXFO AMERICA INC.
(Authorized United States Representative)
By: /s/ Germain Lamonde
---------------------------------------
Name: Germain Lamonde
Title: Director
II-5
EXHIBIT INDEX
4.1 Share Purchase Agreement, dated as of March 5, 2001, among EXFO
Electro-Optical Engineering, Inc., John Kennedy, Glenn Harvey and EFOS
Corporation.
4.2 Amendment Number One, dated as of March 15, 2001, to Share Purchase
Agreement, dated as of March 5, 2001, among EXFO Electro-Optical
Engineering, Inc., John Kennedy, Glenn Harvey and EFOS Corporation.
4.3 Intellectual Property Assignment and Sale Agreement between EFOS Inc.,
EXFO Electro-Optical Engineering, Inc., John Kennedy, Glenn Harvey and
EFOS Corporation.
4.4 Agreement of Merger and Plan of Reorganization, dated as of November 4,
2000, by and among EXFO Electro-Optical Engineering, Inc., EXFO Sub,
Inc., Burleigh Instruments, Inc., Robert G. Klimasewki, William G. May,
Jr., David J. Farrell and William S. Gornall (incorporated by reference
to Exhibit 4.1 of the Registrant's Annual Report on Form 20-F, dated
January 18, 2001).
4.5 Amendment No. 1 to Agreement of Merger and Plan of Agreement, dated as
of December 20, 2000, by and among EXFO Electro-Optical Engineering,
Inc., EXFO Sub, Inc., Burleigh Instruments, Inc., Robert G.
Klimasewski, William G. May, Jr., David J. Farrell and William S.
Gornall (incorporated by reference to Exhibit 4.2 of the Registrant's
Annual Report on Form 20-F, dated January 18, 2001).
4.6 Offer to purchase shares of Nortech Fibronic Inc., dated February 6,
2000 among EXFO Electro-Optical Engineering, Inc., Claude Adrien Noel,
9086-9314 Quebec inc., Michel Bedard, Christine Bergeron and Societe en
Commandite Capidem Quebec Enr. and Certificate of Closing, dated
February 7, 2000 among the same parties (including summary in English)
(incorporated by reference to Exhibit 10.2 of the Registrant's
Registration Statement on Form F-1, File No. 333-38956).
5.1 Opinion of Fasken Martineau DuMoulin LLP regarding the legality of the
securities.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG.
23.3 Consent of Ernst & Young.
23.4 Consent of Fasken Martineau DuMoulin LLP (contained in Exhibit 5.1).
24.1 Powers of Attorney (included on page II-4).