As filed with the Securities and Exchange Commission on February 27, 2002
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM F-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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)
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465 GODIN AVENUE
VANIER, QUEBEC G1M 3G7, CANADA
(418) 683-0211
(Address and telephone number of Registrant's principal executive offices)
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EXFO AMERICA INC.
1201 RICHARDSON DRIVE, SUITE 260
RICHARDSON, TEXAS 75080
(800) 663-3936
(Name, address and telephone number of agent for service)
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WITH COPIES TO:
EDWIN S. MAYNARD, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
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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....... 2,599,717 shares $7.20 $18,717,962.40 $1,723.00
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(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 February 25, 2002.
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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.
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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 FEBRUARY 27, 2002
PROSPECTUS
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2,599,717 SHARES
EXFO ELECTRO-OPTICAL ENGINEERING INC.
SUBORDINATE VOTING SHARES
This prospectus relates to the resale of up to an aggregate of
2,599,717 subordinate voting shares of EXFO Electro-Optical Engineering Inc. by
former shareholders of EXFO Protocol Inc. (formerly Avantas Networks
Corporation) ("EXFO Protocol") listed in "Selling Shareholders" on page 16. The
selling shareholders acquired our subordinate voting shares when EXFO Protocol
was acquired by us in November 2001. 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 February 25, 2002, the closing sale
price of our subordinate voting shares was C$11.32 on The Toronto Stock Exchange
and was U.S.$7.09 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.
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The date of this prospectus is ________, 2002.
TABLE OF CONTENTS
Risk Factors...................................................................3
Cautionary Statement Regarding Forward-Looking Statements.....................13
Capitalization................................................................14
EXFO..........................................................................14
Use of Proceeds...............................................................16
Determination of Offering Price...............................................16
Selling Shareholders..........................................................16
Plan of Distribution..........................................................18
Legal Matters.................................................................19
Experts.......................................................................19
Where You Can Find More Information...........................................19
Incorporation of Documents by Reference.......................................20
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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.
All dollar amounts in this prospectus are expressed in US dollars,
except where otherwise indicated. References to "$" or "US$" are to US dollars.
----------------------
Our head office is located at 465 Godin Avenue, Vanier, Quebec, Canada,
G1M 3G7 and our telephone number is (418) 683-0211.
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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 THE DOWNTURN IN THE TELECOMMUNICATIONS INDUSTRY PERSISTS OR WORSENS, DEMAND
FOR OUR PRODUCTS WILL CONTINUE TO DROP AND, AS A RESULT, IT COULD CONTINUE TO
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Due to the downturn in the telecommunications industry and the
uncertainty following the tragic events of September 11, 2001, several
telecommunications carriers lowered their spending for network installations.
Optical equipment manufacturers, in turn, were affected by the downturn and the
subsequent buildup of inventories. These market forces on our customers
contributed to a significant decline in our sales. If the downturn persists or
worsens, demand for our products will drop and, as a result, it could have a
material adverse effect on our business, results of operations and financial
condition.
WE HAVE ADOPTED MEASURES AND MAY CONTINUE TO ADOPT MEASURES THAT ALIGN OUR COST
STRUCTURE TO CHALLENGING MARKET CONDITIONS. IF THE CHALLENGING MARKET CONDITIONS
ARE PROLONGED, IT COULD HAVE MATERIAL ADVERSE LONG-TERM EFFECTS ON OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We have been forced to re-align our cost structure to market conditions
twice during the past year. On June 27, 2001, we announced the reduction of
non-customer-related expenses, postponement of plans to build a new facility in
the Quebec Metro High-Tech Park, termination of non-core operations at a
subsidiary that specialized in manufacturing fiber-optic temperature sensors,
and reduction of our workforce by 15%. On December 5, 2001, we announced the
lowering of our operating expenses, freeze in employee salaries, and reduction
of our workforce by 10%. These and, if needed, subsequent measures could have
material adverse long-term effects on our business, results of operations and
financial condition if we deplete our pool of highly qualified personnel; if we
are unable to sustain research and development efforts for the launch of new
products; if we are unable to meet the needs of our customers; and if we are not
prepared to ramp up manufacturing when market conditions improve. In addition,
if we fail to adopt and implement adequate and pertinent measures on a timely
basis to align our cost structure to challenging market conditions, it could
have a material adverse long-term effects on our business, results of operations
and financial condition.
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 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;
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o competition from companies with lower labor and production
costs;
o introduction of new products by competitors;
o greater economies of scale for higher-volume competitors; and
o resale of used equipment.
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 production capacity results 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 increase the level of sales, continuously reduce
our manufacturing costs or introduce new products with higher margins, our gross
margins will decline.
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 the timing of introduction and market acceptance of new
products by us, our competitors or our suppliers;
o our ability to sustain product volumes and high levels of
quality across all product lines;
o the timing of shipments for large orders; and
o the effect of potential seasonality in sales.
Our operating results could also be affected by the following factors,
some of which we have little or no control over:
o demand for fiber-optic test, measurement and automation
equipment;
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;
o the level of used test, measurement and automation equipment
available for resale;
o restructuring charges; 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.
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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 CUSTOMERS FAIL TO MEET THEIR FINANCIAL COMMITMENTS TO US, IT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
The telecommunications industry is undergoing challenging times. Some
companies are shutting down their operations or going bankrupt. On occasion, we
have had customers who failed to meet their financial commitments to us. We
attempt to reduce the possibility of large outstanding bills remaining unpaid by
carrying out credit checks on customers and by having a diversified customer
base. For example, no customer represented more than 6.4% of our sales in the
fiscal year ended August 31, 2001. However, there is no assurance that such
measures will reduce or eliminate our exposure to customer credits risks. If
customers fail to meet their financial commitments to us, it could have a
material adverse effect on our business, results of operations and financial
condition.
AS OUR CUSTOMERS CONSOLIDATE OR ENCOUNTER FINANCIAL DIFFICULTIES, THEY MAY
REDUCE OR HALT 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 been subject to consolidation or are encountering financial difficulty and
are reducing their orders, renegotiating pricing and obtaining products from a
source other than us, which cause our sales to decline. In addition, as a
result, some of our manufacturer customers may discontinue their relationships
with us.
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 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.
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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, EXPERIENCE MANUFACTURING DELAYS OR INVENTORY OBSOLESCENCE.
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 or increase the risk of inventory obsolescence for which eventual
write-offs may become necessary. 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 may be 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.
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 could
result in delivery problems and reduced control over product pricing and
quality. Financial difficulties of suppliers could also affect our ability to
obtain necessary parts in a timely manner. 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 MUST CONTINUE TO OVERCOME SIGNIFICANT AND INCREASING COMPETITION IN OUR
INDUSTRY IN ORDER TO GAIN MARKET SHARE AND INCREASE OUR 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 new competitors to emerge or current competitors to consolidate as the
market for fiber-optic test, measurement and automation equipment evolves in
response to technical innovations and economic conditions. Both of these factors
could intensify the competitive pressures that we face.
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 Acterna Corporation, Agilent Technologies Inc., ANDO Corporation, Anritsu
Corporation, GN Nettest, Newport Corporation and Tektronix, Inc. 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.
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
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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
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 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.
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.
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OUR PRODUCTS MAY BE REQUIRED TO CONFORM TO NEW AND UNFORESEEN REGULATORY
REQUIREMENTS THAT 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.
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.
WE CANNOT ASSURE THAT WE WILL SUCCESSFULLY INTEGRATE THE BUSINESSES, PRODUCTS,
TECHNOLOGIES OR PERSONNEL OF OUR RECENT AND FUTURE ACQUISITIONS, WHICH MAY HARM
OUR BUSINESS.
For our past and future transaction to be successful, we must
appropriately integrate the businesses, products, technologies and personnel of
Burleigh Instruments, Inc., EXFO Photonic Solutions Inc., formerly EFOS Inc.,
and EXFO Protocol Inc., formerly Avantas Networks Corporation, and those of any
future acquisitions, with our own business, products, technologies and personnel
in a manner that anticipates or responds to new technological developments and
customer requirements on a timely basis. In addition, we must coordinate the
operations and technologies of newly acquired companies with our own operations
and technologies and manage geographically dispersed operations. Integration
requires 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 and there could be a material adverse
effect on our business, financial condition and results of operations.
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 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 made strategic acquisitions, such as our acquisitions of
Nortech Fibronic Inc., Burleigh, EXFO Photonic and EXFO Protocol. 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 and commitments;
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o incur expenses related to in-process research and development
and amortization of other intangible assets; or
o incur significant impairment losses of goodwill related to
such acquisitions.
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.
During the fiscal year ended August 31, 2001, 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 acquired or that we might acquire in the future, and
further divestitures or closures could be necessary which may harm our business.
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, EXFO Photonic and EXFO Protocol and the acquisition
by Burleigh Automation Inc. of the assets of Vanguard Technical Solutions, Inc.,
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.
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, 2001, customers outside of the
United States and Canada accounted for 41.7 % of our sales and for the fifteen
months ended November 30, 2001, these customers accounted for 41.8 % of our
sales. We plan to increase our international sales and have 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;
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;
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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. 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.
WE RECENTLY IMPLEMENTED AN ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM, AND IF
THIS INFORMATION TECHNOLOGY PROJECT PROVES TO BE UNWIELDY OR IF THE SOFTWARE
TOOL TURNS OUT TO BE INEFFECTIVE, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We implemented an ERP system in early December 2001 to help increase
the efficiency of our operations. This required a significant investment in
money, time and resources. More than 400 employees were trained on the software
tool and the smooth transition from one system to another has not yet been
accomplished. If this information technology project proves to be unwieldy or if
the software tool turns out to be ineffective, it could have a material adverse
effect on our business, results of operations and financial condition.
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 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.
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
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 MAINTAIN OUR COMPETITIVE POSITION
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. The managerial, technical and other services of our senior
management team 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.
10
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 18 U.S. and 7 Canadian issued patents and have 16 U.S. and 15
Canadian patent applications pending, along with 4 patent applications pending
under the Patent Cooperation Treaty. 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 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, 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
11
obtain a license where one is required, we could incur substantial liabilities
and be forced to suspend the marketing of the challenged products.
OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL POTENTIAL LIABILITY. A
SUCCESSFUL CLAIM EXCEEDING OUR POLICY LIMITS 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 insurance for product liability and take accounting reserves
for warranty claims that we consider adequate in view of industry practice. In
addition, we may face other types of claims by third parties in relation to the
conduct of our business and a successful claim against us for an amount
exceeding our policy limits 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.
WE MAY BECOME INVOLVED IN COSTLY AND TIME-CONSUMING LITIGATION THAT MAY
SUBSTANTIALLY INCREASE OUR COSTS AND HARM OUR BUSINESS.
We may from time to time become involved in various lawsuits and legal
proceedings. For example, EXFO is a defendant in a putative securities class
action filed in the United States District Court for the Southern District of
New York. In addition, we have instituted a claim against a former employee of
one of our subsidiaries, in relation to a breach of contractual confidentiality
obligations. Litigation is subject to inherent uncertainties, and an adverse
result in these or other matters that may arise from time to time could have a
material adverse effect on our business, results of operations or financial
condition.
Any litigation to which we are subject could require significant
involvement of our senior management and may divert management attention from
our business and operations. For more information about current legal
proceedings, see "Item 4.B. - Legal Proceedings" in our Annual Report on Form
20-F.
FLUCTUATIONS IN THE EXCHANGE RATES BETWEEN THE CANADIAN DOLLAR AND THE US DOLLAR
AND OTHER CURRENCIES 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 and other currencies. An
increase in the value of the Canadian dollar relative to the US dollar could
have a material adverse effect on our operating margins.
UNEXPECTED DECLINES IN OUR RESEARCH AND DEVELOPMENT TAX CREDITS AND GRANTS MAY
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
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 22.7 % of our gross research and development expenses for the year
ended August 31, 2001 and 23.2 % for the fifteen months ended November 30, 2001.
If unexpected changes in the laws or government policies terminate or
adversely modify the Canadian and Quebec government programs, under which we
receive the major part of our research and
12
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.
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.
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
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2001:
(IN THOUSANDS)
(UNAUDITED)
Long-term debt (including current portion) ..................... $ 726
Shareholders' equity:
Multiple voting shares: unlimited authorized shares, 37,900,000
shares issued and outstanding ............................... 1
Subordinate voting shares: unlimited authorized shares, 23,525,810
shares issued and outstanding ............................... 489,610
Contributed surplus............................................. 1,483
Cumulative translation adjustment............................... (17,767)
Deficit......................................................... (34,027)
-----------
Total shareholders' equity...................................... 439,300
-----------
Total capitalization ........................................... $ 440,026
===========
EXFO
We are a leading designer, manufacturer and marketer of fiber-optic
test, measurement, monitoring and automation solutions for the global
telecommunications industry. We believe that we offer the most extensive range
of products in the fiber-optic test, measurement, monitoring and automation
industry. Fiber-optic test, measurement, monitoring and automation equipment is
mainly used by telecommunications carriers, optical component and system
manufacturers, as well as research and development laboratories to meet their
physical, optical and protocol testing requirements.
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, monitoring and automation equipment. As of December 31, 2001, we
had a workforce of 1,099 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 and network service
providers. Our Industrial and Scientific Division and our subsidiaries, Burleigh
and EXFO Photonic, design an extensive line of high-performance instruments and
automated manufacturing equipment for optical component and system manufacturers
as well as for research and development labs. EXFO Protocol contributes to both
of our product divisions.
We have received more than 45 industry and commerce awards. In 2001, we
were named one of the top 100 employers in Canada by McLean's, a national
current affairs magazine. In 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.
14
ANNOUNCEMENT OF FIRST QUARTER RESULTS
In January 16, 2002, we announced our financial results for the first
quarter ended November 30, 2001. We reported sales of $20.1 million for the
quarter ended November 30, 2001 compared to $28.5 million for the same period in
fiscal 2001. Our net loss for the first quarter of 2002 was $19.1 million, or
$0.33 per share, compared to net earnings of $7.5 million, or $0.16 per share,
for the same period last year. Gross margin, including an inventory write-off of
$3.5 million, amounted to 37.8% of sales for the first quarter of 2002 compared
to 63.9% of sales for the same period in 2001. Excluding this non-recurring
charge, gross margin would have reached 55.1%, in line with our expectations
based on actual sales for this quarter. Altogether, we incurred restructuring
charges of $3.9 million in the first quarter of fiscal 2002. The financial
results of our newly acquired EXFO Protocol were reflected in our financial
results for the first quarter as the acquisition closed on November 2, 2001.
FURTHER ACTIONS
To align costs with current market conditions, in December 2001, we
implemented additional measures that will provide approximately $6 million in
annualized pre-tax savings. Among other things:
o we lowered our operating expenses;
o we froze employee salaries; and
o we reduced our workforce by 10%.
We incurred a one-time charge relating to this plan of approximately
$3.9 million in the quarter ended November 30, 2001.
RECENT ACQUISITION
EXFO PROTOCOL INC. (FORMERLY AVANTAS NETWORKS CORPORATION)
In November 2001, we acquired all of the shares issued and outstanding
of Avantas Networks Corporation and simultaneously changed the name of that
company to EXFO Protocol. The total consideration paid amounted to $94,952,000,
or $69,381,000 net of $25,571,000 of cash and cash equivalents acquired. The
consideration paid consisted of $9,756,000 in cash, net of cash and cash
equivalents acquired of $25,571,000 and the issuance of 4,374,573 of our
subordinate voting shares. EXFO Protocol, a company based in Montreal, Canada,
operating since 1998 and having 116 employees as of December 31, 2001, is a
supplier of fiber-optic testing and optical network performance management
equipment that supports a wide range of protocols and data transmission rates.
This latest acquisition will enable us to enter the critical protocol-layer
testing market. EXFO's products test the highway, or the fiber, optical
components and value-added optical modules that make up the physical layer of an
optical network. EXFO's products also cover the numerous lanes along the
highway, or the DWDM wavelengths carrying bandwidth within the optical layer of
a network. Using EXFO Protocol's products, our products will also test the
traffic, or the bits and bytes running through the protocol layer of a network.
15
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.
SELLING SHAREHOLDERS
The 2,599,717 subordinate voting shares offered under this prospectus
are being sold by the former shareholders of EXFO Protocol listed below. The
selling shareholders received their 2,599,717 subordinate voting shares as part
of the merger consideration when we acquired EXFO Protocol in November 2001.
To our knowledge, the selling shareholders do not own, directly or
indirectly, any other of our shares other than the 2,568,310 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 DIRECTLY OR INDIRECTLY
BEFORE THE DISTRIBUTION AND OFFERED
UNDER THIS PROSPECTUS (1)
NAME OF SELLING SHAREHOLDERS
-----------------------------------
James (Jim) Armiento.............................. 4,171
Bank of Montreal Capital Corporation.............. 36,147
Patricia Barry.................................... 355
Sylvain Beriault.................................. 6,111
Jean-Guy Billard.................................. 1,146
Roland Bitar...................................... 859
Marc Bolduc....................................... 3,172
Stephane Bonenfant................................ 40,166
Business Development Bank of Canada............... 248,649
Brian Campbell.................................... 28,684
Donald Carter..................................... 8,215
Terry Caves....................................... 10,705
Robert D. Chapman................................. 2,476
Bhajanpal Chopra.................................. 4,438
Nando Digiambattista.............................. 154,602
Frank Di Tirro.................................... 1,112
Giovanna Di Tirro................................. 18,083
Jessy Fleurent.................................... 1,243
16
NUMBER OF SUBORDINATE VOTING
SHARES HELD DIRECTLY OR INDIRECTLY
BEFORE THE DISTRIBUTION AND OFFERED
UNDER THIS PROSPECTUS (1)
NAME OF SELLING SHAREHOLDERS
-----------------------------------
Giovanni Forte.................................... 198,271
Gencon Capital Resources Inc...................... 11,459
Innovatech du Grand Montreal...................... 42,096
Scott Marshall.................................... 25,296
Paul Martek....................................... 8,746
Denis Matte....................................... 3,819
Cyril McKelvie.................................... 8,201
Patrick Ostiguy................................... 92,507
Jocelyn Ouellet................................... 28,135
Jean-Francois Plouffe............................. 14,838
Serge Prestipino.................................. 161,223
Claude Richer..................................... 35,012
Patrick M. Rockford............................... 9,550
Gregory J. Scott.................................. 3,819
Skypoint Telecom Fund............................. 16,666
Societe en commandite T2C2/Info................... 130,626
Ventures West 7 Limited Partnership............... 25,606
Ventures West 7 U.S. Limited Partnership.......... 2,458
Ventures West VI Limited Partnership.............. 36,147
Yazdi Family Trust................................ 190,973
Yazdi Mother and Sister........................... 24,249
Sami Yazdi........................................ 956,244
Stella Zappitelli................................. 3,442
-----------------------
Total............................................ 2,599,717
=======================
------------------------
(1) The information as to subordinate voting shares beneficially owned or over
which the above-named individuals or entities exercise control or direction
is based on the information furnished by the respective individual or
entity.
17
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 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 their sales in the market.
18
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, 2001 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.
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 (233 Broadway, New York, New York
10279) and Chicago (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.
19
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,
2001, dated January 17, 2002 and filed on January 18, 2002;
(b) pages 7 to 32 of our Report on Form 6-K, dated January 17,
2002, reporting certain information relating to our financial
condition and results of operations for the first quarter
ended November 30, 2001 filed on January 22, 2002;
(c) our Report on Form 6-K, dated January 10, 2002, setting forth
the Management Proxy Circular, dated November 30, 2001, for
our annual general meeting of the shareholders held on January
16, 2002, excluding from such Management Proxy Circular the
sections entitled "Report on Executive Compensation by the
Human Resources Committee," "Performance Graph," and
"Statement of Corporate Governance Practices" filed on January
11, 2002; and
(d) the description of our subordinate voting shares contained in
our Form 8-A, dated June 26, 2000 filed on June 26, 2000.
In addition, all subsequent annual reports on Form 20-F, 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).
20
================================================================================
2,599,717 SHARES
EXFO ELECTRO-OPTICAL ENGINEERING INC.
SUBORDINATE VOTING SHARES
----------------------------
Prospectus
----------------------------
___________, 2002
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 8 - 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 9 - EXHIBITS
2.1 Agreement of Merger and Plan of Reorganization, dated as of November 4,
2000, by and among EXFO, 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 EXFO's annual
report on Form 20-F dated January 18, 2001).
2.2 Amendment No. 1 to Agreement of Merger and Plan of Agreement, dated as
of December 20, 2000, by and among EXFO, 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
4.2 of EXFO's annual report on Form 20-F dated January 18, 2001).
2.3 Agreement of Merger, dated as of August 20, 2001, by and among EXFO,
Buyer Sub, and Avantas Networks Corporation and Shareholders of Avantas
Networks Corporation (incorporated by reference to Exhibit 4.3 of the
Registrant's Annual Report on Form 20-F dated January 18, 2002).
2.4 Amendment No. 1 dated as of November 1, 2001 to Agreement of Merger,
dated as of August 20, 2001, by and among EXFO, 3905268 Canada Inc.,
Avantas Networks Corporation and Shareholders of Avantas Networks
(incorporated by reference to Exhibit 4.4 of the Registrant's Annual
Report on Form 20-F dated January 18, 2002).
2.5 Offer to purchase shares of Nortech Fibronic Inc., dated February 6,
2000 among EXFO, 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 EXFO's Registration Statement on Form F-1, File No.
333-38956).
2.6 Share Purchase Agreement, dated of March 5, 2001, among EXFO
Electro-Optical Engineering Inc., John Kennedy, Glenn Harvey and EFOS
Corporation (incorporated by reference to Exhibit 4.1 of EXFO's
Registration Statement on Form F-3, File No. 333-65122).
2.7 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
II-1
and EFOS Corporation (incorporated by reference to Exhibit 4.2 of
EXFO's Registration Statement on Form F-3, File No. 333-65122).
2.8 Share Purchase Agreement, dated as of November 2, 2001 between JDS
Uniphase Inc. and 3905268 Canada Inc. (incorporated by reference to
Exhibit 4.8 of the Registrant's Annual Report on Form 20-F dated
January 18, 2002).
5.1 Opinion of Fasken Martineau DuMoulin LLP regarding the legality of the
securities.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Fasken Martineau DuMoulin LLP (contained in Exhibit 5.1).
24.1 Powers of Attorney (included on page II-4).
ITEM 10 - 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;
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;
II-2
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 February 27,
2002.
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 February 27, 2002
----------------------------- and Chief Executive Officer
Germain Lamonde (Principal Executive Officer)
/s/ Pierre Plamondon Vice President, Finance February 27, 2002
----------------------------- and Chief Financial Officer
Pierre Plamondon, CA (Principal Financial and Accounting
Officer)
/s/ Pierre Marcouiller Director February 27, 2002
-----------------------------
Pierre Marcouiller
/s/ David A. Thompson Director February 22, 2002
-----------------------------
David A. Thompson
II-4
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Andre Tremblay Director February 27, 2002
-----------------------------
Andre Tremblay
Director February 27, 2002
-----------------------------
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 February 27, 2002.
EXFO AMERICA INC.
(Authorized United States Representative)
By: /s/ Germain Lamonde
---------------------------------------
Name: Germain Lamonde
Title: Director
II-5
EXHIBIT INDEX
2.1 Agreement of Merger and Plan of Reorganization, dated as of November 4,
2000, by and among EXFO, 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 EXFO's annual
report on Form 20-F dated January 18, 2001).
2.2 Amendment No. 1 to Agreement of Merger and Plan of Agreement, dated as
of December 20, 2000, by and among EXFO, 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
4.2 of EXFO's annual report on Form 20-F dated January 18, 2001).
2.3 Agreement of Merger, dated as of August 20, 2001, by and among EXFO,
Buyer Sub, and Avantas Networks Corporation and Shareholders of Avantas
Networks Corporation incorporated by reference to Exhibit 4.3 of the
Registrant's Annual Report on Form 20-F dated January 18, 2002.
2.4 Amendment No. 1 dated as of November 1, 2001 to Agreement of Merger,
dated as of August 20, 2001, by and among EXFO, 3905268 Canada Inc.,
Avantas Networks Corporation and Shareholders of Avantas Networks
incorporated by reference to Exhibit 4.4 of the Registrant's Annual
Report on Form 20-F dated January 18, 2002.
2.5 Offer to purchase shares of Nortech Fibronic Inc., dated February 6,
2000 among EXFO, 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 EXFO's Registration Statement on Form F-1, File No.
333-38956).
2.6 Share Purchase Agreement, dated of March 5, 2001, among EXFO
Electro-Optical Engineering Inc., John Kennedy, Glenn Harvey and EFOS
Corporation (incorporated by reference to Exhibit 4.1 of EXFO's
Registration Statement on Form F-3, File No. 333-65122).
2.7 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
(incorporated by reference to Exhibit 4.2 of EXFO's Registration
Statement on Form F-3, File No. 333-65122).
2.8 Share Purchase Agreement, dated as of November 2, 2001 between JDS
Uniphase Inc. and 3905268 Canada Inc. (incorporated by reference to
Exhibit 4.8 of the Registrant's Annual Report on Form 20-F dated
January 18, 2002).
5.1 Opinion of Fasken Martineau DuMoulin LLP regarding the legality of the
securities.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Fasken Martineau DuMoulin LLP (contained in Exhibit 5.1).
24.1 Powers of Attorney (included on page II-4).