F-1 1 y16028fv1.htm FORM F-1 F-1
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As filed with the U.S. Securities and Exchange Commission on April 4, 2006
Registration No. 333-                   
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
COREL CORPORATION
(Exact name of Registrant as specified in its charter)
         
Ontario, Canada   7372   98-0407194
(State or other jurisdiction
of incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
1600 Carling Avenue
Ottawa, Ontario
Canada K1Z 8R7
(613) 728-0826
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Christopher DiFrancesco
1600 Carling Avenue
Ottawa, Ontario
Canada K1Z 8R7
(613) 728-0826
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
With copies to:
             
Andrew J. Beck, Esq.
Darren E. Sukonick, Esq.
Joshua B. Goldstein, Esq.
Torys LLP
237 Park Avenue
New York, New York 10017
(212) 880-6000
  Bruce K. Dallas, Esq.
Martin A. Wellington, Esq.
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
(650) 752-2000
  Gordon Davidson, Esq.
Jeffrey R. Vetter, Esq.
Fenwick & West LLP
801 California Street
Mountain View, California 94041
(650) 988-8500
  Craig Wright, Esq.
Osler, Hoskin & Harcourt LLP
Suite 1500, 50 O’Connor Street
Ottawa, Ontario
Canada K1P 6L2
(613) 235-7234
     Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o
     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.    o
     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.    o
     If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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.    o
     If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.    o
 
CALCULATION OF REGISTRATION FEE
                     
             
             
            Proposed Maximum   Proposed Maximum    
Title of Each Class of     Amount to be     Offering Price   Aggregate   Amount of
Securities to be Registered     Registered(1)     Per Share(2)   Offering Price(2)   Registration Fee
             
Common Shares
    9,200,000     $20.00   $184,000,000   $19,688
             
             
(1)  Includes 1,200,000 common shares that may be purchased by the underwriters to cover over-allotments, if any.
(2)  Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
     The Registrant shall amend 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, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange 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 changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)
Issued April 4, 2006
8,000,000 Shares
(COREL LOGO)
COMMON SHARES
 
This is an initial public offering of our common shares in the United States and Canada. We are offering 5,000,000 common shares and the selling shareholders are offering 3,000,000 common shares. We will not receive any of the proceeds from the sale of the shares by the selling shareholders. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $18 and $20 per share.
 
We have applied to list our common shares for quotation on the Nasdaq National Market under the symbol “CREL” and on the Toronto Stock Exchange under the symbol “CRE.”
 
Investing in our common shares involves risks. See “Risk Factors” beginning on page 9.
 
PRICE $                        A SHARE
 
                                 
        Underwriting       Proceeds to
    Price to   Discounts and   Proceeds   Selling
    Public   Commissions   to Corel   Shareholders
                 
Per Share
  $       $       $       $    
Total
  $       $       $       $    
We and the selling shareholders have granted the underwriters the right to purchase up to an additional 1,200,000 common shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on                     , 2006.
 
MORGAN STANLEY
  JPMORGAN
  DEUTSCHE BANK SECURITIES
  PIPER JAFFRAY
  CIBC WORLD MARKETS
  CANACCORD ADAMS
                              , 2006


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(COREL SOFTWARE PRODUCTS PHOTO)


 

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    F-1  
 EX-2.1: AGREEMENT AND PLAN OF MERGER
 EX-2.2: FORM OF STOCK PURCHASE AGREEMENT
 EX-3.1: CERTIFICATE AND ARTICLES OF CONTINUANCE
 EX-3.2: ARTICLES OF AMENDMENT
 EX-3.3: BY-LAWS
 EX-4.1: FORM OF REGISTRATION RIGHTS AGREEMENT
 EX-4.2: FORM OF COREL CORPORATION SHARE CERTIFICATE
 EX-10.2: EMPLOYMENT AGREEMENT BETWEEN COREL CORPORATION AND DAVID DOBSON
 EX-10.3: EMPLOYMENT AGREEMENT
 EX-10.4: EMPLOYMENT AGREEMENT
 EX-10.5: EMPLOYMENT AGREEMENT
 EX-10.6: EMPLOYMENT AGREEMENT BETWEEN COREL CORPORATION AND JACQUELINE MAARTENSE
 EX-10.7: 2003 SHARE OPTION AND PHANTOM UNIT PLAN
 EX-10.8: 2006 EQUITY INCENTIVE PLAN
 EX-10.10: FORM OF OFFICER AND DIRECTOR INDEMNIFICATION AGREEMENT
 EX-10.11: LEASE OF OFFICE SPACE
 EX-10.12: ADVISORY SERVICES EXPENSE REIMBURSEMENT AGREEMENT
 EX-10.13: AGREEMETN AND FULL AND FINAL RELEASE
 EX-21.1: SUBSIDIARIES OF COREL CORPORATION
 EX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS LLP
 EX-23.2: CONSENT OF PRICEWATERHOUSECOOPERS LLP
 EX-23.3: CONSENT OF ERNST & YOUNG LLP
 EX-99.1: FINANCIAL STATEMENT SCHEDULE I (SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION FOR RETURNS AND REBATES)
 EX-99.2: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE
 
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, common shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common shares.
Until                , 2006, 25 days after the commencement of this offering, all dealers that buy, sell or trade our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
For investors outside the United States. Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

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PROSPECTUS SUMMARY
You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should carefully consider among other things the matters discussed in “Risk Factors.”
COREL CORPORATION
Overview
We are a leading global packaged software company with an estimated installed base of 20 million current users in over 75 countries. We provide high quality, affordable and easy-to-use productivity and graphics and digital imaging software. Our products enjoy a favorable market position among value-conscious consumers and small businesses. The legal and functional departments within large companies and governmental organizations are also attracted to the industry-specific features and technical capabilities of our software. Our products are sold through a scalable distribution platform comprised of equipment manufacturers, or OEMs, our website, which we refer to as our e-Store, and our global network of resellers and retail vendors.
Our product portfolio includes well-established, globally recognized brands. Our primary productivity products are WordPerfect Office Suite, first developed in 1982 and marketed by Corel since 1996, and WinZip, a compression utility developed in 1991, that we will acquire concurrently with the closing of this offering. WordPerfect Office Suite is the leading Microsoft-alternative productivity software and includes Microsoft-compatible word processing, spreadsheet and presentation functionality. WinZip is the most widely used aftermarket compression utility, with more than 43 million seats sold to date. Our primary graphics and digital imaging products are CorelDRAW Graphics Suite and Corel Paint Shop Pro. CorelDRAW Graphics Suite is a leading illustration and image editing software suite used by design professionals and small businesses. Corel Paint Shop Pro digital image editing and management applications are used by novice and professional photographers and photo editors.
We benefit from the widespread global adoption of personal computers, or PCs, and digital cameras. As the retail price of PCs and digital cameras continues to decline, consumers are becoming more sensitive to the price of the software they use with these devices. We believe that we offer an industry-leading value proposition of high quality, affordable and easy-to-use software that is well positioned to take advantage of this trend.
Our Competitive Strengths
Our key competitive strengths include the following:
Industry-leading value proposition. We believe we offer the packaged software industry’s best combination of high quality, feature-rich functionality and affordability. Our products provide features and technical capabilities that are comparable to products offered by Microsoft and Adobe, typically at a price that is significantly lower than these competing products.
 
Globally recognized brands. WordPerfect Office Suite, WinZip, CorelDRAW Graphics Suite and Corel Paint Shop Pro are globally recognized brands in the packaged software industry as a result of many years of intensive marketing, advertising and promotion.
 
Easy-to-use, high quality products. Our products have been developed and tested over many years and we have received over 500 awards for excellence in software innovation, design and value. Substantial investments have been made to develop our products and they benefit from numerous user-driven upgrades. We are particularly focused on offering products that are easy-to-use and can interoperate with major file formats.
 
Scalable global distribution infrastructure. We have established global sales, marketing and distribution channels, including relationships with over 25,000 resellers and over 70 OEMs, a direct sales presence in

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17 countries and distribution capability in over 75 countries. Our products are available at major retailers worldwide.
 
Flexible sales and distribution strategy. We offer OEMs, such as Dell, Wacom and Hewlett-Packard, and online services companies, such as Google and Yahoo!, creative and customized solutions, joint-marketing initiatives and specialized versions of our software. This flexible approach enables these companies to enhance their product and service offerings and provides them with an additional source of revenues. We provide OEMs and other software distributors with a viable alternative to the products offered by Microsoft and Adobe that can help reduce their dependence on these brands.
 
Established Internet presence through our e-Store. Our e-Store allows visitors to try our software, purchase it and obtain customer support. Sales through our e-Store and customer support representatives have grown rapidly and our e-Store affords us the opportunity to attract customers with minimal sales and marketing costs. Customers with older versions of our software, or limited functionality versions acquired through OEMs, can use our e-Store to upgrade to the most recent versions of our software. Our e-Store also complements our other distribution channels by facilitating our collection of user data through online registration and enables us to provide better online support services.
Our Strategy
Our objective is to profitably grow our installed base of customers and increase sales to our existing users. We plan to achieve this objective through the following strategies:
Broaden our distribution network to capitalize on the rapid adoption of low cost technologies. We view our relationships with OEMs, other distributors and online services companies as key growth drivers and we are focused on developing new distribution relationships and broadening our existing relationships.
 
Increase upgrade conversion rates. We intend to increase upgrade conversion rates through a number of strategic initiatives, including increasing our database of registered users through on-line registration, embedding upgrade information directly in our software and offering products in tiers of functionality.
 
Leverage and expand presence in emerging markets. We plan to leverage and expand our presence in emerging markets, such as China, India, Eastern Europe and Latin America, by continuing to localize our products in additional languages, expanding our reseller network and direct sales force and developing additional regionally-focused versions of our e-Store. We believe these markets represent attractive growth opportunities for us because they are characterized by first time users of low cost PCs and digital cameras who have not yet developed loyalty to a particular brand of software.
 
Continue to respond to user needs to better serve specific market sectors and increase user loyalty. We will continue to work with our loyal user base to help us develop additional product enhancements, improve our products to better meet the needs of specific market segments and strengthen user loyalty. We have a strong track record of offering high quality products for specific markets such as the legal and education sectors and we plan to target additional markets.
 
Continue to deliver high operating margins and positive cash flow. We are committed to delivering high operating margins and positive cash flow by focusing research and development activities on market driven add-on functionality and not speculative projects, employing disciplined cost management practices and maintaining stringent minimum return-on-investment criteria for acquisitions. Our existing administrative, marketing and distribution infrastructure is highly scalable and we believe it will enable us to grow our revenues without experiencing a proportionate increase in fixed costs.
 
Leverage existing platform and brands to maximize value from acquisitions. Our disciplined acquisition and integration strategy is focused on acquisitions of companies with proven and complementary products and established user bases that we believe will be accretive to earnings. We seek acquisition candidates that we believe can benefit from our existing global marketing, sales, distribution and general and administrative infrastructure.

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Expected Results for the Three Months Ended February 28, 2006
      We estimate that our combined revenues and income from operations for the three months ended February 28, 2006 were approximately $44.3 million and $5.7 million, respectively, as compared to pro forma combined revenues and income from operations of $43.2 million and $3.4 million, respectively, for the three months ended February 28, 2005. This reflects an increase in revenues of $1.1 million, or 2.5% and an increase in income from operations of $2.3 million, or 67.6%. Our financial results are presented on a combined basis for all periods from and after January 18, 2005, which reflects the period WinZip and we have been under common control. The pro forma amounts presented above for the three months ended February 28, 2005 period also reflect the results of WinZip for the 48-day period from December 1, 2004 through January 17, 2005. Increases in combined revenues resulted from the release of new versions of several of our products in the fourth quarter of fiscal 2005 and the first quarter of fiscal 2006. The increase in income from operations resulted from continued improvements to our cost structure. Estimated cash and cash equivalents and total indebtedness as of February 28, 2006 were $15.2 million and $140.1 million, respectively.
Risk Factors
We are subject to a number of risks and uncertainties that could materially harm our business or inhibit our strategic plans. We face competitive threats from well established software companies that have significantly greater market share and resources than us, new entrants that benefit from industry trends, such as the increasing importance of Internet distribution and open source software, and from online services companies that are increasingly seeking to provide software products at little or no incremental cost to their customers to expand their Internet presence and build consumer loyalty. In addition, our core products have been marketed for many years and the packaged software market in North America and Europe is relatively mature and characterized by modest growth. Accordingly, we must successfully complete acquisitions, penetrate new markets or increase penetration of our installed base to achieve revenue growth. Before investing in our common shares, you should carefully consider the following:
except for the last two fiscal years, we have experienced declines in our revenues since the mid-1990s, from a high of $334.2 million in fiscal 1996 to our current level of $164.0 million (combined) in fiscal 2005, have experienced net losses in all but two fiscal years from 1996 to 2005, and had a net working capital deficit of $24.3 million (combined) at November 30, 2005;
 
we face competition from companies with significant competitive advantages, such as Microsoft, which has in excess of 97% of the North American Market for productivity software, and Adobe, which has in excess of 70% of the global packaged graphics and digital imaging software market;
 
as an increasing number of companies with advertising or subscriber-fee business models seek to offer competitive software products over the Internet at little or no cost to consumers, it may become more challenging for us to maintain our historical pricing policies and operating margins;
 
the proliferation of open source software and open standards may make us more vulnerable to competition because new market entrants and existing competitors could introduce similar products quickly and cheaply;
 
our relationships with Ingram Micro and Dell, which accounted for 4.6% and 13.5% respectively, of our fiscal 2005 revenues, can be terminated at any time;
 
the manner in which packaged software is distributed is changing rapidly, which presents challenges to established software companies such as us and presents opportunities for potential competitors;
 
our future growth is largely dependant on the execution of our acquisition strategy, which may fail for various reasons including our inability to find suitable acquisition candidates, complete acquisitions on acceptable terms or effectively integrate acquired businesses; and
 
the other factors described in the section entitled “Risk Factors” starting on page 9, and other information provided throughout this prospectus.

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Company History
We were incorporated in Canada under the Canada Business Corporations Act in May 1985. In January 1989, we released CorelDRAW, a market-leading full-featured graphics software product. In November 1989, we completed an initial public offering of our common shares. In March 1996, we acquired WordPerfect. In August 2003, we were acquired in a going private transaction by Vector Capital and were continued as a corporation organized under the Business Corporations Act (Ontario). Immediately following our acquisition by Vector Capital we undertook a significant restructuring of our business. As part of this restructuring, we divested our underperforming product lines, discontinued speculative research and development activity, refocused on our core product offerings and implemented company-wide expense reduction measures. In October 2004, we acquired Jasc Software, Inc., a leading provider of digital imaging software. In January 2006 we were continued as a corporation organized under the Canada Business Corporations Act.
Equity Recapitalization
On December 1, 2005, through an amalgamation with a wholly owned subsidiary, we reorganized our share capital. Following the amalgamation, our share capital consists of an unlimited number of preferred shares, issuable in series, and an unlimited number of common shares. All of the outstanding Series A preferred shares, Class A common shares and Class B common shares of the pre-amalgamated corporation were converted into common shares of the post-amalgamated corporation on a one for one basis. In March 2006, we effected a 1.0 for 11.7 reverse split of our common shares. We have reflected the reverse split of the common shares as if it had happened to the Series A preferred shares, Class A common shares and Class B common shares for all share and per share amounts subsequent to August 28, 2003.
Vector Capital
Vector Capital beneficially owned approximately 97.4% of our outstanding common shares as of February 28, 2006 and will retain beneficial ownership of approximately 66.0% of our outstanding common shares immediately following the completion of this offering. All of the common shares beneficially owned by Vector Capital are indirectly held by Corel Holdings L.P., a Cayman Islands limited partnership, through wholly owned indirect subsidiaries existing under the laws of Barbados. The general partner of Corel Holdings L.P. is Vector Capital Partners II International, Ltd., a Cayman Islands corporation. Vector Capital Partners II International, Ltd. is controlled by Alex Slusky, a principal of Vector Capital and a member of our board of directors. Vector Capital is based in San Francisco, California.
Concurrent Transactions
Acquisition of WinZip. Concurrently with the closing of this offering we will acquire all of the outstanding securities of WinZip, a leading provider of compression utility software, from Vector Capital, our controlling shareholder, for total consideration of 4,322,587 common shares. We will repay WinZip’s total outstanding indebtedness, which totalled approximately $19.2 million as of February 28, 2006, with a portion of the net proceeds of this offering. See “Use of Proceeds.”
New credit facility. Concurrently with the closing of this offering, we intend to enter into a new $165.0 million senior secured credit facility with a syndicate of financial institutions, including affiliates of several of the underwriters of this offering. The new credit facility will consist of a $90.0 million term loan with a six-year maturity and a $75.0 million revolving credit facility with a five-year term.
 
Our principal executive offices are located at 1600 Carling Avenue, Ottawa, Ontario Canada K1Z 8R7 and our telephone number is (613) 728-0826. Our Internet website address is http://www.corel.com. Information accessible on our website is not, and should not be considered, part of this prospectus.

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In this prospectus, the terms “Corel,” “we,” “us” and “our” refer to Corel Corporation and its subsidiaries and WinZip unless the context otherwise requires.
References to “Vector Capital” refer collectively to funds managed by Vector Capital Corporation or related entities and direct and indirect subsidiaries of those funds through which our shares are owned. References to “Jasc” refer to Jasc Software, Inc. References to “WinZip” refer to Cayman Limited Holdco, a holding company for WinZip’s business formed in the Cayman Islands, and its subsidiaries.
Unless otherwise indicated, all of our financial information included in this prospectus as of and for the fiscal year ended November 30, 2005 and as of and for the three months ended February 28, 2006 is presented on a combined basis to include the financial information of WinZip from and after January 18, 2005, which reflects the period during which WinZip and we have been under common control by Vector Capital.
References to “offering” refer to the initial public offering of our common shares in the United States and Canada. All references to “underwriters” refer collectively to the U.S. and Canadian underwriters.
Throughout this prospectus we refer to “packaged software,” which refers to software sold in a format that is ready for use without customization regardless of whether such software is sold in a physical package, pre-installed on a computer or downloaded electronically over the Internet.
As of February 28, 2006, we had units, consisting of stock options coupled with phantom share units, outstanding in respect of up to 1,409,091 common shares that were issued pursuant to our 2003 share option and phantom share unit plan. These units are equivalent to traditional stock options, except that upon exercise we may, but are not obligated to, settle them in cash instead of common shares. Throughout this prospectus we refer to these units as either “units” or “stock options.” For information about the terms of these units, see the section of this prospectus entitled “Management— Share Option and Other Compensation Plans.”
In this prospectus, all references to “$” and “U.S. dollars” are to the lawful currency of the United States, all references to “C$” or “Canadian dollars” are to the lawful currency of Canada. All references to GAAP are to generally accepted accounting principles in the United States.

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THE OFFERING
Common shares offered by Corel Corporation 5,000,000 shares
 
Common shares offered by the selling shareholders 3,000,000 shares. The selling shareholders are Vector Capital and former shareholders of Jasc, a business we acquired in October 2004. See “Principal and Selling Shareholders.”
 
Over-allotment option We and the selling shareholders have granted to the underwriters an option to purchase up to 400,000 and up to 800,000 common shares, respectively, to cover over-allotments, if any.
 
Common shares to be outstanding following the offering 24,492,427 shares, after giving effect to the issuance of 4,322,587 shares in connection with our acquisition of WinZip and assuming no exercise of the over-allotment option.
 
Use of Proceeds We estimate that we will receive net proceeds from this offering of approximately $82.9 million after estimated underwriting discounts and commissions and estimated offering expenses. We will use our net proceeds from this offering, together with borrowings from the term loan portion of our new credit facility, for repayment of approximately $140.1 million of debt, including outstanding indebtedness of WinZip, and for general corporate purposes, which may include acquisitions. We will not receive any of the net proceeds from the sale of common shares by the selling shareholders. See “Use of Proceeds.”
 
Proposed Nasdaq National Market Symbol “CREL”
 
Proposed Toronto Stock Exchange Symbol “CRE”
 
Risk Factors Investing in our common shares involves risks. See “Risk Factors” beginning on page 9.
 
The number of shares to be outstanding after this offering is based on shares outstanding as of February 28, 2006 and does not reflect:
up to 1,409,091 common shares issuable upon the exercise of outstanding stock options at a weighted average exercise price of $1.67 per share;
 
2,775,320 additional common shares reserved for issuance under our 2006 equity incentive plan, which will be effective upon completion of this offering; and
 
74,680 common shares issuable upon the exercise of replacement stock options to be granted under our 2006 equity incentive plan to holders of options to purchase shares of WinZip common stock.
Unless we specifically state otherwise, all information in this prospectus:
assumes an initial public offering price of $19.00 per common share;
 
assumes no exercise by the underwriters of their over-allotment option;
 
assumes completion of the WinZip acquisition and
 
reflects, for all prior periods after August 28, 2003, a 1.0 for 11.7 reverse split of our common shares effected in March 2006.

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SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data for the period from December 1, 2002 through August 28, 2003, the period from August 29, 2003 through November 30, 2003 and the fiscal years ended November 30, 2004 and 2005 and as of November 30, 2005 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data for the period from December 1, 2002 through August 28, 2003 reflects our results of operations prior to the time we were acquired by Vector Capital. That financial data is not directly comparable to the financial data presented for subsequent periods, which was prepared using push-down accounting. The summary consolidated financial data presented as of and for the fiscal year ended November 30, 2005 is presented on a combined basis to include the financial data of WinZip from January 18, 2005 to November 30, 2005, which reflects the period that WinZip and we were under common control by Vector Capital. That financial data is not directly comparable to the financial data presented for prior periods, which do not reflect the financial data of WinZip. In addition, the summary consolidated financial data includes the results of Jasc since October 2004.
The summary consolidated as adjusted balance sheet data as of November 30, 2005 gives effect to this offering, a $7.5 million dividend paid by WinZip to Vector Capital in March 2006, the deemed dividend resulting from the difference between the fair value of 4,322,587 of our common shares to be issued to Vector Capital in connection with our acquisition of WinZip and the carrying amount of WinZip’s net assets, our new credit facility and the use of the net proceeds from this offering and borrowings under the term loan portion of the new credit facility in the manner set forth under “Use of Proceeds.”
                                         
    Predecessor              
               
          August 29, 2003   Fiscal Years Ended
    December 1,     Through   November 30,
    2002 Through     November 30,    
    August 28, 2003     2003   2004   2005
                   
                  (combined)
          (in thousands)    
Consolidated Statement of Operations Data:
                                 
 
Revenues
  $ 85,386       $ 23,806     $ 111,692     $ 164,044  
 
Cost of revenues (exclusive of amortization)
    17,623         3,822       15,300       19,615  
 
Amortization of intangible assets
    5,661         4,132       16,547       26,139  
                           
 
Gross margin
    62,102         15,852       79,845       118,290  
                           
 
Operating expenses:
                                 
   
Sales and marketing
    45,465         13,620       38,508       54,056  
   
Research and development
    16,342         4,629       14,550       23,538  
   
General and administrative
    26,408         5,587       14,876       19,851  
   
Other operating expense
                        3,125  
   
Restructuring
            1,138       3,520       834  
                           
 
Total operating expenses
    88,215         24,974       71,454       101,404  
                           
 
Income (loss) from operations
    (26,113 )       (9,122 )     8,391       16,886  
                           
   
Loss on debt retirement
                        3,937  
   
Interest (income) expense, net
    (1,383 )       206       1,224       12,608  
   
Impairment (gain on disposal) of investments
    7,448               (729 )     (125 )
   
Amortization of deferred financing fees
            24       407       1,756  
   
Other non-operating expense (income)
    (1,530 )       (635 )     (1,033 )     1,172  
                           
 
Income (loss) before undernoted
    (30,648 )       (8,717 )     8,522       (2,462 )
                           
   
Income tax expense (recovery)
    (3,895 )       555       7,315       6,291  
   
Share of loss of equity investments, net of tax
    1,142                      
                           
 
Net income (loss)
  $ (27,895 )     $ (9,272 )   $ 1,207     $ (8,753 )
                           
Cash Flow Data:
                                 
     
Cash flow provided by (used in) operating activities
  $ (10,792 )     $ 8,671     $ 32,512     $ 40,459  
     
Cash flow (used in) financing activities
    (240 )       (47,516 )     (5,329 )     (38,552 )
     
Cash flow provided by (used in) investing activities
    6,418         43,134       (34,099 )     7,301  
Other Financial Data:
                                 
 
EBITDA(1)
  $ (23,151 )     $ (3,428 )   $ 29,183     $ 39,531  
 
Adjusted EBITDA(1)
    (14,561 )       (2,290 )     32,199       49,033  

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    As of November 30, 2005
     
    Actual   As Adjusted(2)
         
    (combined, in thousands)
Consolidated Balance Sheet Data:
               
 
Cash and cash equivalents
  $ 20,746     $ 32,675  
 
Working capital (deficit)
    (24,255 )     (12,326 )
 
Total assets
    120,836       129,682  
 
Deferred revenue
    13,840       13,840  
 
Total term loans
    148,729       90,000  
 
Promissory note payable
    2,242       2,242  
 
Total shareholders’ (deficit) equity
    (85,234 )     (16,130 )
 
(1)  EBITDA represents net income before interest, income taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA, further adjusted to eliminate items specifically defined in our credit facility. EBITDA and Adjusted EBITDA are not measures of operating income, operating performance or liquidity under GAAP. We have included a presentation of EBITDA because we understand it is used by some investors to determine a company’s historical ability to service indebtedness and it is a starting point for calculating Adjusted EBITDA. We have included a presentation of Adjusted EBITDA because certain covenants in our new credit facility are tied to Adjusted EBITDA. If our Adjusted EBITDA were to decline below certain levels, it could result in, among other things, a default or mandatory prepayment under our new credit facility. The covenants in our new credit facility are described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Indebtedness.” Additionally, management uses EBITDA and Adjusted EBITDA as supplementary non-GAAP measures to assist in its overall evaluation of our liquidity and to determine appropriate levels of indebtedness. Neither EBITDA nor Adjusted EBITDA should be considered in isolation or as a substitute for cash flow from operations (as determined in accordance with GAAP) as an indicator of our operating performance, or of operating income (as determined in accordance with GAAP). EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures used by other companies.
We consider EBITDA and Adjusted EBITDA to be measures of liquidity. Accordingly, they are reconciled to cash flow from operations in the table below.
                                     
    Predecessor              
               
          August 29, 2003   Fiscal Years Ended
    December 1, 2002     Through   November 30,
    Through     November 30,    
    August 28, 2003     2003   2004   2005
                   
                  (combined)
          (in thousands)    
Cash flow provided by (used in) operating activities
  $ (10,792 )     $ 8,671     $ 32,512     $ 40,459  
 
Change in operating assets and liabilities
    2,030         (12,275 )     1,683       (9,527 )
 
Interest expenses
            225       2,709       12,786  
 
Interest income
    (1,383 )       (19 )     (1,485 )     (178 )
 
Income tax expense (recovery)
    (3,895 )       555       7,315       6,291  
 
Stock-based compensation
                  (225 )     (1,731 )
 
Other non-cash charges
                        (2,242 )
 
Loss on debt retirement
                        (3,937 )
 
Accrued interest
                        (913 )
 
Provision for bad debts
    (755 )       (326 )     93       (529 )
 
Unrealized foreign exchange gains (losses) on forward contracts
    162         (22 )     27       (263 )
 
Deferred income taxes
    139         (237 )     (5,178 )     (830 )
 
Gain (loss) on disposal of fixed assets
    (67 )             (3 )     20  
 
(Impairment) gain on disposal of investments
    (7,448 )             729       125  
 
Share of loss of equity investments
    (1,142 )                    
 
Predecessor legal settlement and tax refund
                  (8,994 )      
                           
EBITDA
  $ (23,151 )     $ (3,428 )   $ 29,183     $ 39,531  
 
Restructuring
            1,138       3,520       834  
 
Stock-based compensation
                  225       1,731  
 
Impairment (gain on disposal) of investments
    7,448               (729 )     (125 )
 
Share of loss of equity investments, net of tax
    1,142                      
 
Early contract termination costs
                        2,242  
 
Reorganization costs
                        883  
 
Loss on debt retirement
                        3,937  
                           
Adjusted EBITDA
  $ (14,561 )*     $ (2,290 )   $ 32,199     $ 49,033  
                           
 
  * Amount reflects no adjustment for $7.0 million of expenses associated with our going-private transaction.
(2)  Assumes net proceeds to us from this offering of $82.9 million. A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share would increase (decrease) pro forma as adjusted cash and cash equivalents, working capital, total assets and total shareholders’ (deficit) equity by $4.7 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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RISK FACTORS
      You should consider the following factors in evaluating whether to purchase common shares in this offering. These factors should be considered in conjunction with the other information included in this prospectus.
Risks Relating to our Business
     The long-term trend in our business reflects declines in our revenues since the mid-1990s and we have experienced net losses during fiscal 2005 and during several years prior to 2004.
      We experienced a net loss of $8.8 million during fiscal 2005. Except for the last two fiscal years, our revenues have declined from a high of $334.2 million in fiscal 1996 to our current level of $164.0 million in fiscal 2005. While our revenues increased by $52.4 million in fiscal 2005 compared to the prior year, this increase is primarily attributable to the inclusion of WinZip’s revenues in fiscal 2005 which is presented on a combined basis and sales of digital imaging products we acquired in our acquisition of Jasc in October 2004. Revenues derived from our existing products and services (excluding products acquired in the Jasc acquisition) declined by $3.5 million in fiscal 2005 compared to fiscal 2004. In addition, WinZip revenues have declined from $24.9 million in fiscal 2004 to $22.7 million in fiscal 2005. We experienced net losses in all but two fiscal years from 1996 to 2005 and a decline in revenues in all but three of the last ten years. Although our financial results have improved since we were acquired by Vector Capital, a significant portion of that improvement resulted from our implementation of cost reduction initiatives, including a significant reduction in our workforce. The effects of these initiatives and whether the improvement in our operating results is sustainable over the long-term has yet to be demonstrated. We expect to incur significant incremental costs as a public company, such as costs of complying with applicable securities laws and higher insurance premiums. In addition, our strategy includes pursuing acquisitions. If we are successful in completing any acquisitions, we may incur substantial additional costs, including increased amortization expense and restructuring and acquisition-related charges. As a result of these and other factors there is a risk that we will not be able to reverse the long term trend in our revenues or improve our operating results in the future.
     Our quarterly operating results may fluctuate depending on the timing and success of product releases, which may result in volatility of our stock price.
      Our products generally have release cycles of between 12 and 24 months and we typically earn the largest portion of revenues for a particular product during the first half of its release cycle. If new versions of our software do not achieve widespread market acceptance, our results of operations will be adversely affected. Because the timing and success of new product and product upgrade releases have a significant impact on our revenues and expenses and release dates do not conform to a fiscal year cycle, it is difficult to discern meaningful trends in our business by comparing our financial results for any two fiscal quarters. Due to the impact of releases of new products and versions, our future operating results and stock price may be subject to significant volatility, particularly on a quarterly basis. Any delays or failures in developing enhancements and marketing our new versions of our products or product upgrades may have a harmful impact on our results of operations.
     Our core products compete with products offered by Microsoft and Adobe, which have dominant market positions and other significant competitive advantages.
      Our WordPerfect Suite, which accounted for approximately 37.3% and 24.0% of our total revenues in fiscal 2004 and 2005, respectively, competes with Microsoft Office which has in excess of 97.0% of the North American market for office suite software. In addition, our graphics and digital imaging products, which accounted for approximately 55.4% and 58.8% of our total revenues in fiscal 2004 and 2005, respectively, compete with similar products offered by Adobe, which, after giving effect to Adobe’s acquisition of Macromedia, has in excess of 70.0% of the global packaged graphics and digital imaging software market in which we compete. It is extremely difficult for us to increase our market share among existing software users because they tend to have high levels of brand loyalty due to the actual or perceived cost, time and effort required to transition existing files and learn how to use new software. The existence of these dominant brands also makes it more difficult for us to attract first-time software buyers because Microsoft and Adobe can offer

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ubiquitous products that enable file sharing with other users of their respective products without compatibility concerns.
      In addition to having dominant market positions, Microsoft and Adobe enjoy a number of other competitive advantages that result from having large scale operations, leading brand identities and significantly greater financial and other resources than us. These advantages include, among others:
  sales and marketing advantages;
 
  advantages in the recruitment and retention of skilled technical personnel;
 
  advantages in the establishment and negotiation of profitable strategic, distribution and customer relationships;
 
  advantages in the development and acquisition of innovative software technology and the acquisition of software companies;
 
  greater ability to pursue larger scale product development and distribution initiatives on a global basis; and
 
  operational advantages.
      Microsoft and Adobe also offer broader product lines than we do, including software products outside of the productivity and graphics and digital imaging markets, that provide them with greater opportunities to bundle and cross-sell software products to their large user bases. Because we generally rely on having lower prices than Microsoft and Adobe to attract customers, to the extent Microsoft and/or Adobe were to offer products comparable to ours at a similar price, our revenues would decline and our business would be harmed.
     We face significant competitive threats from Internet companies that may offer competitive software products at little or no cost to consumers to increase their market presence and user base.
      Large online services companies are constantly seeking new ways to drive Internet traffic to their websites and increase their user bases. Because these companies primarily earn revenues through the sale of advertising or the collection of subscription fees, they are often willing to provide free or low cost products and services to their users to increase usage of their core services. For example, in October 2005 Google and Sun MicroSystems announced that they had expanded their relationship to include distribution of Google’s search toolbar with downloads of Sun’s Java Runtime Environment. Sun and Google also implied that, in the future, their relationship may also extend to the distribution of productivity software. Google, Yahoo! and AOL now provide users with free email services, and Google, Shutterfly, AOL and Snapfish, among others, provide free online digital photograph management and editing applications. In addition, it was recently announced that Google has acquired Upstartle, a developer of an online word processing application. These and other online services companies have broad access to our target customer group and if they begin to provide their users with software products with similar features and functionality to our products, we may be unable to maintain our prices and our operating results could be adversely affected.
     Our success depends on our ability to offer products that are highly compatible with products offered by Microsoft and Adobe.
      Software users often share files, making it critical that our products remain compatible with products that have dominant market positions. To make our products compatible with products offered by Microsoft, Adobe and others, we often rely on technical information provided to us through informal cooperative arrangements. We have no contractual right to receive this technical information and if these competitors are unwilling to provide it to us, we may be unable to continue to provide products that are compatible with their products. In the past, we received technical specifications from both Adobe and Macromedia which were competing with each other in the graphics and digital imaging software market. In December 2005, Adobe acquired Macromedia, and it is unclear whether the combined company will cooperate with us in the future to the same extent Adobe and Macromedia have in the past.

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      Microsoft’s Windows Vista operating system, which is intended to replace Microsoft’s current operating system, Microsoft XP, is currently scheduled for release late in 2006. Because it is still in development, we are not yet in a position to complete development of a version of our products that is compatible with Windows Vista. If Windows Vista is rapidly adopted in the market before we are able to release compatible versions of our software, our revenues may decline. Moreover, although we have been able to achieve a high level of compatibility with Microsoft products in the past, it is often impossible for us to achieve the same level of functionality and performance as Microsoft’s products because its products benefit from technology embedded in the Microsoft Windows operating system and other Microsoft software applications, which places us at a competitive disadvantage.
      Since it is often technically impossible for us to develop products that are compatible in all respects with the leading brands, there is also a risk that any non-compatible features will be criticized in the market and damage our reputation. If our products are not sufficiently compatible or are not perceived to be compatible with the leading brands for any reason, we would lose a key element of our value proposition and our revenues and results of operations would be adversely affected.
     With the growth in the Internet as a medium to download and purchase software, we expect to face increasing competition from smaller software providers.
      The increasing popularity of the Internet as a medium to purchase software is enabling smaller software providers to distribute products with minimal upfront costs or resources. In the past, a substantial barrier to entry into the packaged software market for small-scale providers has been the need to manufacture, package and distribute software through a retail or commercial distribution chain. To the extent consumers increasingly purchase software over the Internet, we expect to face increased competition from small software development companies and programmers worldwide. Online software distribution has certain inherent advantages over physically packaged software, such as the reduction or elimination of manufacturing, packaging, shipping and inventory costs. New entrants that have business models focused on Internet distribution may have more favorable cost structures than companies such as ours that employ a multi-channel distribution network, which could give those competitors cost savings, pricing and profitability advantages.
     The manner in which packaged software is distributed is changing rapidly, which presents challenges to established software companies such as us and presents opportunities for potential competitors.
      Traditionally, most consumer software has been sold as a separate stand-alone item through retail vendors. Increasingly, software products are being bundled with hardware or online services and sold directly by the equipment manufacturers and online services companies. Although we have relationships to bundle our productivity software with personal computers and online services, we do not yet have any relationships with digital camera manufacturers to bundle our graphics and digital imaging software with their digital cameras. If we are not successful in forging distribution arrangements with digital camera manufacturers or additional participants in all the markets we serve our competitors may gain a significant competitive advantage.
      We generally receive lower prices for software that is bundled with hardware or services than we receive for physically packaged software. In the case of software bundled with hardware, we generally bundle lower functionality versions of our software and provide the opportunity for users to upgrade to more full-featured versions. Accordingly, even if we are successful in expanding our relationships with OEMs, our revenues may decline to the extent purchasers through these channels do not purchase our software through the retail channel or elect not to purchase our software upgrades.
      The increasing percentage of packaged software distributed by OEMs and over the Internet presents a number of challenges and competitive threats. We currently distribute a substantial portion of our products in retail locations around the world and view our retail distribution network as a competitive strength. To the extent that retail software distribution represents a diminishing percentage of total software sales, the relative benefits of our retail network will decline. A declining percentage of our sales have been derived from our retail distribution channel and we expect this trend to continue. If in the future we need to reduce the size or

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scope of our retail distribution network, we will likely incur significant restructuring charges which would adversely affect our results of operations.
Open source software and open standards may make us more vulnerable to competition because new market entrants and existing competitors could introduce similar products quickly and cheaply.
      Open source refers to the free sharing of software code used to build applications in the software development community. Individual programmers may modify and create derivative works and distribute them at no cost to the end user. To the extent that open source software is developed that has the same or similar functionality as our products, demand for our software may decline, we may have to reduce the prices we charge for our products and our results of operations may be negatively affected.
      In addition, there is continuing pressure on the software industry to adopt standardized file formats. Microsoft recently announced its intention to publicly release the specifications for one file format to be implemented in its next generation office suite and also to seek approval from an international standards organization to formally endorse Microsoft’s new Office file format as open standard. While we generally support the adoption of open standards, this change may make it easier for other software companies to produce productivity software that is compatible with Microsoft Office. In the past we have been one of a small group of companies that offer productivity software that directly competes with Microsoft Office applications and is also compatible with those applications. If the proposed Microsoft Office open file format, or any other open file format, becomes the industry accepted standard, we could lose a key competitive advantage.
     We rely on relationships with a small number of companies for a significant percentage of our revenues, and if any of these companies terminates its relationship with us, our revenues could decline.
      In 2005, we derived 4.6% and 13.5% of our revenues from our relationships with Ingram Micro and Dell, respectively. To the extent our relationships with either of these companies is interrupted or terminated for any reason, our revenues may decline. In addition, our agreements with these companies only provide a general framework governing our relationships. These agreements do not contain any exclusivity provisions and these companies have no obligation to purchase a minimum quantity of our products, promote our products or continue distributing our products. Each of these companies also distributes the products of our direct competitors. Accordingly, these companies may stop distributing our products, they may feature competitive products more prominently or they may fail to effectively promote the sale of our products to their customers, which would harm our competitive position and operating results.
     The packaged software industry is subject to rapid technological change and if we fail to respond to dynamic market forces, our position within the industry will be harmed.
      The packaged software industry is characterized by rapid technological change. If our competitors are able to develop innovative new features or functionality that we are unable to replicate or if we experience delays in providing competing features or functionality our business may suffer. Moreover, we devote virtually all of our research and development efforts toward enhancing our existing product lines and we do not pursue development of new applications. If our competitors are able to make significant innovative improvements to their products or develop new products with substantially enhanced capabilities, our products may become obsolete or our value proposition may become less attractive.
     Our recent growth through acquisitions may not be representative of future growth.
      Because our products and markets are relatively mature, and since our strategy does not include internal development of new product lines, our prospects for future growth are highly dependent on our ability to complete acquisitions of complementary businesses, products or technologies. Recent increases in our revenues are primarily attributable to the inclusion of WinZip’s revenues in our 2005 results and our acquisition of Jasc in October 2004. Our reliance on acquisitions as a primary means of achieving future growth involves a number of risks and uncertainties, many of which are beyond our control. For example, the purchase price for acquisitions will depend significantly on overall market conditions, the degree of

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competition from other strategic or financial buyers and the availability of attractive acquisition candidates with complimentary products or services. In addition, we may need debt or equity financing to pay for acquisitions, which may not be available to us on acceptable terms or at all. Our ability to use our common shares as currency to pay for acquisitions will depend on the trading price of our common shares, which may be volatile. If we cannot successfully execute our acquisition strategy our growth will be constrained and the value of our common shares will decline.
      We relied on Vector Capital for advice and consulting services in connection with our acquisitions of Jasc and WinZip. Although we have entered into an advisory services agreement with Vector Capital, it is not obligated to provide these services in the future. If, for any reason, Vector Capital does not continue to provide such services we may not be able to hire consultants with comparable expertise. The loss of Vector Capital’s advisory services would likely increase the relative burden on our management in identifying, analyzing and negotiating acquisitions and could make it more difficult for us to grow our business.
     We may not realize the anticipated benefits of acquisitions, and the integration of WinZip or other acquired companies may disrupt our business and management.
      Realizing the benefits from the WinZip acquisition or any other acquisition will depend in part on the successful integration of the acquired company’s products, operations and personnel with our organization in a timely and efficient manner. It may be difficult for us to adapt WinZip’s products to our pricing and distribution model, since WinZip has historically allowed users to download its application without charge and there are competing compression utility offerings that are available for free. We may incur significant costs integrating an acquired company’s operations, products and personnel. We may also encounter difficulties assimilating acquired companies due to differences in our respective organizational cultures. The integration process is inherently unpredictable and subject to delay and unexpected costs.
      It is also difficult to assess the degree to which we will achieve benefits from an acquisition until long after the acquisition has occurred. For example, we may not derive the amount of revenues we anticipate from the sale of WinZip’s products due to the high level of market penetration of its software. We do not know whether we will be successful in achieving the desired benefits from the WinZip acquisition or any subsequent acquisition.
      Acquisitions involve a number of additional risks and uncertainties, including:
  disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues;
 
  inability to retain our or the target’s technical and managerial personnel, key customers, distributors, vendors and other business partners;
 
  incurrence of acquisition-related costs or amortization costs for purchased intangible assets that could impact our operating results;
 
  potential failure of our due diligence processes to identify significant issues with product quality, design and development, legal and financial contingencies or other liabilities;
 
  incurrence of significant exit charges if products acquired in business combinations are unsuccessful; and
 
  potential inability to ensure that internal controls over financial reporting are effective.
      In addition, we may incur or assume a significant amount of additional debt or other obligations in connection with acquisitions, which could deprive us of operational and financial flexibility and increase the risk that our business could not survive a downturn.
     We are subject to risks associated with international operations that may harm our business.
      In fiscal 2005, we derived approximately 36.6% of our total revenues from sales to customers outside of the Americas. Sales in Germany comprised the largest portion of these international sales, representing 10.0%

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of total revenues in fiscal 2005. Our international operations subject us to a number of risks, challenges and uncertainties, including the following:
  foreign currency fluctuations;
 
  increased software piracy and uncertainty with respect to the enforcement of intellectual property rights;
 
  international economic and political conditions;
 
  labor and employment laws, particularly in Europe, which make it difficult to maintain flexible staffing levels;
 
  tariffs, quotas and other trade barriers and restrictions;
 
  difficulties and expenses in localizing our products, particularly in Asian markets;
 
  difficulties inherent in staffing and managing foreign operations; and
 
  the burdens of complying with a variety of foreign laws.
      In addition, because increasing the scope of our operations in emerging economies, such as China, India, Eastern Europe and Latin America, is a key element of our growth strategy, we expect that our exposure to the risks and uncertainties described above will increase in the future.
     We may incur losses associated with currency fluctuations and may not effectively hedge our exposure.
      Our operating results are subject to volatility resulting from fluctuations in foreign currency exchange rates. For example, we incur a disproportionate percentage of costs in Canadian dollars as compared to Canadian dollar revenues. As a result, our results will be negatively affected if the Canadian dollar rises relative to the U.S. dollar. Although we attempt to mitigate a portion of these risks through foreign currency hedging, these activities may not effectively offset the adverse financial effect resulting from unfavorable movement in foreign currency exchange rates.
     Our business may be constrained by the intellectual property of others, and we have been and are currently subject to claims of intellectual property infringement, which are costly and time-consuming to defend.
      The software industry is characterized by the existence of a large number of patents, trademarks and copyrights, and by frequent litigation based upon allegations of infringement or other violations of intellectual property rights. We may be constrained by the intellectual property of others. We are currently a defendant in a material lawsuit alleging intellectual property infringement, and we may again in the future have to defend against intellectual property lawsuits. We may not prevail in our current or future intellectual property litigation given the complex technical issues and inherent uncertainties in litigation. We have in the past and expect that we will in the future receive correspondence alleging that our products infringe the intellectual property rights of others. Any claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause product development or release delays or require us to enter into costly royalty or licensing agreements. In addition, some of our agreements with customers and distributors, including OEMs and online services companies, require us to indemnify these parties for third-party intellectual property infringement claims and many of these indemnification obligations are not subject to monetary limits. The existence of these indemnification provisions could increase our cost of litigation and could significantly increase our exposure to losses from an adverse ruling.
     We may be unable to maintain licenses to third-party technology that is integrated into our products.
      We integrate third-party technology into our software products. Although we are not currently reliant on any technology license agreement from a single third party, if we were to lose our rights to technology licensed to us by several third parties, our business could be significantly disrupted, particularly if the technology subject to those agreements was either no longer available to us or no longer offered on commercially

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reasonable terms. In either case, if we are unable to redesign our software to function without this third-party technology or to obtain or internally develop similar technology, we might be forced to limit the features available in our current or future products.
Our success depends heavily on our ability to adequately protect our intellectual property.
      We depend upon our ability to protect our technology. Our means of protecting our intellectual property may not be adequate to prevent others from misappropriating or otherwise obtaining and using information that we regard as proprietary. Any of our patents, trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. We may be unable to obtain effective patent or trademark protection in the future. Policing unauthorized use of our software is difficult and costly, particularly in countries where the laws may not protect our proprietary rights as fully as in the U.S. and Canada. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.
      We have placed source code for our software in escrow, and this source code may, under certain circumstances, be made available to certain of our customers, distributors or OEMs. We also work with translators, localizers and independent software developers and these third parties have access to proprietary information relating to our technology. These arrangements could increase the ease or likelihood of potential misappropriation or other misuse of our intellectual property.
      Further, our software products contain open source software code licensed to us under various open source licenses. We rely in part on third parties to develop our software and may not be able to verify whether the components developed by these third parties contain additional open source code. Open source code may impose limitations on our ability to sell our products because, among other reasons, open source license terms may result in unanticipated obligations regarding our products and the disclosure of underlying derivative source code, and open source software cannot be protected under trade secret law.
     As a global business, we have a relatively complex tax structure and there is a risk that tax authorities will disagree with our tax positions.
      We have tax losses carried forward available to offset future taxable income of approximately $249.0 million as of November 30, 2005. Approximately 90% of our tax losses are in Canada. Under Canadian tax rules, we can only use losses to offset future taxable income from the same business or a business that is similar to the one that incurred the losses. While our Canadian losses are not subject to any annual deduction limitations, the losses do have relatively short time periods until they expire. We may not be able to use all of our Canadian losses before their expiration. As of November 30, 2005, we also had approximately $111.0 million of tax depreciation in Canada that would be available to offset taxable income in future years. We have not been subject to a tax audit or review for several years and while we believe that our tax assets have been appropriately determined, there is a risk that, when we are audited, the tax authorities would not agree with our position. Any adverse determination by a tax authority would effectively increase our future tax obligations, to the extent we earn taxable income.
      Since we conduct operations worldwide through our foreign subsidiaries, we are subject to complex transfer pricing regulations in the countries in which we operate. Transfer pricing regulations generally require that, for tax purposes, transactions between us and our foreign affiliates be priced on a basis that would be comparable to an arm’s length transaction and that contemporaneous documentation be maintained to support the tax allocation. Although uniform transfer pricing standards are emerging in many of the countries in which we operate, there is still a relatively high degree of uncertainty and inherent subjectivity in complying with these rules. To the extent Canadian or any foreign tax authorities disagree with our transfer pricing policies, we could become subject to significant tax liabilities and penalties.
      The taxes we owe for our WinZip business are based in part on maintaining substantial business operations in an overseas jurisdiction, which has favorable tax laws. If tax authorities determined that we did not maintain business operations in this jurisdiction sufficient to remain subject to these tax provisions, our effective tax rate would increase and we could become subject to significant tax liabilities, penalties and interest.

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      In April 2005, WinZip transferred its intellectual property and trademarks to a non-US affiliate in a taxable transaction. We did not recognize any gain on the transfer of the property based on an analysis of the fair market value of the assets transferred that was performed at the time of the transfer, and as a result did not accrue any income tax expense on the transfer. The assessment of fair market value is based on both subjective and objective factors and if applicable tax authorities disagree with the fair market value analysis, we could be subject to significant tax liabilities, penalties and interest.
Our substantial indebtedness could affect our financing options and liquidity.
      Upon closing of this offering, we will have approximately $90.0 million of total debt outstanding and a $75.0 million revolving credit facility. Our indebtedness will be secured by substantially all of our assets and could have important consequences to our business or the holders of our common shares, including:
  limiting our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions;
 
  requiring a significant portion of our cash flow from operations to be dedicated to the payment of the principal of and interest on our indebtedness, thereby reducing funds available for other purposes;
 
  making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressures; and
 
  making it more difficult to pay dividends on our common shares, if we decide to do so.
      In addition, because all of our debt bears interest at variable rates, we are subject to interest rate risk, particularly because interest rates in recent periods have been relatively low compared to historic averages.
     We are subject to restrictive debt covenants that impose operating and financial restrictions on our operations and could limit our ability to grow our business.
      Covenants in our indebtedness impose significant operating and financial restrictions on us. These restrictions prohibit or limit, among other things, our incurrence of additional indebtedness, acquisitions, asset sales and creation of certain types of liens. These restrictions could limit our ability to obtain future financing, withstand downturns in our business or take advantage of business opportunities. Furthermore, our indebtedness requires us to maintain specified financial ratios and to satisfy specified financial condition tests, and under certain circumstances requires us to make quarterly mandatory prepayments with a portion of our available cash. Our ability to comply with these ratios or tests may be affected by events beyond our control, including prevailing economic, financial and industry conditions. As of November 30, 2005, we were not in compliance with a covenant in our existing credit facility requiring us to maintain a maximum ratio of total debt to Adjusted EBITDA and WinZip was not in compliance with certain technical obligations under its credit facility. In March 2006, we obtained an amendment to the existing credit agreement that adjusted the covenants retroactively such that we were in compliance and to facilitate continued compliance through the closing of this offering, at which time the credit facility will be replaced by a new credit facility. WinZip has obtained a waiver and amendment to the covenants under its credit facility to ensure continued compliance with its technical obligations through the closing of this offering. We have paid to our lenders a fee of $391,000 in exchange for the amendment under our credit facility and WinZip paid a $50,000 fee for the waiver and amendment under its facility. If we are unable to comply with the covenants and ratios in our new credit facility, we may be unable to obtain waivers of non-compliance from the lenders, which would put us in default under the facility, or we may be required to pay substantial fees or penalties to the lenders. Either development could have a material adverse effect on our business.
Risks Related to an Investment in our Common Shares
Our common share price is likely to be volatile.
      There has been no public market for our common shares since August 2003. We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market in our common shares and it is possible that an active and liquid trading market will not develop or be sustained. The

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initial public offering price for our common shares will be negotiated among us, the selling shareholders and the underwriters and may not be indicative of the market price of the common shares that will prevail in the trading market. The market price of our common shares may decline below the initial public offering price. Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a lawsuit were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of management’s attention and resources.
      The price of our common shares may fluctuate in response to a number of events, including:
  our quarterly operating results;
 
  sales of our common shares by principal shareholders;
 
  future announcements concerning our or our competitors’ businesses;
 
  the failure of securities analysts to cover our company and/or changes in financial forecasts and recommendations by securities analysts;
 
  actions of our competitors;
 
  general market, economic and political conditions;
 
  natural disasters, terrorist attacks and acts of war; and
 
  the other risks described in this section.
     Future sales, or the possibility of future sales, of a substantial amount of common shares may depress the price of the common shares.
      Future sales, or the availability for sale, of substantial amounts of common shares in the public market could adversely affect the prevailing market price of our common shares.
      Upon the closing of this offering, there will be 24,492,427 common shares outstanding (or 25,692,427 common shares if the over-allotment option is exercised in full). All of the common shares sold in this offering will be freely transferable without restriction or further registration under the Securities Act of 1933. The remaining common shares outstanding will be restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject to applicable volume, manner of sale, holding period and other limitations of Rule 144. We, our existing shareholders, directors and management have agreed to a “lock-up,” pursuant to which neither we nor they will sell any shares without the prior consent of Morgan Stanley for 180 days after the date of this prospectus, subject to limited exceptions and a possible extension of up to 34 additional days. Following the expiration of the applicable lock-up period, all of these common shares will be eligible for future sale, subject to the applicable limitations of Rule 144. Taking into account the lock-up agreements, the number of shares that will be available for sale in the U.S. public market under the provisions of Rule 144 will be as follows:
                 
    Number of Shares    
    Eligible for Sale in    
Days after Date of This Prospectus   U.S. Public Market   Comment
         
Upon Effectiveness
    8,000,000       Shares sold in this offering  
180 Days
    12,169,840     Lock-up expires; shares eligible for sale under Rule 144
365 Days
    4,322,587     Shares acquired by Vector Capital as consideration for the WinZip acquisition; eligible for sale under Rule 144
      In addition, holders of substantially all of our outstanding shares have the right to require us to register the resale of their shares following the expiration of the lock-up period.

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      We are authorized to issue up to 4,262,080 common shares or other securities pursuant to our equity compensation plans and we plan to register on a Form S-8 registration statement the common shares issuable under these plans.
     Vector Capital will have significant control over our business and significant transactions after this offering and you may not have the same corporate governance protections you would have if we were not a controlled company.
      Upon the completion of this offering and our acquisition of WinZip, Vector Capital will own approximately 66.0% of our outstanding common shares. As a result, Vector Capital will have the ability to influence our business, policies and affairs and will have the ability to control the outcome of all elections of directors and any shareholder vote regarding a merger, other extraordinary transaction or any other matters. Messrs. Slusky and Mehta, who are members of our board of directors, are principals of Vector Capital. Vector Capital will have no separate contractual rights to nominate any directors. There is a risk that the interests of Vector Capital and these directors will not be consistent with the interests of other holders of common shares.
      In addition, for so long as Vector Capital or any other entity or group owns more than 50% of the total voting power of our common shares, we will be a “controlled company” within the meaning of the Nasdaq and applicable Canadian securities regulations and, as a result, will qualify for exemptions from certain corporate governance requirements. As a controlled company, we are exempt from several Nasdaq standards, including the requirements:
  that a majority of our board of directors consists of independent directors;
 
  that our prospective directors be nominated solely by independent directors; and
 
  that the compensation of our executive officers be determined solely by independent directors.
      After this offering, we intend to rely on these exemptions and as a result, a majority of our board members will not be independent. In addition, while we will have a nominating and governance committee and a compensation committee, these committees will not consist entirely of independent directors. Immediately following this offering our audit committee will only have two independent directors for a transition period as permitted by applicable Nasdaq and SEC rules and by the rules and regulations of the Canadian provincial securities regulatory authorities. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
     Vector Capital’s ownership of a majority of our common shares, coupled with provisions contained in our articles of incorporation and Canadian law, reduce the likelihood that you will receive a premium upon a change of control.
      As our controlling shareholder, Vector Capital has the sole ability to transfer control of our company to a third party, making it possible that you will not receive a premium upon a change of control. In addition, even if and when no single shareholder controls us, provisions of our articles of incorporation and Canadian law may delay or impede a change of control transaction. Our authorized preferred shares are available for issuance from time to time at the discretion of our board of directors, without shareholder approval. Our board of directors has the authority, subject to applicable Canadian corporate law, to determine the special rights and restrictions granted to or imposed on any wholly unissued series of preferred shares, and such rights may be superior to those of our common shares. Limitations on the ability to acquire and hold our common shares may be imposed by the Competition Act (Canada). This legislation permits the Commissioner of Competition of Canada to review any acquisition of a significant interest in us and grants the Commissioner jurisdiction to challenge such an acquisition before the Canadian Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of competition in any market in Canada. The Investment Canada Act subjects an acquisition of control of a company by a non-Canadian to government review if the value of our assets as calculated pursuant to the legislation exceeds a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment

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is likely to be a net benefit to Canada. Any of the foregoing could prevent or delay a change of control and may deprive our shareholders of the opportunity to sell their common shares.
As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our shareholders.
      As a foreign private issuer we are not required to comply with all of the periodic disclosure requirements of the Securities Exchange Act of 1934 and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Securities Exchange Act of 1934 and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our common shares.
     You may be unable to enforce actions against us, certain of our directors and officers or our independent public accounting firm under U.S. federal securities laws.
      A majority of our directors and officers, as well as our independent public accounting firm, reside principally in Canada. Because all or a substantial portion of our assets and the assets of these persons are located outside the U.S., it may not be possible for you to effect service of process within the U.S. upon us or those persons. Furthermore it may not be possible for you to enforce judgments obtained in U.S. courts based upon the civil liability provisions of the U.S. federal securities laws or other laws of the U.S. against us or those persons. There is doubt as to the enforceability in original actions in Canadian courts of liabilities based upon the U.S. federal securities laws, and as to the enforceability in Canadian courts of judgments of U.S. courts obtained in actions based upon the civil liability provisions of the U.S. federal securities laws. Therefore, it may not be possible to enforce those actions against us, certain of our directors and officers or the expert named in this prospectus.
     U.S. investors in our company could suffer adverse tax consequences if we are characterized as a passive foreign investment company.
      If, for any taxable year, our passive income or our assets that produce passive income exceed levels provided by U.S. law, we may be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. This characterization could result in adverse U.S. tax consequences to our shareholders. If we were classified as a PFIC, our U.S. shareholders could be subject to increased U.S. federal income tax liability upon the sale or other disposition of our common shares or upon the receipt of amounts treated as “excess distributions.” U.S. shareholders should consult with their own U.S. tax advisors with respect to the U.S. tax consequences of investing in our common shares as well as the specific application of the “excess distribution” and other rules discussed in this paragraph. For a discussion of how we might be characterized as a PFIC and related tax consequences, please see “United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”
     You will suffer an immediate and substantial dilution in the net tangible book value of the common shares you purchase.
      The initial public offering price of our common shares will be substantially higher than our net tangible book value per share of our outstanding common shares immediately after this offering. Purchasers of common shares in this offering will experience immediate dilution of approximately $22.41 per share in net tangible book value of the common shares. See “Dilution.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
      Some of the statements under the captions “Prospectus Summary,” “Risk Factors,” “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus may include forward-looking statements which reflect our current views with respect to future events and financial performance. Statements which include the words “may,” “estimate,” “continue,” “expect,” “intend,” “plan,” “believe,” “project,” “anticipate” and similar statements of a forward-looking nature or the negatives of those statements identify forward-looking statements.
      Although we believe that the expectations reflected in our forward-looking statements are reasonable, all forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include the following:
  increased competition, including competition from dominant software providers, such as Microsoft and Adobe and companies outside of the software industry;
 
  the potential proliferation of free or open source software;
 
  possible changes in the demand for our products and services;
 
  changes in the manner in which software is distributed;
 
  technological developments;
 
  market acceptance of new versions of our software;
 
  uncertainties resulting from our foreign operations;
 
  our ability to successfully acquire and integrate software companies and technologies;
 
  our ability to protect our intellectual property; and
 
  the other matters described under “Risk Factors.”
      In addition to these factors, actual future performance, outcomes and results may differ materially from those indicated in our forward-looking statements because of other more general factors, including:
  changes in general industry and market conditions and growth rates;
 
  changes in the relative value of the functional currencies in countries in which we operate;
 
  changes in our key management; and
 
  changes in accounting policies or practices adopted voluntarily or as required by GAAP.
      All forward-looking statements appearing in this prospectus speak only as of the date of this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

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USE OF PROCEEDS
      We estimate that we will receive net proceeds of $82.9 million from our sale of the 5,000,000 common shares offered by us in this offering, based upon an assumed initial public offering price of $19.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share would increase (decrease) the net proceeds to us from this offering by $4.7 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of common shares being offered by the selling shareholders. Concurrently with the closing of this offering we expect to borrow $90.0 million under the term loan portion of our new credit facility. We intend to use the net proceeds of this offering together with these borrowings as follows:
  $140.1 million for repayment of the indebtedness outstanding under our existing credit facilities and all outstanding indebtedness of WinZip;
 
  $4.8 million of financing fees and expenses associated with our new credit facility; and
 
  $28.0 million for general corporate purposes, which may include acquisitions.
      If the underwriters exercise their option to purchase additional shares in full, we estimate that the net proceeds to us from the sale of the additional common shares to be sold by us will be $7.1 million, all of which will be used for general corporate purposes.
      We and our subsidiary, Corel US Holdings, LLC, entered into our existing credit facility in February 2005, which consists of a $75.0 million first lien term loan and a $10.0 million revolving line of credit, both maturing in February 2010 and a $55.0 million second lien term loan maturing in August 2010. The first lien term loan and revolving line of credit bear interest at a rate equal to LIBOR plus 4.25% per annum. The second lien term loan bears interest at a rate equal to LIBOR plus 8.0%. The one month LIBOR as of January 1, 2006 was 4.81%. As of November 30, 2005, we had $73.1 million and $55.0 million of outstanding indebtedness under our first lien term loan and second lien term loan, respectively. We used available cash and borrowings under our existing first lien term loan and second lien term loan to fund a dividend payment and return of capital to our shareholders totaling approximately $85.3 million, to pay fees and expenses associated with the credit facility financing and to repay the $56.4 million balance under our prior loan facility.
      We also intend to use a portion of the net proceeds from this offering and borrowings under the term loan portion of the new credit facility to repay existing outstanding indebtedness of WinZip, which we will acquire from Vector Capital concurrently with the closing of this offering. WinZip entered into a credit facility in June 2005 consisting of a $23.0 million term loan and $1.0 million revolving credit facility maturing in June 2008. The credit facility bears interest at the prime rate plus a margin based on WinZip’s performance. As of February 28, 2006, there was $19.2 million outstanding under the WinZip credit facility. Borrowings under the WinZip credit facility were used to repay an outstanding loan in the amount of $15.0 million and to partially fund a $12.0 million cash dividend to Vector Capital in June 2005.
      The purchase price for WinZip was determined by taking into account the respective historical and expected revenue and EBITDA contributions of us and WinZip, as well as an assumed valuation multiple of those contributions. The imputed value of the shares issuable in our acquisition of WinZip is significantly higher than the price paid by Vector Capital to purchase WinZip from an unaffiliated third party in January 2005, reflecting significant improvements in WinZip’s business and strategies implemented at the direction of Vector Capital, as well as incremental benefits attributable to the strategic nature of the currently proposed transaction. For additional information regarding Vector Capital’s acquisition of WinZip, see footnote 8 to our consolidated financial statements. The acquisition was negotiated in the context of a parent-subsidiary relationship and therefore may not reflect economic or other terms that would result from an arm’s length transaction with an unaffiliated third party.
      We will have broad discretion in the application of those proceeds of the offering to be used for general corporate purposes and may use funds for future acquisitions. Other than the acquisition of WinZip described above, we have no current arrangements or commitments to acquire any specific business. In addition, to the extent the net proceeds of this offering are greater or less than the estimated amount, if either the offering does

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not price at the midpoint of the estimated price range or the size of the offering changes, such difference will increase or decrease the amount of net proceeds available for general corporate purposes. Pending their application, we intend to invest the net proceeds in interest bearing investment grade securities.
DIVIDEND POLICY
      We do not currently anticipate paying dividends on our common shares. Any determination to pay dividends to holders of our common shares in the future will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, legal requirements and other factors as the board of directors deems relevant. In addition, our indebtedness limits our ability to pay dividends and we may in the future become subject to debt instruments or other agreements that further limit our ability to pay dividends.
      In connection with our acquisition by Vector Capital, we distributed $4.1 million to Vector Capital in 2003 and we used $69.8 million to fund the repurchase of our common shares in the going private transaction. In addition, we paid $41.0 million of distributions to our shareholders in fiscal 2004 and $85.3 million of distributions to our shareholders during fiscal 2005. WinZip paid a $12.0 million dividend to Vector Capital in June 2005 and paid a $7.5 million dividend to Vector Capital in March 2006. See “Certain Relationships and Related Party Transactions—Relationship with Vector Capital.” Those payments are not indicative of our future dividend policy.

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CAPITALIZATION
      The following table sets forth our cash and cash equivalents and capitalization as of November 30, 2005 on a combined basis to include WinZip and should be read in conjunction with “Selected Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
      The pro forma amounts reflect the equity recapitalization effected on December 1, 2005, the issuance of 4,322,587 common shares to Vector Capital as consideration for the acquisition of WinZip (including the deemed dividend resulting from the difference between the fair value of such common shares and the carrying amount of WinZip’s net assets) and the $7.5 million dividend paid to Vector Capital in March 2006. The pro forma as adjusted amounts also reflect:
  the receipt of approximately $82.9 million in estimated net proceeds from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of such proceeds as described under “Use of Proceeds;” and
 
  borrowings of $90.0 million under the term loan portion of our new credit facility and the application of the proceeds from such borrowings as described under “Use of Proceeds.”
                             
    As of November 30, 2005
     
        Pro Forma
    Actual   Pro Forma   As Adjusted(1)
             
    (combined, unaudited, in thousands)
Cash and cash equivalents
  $ 20,746     $ 13,246     $ 32,675  
                   
Debt:
                       
 
Existing credit facilities
  $ 148,729     $ 148,729     $  
 
New credit facility:
                       
   
Revolving facility
                       
   
Term loan facility
                    90,000  
                   
   
Total credit facilities
    148,729       148,729       90,000  
                   
Shareholders’ (deficit) equity:
                       
 
Preferred shares, no par value:
                       
   
Series A preferred shares(2)
    2,600              
   
New preferred shares(3)
                 
 
Common shares, no par value:
                       
   
Class A common shares(4)
    (42,229 )            
   
Class B common shares(5)
    (34,184 )            
   
New common shares(6)
          8,316       91,256  
 
Common stock, $1 par value:
                       
   
WinZip(7)
    20              
Additional paid-in capital
    7,427       1,947       1,947  
Accumulated other comprehensive income
    85       85       85  
Deficit
    (18,953 )     (69,293 )     (77,158 )
                   
 
Total shareholders’ (deficit) equity
    (85,234 )     (58,945 )     16,130  
                   
   
Total capitalization
  $ 84,241     $ 103,030     $ 138,805  
                   
(footnotes on next page)

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(1)  A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share would increase (decrease) pro forma as adjusted cash and cash equivalents, new common shares, total shareholders’ (deficit) equity and total capitalization by $4.7 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(2)  3,105 shares authorized, issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted.
(3)  No shares authorized, issued and outstanding, actual; unlimited shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted.
(4)  Unlimited shares authorized, 3,740 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted.
(5)  Unlimited shares authorized, 8,321 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted.
(6)  No shares authorized, issued and outstanding, actual; unlimited shares authorized, 19,489 shares issued and outstanding, pro forma; unlimited shares authorized, 19,489 shares issued and outstanding, pro forma as adjusted.
(7)  50 shares authorized, 20 shares issued and outstanding, actual and pro forma; no shares authorized, issued and outstanding, pro forma as adjusted.
Shares issued and outstanding exclude:
up to 1,381,350 common shares issuable upon the exercise of outstanding options with a weighted average exercise price of $1.17 per share as of November 30, 2005;
 
options to purchase WinZip common stock and 74,680 common shares issuable upon the exercise of replacement stock options to be granted under our new 2006 equity incentive plan to the holders of these WinZip options; and
 
2,775,320 additional common shares reserved for future awards under our 2006 equity incentive plan, which was adopted in February 2006.

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DILUTION
      If you invest in our common shares, your interest will be diluted to the extent of the difference between the price per common share paid by you in this offering and the net tangible book value or deficiency per common share after the offering. Net tangible book value (or deficiency) per common share is determined at any date by subtracting our total liabilities from our total assets less our intangible assets and dividing the difference by the number of common shares outstanding at that date.
      Our pro forma net tangible book value as of November 30, 2005 (combined) after giving effect to the equity recapitalization we completed on December 1, 2005 and the issuance of common shares in our acquisition of WinZip and the WinZip dividend, was approximately $(161.7) million, or $(8.30) per common share. After giving effect to this offering, based on an assumed initial public offering price of $19.00 per common share and the completion of the new credit facility, our pro forma as adjusted net tangible book value as of November 30, 2005 would have been approximately $(83.6) million, or $(3.41) per common share. This represents an immediate increase in net tangible book value of $4.89 per common share to our existing shareholders and an immediate dilution of $22.41 per common share to new investors purchasing common shares in this offering.
      The following table illustrates this substantial and immediate dilution to new investors:
                   
Assumed initial public offering price per common share
          $ 19.00  
 
Pro forma net tangible book value per share as of November 30, 2005
  $ (8.30 )        
 
Increase per share attributable to new investors in this offering
    4.89          
             
 
Pro forma as adjusted net tangible book value per share as of November 30, 2005 after giving effect to this offering, the WinZip dividend and the new credit facility
            (3.41 )
             
Dilution in net tangible book value per share to new investors
          $ 22.41  
             
      A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share would increase (decrease) our pro forma as adjusted net tangible book value by $4.7 million, the pro forma as adjusted net tangible book value per share after this offering by $0.19 per share and the dilution in pro forma as adjusted net tangible book value to new investors in this offering by $0.19 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
      The following table sets forth as of November 30, 2005 on the same pro forma as adjusted basis described above:
  the total number of common shares owned by existing shareholders and to be owned by new investors purchasing common shares in this offering;
 
  the total consideration paid by our existing shareholders (less amounts distributed in respect of such shares) prior to the offering and to be paid by new investors purchasing common shares in this offering; and
 
  the average price per common share paid by existing shareholders and to be paid by new investors purchasing common shares in this offering:
                                   
    Common Shares        
    Purchased   Total   Average Price
        Consideration   Per Common
    Number   Percent   Amount   Share
                 
Existing shareholders
    16,489,182       67.3 %   $ *     $ *  
New investors
    8,000,000       32.7       152,000,000       19.00  
                         
 
Total
    24,489,182       100.0 %                
                         
 
The amount of distributions to the existing shareholders, in the aggregate, exceeds the total consideration paid for such common shares.

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      A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share would increase (decrease) total consideration paid by new investors and total consideration paid by all investors by $4.7 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
      The foregoing discussion and tables assume no exercise of outstanding stock options and exclude shares sold by the selling shareholders. After this offering, there will be options outstanding to purchase a total of 1,486,760 common shares at a weighted average exercise price of $1.68 per share, including options to be granted under our new 2006 equity incentive plan to holders of WinZip options. To the extent that any of these stock options are exercised, there may be further dilution to new investors. See “Shares Eligible for Future Sale.”

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SELECTED CONSOLIDATED FINANCIAL DATA
      The selected consolidated financial data set forth below for the fiscal years ended November 30, 2001 and 2002 and as of November 30, 2001, 2002, and 2003 have been derived from our audited consolidated financial statements not included in this prospectus. The selected consolidated financial data set forth below for the period from December 1, 2002 through August 28, 2003, the period from August 29, 2003 through November 30, 2003 and the fiscal years ended November 30, 2004 and 2005 and as of November 30, 2004 and 2005, respectively, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data presented for periods ended and as of dates prior to August 29, 2003 reflect our results of operations and balance sheet prior to the time we were acquired by Vector Capital. That financial data is not directly comparable to the financial data for periods subsequent to our acquisition by Vector Capital, which was prepared using push-down accounting.
      The selected consolidated financial data presented as of and for the fiscal year ended November 30, 2005 is presented on a combined basis to include the financial data of WinZip from January 18, 2005 to November 30, 2005, which reflects the period that WinZip and we were under common control by Vector Capital. In addition, the selected consolidated financial data presented as of and for the fiscal years ended November 30, 2004 and 2005 reflects the financial results of the Jasc business from October 26, 2004. That financial data is not directly comparable to the financial data presented for prior periods, which does not reflect the financial data of WinZip and Jasc.
      Historical results do not necessarily indicate results expected for any future period. The data below is qualified in its entirety by the detailed information included elsewhere in this prospectus and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and the consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

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    Predecessor(1)              
                   
    Fiscal Year Ended   December 1,     August 29, 2003    
    November 30,   2002 Through     Through   Fiscal Years Ended November 30,
        August 28,     November 30,    
    2001   2002   2003     2003   2004   2005(2)
                           
                          (combined)
    (in thousands, except per share data)
Consolidated Statement of Operations Data:
                                                 
 
Revenues
  $ 134,320     $ 126,701     $ 85,386       $ 23,806     $ 111,692     $ 164,044  
 
Gross margin
    106,045       98,479       62,102         15,852       79,845       118,290  
 
Total operating expenses
    111,990       200,908       88,215         24,974       71,454       101,404  
 
Income (loss) from operations
    (5,945 )     (102,429 )     (26,113 )       (9,122 )     8,391       16,886  
 
Income tax expense (recovery)
    8,350       (6,943 )     (3,895 )       555       7,315       6,291  
 
Net income (loss)
    (11,635 )     (93,238 )     (27,895 )       (9,272 )     1,207       (8,753 )
 
Net income (loss) per share:
                                                 
   
Basic
                                                 
     
Class A
  $ (.16 )   $ (1.05 )   $ (.30 )     $ (0.87 )   $ 0.08     $ (2.40 )
     
Class B
  $ N/A     $ N/A     $ N/A       $ N/A     $ 0.08     $ (2.40 )
     
WinZip common
  $ N/A     $ N/A     $ N/A       $ N/A     $ N/A     $ 136.90  
   
Fully diluted
                                                 
     
Class A
  $ (.16 )   $ (1.05 )   $ (.30 )     $ (0.87 )   $ 0.08     $ (2.40 )
     
Class B
  $ N/A     $ N/A     $ N/A       $ N/A     $ 0.08     $ (2.40 )
     
WinZip common
  $ N/A     $ N/A     $ N/A       $ N/A     $ N/A     $ 136.90  
   
Distributions per share
                                                 
     
Class A
  $     $     $       $ 0.36     $ 0.78       8.87  
     
Class B
  $     $     $       $     $ 8.22     $ 0.26  
     
Preferred
  $     $     $       $     $ 1.88     $ 16.10  
     
WinZip
  $     $     $       $     $     $ 600.00  
 
Weighted average number of shares used in per share calculations:
                                                 
   
Basic
                                                 
     
Class A
    74,325       88,627       91,853         11,677       8,218       3,737  
     
Class B
    N/A       N/A       N/A         N/A       3,497       8,321  
     
WinZip common
    N/A       N/A       N/A         N/A       N/A       20  
   
Fully diluted
                                                 
     
Class A
    74,325       88,627       91,853         11,677       8,218       3,737  
     
Class B
    N/A       N/A       N/A         N/A       3,497       8,321  
     
WinZip common
    N/A       N/A       N/A         N/A       N/A       20  
Cash Flow Data:
                                                 
 
Cash flow provided by (used in) operating activities
  $ 15,144     $ (19,742 )   $ (10,792 )     $ 8,671     $ 32,512     $ 40,459  
 
Cash flow provided by (used in) financing activities
    (9,735 )     97       (240 )       (47,516 )     (5,329 )     (38,552 )
 
Cash flow provided by (used in) investing activities
    (107,915 )     13,595       6,418         43,143       (34,099 )     7,301  
Other Financial Data:
                                                 
 
EBITDA(3)
  $ 7,642     $ (79,585 )   $ (23,151 )     $ (3,428 )   $ 29,183     $ 39,531  
 
Adjusted EBITDA(3)
    8,114       (15,542 )     (14,561 )       (2,290 )     32,199       49,033  
                                             
    Predecessor(1)              
                   
    As of November 30,
     
    2001   2002     2003   2004   2005(2)
                       
                      (combined)
    (in thousands)
Consolidated Balance Sheet Data:
                                         
 
Cash, cash equivalents and short-term investments
  $ 103,000     $ 75,826       $ 24,683     $ 21,788     $ 20,746  
 
Working capital (deficit)
    85,704       63,457         (3,556 )     (19,417 )     (24,255 )
 
Total assets
    230,174       129,802         101,400       108,788       120,836  
 
Deferred revenue
    10,160       9,754         8,026       10,020       13,840  
 
Total term loans
                  26,895       64,799       148,729  
 
Promissory note payable
                              2,242  
 
Total shareholders’ equity (deficit)
    167,312       91,005         38,579       1,537       (85,234 )
 
(1)  The predecessor financial data is not comparable with financial data for periods subsequent to August 28, 2003 due to the application of push-down accounting effective August 29, 2003 and the adoption of SFAS No. 123 R, “Share-based payments (revised 2004)” (“SFAS 123(R)”) relating to the accounting for stock-based compensation effective December 1, 2003. In predecessor periods, stock-based compensation was accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25).
(2)  Financial data for fiscal 2005 is not comparable to prior periods due to the combination of financial data of WinZip from January 18, 2005 to November 30, 2005, which reflects the period that WinZip and we were under common control by Vector Capital.

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(3)  EBITDA represents net income before interest, income taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA, further adjusted to eliminate items specifically defined in our credit facility agreement. EBITDA and Adjusted EBITDA are not measures of operating income, operating performance or liquidity under GAAP. We have included a presentation of EBITDA because we understand it is used by some investors to determine a company’s historical ability to service indebtedness and it is a starting point for calculating Adjusted EBITDA. We have included a presentation of Adjusted EBITDA because certain covenants in our credit facility are tied to Adjusted EBITDA. If our Adjusted EBITDA were to decline below certain levels, it could result in, among other things, a default or mandatory prepayment under our new credit facility. The covenants in our credit facility are described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness.” Additionally, management uses EBITDA and Adjusted EBITDA as supplementary non-GAAP measures to assist in its overall evaluation of our liquidity and to determine appropriate levels of indebtedness. Neither EBITDA nor Adjusted EBITDA should be considered in isolation or as a substitute for cash flow from operations (as determined in accordance with GAAP) as an indicator of our operating performance, or of operating income (as determined in accordance with GAAP). EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures used by other companies.

We consider EBITDA and Adjusted EBITDA to be measures of liquidity. Accordingly, they are reconciled to cash flow from operations in the table below.
                                                     
    Predecessor              
                   
        December 1,     August 29,    
    Fiscal Year Ended   2002     2003   Fiscal Years Ended
    November 30,   Through     Through   November 30,
        August 28,     November 30,    
    2001   2002   2003     2003   2004   2005
                           
                          (combined)
    (in thousands)
Cash flow provided by (used in) operating activities
  $ 15,144     $ (19,742 )   $ (10,792 )     $ 8,671     $ 32,512     $ 40,459  
 
Change in operating assets and liabilities
    (3,266 )     3,666       2,030         (12,275 )     1,683       (9,527 )
 
Interest expenses
                        225       2,709       12,786  
 
Interest income
    (5,420 )     (1,790 )     (1,383 )       (19 )     (1,485 )     (178 )
 
Income tax expense (recovery)
    8,350       (6,943 )     (3,895 )       555       7,315       6,291  
 
Stock-based compensation
                              (225 )     (1,731 )
 
Other non-cash charges
                                    (2,242 )
 
Loss on debt retirement
                                    (3,937 )
 
Goodwill impairment
          (48,258 )                          
 
Writedown of technology
          (14,595 )                          
 
Accrued interest
                                    (913 )
 
Provision for bad debts
    (3,197 )     (596 )     (755 )       (326 )     93       (529 )
 
Unrealized foreign exchange gains (losses) on forward contracts
                162         (22 )     27       (263 )
 
Deferred income taxes
    (1,444 )     10,148       139         (237 )     (5,178 )     (830 )
 
Gain (loss) on disposal of fixed assets
    306       (136 )     (67 )             (3 )     20  
 
Loss on investments
    (2,359 )     (149 )                          
 
(Impairment) gain on disposal of investments
                (7,448 )             729       125  
 
Share of loss of equity investments
    (472 )     (1,190 )     (1,142 )                    
 
Predecessor legal settlement and tax refund
                              (8,994 )      
                                       
EBITDA
  $ 7,642     $ (79,585 )   $ (23,151 )     $ (3,428 )   $ 29,183     $ 39,531  
 
Restructuring
                        1,138       3,520       834  
 
Stock-based compensation
                              225       1,731  
 
Impairment (gain on disposal) of investments
                7,448               (729 )     (125 )
 
Share of loss of equity investments
    472       1,190       1,142                      
 
Early contract termination costs
                                    2,242  
 
Reorganization costs
                                    883  
 
Loss on debt retirement
                                    3,937  
 
Goodwill impairment
          48,258                            
 
Writedown of technology
          14,595                            
                                       
Adjusted EBITDA
  $ 8,114     $ (15,542 )   $ (14,561 )*     $ (2,290 )   $ 32,199     $ 49,033  
                                       
 
Amount reflects no adjustment for $7.0 million of expenses associated with our going-private transaction.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
      The following discussion should be read in conjunction with our consolidated financial statements and the notes to those statements, as well as the historical financial statements of WinZip and Jasc and the pro forma financial statements and other financial information appearing elsewhere in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties, as well as pro forma financial statements that reflect estimates and assumptions. Our actual results may differ materially from those indicated in forward-looking statements or reflected in the pro forma financial statements. Factors that could cause our actual results to differ materially from our forward-looking statements are described in “Risk Factors” and elsewhere in this prospectus.
Overview
      We are a leading global packaged software company with an estimated installed base of 20 million current users in over 75 countries. We provide high quality, affordable and easy-to-use productivity and graphics and digital imaging software. Our products enjoy a favorable market position among value-conscious consumers and small businesses. The legal and functional departments within large companies and governmental organizations are also attracted to the industry-specific features and technical capabilities of our software. Our products are sold through a scalable distribution platform comprised of OEMs, our e-Store, and our global network of resellers and retail vendors.
      Our product portfolio includes well-established, globally recognized brands. Our primary productivity products are WordPerfect Office Suite, first developed in 1982 and marketed by Corel since 1996, and WinZip, a compression utility developed in 1991, that we will acquire concurrently with the closing of this offering. WordPerfect Office Suite is the leading Microsoft-alternative productivity software and includes Microsoft-compatible word processing, spreadsheet and presentation functionality. WinZip is the most widely used aftermarket compression utility, with more than 43 million seats sold to date. Our primary graphics and digital imaging products are CorelDRAW Graphics Suite and Corel Paint Shop Pro. CorelDRAW Graphics Suite is a leading illustration and image editing software suite used by design professionals and small businesses. Corel Paint Shop Pro digital image editing and management applications are used by novice and professional photographers and photo editors.
      We were founded in 1985 and completed our initial public offering in 1989. In August 2003, we became a private company as a result of being acquired by Vector Capital and divested certain underperforming product lines, discontinued speculative research and development activities and refocused our business on our core products. At the same time we reviewed all of our business functions and implemented company-wide cost reduction measures. Between August 2003 and May 2004, we reduced our staff from 708 to 480. The staff reduction contributed to reducing our annual operating expenses from $113.2 million in the twelve months ended November 30, 2003 to $71.5 million in fiscal 2004.
      In October 2004, we acquired Jasc, a leading digital imaging packaged software company, for total purchase costs of $38.2 million, consisting of $34.3 million in cash consideration, plus share consideration consisting of and 379,677 of our common shares valued at $2.4 million and other costs of acquisition of $1.4 million. Through the Jasc acquisition we added Corel Paint Shop Pro and Corel Photo Album to our graphics and digital imaging offerings. As a result of synergies realized through the integration of Jasc we eliminated 38 full-time positions and substantially reduced staffing and distribution costs in fiscal 2005. In Jasc’s fiscal year ended December 31, 2003 it had revenues of $32.8 million.
      In February 2006, we agreed to purchase WinZip from Vector Capital, and we expect to complete this acquisition concurrently with the completion of this offering. As consideration for the acquisition we have agreed to issue to Vector Capital 4,322,587 common shares and to repay all of WinZip’s outstanding indebtedness. The acquisition is a transaction between entities under common control and will be accounted for on an “as if” pooling basis as a related party transaction. Accordingly, the fair value of our common shares that will be issued as consideration for the transaction will be recorded as share capital and any difference between this amount and the book value of WinZip’s net assets will be treated as a dividend. Through this

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acquisition we will add WinZip’s file compression utility to our productivity software offerings. WinZip’s revenues for its 2003, 2004 and 2005 fiscal years were $25.3 million, $24.9 million and $22.7 million, respectively.
      WinZip paid a cash dividend of $7.5 million to Vector Capital in March 2006.
      An important element of our business strategy is to grow revenues through acquisitions of companies or product lines. We intend to focus our acquisition activities on companies or product lines with proven and complementary products and established user bases that we believe can be accretive to our earnings shortly after completion of the acquisition. While we review acquisition opportunities on an ongoing basis, except with respect to WinZip we have no binding obligations with respect to any particular acquisition.
      Our functional currency is the U.S. dollar and our financial statements are prepared in accordance with generally accepted accounting principles in the United States. Our fiscal year ends on November 30 of each year.
Industry and Business Trends
      The markets for productivity and graphics and digital imaging software in which we compete are highly concentrated and we believe Microsoft and Adobe currently hold over 97% and 70% of the market share, respectively. With the rapid declines in the cost of PCs, the cost of the packaged software installed on PCs is becoming a larger component of the total cost of PC ownership. In addition, the rapid growth of digital camera adoption has created a growing market for packaged software to edit and manage digital photographs. Because the prices we charge for our packaged software are generally substantially less than those charged by Microsoft and Adobe for products with similar functionality, we believe we are well positioned to take advantage of the emerging market for lower cost software. However, if any of our more established competitors decide to compete with us based on price in this market, we may be unable to successfully compete with the more widely accepted software applications these competitors sell. Similarly, the markets for low-cost personal computers and digital imaging software are only newly emerging. If these markets do not develop as we expect, our business would be adversely affected.
      We believe there is a significant market opportunity for us in countries where the markets for PCs are newly emerging, both because our software is more attractively priced than that of our larger competitors and because we believe first time users in these markets do not have established brand loyalties. We intend to continue to invest in localizing our products for new markets and in growing our international distribution and marketing capabilities. If demand for PCs in these markets does not continue to grow, or if we are unable to effectively compete in these markets, we may not realize the anticipated benefits of our international strategy.
      The packaged software industry continues to change with new revenue sharing models and types of business relationships. We will seek to continue to develop relationships with industry leading companies to establish new sources of revenues for our existing and future products. If we are unsuccessful in establishing such relationships, our operating results could be materially and adversely affected.
      We expect our operating expenses to increase in the future. For example, in connection with our options outstanding as of November 30, 2005, we expect to incur stock-based compensation expense of approximately $3.3 million during fiscal 2006, and we will incur additional stock-based compensation expense to the extent we grant additional stock options. We also expect to incur additional general and administrative expenses associated with being a public company.
Executive Transition
      In June 2005, Amish Mehta, who had been interim President and Chief Executive Officer since the first quarter of 2004, was replaced by a new Chief Executive Officer, David Dobson. Mr. Dobson became a member of our board of directors in February 2006. Mr. Dobson joined us after spending 19 years with IBM Corporation where his most recent position was Corporate Vice President, Strategy. At IBM he had company-wide responsibility for IBM’s Emerging Business Opportunity program. Mr. Mehta, a partner at Vector Capital, became a member of our board of directors in January 2006. In addition, since our acquisition by Vector Capital, we have made a number of other changes in senior management, including the hiring of a new Chief Financial Officer and a new Executive Vice President of Sales and Marketing, Americas. Jacqueline Maartense resigned her position as our Executive Vice President, Global Marketing in January 2006.

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Special Note Regarding Comparability of Periods
      The financial statements for fiscal 2005 are not directly comparable to our financial statements for prior periods because they are presented on a combined basis to include the financial results of WinZip from January 18, 2005 to November 30, 2005, which reflects the period under which WinZip and we were under common control by Vector Capital.
      Our financial statements for periods commencing on and after August 29, 2003 are not comparable to our financial statements prior to August 29, 2003 because we established a new basis of accounting as a result of being acquired by Vector Capital. As the Vector Capital acquisition occurred in August 2003, our 2003 results of operations include a predecessor company period from December 1, 2002 through August 28, 2003 and a successor company period from August 29, 2003 through November 30, 2003. We have combined these periods into an annual presentation for 2003 to facilitate comparisons to our results of operations in 2004 and 2005. The combined periods for 2003 are presented only for convenience of annual comparison and are not meant to be a presentation in accordance with generally accepted accounting principles. Unless otherwise indicated, references in this prospectus to our 2003 operating results refer to the combined periods discussed above.
Operations
Revenues
      We derive revenues principally from the sale of our packaged software, and also associated maintenance and support services. Maintenance and services revenues have historically constituted between 9% and 13% of our total revenues. We expect maintenance and services revenues to be approximately 10% of total revenues in the future. We distribute our software through OEMs, the Internet, retailers and resellers around the world. Our products are focused on two primary software markets—the productivity market and the graphics and digital imaging market. Our productivity products are WordPerfect Office Suite, iGrafx FlowCharter, iGrafx Process and, upon completion of the acquisition of WinZip, WinZip compression tools. Our graphics and digital imaging products consist of CorelDraw Graphics Suite, Corel Paint Shop Pro, Corel Photo Album, Corel Painter and Corel DESIGNER. In fiscal 2005, approximately 63.4% of our revenues came from the Americas, 29.7% came from Europe, the Middle East and Africa (EMEA) and 6.9% came from the Asia Pacific region.
      Our products generally have release cycles of between 12 and 24 months and we typically earn the largest portion of revenues for a particular product during the first half of its release cycle. In the past we have experienced declines in product revenues during the second half of product release cycles, with the sharpest declines occurring toward the end of the release cycle. We expect to continue to rely on a relatively small number of major products for a large percentage of our revenues and we therefore expect to continue to experience volatility in quarterly revenues as a result of the timing of major product releases. The fiscal quarter of the most recent release of each of our major products is set forth below:
                   
Product   Version   Release Quarter
         
Productivity:
               
 
WordPerfect Office Suite
    13       Q1 2006  
 
WinZip
    10       Q4 2005  
 
iGrafx FlowCharter
    11       Q1 2006  
 
iGrafx Process
    11       Q1 2006  
Graphics and Digital Imaging:
               
 
CorelDRAW Graphics Suite
    13       Q1 2006  
 
Corel DESIGNER Suite
    12       Q2 2005  
 
Corel Painter
    9       Q4 2004  
 
Corel Paint Shop Pro
    10       Q4 2005  
 
Corel Photo Album
    6       Q4 2005  
      We have typically released new versions of our digital imaging products on an annual basis during the second half of our fiscal year in preparation for the December holiday shopping season. While we expect to do

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so in fiscal 2006 as well, it should be noted that release dates are subject to a number of uncertainties and variables, many of which are beyond our control. As described under “Risk Factors,” if the release of new versions of our software is delayed or we do not achieve widespread market acceptance, our results of operations will be adversely affected.
Cost of Revenues
      Cost of product revenues primarily consists of:
  salaries, benefits, stock-based compensation and related costs of the manufacturing oversight staff;
 
  the cost of packaging and distribution of our packaged software products;
 
  the cost of related customer and technical support functions;
 
  royalties paid and costs of licensing third party intellectual property;
 
  credit card fees; and
 
  allocated facilities, depreciation and amortization and other related overhead.
      Our cost of product revenues varies depending on the format in which our products are delivered. Products delivered in electronic format, such as through OEMs or our e-Store, involve minimal packaging cost, as compared to products delivered in fully packaged format, such as through retail outlets, which involve substantially higher packaging and distribution expense.
      Cost of maintenance and services revenues consists of:
  salaries, benefits, stock-based compensation and related costs of customer and technical support functions,
 
  allocated facilities, depreciation and amortization and other related overhead.
      Amortization of intangible assets represents the amortization of intellectual property and other intangible assets arising from purchases of other companies as well as the amortization of the technology owned by us that was re-valued when we were acquired by Vector Capital. Amortization of intangible assets is included in the calculation of our gross margin.
Sales and Marketing
      Sales and marketing expenses consist primarily of:
  salaries, commissions, benefits and stock-based compensation related to sales and marketing personnel;
 
  travel and living expenses;
 
  marketing, such as co-marketing programs with our resellers and OEMs, trade shows and advertising; and
 
  allocated facilities, depreciation and amortization and other related overhead.
      While sales commission expense varies as a function of revenues from period-to-period, we expect increases in non-commission sales and marketing expenses as we plan to increase the size of our sales and marketing staff and launch new business initiatives. We also expect increases in sales and marketing expenses to occur at the time of major product or version releases.

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Research and Development
      Research and development expenses consist primarily of:
  salaries, benefits and stock-based compensation related to research and development personnel;
 
  allocated facilities, depreciation and amortization and other related overhead; and
 
  localization and contract development expenses.
      Our research and development investments are primarily focused on maintaining competitive functionality of our software products, responding to customer requirements and expanding the geographic reach of our products. We limit research and development spending to areas that we believe will provide an attractive return on investment and have eliminated spending on speculative or high risk projects. Our research and development costs are expensed as incurred since the cost and time between technical feasibility and release is insignificant. We do not expect research and development expenses to increase except to the extent we add new product offerings through future acquisitions.
General and Administrative
      General and administrative expenses consist primarily of:
  salaries, benefits and stock-based compensation related to general and administrative personnel;
 
  accounting, legal and other professional fees;
 
  allocated facilities, depreciation and amortization and other related overhead; and
 
  insurance costs.
      We expect general and administrative expenses to increase for the foreseeable future as we incur additional expenses related to being a public company, including higher insurance costs, increased professional fees, costs of general corporate governance and internal controls testing and reporting.
Taxes
      We have tax losses carried forward available to offset future taxable income of approximately $249.0 million as of November 30, 2005. Our tax losses carried forward and our pools of various deductions against taxable income existed prior to our acquisition by Vector Capital. To the extent that we use pre-acquisition tax carryforwards to reduce current year taxes otherwise payable, we record deferred income tax expense and credit first goodwill and then intangible assets that were revalued in connection with our acquisition by Vector Capital. Our balance of goodwill resulting from the Vector Capital acquisition was reduced to zero in fiscal 2004, and our remaining balance of other intangible assets from the Vector Capital acquisition was $4.3 million at November 30, 2005. Once the remaining balance of other intangible assets is eliminated, no tax provision will be recognized against Canadian operations as the previously unrecognized losses are applied against current earnings or until it is determined that current valuation allowances are no longer required.
      The settlements of any tax contingencies that existed prior to our acquisition by Vector Capital are treated as pre-acquisition contingences in accordance with SFAS No. 141, “Business Combinations” and are therefore applied against goodwill and then intangibles until such time as these assets have no value, and are thereafter included as a component of our income tax provision.
      Due to the international scope of our business, our income tax expense includes the tax provisions calculated for the various tax jurisdictions in which we operate and foreign withholding tax on certain license income. As a result, income tax expense is affected by the profitability of our operations in all locations, as well as local tax rates.

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Results of Operations
Year ended November 30, 2005 (combined) as compared to year ended November 30, 2004
      Concurrently with the closing of this offering, we will acquire all of the outstanding securities of WinZip from Vector Capital. The comparative financial information presented below for fiscal 2005 is presented on a combined basis to include the financial information of WinZip from January 18, 2005 to November 30, 2005, which reflects the period that WinZip and we were under common control by Vector Capital. WinZip accounted for the acquisition by Vector Capital by applying push-down accounting. As a result, WinZip reduced the amount of its deferred revenue to represent the fair value of the associated liability that existed at the acquisition date. This resulted in a $66.2 million decrease in the liabilities associated with its deferred revenues. Approximately $19.8 million of the reduction in deferred revenues would have been recognized as revenue in fiscal 2005. Accordingly, the consolidated financial information for fiscal 2005 presented below is not directly comparable to the consolidated financial information presented for fiscal 2004. In addition, the consolidated financial information presented below includes the financial results of the Jasc business since October 2004.
      The following table sets forth certain consolidated statements of operations data in dollars and expressed as a percentage of revenues for the periods indicated, as well as the percentage change on a year-over-year basis.
                                           
    Years Ended November 30,    
        Percentage
    2004   2005   2004   2005   Change
                     
        (combined)       (combined)    
    (dollars in thousands)
Revenues
                                       
 
Product
  $ 97,724     $ 148,308       87.5 %     90.4 %     51.8 %
 
Maintenance and services
    13,968       15,736       12.5       9.6       12.7  
                               
Total revenues
    111,692       164,044       100.0       100.0       46.9  
                               
Cost of revenues
                                       
 
Cost of product(1)
    14,215       18,461       14.5       12.4       29.9  
 
Cost of maintenance and services(1)
    1,085       1,154       7.8       7.3       6.4  
 
Amortization of intangible assets
    16,547       26,139       14.8       15.9       58.0  
                               
Total cost of revenues
    31,847       45,754       28.5       27.9       43.7  
                               
Gross margin
    79,845       118,290       71.5       72.1       48.1  
                               
Operating expenses:
                                       
 
Sales and marketing
    38,508       54,056       34.5       33.0       40.4  
 
Research and development
    14,550       23,538       13.0       14.3       61.8  
 
General and administrative
    14,876       19,851       13.3       12.1       33.4  
 
Other operating expense
          3,125          —       1.9          —  
 
Restructuring
    3,520       834       3.2       0.5       (76.3 )
                               
Total operating expenses
    71,454       101,404       64.0       61.8       41.9  
                               
Income from operations
    8,391       16,886       7.5 %     10.3 %     101.2 %
Other expenses (income):
                                       
 
Loss on debt retirement
          3,937           *           *           *  
 
Interest expense, net
    1,224       12,608           *           *           *  
 
Gain on disposal of investments
    (729 )     (125 )         *           *           *  
 
Amortization of deferred financing fees
    407       1,756           *           *           *  
 
Other non-operating (income) expense
    (1,033 )     1,172           *           *           *  
                               
Income (loss) before income tax expense (recovery)
    8,522       (2,462 )         *           *           *  
Income tax expense
    7,315       6,291           *           *           *  
                               
Net income (loss)
  $ 1,207     $ (8,753 )         *           *           *  
                               
 
(1)  Percentage reflects percentage of related revenues.
* Not Meaningful
Revenues
      Product revenues increased by 51.8% to $148.3 million in fiscal 2005 from $97.7 million in fiscal 2004. Growth in our product revenues was a result of our inclusion of WinZip revenues beginning in January 2005 and our acquisition of Jasc in October 2004, which resulted in $18.9 million and $36.4 million of incremental

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product revenues for fiscal 2005, respectively. Revenues from our existing products declined $4.7 million on a year-over-year basis as several of our products were in the latter half of their release cycles.
      Maintenance and services revenues increased by 12.7% to $15.7 million in fiscal 2005 from $14.0 million in fiscal 2004. Fiscal 2005 had a $2.1 million increase in maintenance and services revenue from renewals of maintenance contracts, the revenues from which were not previously recognized due to the application of push-down accounting. An additional $497,000 of maintenance and services revenues resulted from the implementation of a maintenance program for our WinZip product in the latter half of fiscal 2005. These increases were partially offset by a $900,000 decline in maintenance revenues due to a number of government customers not renewing their maintenance contracts.
Total Revenues by Product Group
                                           
    Years Ended November 30,    
        Percentage
    2004   2005   2004   2005   Change
                     
        (combined)       (combined)    
    (dollars in thousands)
Productivity
  $ 49,775     $ 67,597       44.6 %     41.2 %     35.8 %
Graphics and digital imaging
    61,828       96,447       55.4       58.8       56.0 %
Discontinued products
    89                        
%
                               
 
Total
  $ 111,692     $ 164,044       100.0 %     100.0 %        
                               
      Productivity revenues increased by 35.8% to $67.6 million in fiscal 2005 from $49.8 million in fiscal 2004. The inclusion of WinZip contributed $19.4 million to productivity revenues in fiscal 2005. Partially offsetting this increase, revenues from our core productivity products, WordPerfect, which was in the latter half of its release cycle, and iGrafx together declined by $1.6 million.
      Graphics and digital imaging revenues increased 56.0% to $96.4 million in fiscal 2005 from $61.8 million in fiscal 2004. Revenues from our core graphics & digital imaging products, CorelDRAW Graphics Suite, Corel Painter, and Corel DESIGNER Technical Suite, remained relatively consistent from 2004 to 2005 at $52.8 million. Sales of Corel Paint Shop Pro and Corel Photo Album, which were acquired in the Jasc acquisition in late in fiscal 2004, contributed approximately $40.9 million and $4.5 million to graphics and digital imaging revenues in fiscal 2005 and fiscal 2004, respectively. On a pro forma basis for all of fiscal 2004, including the periods before and after our acquisition of Jasc, revenues for Paint Shop Pro and Photo Album totaled $35.3 million. In addition, there was a $1.8 million decline in other non-core product lines that are no longer supported by additional research and development investments.
Total Revenues by Region
                                           
    Years Ended November 30,    
        Percentage
    2004   2005   2004   2005   Change
                     
        (combined)       (combined)    
    (dollars in thousands)
Americas
  $ 67,212     $ 104,017       60.2 %     63.4 %     54.8 %
EMEA
    38,673       48,752       34.6       29.7       26.1 %
Asia Pacific
    5,807       11,275       5.2       6.9       94.2 %
                               
 
Total
  $ 111,692     $ 164,044       100.0 %     100.0 %        
                               
      The addition of Corel Paint Shop Pro and Corel Photo Album to our product line resulted in increased revenues of $21.5 million, $11.5 million and $3.4 million in the Americas, EMEA and Asia Pacific, respectively, in fiscal 2005 compared to fiscal 2004. The inclusion of WinZip in our results increased revenues by $18.5 million, $846,000 and $69,000 in the Americas, EMEA and Asia Pacific, respectively, in fiscal 2005 compared to fiscal 2004.
      Revenues from our existing products and services in the Americas declined overall by $3.2 million in fiscal 2005 over fiscal 2004 as a few of our products were in the second half of their release cycle. This overall decline was net of a $1.0 million increase in Corel Painter revenue due to the release of Corel Painter 9 in the

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fourth quarter of fiscal 2004 and a $2.1 million increase in WordPerfect maintenance revenue contracts, the revenues from which were not previously recognized due to the application of push-down accounting.
      EMEA revenues for our existing products and services decreased overall by $2.3 million largely due to a decline in the retail sales of CorelDRAW, which was in the second half of its release cycle. This decline was net of a $698,000 increase in Corel DESIGNER 12 revenues and a $587,000 increase in Corel Painter revenues due to the two products being in earlier stage of their release cycles.
      Excluding the addition of Corel Paint Shop Pro and Corel Photo Album, Asia Pacific revenues increased by $1.7 million due to the opening of our office in Japan and renewed focus on the Japanese market.
Cost of Revenues
      Cost of Product Revenues. Cost of product revenues increased 29.9% to $18.5 million in fiscal 2005 from $14.2 million in fiscal 2004. As a percentage of product revenues, cost of product revenues decreased to 12.4% in fiscal 2005 from 14.5% in fiscal 2004. The decrease as a percentage of product revenues was primarily attributable to an increased percentage of sales made via electronic downloads, as opposed to sales of packaged products in physical form. This change in our distribution mix is largely due to the inclusion of WinZip, which primarily distributes product via electronic downloads.
      Cost of Maintenance and Services Revenues. Cost of maintenance and services revenues increased 6.4% to $1.2 million in fiscal 2005 from $1.1 million in fiscal 2004. As a percentage of maintenance and services revenues, cost of maintenance and services revenues decreased to 7.3% in fiscal 2005 from 7.8% in fiscal 2004. This decrease resulted from the increase in maintenance and services revenues with a smaller increase in associated costs, which are primarily fixed costs.
      Amortization of Intangible Assets. Amortization of intangible assets increased 58.0% to $26.1 million in fiscal 2005 from $16.5 million in fiscal 2004 due to $5.8 million and $3.6 million of amortization of technology and other intangible assets associated with Jasc and WinZip, respectively. The asset revaluation amounts from the application of push-down accounting from our acquisition by Vector Capital in 2003 are expected to be fully amortized by the end of the first quarter of fiscal 2006, and therefore amortization of intangible assets is expected to decline in fiscal 2006, excluding the effect of any future acquisitions.
Operating Expenses
      Sales and Marketing. Sales and marketing expenses increased 40.4% to $54.0 million in fiscal 2005 from $38.5 million in fiscal 2004. As a percentage of total revenues, sales and marketing expenses decreased to 33.0% in fiscal 2005 from 34.5% in fiscal 2004. Increases to sales and marketing expenses included $5.6 million and $1.6 million related to the addition of Jasc and the inclusion of WinZip respectively. In addition, salaries and benefits related to the expansion of our sales and marketing organization contributed $6.9 million of this increase, and stock-based expenses contributed over $500,000 of this increase.
      Research and Development. Research and development expenses increased 61.8% to $23.5 million in fiscal 2005 from $14.6 million in fiscal 2004. As a percentage of total revenues, research and development expenses increased to 14.3% in fiscal 2005 from 13.0% in fiscal 2004. The addition of Jasc and the inclusion of WinZip research and development teams accounted for $5.7 million and $2.0 million of the increase, respectively. The increase as a percentage of revenue is a result of the Jasc product line having relatively higher development costs. Development costs for WordPerfect were also brought back in-house late in 2004, and added $956,000 of costs in fiscal 2005.
      General and Administrative. General and administrative expenses increased 33.4% to $19.9 million in fiscal 2005 from $14.9 million in fiscal 2004. As a percentage of total revenues, general and administrative expenses decreased to 12.1% in fiscal 2005 from 13.3% during fiscal 2004. The absolute dollar increase in general and administrative expenses resulted from the addition of Jasc and the inclusion of WinZip operations, which contributed $1.7 million and $2.3 million, respectively. In fiscal 2005 we also incurred over $800,000 in additional stock-based expenses due to our executive hirings and $292,000 of professional fees associated with corporate governance and planning.

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      Other Operating Expense. Other operating expense in fiscal 2005 includes $2.2 million related to the termination of an obligation for naming rights on a sporting and entertainment venue, and $883,000 of fees associated with corporate and tax planning for WinZip.
      Restructuring. Restructuring consists of severance and related expenses for terminated employees. The majority of the restructuring charges totaling $834,000 in fiscal 2005 relate to the integration of Jasc. There are no future service obligations due from any of our terminated employees, and we do not expect any future restructuring expenses to occur as a result of the Jasc integration.
      The restructuring charges in fiscal 2004 reflect the restructuring of our operations after the acquisition of us by Vector Capital. These amounts include severance for certain senior executives. All amounts associated with this restructuring plan were paid by November 30, 2004. There are no further service obligations due from any of our terminated employees, and we do not expect any future expenses associated with this restructuring.
Non-Operating (Income) Expense
      Loss on Debt Retirement. The $3.9 million loss on retirement of debt in fiscal 2005 consisted of financing fees of $1.9 million, and an early repayment fee of $2.0 million incurred on the termination of the credit facility with Wells Fargo Foothill (WFF). The remaining unamortized portion of the fees, along with the early repayment charge were written-off when the WFF facility was repaid in full in February 2005 and a new debt facility was arranged with Credit Suisse First Boston (CSFB). We expect to incur an additional loss on retirement of debt in fiscal 2006 of approximately $7.9 million as a result of the refinancing of the CSFB facility that will occur concurrently with this offering.
      Interest (Income) Expense, Net. Net interest expense increased to $12.6 million in fiscal 2005 from $1.2 million in fiscal 2004. During fiscal 2005, our borrowings averaged $136.0 million, while in fiscal 2004 our borrowings averaged $31.3 million. These borrowings were used primarily to fund distributions to our shareholders and the acquisition of Jasc. We expect our new credit facility to facilitate a reduction in interest expense in fiscal 2006, assuming no substantial draws on our new revolving credit facility.
      Amortization of Deferred Financing Fees In fiscal 2005, we entered into a new debt facility with CSFB increasing our total debt to $130.0 million. This facility had higher financing fees associated with it and consequently amortization of deferred financing fees increased from $407,000 to $1.8 million in fiscal 2005.
      Other Non-Operating Expense. Other non-operating expense consists primarily of foreign exchange gains and losses and unrealized gains and losses on forward exchange contracts. The expense of $1.2 million in fiscal 2005 compared to a gain of $1.0 million in fiscal 2004 is due the decline of the US dollar compared to the Euro and Japanese Yen.
      Income Tax Expense (Recovery). Income tax expense of $6.3 million for fiscal 2005 consisted of current tax expense of $5.5 million plus deferred tax expense of $830,000, compared to a tax expense of $7.3 million for fiscal 2004 that included current tax expense of $2.1 million plus deferred tax expense of $5.2 million. Our income tax expense for fiscal 2005 is net of the recovery from the settlement of a tax claim in Europe of approximately $500,000 and includes approximately $4.1 million of current taxes on WinZip operations.
      Current taxes in both periods include foreign withholding taxes plus taxes incurred by our foreign subsidiaries. Deferred tax expense in both periods related to the tax benefits realized in Canada from the use of tax carryforwards, existing prior to our acquisition by Vector Capital, in post-acquisition periods, less deferred tax credits relating to WinZip operations in 2005.
      We expect our effective tax rate, without considering deferred taxes, to be between 10% and 20% for the next three to five years.

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Year Ended November 30, 2004 as Compared to Year Ended November 30, 2003.
      We were acquired by Vector Capital on August 28, 2003. We accounted for the acquisition by allocating the purchase price paid by Vector Capital to our net assets (known as “push-down accounting”). Because of the application of push-down accounting, the consolidated financial statements for the periods ended prior to August 29, 2003 (predecessor) are not comparable to the consolidated financial statements for the periods ended after August 28, 2003. In particular, amortization of intangible assets reflected in the financial statements subsequent to August 28, 2003 includes amortization associated with the revaluation of existing technology as of August 28, 2003. In addition, with push-down accounting, we reduced the amount of our deferred revenue to represent the fair value of the associated liability that existed at the date of acquisition. This resulted in a $7.1 million decrease in the liability associated with the right to unspecified upgrades. Approximately 70.5% of this reduction related to WordPerfect Office Suite, approximately 23.6% related to graphics products and the remainder related to other products. Approximately $4.0 million of the reduction in deferred revenue would have been recognized as revenue in fiscal 2004.
      The following table sets forth certain consolidated statements of operations data expressed in dollars and as a percentage of revenues for the periods indicated, as well as the percentage change on a year-over-year basis.
                                           
    Year Ended November 30,    
        Percentage
    2003   2004   2003   2004   Change
                     
    (dollars in thousands)
Revenues
                                       
 
Product
  $ 97,336     $ 97,724       89.1 %     87.5 %     0.4 %
 
Maintenance and services
    11,856       13,968       10.9       12.5       17.8  
                               
Total revenues
    109,192       111,692       100.0       100.0       2.3  
                               
Cost of revenues
                                       
 
Cost of product(1)
    19,994       14,215       20.5       14.5       (28.9 )
 
Cost of maintenance and services(1)
    1,451       1,085       12.2       7.8       (25.2 )
 
Amortization of intangible assets
    9,793       16,547       9.0       14.8       69.0  
                               
Total cost of revenues
    31,238       31,847       28.6       28.5       1.9  
                               
 
Gross margin
    77,954       79,845       71.4       71.5       2.4  
                               
Operating expenses:
                                       
 
Sales and marketing
    59,085       38,508       54.1       34.5       (34.8 )
 
Research and development
    20,971       14,550       19.2       13.0       (30.6 )
 
General and administrative
    31,995       14,876       29.3       13.3       (53.5 )
 
Restructuring
    1,138       3,520       1.0       3.2       209.3  
                               
Total operating expenses
    113,189       71,454       103.6       64.0       (36.9 )%
                               
Income (loss) from operations
    (35,235 )     8,391       (32.3 )%     7.5 %     *  
                               
 
Interest (income) expense, net
    (1,177 )     1,224       *       *       *  
 
Impairment (gain on disposal) of investments
    7,448       (729 )     *       *       *  
 
Amortization of deferred financing fees
    24       407       *       *       *  
 
Other non-operating income
    (2,165 )     (1,033 )     *       *       *  
                               
Income (loss) before undernoted
    (39,365 )     8,522       *       *       *  
Income tax expense (recovery)
    (3,340 )     7,315       *       *       *  
Share of loss of equity investments, net of tax
    1,142             *       *       *  
                               
Net income (loss)
  $ (37,167 )   $ 1,207       *       *       *  
                               
 
Not meaningful.
(1)  Percentage reflects percentage of related revenues.

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     Information presented in the table above and in the discussion below that relates to our 2003 operating results is presented for a combined twelve month period ended November 30, 2003, which includes a predecessor company period from December 1, 2002 through August 28, 2003 and a successor company period from August 29, 2003 through November 30, 2003. The table below sets forth the summation of the pre-acquisition and post-acquisition periods to present operating results for the twelve month period ended November 30, 2003. Unless otherwise indicated, references to our 2003 operating results, refer to the combined twelve month period.
                             
            Pro Forma
    Predecessor       Combined
        August 29, 2003   Twelve Month
    December 1, 2002   Through   Period Ended
    Through August 28,   November 30,   November 30,
    2003   2003   2003
             
    (in thousands)
Revenues
                       
 
Products
  $ 76,309     $ 21,027     $ 97,336  
 
Maintenance and services
    9,077       2,779       11,856  
                   
Total revenues
    85,386       23,806       109,192  
                   
Cost of revenues
                       
 
Cost of product
    16,560       3,434       19,994  
 
Cost of maintenance and services
    1,063       388       1,451  
 
Amortization of intangible assets
    5,661       4,132       9,793  
                   
Total cost of revenues
    23,284       7,954       31,238  
                   
 
Gross margin
    62,102       15,852       77,954  
                   
Operating expenses:
                       
   
Sales and marketing
    45,465       13,620       59,085  
   
Research and development
    16,342       4,629       20,971  
   
General and administrative
    26,408       5,587       31,995  
   
Restructuring
          1,138       1,138  
                   
Total operating expenses
    88,215       24,974       113,189  
                   
Loss from operations
    (26,113 )     (9,122 )     (35,235 )
   
Interest (income) expense, net
    (1,383 )     206       (1,177 )
   
Impairment of cost and equity investment
    7,448             7,448  
   
Amortization of deferred financing fees
          24       24  
   
Other non-operating income
    (1,530 )     (635 )     (2,165 )
                   
Loss before undernoted
    (30,648 )     (8,717 )     (39,365 )
Income tax (recovery) expense
    (3,895 )     555       (3,340 )
Share of loss of equity investments, net of tax
    1,142             1,142  
                   
Net income (loss)
  $ (27,895 )   $ (9,272 )   $ (37,167 )
                   
Revenues

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      Product revenues remained essentially constant at $97.7 million in fiscal 2004 compared to $97.3 million in 2003. In fiscal 2004 we experienced increases in revenues attributable to the releases of three major products—CorelDraw Graphics Suite 12, WordPerfect Office Suite 12 and Corel Paint Shop Pro 8, which was acquired from Jasc in the fourth quarter of 2004. As we focused our attention on core products, our product revenue growth was partially offset by a $2.3 million decline in revenues from underperforming product lines that were either sold off or received no further development or marketing funds.
      Maintenance and services revenues increased by 17.8% to $14.0 million in fiscal 2004 from $11.9 million in 2003. The increase in maintenance and services revenues was primarily attributable to increased sales of maintenance contracts to several of our government customers. In addition, as a result of our revaluation of deferred revenue as part of the push-down accounting in connection with our acquisition by Vector Capital, maintenance and services revenues in fiscal 2004 were $4.0 million less than they would have been in the absence of this revaluation.
Total Revenues by Product
                                           
    Year Ended November 30,    
        Percentage
    2003   2004   2003   2004   Change
                     
    (dollars in thousands)
Productivity
  $ 49,751     $ 49,775       45.6 %     44.6 %     —   %
Graphics and digital imaging
    57,007       61,828       52.2       55.4       8.5  %
Discontinued products
    2,434       89       2.2             (96.3) %
                               
 
Total
  $ 109,192     $ 111,692       100.0 %     100.0 %        
                               
      Productivity revenues, consisting of revenues from WordPerfect Office Suite and iGrafx were essentially unchanged between fiscal 2004 and 2003. The effect of push-down accounting in fiscal 2004 discussed above was off-set by an increase in OEM sales of WordPerfect Office Suite 12 and in iGrafx revenues.
      Graphics and Digital Imaging revenues increased 8.5% to $61.8 million in fiscal 2004 from $57.0 million in 2003. Revenues from our core graphics & digital imaging products, CorelDRAW Graphics Suite, Corel Painter, and Corel DESIGNER Technical Suite, grew by $2.5 million in 2004 due to the release of CorelDRAW Graphics Suite 12 in the first quarter of fiscal 2004. Corel Paint Shop Pro and Corel Photo Album, which were acquired in the Jasc acquisition, contributed $4.5 million to revenues in fiscal 2004. These increases were partially offset by a $2.2 million decrease in overall revenues from other graphics and digital imaging products.
      Revenues from discontinued products declined to $89,000 in fiscal 2004 from $2.4 million in 2003. We sold our XML technology in January 2004 and our Smart Graphics product line was discontinued in the first quarter of fiscal 2004.
Total Revenues by Region
                                           
    Year Ended November 30,    
        Percentage
    2003   2004   2003   2004   Change
                     
    (dollars in thousands)
Americas
  $ 68,005     $ 67,212       62.3 %     60.2 %     (1.2) %
EMEA
    34,716       38,673       31.8       34.6       11.4  %
Asia Pacific
    6,471       5,807       5.9       5.2       (10.3) %
                               
 
Total
  $ 109,192     $ 111,692       100.0 %     100.0 %        
                               
      Revenues in the Americas remained relatively constant year-over-year. EMEA had a $4.4 million increase in revenues from the release of CorelDRAW Graphics Suite 12 and benefited from the favorable effect of the strengthened euro in the last half of the year. The reduction in Asia Pacific region revenues resulted principally from a $1.2 million decrease in revenues from Corel Painter, which was in the second half of its release cycle in 2004, partially offset by increases in revenues from other graphics products.

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Cost of Revenues
      Cost of Product Revenues. Cost of product revenues decreased 28.9% to $14.2 million in fiscal 2004 from $20.0 million in 2003. As a percentage of product revenues, cost of product revenues decreased to 14.5% in fiscal 2004 from 20.5% in 2003. Major cost reductions in this area included $4.5 million related to packaging costs and efficiencies in inventory management. We also renegotiated and eliminated various third-party technology contracts resulting in $264,000 in reductions. Headcount reductions in customer and technical support also resulted in cost savings of $1.8 million. The cost reductions were partially offset by $1.0 million of additional product costs resulting from the acquisition of Jasc in November 2004.
      Cost of Maintenance and Services Revenues. Cost of maintenance and services revenues decreased 25.2% to $1.1 million in fiscal 2004 from $1.5 million in 2003. As a percentage of maintenance and services revenues, cost of maintenance and service revenues decreased to 7.8% from 12.2% in 2003. Reductions in customer and technical support staff accounted for all of the cost savings in fiscal 2004.
      Amortization of Intangible Assets. Amortization of intangible assets increased 69.0% to $16.5 million in fiscal 2004 from $9.8 million in 2003. The increase was a result of the revaluation of technology assets in the application of push-down accounting resulting from our acquisition by Vector Capital in August 2003.
Operating Expenses
      Sales and Marketing. Sales and marketing expenses decreased 34.8% to $38.5 million in fiscal 2004 from $59.1 million in 2003. As a percentage of total revenues, sales and marketing expenses decreased to 34.5% in fiscal 2004 from 54.1% in 2003. As a result of the cost reduction measures that were implemented after Vector Capital acquired us, in fiscal 2004 we reduced salary and related expenses by $9.9 million, marketing program expenses by $4.3 million, operating expenses related to consulting and other service contracts by $4.8 million and travel and entertainment expenses by $713,000.
      Research and Development. Research and development expenses decreased 30.6% to $14.6 million in fiscal 2004 from $21.0 million in 2003. As a percentage of total revenues, research and development decreased to 13.0% in fiscal 2004 from 19.2% in 2003 through the implementation of our restructuring plan. In particular, we eliminated approximately $6.4 million of staffing costs associated with discontinued and underperforming products and reduced localization costs.
      General and Administrative. General and administrative expenses decreased 53.5% to $14.9 million in fiscal 2004 from $32.0 million in 2003. As a percentage of total revenues, general and administrative expenses decreased to 13.3% in fiscal 2004 from 29.3% in 2003. In 2003, general and administrative expenses included $7.0 million of expenses related to our acquisition by Vector Capital and $3.7 million in insurance, legal and investor relations expenses attributable to being a public company. In addition to not having those type of expenses in 2004, the decrease in expenses also resulted from the implementation of our restructuring plan and included reductions of $4.7 million in facility costs and $1.4 million in salary and benefit expenses as a result of head count reductions.
      Restructuring. Restructuring expenses of $3.5 million in fiscal 2004 and $1.1 million in 2003 consist of severance and related costs associated with the restructuring we undertook in connection with our acquisition by Vector Capital. The restructuring took place in the fourth quarter of 2003 through the second quarter of fiscal 2004 and resulted in workforce reductions of 124 employees in 2003 and 104 employees in 2004, including 5 senior executives. All amounts associated with this restructuring were paid by November 30, 2004 and we expect no future expenses associated with this restructuring. There are no future service obligations due from our terminated employees.
Non-Operating (Income) Expense
      Interest (Income) Expense, Net. Net interest expense was $1.2 million in fiscal 2004, compared to income of $1.2 million in 2003. The change is attributable to the indebtedness incurred by us in connection with our acquisition by Vector Capital in August 2003 and reduced cash balances due to the use of our excess cash as part of the acquisition.

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      Impairment (Gain on Disposal) of Investments. We realized a $729,000 gain in fiscal 2004 from the cash disposition of an equity investment. In 2003, a review of our investments indicated they were generating consistent losses. Consequently, we recognized an impairment charge of $7.4 million related to these investments.
      Other Non-Operating Income. The gains of $1.0 million in fiscal 2004 and $2.1 million in 2003 consist primarily of foreign exchange gains which resulted from improved strength of the Canadian dollar, pound sterling and the euro relative to the U.S. dollar as they affected translation of asset values in non-U.S. jurisdictions. In 2004 we also recorded $894,000 of gains on the sales of underperforming product lines, offset by a loss of $705,000 on the disposal of fixed assets and a $291,000 write-off of technology.
      Income Tax Expense (Recovery). Income tax expense of $7.3 million in fiscal 2004 included current tax expense of $2.1 million plus deferred tax expense of $5.2 million compared to a recovery of $3.3 million in 2003 that consisted of a current tax recovery of $3.4 million less deferred tax expense of approximately $99,000. The 2003 recovery related to the settlement of prior year tax audits, less current tax expense for the year.
Liquidity and Capital Resources
      We were acquired by Vector Capital in August 2003 for aggregate consideration paid to our former shareholders of $111.3 million in cash, of which $40.5 million was provided by working capital from our balance sheet, $13.0 million was provided by us under our WFF credit facility, $17.0 million was provided by us through subordinated borrowings from Vector Capital and $40.8 million was paid directly by Vector Capital. As of November 30, 2003 we had negative working capital of $3.6 million and $17.3 million of long term debt. For the two years ended November 30, 2005, we generated an aggregate of $73.0 million of cash flow from operations and received an aggregate of $94.2 million in net proceeds from increases in borrowings under our credit facilities. During this same period we used $32.3 million to fund the acquisition of Jasc and $138.2 million for distributions to our shareholders. At November 30, 2005 we had negative working capital of $24.3 million and $134.0 million of long term debt.
Working Capital
      Current assets at November 30, 2005 were $45.7 million, a decline of $546,000 from the November 30, 2004 year end balance of $46.2 million. The decrease was primarily attributable to the reduction of cash and short term investments from $23.9 million to $21.7 million but was partially offset by the additional current assets associated with WinZip. Current assets were $40.8 million at November 30, 2003. The increase to $46.2 million at the end of 2004 was primarily due to a $6.5 million increase in trade receivables, which included $9.3 million of trade receivables added as a result of the acquisition of Jasc in October 2004.
      Current liabilities at November 30, 2005 were $70.0 million, an increase of $4.3 million from November 30, 2004. The increase primarily resulted from the inclusion of $14.4 million of current liabilities associated with WinZip and the addition of the $1.2 million current portion of a promissory note in connection with the termination of a naming rights agreement. This was partially offset by a $12.0 million reduction in the current portion of the term loans payable from the refinancing of our credit facility in February 2005. Current liabilities increased from $44.3 million at November 30, 2003 to $65.7 million at November 30, 2004, due primarily to a $4.2 million increase in accounts payable and accrued liabilities from the assumption of Jasc obligations and a $19.5 million increase in the current portion of terms loans payable with the amendment of the WFF facility as discussed below.
Long-Term Liabilities
      Our WFF credit facility was increased from $10.0 million to $47.5 million in June 2004. Funds from this refinancing were used to make a distribution of $39.8 million to Vector Capital and repay our $7.0 million subordinated debt. In October 2004 the WFF facility was further increased to $67.5 million to provide additional funds for the purchase of Jasc.

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      We refinanced our WFF facility during the first quarter of fiscal 2005, entering into a facility with CSFB that resulted in an increase in term loans payable from $56.4 million to $130.0 million. As a result of the refinancing, we incurred $7.4 million of set up fees for the new facility. Net proceeds from borrowings under this facility were used to repay the WFF facility and partially fund a distribution of $85.3 million to our shareholders.
      During fiscal 2005 WinZip negotiated two credit facilities. The first facility was a promissory note for $15.0 million. This note was repaid in June 2005 when WinZip negotiated a new $23.0 million term loan and a $1.0 million revolving line of credit.
      Contemporaneous with this offering, we expect to replace our CSFB facility and the existing WinZip facility with our new credit facility. Based on cash and cash equivalents as of November 30, 2005 and after giving pro forma effect for this offering, our new credit facility and the $7.5 million WinZip dividend, we expect to have approximately $32.7 million of cash and cash equivalents as of the closing of this offering. Actual cash and cash equivalents may vary from this amount with changes in our working capital balance prior to the closing. We expect that upon closing we will have total outstanding debt of $90.0 million and will have the ability to borrow up to $75.0 million under our new revolving credit facility. We expect to continue to fund our operations and service our outstanding debt with cash generated from operations.
Cash Flows
                         
    Years Ended November 30,
     
    2003   2004   2005
             
            (combined)
    (in thousands)
Cash flow provided by (used in) operating activities
  $ (2,121 )   $ 32,512     $ 40,459  
Cash flow used in financing activities
    (47,756 )     (5,329 )     (38,552 )
Cash flow provided by (used in) investing activities
    49,552       (34,099 )     7,301  
Year ended November 30, 2005 (combined) compared to year ended November 30, 2004.
      Cash flow from operating activities in fiscal 2005 was $40.5 million compared to $32.5 million in fiscal 2004. Fiscal 2004 cash flow included non-operational receipts, in particular a recovery of $6.7 million of taxes and interest from settlement of prior year audits and the receipt of $2.9 million from a legal settlement relating to prior years. Cash flow from operating activities in fiscal 2005 included $14.3 million of cash flow from WinZip operations.
      Cash used in financing activities in fiscal 2005 was $38.6 million compared to $5.3 million in fiscal 2004. This included net cash proceeds from refinancing our debt of $58.2 million in fiscal 2005 and $36.0 million in fiscal 2004. These proceeds were offset by distributions to shareholders of $97.3 million in fiscal 2005 and $41.0 million in fiscal 2004. Net proceeds from refinancing in fiscal 2004 included $17.0 million of repayment of subordinated debt to Vector Capital.
      Cash provided by investing activities in fiscal 2005 was $7.3 million compared to cash used in investing activities of $34.1 million in fiscal 2004. In fiscal 2005, cash was provided by $10.0 million from the redemption of short-term investments, partially offset by $2.0 million used for the purchase of long lived assets. In fiscal 2004, cash used in investing activities consisted primarily of $32.3 million used for the acquisition of Jasc and $4.0 million used for the purchase of short-term investments, partially offset by $2.0 million of proceeds from disposal of assets.
Year ended November 30, 2004 compared to year ended November 30, 2003.
      Cash flow from operations in fiscal 2004 was $32.5 million compared to cash used in operations of $2.1 million in 2003. The increase was a direct result of the implementation of the restructuring plan in connection with our acquisition by Vector Capital that contributed to a $38.4 million improvement to our net income. This restructuring plan resulted in severance and related costs of $1.1 million and $3.5 million in fiscal 2003 and 2004, respectively. We experienced decreases of approximately $19.8 million in payroll and related expense in fiscal 2004 compared to fiscal 2003. Included in fiscal 2004 cash flows are certain non-operational

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receipts including a recovery of $6.7 million of taxes and interest from settlement of prior year audits and the receipt of $2.9 million from a legal settlement relating to prior years. Included in 2003 cash flows is a recovery of $5.5 million of taxes from settlement of prior year audits and $7.0 million of expenses for legal fees, directors and officers insurance, and stock option payouts related to our acquisition by Vector Capital.
      Cash flow used in financing activities was $5.3 million in fiscal 2004 compared to $47.8 million in 2003. In 2003, $69.8 million was used to fund our acquisition by Vector Capital. Financing activities in fiscal 2004 included $36.0 million of net proceeds from refinancing our debt and $41.0 million used for distributions to Vector Capital. Net proceeds of refinancing activities in 2004 included repayment of $17.0 million of outstanding subordinated notes due to Vector Capital in fiscal 2004.
      Cash flow used in investing activities was $34.1 million in fiscal 2004 compared to cash provided by investing activities of $49.6 million in 2003. Cash used in investing activities in fiscal 2004 was primarily $32.3 million, net of cash acquired, used for our acquisition of Jasc. We also used $4.0 million in cash for the purchase of short term investments. Cash flow from investing activities for 2003 included the redemption of $51.0 million of short term investments to fund our acquisition by Vector Capital.
Indebtedness
      Existing Corel Indebtedness. In June 2004, we entered into a credit facility with Wells Fargo Foothill for an aggregate of $47.5 million. Proceeds from this financing were used to fund a distribution of $39.8 million to Vector Capital and repay $7.0 million in subordinated debt. On October 25, 2004 the WFF term loans were amended and increased to an aggregate of $67.5 million less payments made to date. The increased borrowings were used to partially fund our acquisition of Jasc.
      In February 2005 we entered into a credit facility with CSFB consisting of a $75.0 million first lien credit agreement and a $55.0 million second lien credit agreement. Proceeds from this refinancing were used to repay the WFF term loans in full and to partially fund a distribution to our shareholders of $85.3 million.
      The first lien agreement requires us to make fixed quarterly principal repayments of 1.25% of the original principal amount, or $938,000, from June 30, 2005 to December 31, 2009, with the balance of the loan due on February 25, 2010. The second lien agreement does not require fixed prepayments of principal and is due in full on August 16, 2010. The rate of interest on the first lien agreement is either (i) LIBOR plus 4.25%, or (ii) the higher of the Prime Rate and the Federal Funds Effective Rate plus 0.5%, plus 2.25%, in each case, on the borrowing date. The rate of interest on the second lien agreement is either (i) LIBOR plus 8.0% or (ii) the higher of the Prime Rate and the Federal Funds Effective Rate plus 0.5%, plus 6.0%, in each case, on the borrowing date. We are also required to make an annual principal repayment no later than 90 days after year end, based on a specified formula of excess cash flows generated during the preceding fiscal year. In fiscal 2005, this amount was $6.3 million.
      In addition to the above loans, the facility with CSFB also provides us with a $10.0 million revolving credit commitment which is available for operational needs during the term of the credit agreement. The rate of interest on the revolving credit commitment is (i) LIBOR plus 4.25% or (ii) the higher of the Prime Rate and the Federal Funds Effective Rate plus 0.5%, plus 2.25%, in each case, on the borrowing date.
      Under the CSFB facility, we are required to obtain interest rate protection. In August 2005, we purchased a two year interest rate cap at LIBOR plus 6% on $40.0 million through Wells Fargo Foothill, effective August 5, 2005.
      Under the terms of our credit agreement with CSFB, we are subject to restrictive covenants. Our agreement contains customary restrictions, such as restrictions on additional borrowing, distributions and business acquisitions/divestitures. It also contains financial covenants including requiring:
  our total leverage ratio, which is defined as the ratio of total debt to trailing four quarter Adjusted EBITDA to be less than specified amounts over the term of the facility, from 3.75:1.00 to 2.00:1.00;
 
  our fixed charge coverage ratio, which is defined as the ratio of our trailing four quarter Adjusted EBITDA to fixed charges, to be at least 1.25:1.00; and
 
  our ratio of Adjusted EBITDA to consolidated interest to be above specified amounts over the term of the facility from 2.50:1.00 to 3.00:1.00.

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      As of November 30, 2005, we were not in compliance with the total leverage ratio covenant. In March 2006, we obtained an amendment to the existing credit agreement which adjusted the covenants retroactively such that we were in compliance and to facilitate continued compliance through the closing of this offering, at which time the credit facility will be replaced by a new credit facility. We paid a total of $391,000 in exchange for the amendment.
      Existing WinZip Indebtedness. As a result of the combination with WinZip, our financial statements reflect a $20.6 million term loan, which we refer to as the WinZip Term Loan, and a $1.0 million undrawn revolving line of credit, which we refer to as the WinZip Revolver, obtained by WinZip in June 2005. This debt is collateralized by Cayman Ltd. HoldCo, WinZip Holdings SGPS, Lda, WinZip Computing, S.L., WinZip Holdings Spain, S.L., WinZip Computing LP and WinZip Computing LLC. Borrowings under the WinZip credit facility were used to repay an outstanding loan in the amount of $15.0 million and to partially fund a $12.0 million cash dividend to Vector Capital in June 2005.
      The WinZip Term Loan requires monthly payments of $479,000 plus interest until the maturity date of June 29, 2008. At that time, the remaining principal balance is due. The WinZip Term Loan bears interest at prime plus a base rate margin, as defined in the WinZip Term Loan Agreement. For the first three months, the base rate margin was equal to 5.5%. Subsequently, the base rate margin is determined by an adjusted leverage ratio. WinZip can prepay the outstanding balance at any time and there are mandatory semi-annual payments, which began December 31, 2005. The semi-annual payment is equal to 75% of WinZip’s Excess Cash Flow, as defined in the WinZip Term Loan Agreement, for each 6-month period. The WinZip Term Loan is collateralized by WinZip’s intangible assets with a net book value of $24.4 million and cash collateral accounts and is subject to certain financial covenants as set forth in the credit agreement. As of November 30, 2005, there was $20.6 million outstanding under the WinZip Term Loan bearing interest at a rate of 12%.
      The WinZip Term Loan restricts distributions or payments to shareholders. It contains financial and other covenants requiring WinZip to maintain, among other requirements, limitations on capital expenditures, a leverage ratio and a minimum EBITDA level, all as defined in the agreement. In February 2006, WinZip entered into an amendment to the WinZip Term Loan and WinZip Revolver to remove the requirement to make a mandatory semi-annual pre-payment on December 31, 2005, to permit WinZip to pay a dividend of up to $7.5 million and to obtain a waiver of certain other events of default. WinZip paid a total of $50,000 to obtain the waiver and amendment.
      The WinZip Revolver expires on June 29, 2008. Interest on the WinZip Revolver accrues at the same rate as the WinZip Term Loan. The WinZip Revolver is collateralized by WinZip’s intangible assets with a net book value of $24.4 million and cash collateral accounts. As of November 30, 2005, there was no outstanding balance on the WinZip Revolver.
      We expect to repay all outstanding balances under the WinZip Term Loan and the WinZip Revolver concurrently with the closing of this offering.
      New Indebtedness. Concurrently with the closing of this offering, we intend to enter into a $165.0 million senior secured credit facility consisting of a $90.0 million term loan with a six-year maturity and a $75.0 million revolving credit facility with a five-year maturity. The term loan and revolving credit facility will bear interest at floating rates tied to either the Alternate Base Rate (which equals the higher of (i) the federal funds rate plus 50 basis points and (ii) the prime rate) or the Adjusted LIBOR.
      The net proceeds from the term loan will be used to repay existing indebtedness of Corel and WinZip and for general corporate purposes. The revolving credit facility, which will be undrawn at closing, will be available for general corporate purposes, including potential permitted acquisitions.

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      Borrowings under our new credit facility will be collateralized by a pledge of all of our assets, including the stock of our subsidiaries, and by guarantees and security from our material subsidiaries. Our new credit facility will contain financial covenants requiring us to maintain:
  a maximum total leverage ratio of 3.00:1.00 for each fiscal quarter until February 29, 2008; 2.75:1.00 for each successive fiscal quarter until February 28, 2009; 2.50:1.00 for each successive fiscal quarter until February 28, 2010; 2.25:1.00 for each successive fiscal quarter until February 28, 2011; and 2.00:1.00 for each successive fiscal quarter until maturity; and
 
  a fixed charge coverage ratio of 2.50:1.00.
      For the purposes of the new credit facility, our total leverage ratio and fixed charge coverage ratio will be calculated in the same manner as such ratios are calculated under the CSFB facility described above.
      In addition, the new credit facility will contain various customary restrictive covenants that will limit our and our subsidiaries’ ability to, among other things:
  grant or incur liens on our assets;
 
  incur more indebtedness or make guarantees;
 
  engage in mergers, consolidations, liquidations or dissolutions;
 
  sell or transfer our property or assets;
 
  pay dividends or make distributions to shareholders;
 
  make investments, capital expenditures, loans, advances or acquisitions;
 
  engage in transactions with our affiliates; and
 
  change the nature of our business.
Contractual Obligations and Commitments
      We do not enter into off-balance sheet financing arrangements. We have operating leases for office space and computer equipment. In accordance with U.S. GAAP, neither the lease liabilities nor the underlying assets are carried on the balance sheet as the terms of the leases do not meet the thresholds for capitalization. Payments on these leases were approximately $4.4 million for fiscal 2005, $4.1 million for fiscal 2004 and $6.7 million for 2003.
      We have debt as discussed in the indebtedness section above.
      The following table outlines our contractual commitments over the next five years and thereafter at November 30, 2005:
                                           
    Less           More    
    than   1-3   3-5   than    
    1 Year   Years   Years   5 Years   Total
                     
    (in thousands)
Long-term debt
  $ 16,934     $ 23,426     $ 110,611     $     $ 150,971  
Operating leases
    2,876       4,396       926       286       8,484  
                               
 
Total
  $ 19,810     $ 27,822     $ 111,537     $ 286     $ 159,455  
                               
      Since becoming a private company we have funded our operations from cash flow from operations. We believe that our current resources are adequate to meet our requirements for working capital and capital expenditures for at least the next twelve months. At some point in the future we may require additional funds for either operating or strategic purposes and may seek to raise the additional funds through public or private debt or equity financings. If we ever need to seek additional financing, there is a risk that additional financing will not be available, or if available, will not be available on reasonable terms.

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Qualitative and Quantitative Disclosure About Market Risk
      Market risk is the risk of a loss that could affect our financial position resulting from adverse changes in the financial markets. Our primary risks relate to increases in interest rates and fluctuations in foreign currency exchange rates.
Interest Rate Risk
      Our exposure to interest rate risk relates primarily to our long term debt, as we have minimal interest-bearing investments. Our interest rate exposure is primarily to increases in the LIBOR or prime lending rate, because our debt has a floating rate of interest. Our annual interest expense would change by $750,000 for each 0.5% change in interest rates, based on debt outstanding as of November 30, 2005.
      In connection with the CSFB facility, we purchased an interest rate cap to August 2007 on $40 million which reduces our interest rate exposure. We expect to enter into a new credit facility to be effective upon the closing of this offering and to repay the existing CSFB facility in full. We will review various options available to us in the coming year to determine if additional interest rate protection under our new facility is advisable to further limit our risk to increases in lending rates.
Foreign Currency Risk
      Most of our business is located in Canada. We incur a disproportionate percentage of costs in Canadian dollars as compared to Canadian dollar denominated revenues. We are therefore exposed to loss if the Canadian dollar appreciates against the U.S. dollar. We try to minimize the effect of changes in U.S./ Canadian dollar exchange rates on our business through the purchase of forward exchange contracts.
      As we also operate internationally, a portion of our business outside North America is conducted in currencies other than the U.S. dollar. Accordingly, the results of our business may also be affected by fluctuations in the U.S. dollar against certain European currencies, in particular the pound sterling and euro. Our exposure to these and other currencies is minimized due to certain hedges naturally occurring in our business as we have decentralized sales, marketing and support operations in which most costs are local currency based.
      We cannot predict the impact of future foreign exchange variations on our business. However changes between the U.S. dollar and other currencies could generate foreign exchange losses that could have a material effect on our business.
Internal Controls Over Financial Reporting
      Management is responsible for establishing and maintaining adequate internal controls over financial reporting and for the timeliness and reliability of the information disclosed. During fiscal 2005, we have been documenting, reviewing and testing the design and effectiveness of our internal controls over financial reporting in order to comply with the requirements of Section 404 of the Sarbanes-Oxley Act (SOX 404). We expect to be compliant when required for our 2007 fiscal year-end. Continuous review and monitoring of our business processes will likely identify other possible changes to our internal controls in the future. If we are unable to comply with SOX 404 our share price may be negatively impacted.
Critical Accounting Policies and Estimates
      The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the

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carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
      We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Revenue Recognition
      We recognize revenues in accordance with Statement of Position (“SOP”) 97-2, “Software Revenues Recognition,” issued by the American Institute of Certified Public Accountants, SOP 98-9, “Modification of 97-2, Software Recognition with Respect to Certain Transactions” and Staff Accounting Bulletin (“SAB”) No. 101 “Revenues Recognition in Financial Statements,” issued by the SEC.
      Our application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence (VSOE) of fair value exists for those elements. VSOE is based on the associated price when the elements are sold separately. Some customers receive certain elements of our products over a period of time. In certain cases, these elements include post-delivery telephone support and the right to receive unspecified upgrades/enhancements on a when-and-if-available basis. When maintenance is sold separately we recognize revenues ratably over the contractual time period. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements and the fair value of the respective elements could materially affect the amount of earned and unearned revenues.
      We record product revenues from sales of our packaged software and license fees when legal title transfers, which is generally when the product ships or, in some cases, when products are delivered to retailers. We sell some of our products on consignment to resellers and retailers and recognize revenue for these consignment transactions only when the end-user sale has occurred.
      At the time of contract signing, we assess whether the fee associated with the revenues transactions is fixed or determinable based on the payment terms associated with the transaction. We consider the fee to be fixed or determinable if it is due within our normal payment terms, which are generally 30 to 90 days from invoice date.
      We assess the probability of collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. If it is determined that collection of a fee is not reasonably assured, management defers the fee and recognizes revenues at the time collection becomes reasonably assured, which is generally upon receipt of cash.
Allowance for Product Returns and Rebate Programs
      We allow returns of our packaged software from certain distributors and resellers for various reasons such as the release of new product versions that supersede older versions in channel inventory. Consequently we establish a return provision that is netted against revenues. In computing this provision, we use estimates and judgment based on our experience. These estimates are based on channel inventory levels, current and historical return rates, channel sell in and timing of new version and product introductions. While our past estimates have been materially accurate, actual return rates could vary materially from our estimates. An increase in the return rate could result from changes in consumer demand or other factors. Should this variance occur, revenues could fluctuate significantly. Variances between estimated return rates and actual return rates are adjusted on a monthly basis.
      While we believe our accounting practice for establishing and monitoring product return provision is adequate and appropriate, any adverse activity or unusual circumstances could result in an increase in reserve levels in the period in which such determinations are made and have a significant affect on revenues.

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Accounting for Income Taxes
      We have operations in a number of countries worldwide. Our income tax liability is therefore a consolidation of the tax liabilities we expect to have in various locations. Our tax rate is affected by the profitability of our operations in all locations, tax rates and systems of the countries in which we operate, our tax policies and the impact of certain tax planning strategies which we have implemented.
      To determine our worldwide tax liability we make estimates of possible tax liabilities. Our tax filings, positions and strategies are subject to review under local or international tax audit and the outcomes of such reviews are uncertain. In addition, these audits generally take place years after the period in which the tax provision in question was provided and it may take a substantial amount of time before the final outcome of any audit is known. In prior years we have had to make adjustments to taxes to account for the resolution of certain tax audits. The adjustments have on occasion been significant and have been accounted for as changes in estimates. Future final tax outcomes could also differ materially from the amounts recorded in our financial statements. These differences could have a material effect on our financial position and our net income in the period such determination is made.
      We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have had substantial tax losses over the years and only a limited history of profitability, therefore we have recorded a valuation allowance against most tax assets.
      We provide for withholding taxes on the undistributed earnings of our foreign subsidiaries where applicable. The ultimate tax liability related to the undistributed earnings could differ materially from the liabilities recorded in our financial statements. These differences could have a material effect on our income tax liabilities and our net income.
Business Combinations
      We account for acquisitions of businesses and technologies in accordance with SFAS 141, Business Combinations. We allocate the purchase price to tangible assets, intangible assets, and liabilities based on fair values, with the excess of purchase price being allocated to goodwill. In connection with our acquisition by Vector Capital, we applied push-down accounting, under which the purchase price paid by Vector Capital was allocated to our net assets.
      Historically, our acquisitions have resulted in the allocation of purchase price to goodwill and acquired intangible assets and adjustments to our deferred taxes. In order to allocate a purchase price to these intangible assets and goodwill, we make estimates and judgments based on assumptions about the future income producing capabilities of these assets and related future expected cash flows. We also make estimates about the useful life of those acquired intangible assets. Should different conditions prevail, we could record write-downs of goodwill, write-downs of intangible assets, or changes in the estimate of useful life of those intangible assets, which would result in changes to amortization expense. In connection with our acquisition by Vector Capital, we made adjustments to the valuation allowance on deferred tax assets related to tax carryforwards. These adjustments were recorded as credits to goodwill and intangible assets with corresponding increases to deferred tax expense.
      Acquired definite lived intangible assets are initially recorded at fair value based on the present value of these estimated net future income-producing capabilities of the software products acquired. They are amortized over the future income producing period, which we consider to be the useful life, on a straight-line basis.
      In accordance with SFAS 142, we continuously evaluate the remaining useful life of our intangible assets being amortized to determine whether events or circumstances warrant a revision to the estimated remaining amortization period.
Impairment of Goodwill
      In accordance with SFAS 142, goodwill is subject to annual impairment tests or on a more frequent basis if events or conditions indicate that goodwill may be impaired. Goodwill is tested for impairment at the end of each fiscal year. We also test goodwill for impairment more frequently if events or circumstances warrant.

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Corel as a whole is considered one reporting unit. We estimate the value of our reporting unit based on the income approach. If we determine that our carrying value exceeds our fair value, we would conduct the second step of the goodwill impairment test. The second step compares the implied fair value of the goodwill (determined as the excess fair value over the fair value assigned to our other assets and liabilities) to the carrying amount of goodwill. If the carrying amount of goodwill were to exceed the implied fair value of goodwill, an impairment loss would be recognized.
Long-lived Assets
      We amortize our long-lived assets over the estimated useful life of the asset. We evaluate all of our long-lived assets, including intangible assets other than goodwill and fixed assets, periodically for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (“SFAS 144”). SFAS 144 requires that long-lived assets be evaluated for impairment when events or changes in facts and circumstances indicate that their carrying value may not be recoverable. Events or changes in facts or circumstances can include a strategic change in business direction, decline or discontinuance of a product line, a reduction in our customer base or a restructuring. If one of these events or circumstances indicates that the carrying value of an asset may not be recoverable and our estimated amortization period was not appropriate, we would record an impairment in long lived assets. The amount of impairment would be measured as the difference between the carrying value and the fair value of the impaired asset as calculated using a net realizable value methodology. An impairment would be recorded as an operating expense in the period of the impairment and as a reduction in the carrying value of that asset.
Stock Option Accounting
      In December 2004, the Financial Accounting Standards Board issued SFAS 123(R) (“SFAS 123(R)”). SFAS 123(R) is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 123(R) eliminates the alternative to use the intrinsic value method of accounting that was provided in SFAS 123, which generally resulted in no compensation expense recorded in the financial statements related to the issuance of stock options. SFAS 123(R) requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS 123(R) establishes fair value as the measurement objective in accounting for share-based payment arrangements, and requires all companies to apply a fair-value-based measurement method in accounting for all share-based payment transactions with employees. SFAS 123(R) requires that stock-based compensation expense be recognized over the period from the date of grant to the date when the award is no longer contingent on the employee providing additional service (the “substantive vesting period”).
      We adopted SFAS 123(R) at the beginning of fiscal 2004. Prior to August 29, 2003, we did not account for stock options because they expired or were redeemed in connection with our acquisition by Vector Capital. Since our acquisition by Vector Capital, we have granted to eligible persons units, which consist of a stock option together with a phantom share unit (PSU). Since the right of a holder to receive a cash payment upon the exercise of a PSU is solely within the discretion of a committee appointed by the Board of Directors, there is no obligation to make a cash payment and consequently the PSUs do not constitute a liability. As a result, our stock-based compensation expense comprises expenses recognized in connection with the stock option portion of the units under SFAS 123(R).
      We estimate the fair value of our units for financial accounting purposes using the Black-Scholes model, which requires a number of subjective assumptions, including the expected life of the option, risk-free interest rate, dividend rate, future volatility of the price of our common shares and substantive vesting period. The use of other subjective assumptions would have materially affected the fair value estimate. Since August 2003, there has been no active market for our common shares. Thus, it was not possible to estimate expected volatility of our share price in estimating fair value of units granted. Accordingly, as a substitute for such volatility, we used the historical volatility of the U.S. Dow Jones Software and Computer Services Index, representing the primary industry in which we operate.

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      Based on equity awards outstanding as of November 30, 2005, we had unrecognized stock-based compensation totaling $7.8 million and we expect to record $3.3 million in stock-based compensation in fiscal 2006. We also expect to incur additional stock-based compensation in connection with replacement stock options granted in the WinZip acquisition. To the extent we continue to grant equity awards in the future the amounts of stock-based compensation recorded in future periods may be greater than these expectations. Stock-based compensation expense is reported in our Consolidated Statements of Operations, either as a cost of revenues, or as an operating expense with which the award recipients are associated.
      Up to March 31, 2006, we granted units with exercise prices as follows:
                                                 
    Number of                    
    Shares Subject       Average Fair   Total   Compensation   Remaining
    to Units   Weighted Average   Value of Corel’s   Compensation   Expensed as of   Unrecognized
Month   Granted   Exercise Price   Common Shares   Expense   November 30, 2005   Expense
                         
Fiscal 2004
    501,806                     $ 1,202,912     $ 530,854     $ 672,058  
                                     
Fiscal 2005                                                
December
    191,145     $ 1.17     $ 7.49     $ 1,183,336     $ 294,422     $ 888,914  
January
    2,394       1.17       8.08       17,018       3,734       13,284  
February
    7,005       1.17       7.73       46,952       9,260       37,692  
March
    5,638       1.17       7.61       36,986       6,772       30,214  
April
    5,680       1.17       8.31       39,864       6,176       33,688  
May
    3,249       1.17       9.13       26,441       3,647       22,794  
June
    509,880       1.17       9.95       4,620,360       971,583       3,648,777  
July
    4,274       1.17       10.77       27,894       2,757       25,137  
August
    5,043       1.17       11.59       53,964       3,816       50,148  
September
    96,161       1.17       12.41       1,106,138       47,271       1,058,867  
October
    107,286       1.17       13.23       1,315,822       75,115       1,240,707  
November
    17,640       13.82       14.40       123,255       1,612       121,643  
                                     
Fiscal 2005
    955,395                     $ 8,598,030     $ 1,426,165     $ 7,171,865  
                                     
Fiscal 2006                                                
December
        $     $     $     $     $  
January
    34,149       15.69       15.58                    
February
    15,076       15.93       15.93                    
March
    9,992       17.57       17.57                    
                                     
2006 subtotals
    59,217                     $     $     $  
                                     
Total
    1,516,418                     $ 9,800,942     $ 1,957,019     $ 7,843,923  
                                     
      In the period between our acquisition by Vector Capital in August 2003 and December 2003, we did not issue any units. No predecessor company stock options were outstanding because they expired or were redeemed in connection with our acquisition by Vector Capital.
      The fair values of the units issued are being recognized as compensation expense over the applicable vesting period of four years on a straight line basis.
      We did not obtain contemporaneous valuations from an unrelated valuation specialist. Instead, a retrospective valuation was performed by management, with input from our shareholders. Contemporaneous valuations were not obtained because we were a private company and units were granted on a frequent basis. Therefore, it was impractical to obtain a valuation at each grant date. We believe that management as a result of their experience and Vector Capital as a private equity firm have relevant experience valuing companies. Where there was more than one class of shares outstanding, the enterprise value was equally allocated to the “as-converted” common shares to arrive at a per share fair value.
      Determining the fair value of our common shares requires making complex and subjective judgments. Management used the income approach to estimate the value of the enterprise. The income approach involves

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applying appropriate discount rates to estimated cash flows that are based on forecasts of revenues and costs. The enterprise value is then allocated to preferred and common shares using the probability-weighted expected return method. Under this method, management considered the specific rights and preferences of each share class, and the likelihood of future outcomes. Management specifically considered the likelihood of completing this offering of our common shares. Had management considered a different allocation method, the allocations between preferred and common shares would have been different.
      In arriving at the fair value of our common shares, we made a number of estimates including an organic revenue growth rate and a marketability discount. We used an organic revenue growth rate that was based upon our financial results available at the valuation date and the expected industry growth rate. In addition, we used a marketability discount of 40% to reflect the fact that our common shares were not trading in a public market. This rate was based upon US and Canadian case law and numerous independent pre-IPO “lack of marketability” studies.
Significant Factors Contributing to the Difference between Fair Value as of the Date of Grant and the Estimated Initial Public Offering Price
      We determined that the deemed fair value of our common shares increased from $1.17 to $14.40 per share over the period from August 29, 2003 to November 30, 2005. The difference between the range of $1.17 to $14.40 per share, and the midpoint of the estimated price range for this offering is attributable to the following factors:
  During the quarter ended November 2003, we divested certain underperforming product lines, discontinued speculative research and development activities, and began to focus on our core products. We implemented cost cutting measures, and reduced our staff by over 200 individuals. These measures reduced our annual operating expenses by approximately $41.7 million;
 
  During the quarter ended November 2004, we acquired Jasc, a company that generated revenues of $32.8 million in its fiscal year prior to the acquisition. Jasc’s software products were integrated with our products. We began to realize synergies through this acquisition, and eliminated staffing and distribution costs associated with Jasc’s revenues;
 
  During the quarters ended August 2004 and February 2005, we made capital distributions of $41.0 million and $83.1 million, respectively, which were partially funded by the incurrence of indebtedness and which temporarily decreased the value of our common shares;
 
  During the quarter ended August 2005, we engaged investment bankers to initiate the process of an initial public offering and began drafting a registration statement; and
 
  Finally, management anticipates that the completion of this offering will add value to the shares because of their increased liquidity and marketability. However, prior to this event, management believes it is reasonable to expect that our shares will be valued lower than the estimated offering price.
Impact of Recently Issued Accounting Pronouncements
      On June 1, 2005, the Financial Accounting Standards Board issued SFAS 154, “Accounting Changes and Error Corrections,” (“SFAS 154”) which replaces APB 20, “Accounting Changes,” (“APB 20”) and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 applies to all voluntary changes in accounting principles and changes the requirements for accounting for and reporting of a change in accounting principles. SFAS 154 requires retrospective application to prior periods financial statements of a voluntary change in accounting principles unless it is impracticable. APB 20 previously required that most voluntary changes in accounting principles be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 carries forward many other provisions of APB 20 without change, including the provisions related to the reporting of a change in accounting estimate, a change in the reporting entity and the correction of an error. We have adopted this standard effective December 1, 2005.

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BUSINESS
Overview
      We are a leading global packaged software company with an estimated installed base of 20 million current users in over 75 countries. We provide high quality, affordable and easy-to-use productivity and graphics and digital imaging software. Our products enjoy a favorable market position among value-conscious consumers and small businesses. The legal and functional departments within large companies and governmental organizations are also attracted to the industry-specific features and technical capabilities of our software. Our products are sold through a scalable distribution platform comprised of equipment manufacturers, our e-Store, and our global network of resellers and retail vendors.
      Our product portfolio includes well-established, globally recognized brands. Our primary productivity products are WordPerfect Office Suite, first developed in 1982 and marketed by us since 1996, and WinZip, a compression utility developed in 1991, that we will acquire concurrently with the closing of this offering. WordPerfect Office Suite is the leading Microsoft-alternative productivity software and includes Microsoft-compatible word processing, spreadsheet and presentation functionality. WinZip is the most widely used after-market compression utility, with more than 43 million seats sold to date. Our primary graphics and digital imaging products are CorelDRAW Graphics Suite and Corel Paint Shop Pro. CorelDRAW Graphics Suite is a leading illustration and image editing software suite used by design professionals and small businesses. Corel Paint Shop Pro digital image editing and management applications are used by novice and professional photographers and photo editors.
      We benefit from the widespread global adoption of personal computers, or PCs, and digital cameras. As the retail price of these PCs and digital cameras continues to decline, consumers are becoming more sensitive to the price of the software they use with these devices. We believe that we offer an industry-leading value proposition of high quality, affordable and easy-to-use software that is well positioned to take advantage of this trend.
Our Industry
      Prior to the mid-1990s, the packaged software industry was characterized by high annual growth rates, rapid technological innovation and a relatively large number of viable software providers within each product category. Over the past decade the industry has matured, growth rates have become more stable and market share within each major product category has become highly concentrated, with one or two companies having a dominant market position. We believe that Microsoft Office has in excess of 97% of the North American market for productivity software and that Adobe, after giving effect to its acquisition of Macromedia, has in excess of 70% of the global packaged graphics and digital imaging software market. Despite this concentration of market share, a number of smaller software companies have been able to offer products that have large user bases within certain sectors of the overall market.
      According to IDC, the worldwide consumer and content application market, which includes productivity and graphics and digital imaging products, was a $17.4 billion market in 2004 and is estimated to grow to $27.5 billion by 2009. The market for office suite software, such as word processing, spreadsheet and presentation applications, was $8.6 billion in 2004 and has a projected compound annual growth rate, or CAGR, of 5.3% from 2004 to 2009 according to a study commissioned by us. We estimate that sales of packaged graphics and digital imaging software in our addressable market were $750 million in 2004. Growth rates of packaged software sales in emerging economies are expected to be higher than for the global packaged software market as a whole resulting from more rapidly increasing PC adoption rates in these markets.
      Trends affecting the packaged software industry today include the following:
Increased Adoption of Low Cost Technology
  Rapid adoption of low cost PCs is causing increased sensitivity to the cost of software. The dramatic decline in the price of computing technology is enabling increased worldwide adoption of PCs. Demand for PCs is particularly strong among consumers and businesses in emerging economies, small

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  businesses, students, families in need of second or third PCs, educational institutions and governmental organizations. Gartner projects worldwide PC shipments of 296.5 million units in 2009 as compared to 183.4 million units in 2004, a 10% CAGR. PCs that sell for less than $500, in particular, are expected to be the fastest growing part of the PC market with projected sales of these systems rising from 4.8 million units in 2004 to 71.5 million units in 2009, representing a CAGR of 72% over such period. With the growth of PC adoption, particularly within the sub $500 market, the cost of packaged software is becoming a larger component of the total cost of ownership of PCs. As the price of PCs continues to decline over time, we expect that consumer sensitivity to the price of packaged software will continue to increase.

  Proliferation of digital cameras is driving the increased use of digital imaging software. According to a 2004 IDC report, the projected number of digital images captured worldwide will increase from 108.5 billion in 2004 to 281.0 billion in 2008, a 27% CAGR. IDC also estimates that 36% of worldwide prints made in 2004 were from digital images and that by 2008 71% of worldwide prints will come from digital images. The increased interest in digital photography is driving consumer demand for high quality, affordable software products to edit, organize and share digital photographs. Since camera manufacturers typically lack the capabilities required to develop and support software applications, software that traditionally has been provided with digital cameras has had limited functionality and has not been adequate for the long-term needs of consumers. Most alternative products are either expensive or lack functionality. As a result, digital camera users seek affordable, easy-to-use, feature-rich software to manage, edit and share their digital photographs.
Changing Distribution Channels
  Increased importance of OEMs and online services companies as distributors of packaged software. Traditionally, packaged software was purchased in retail stores by consumers who already owned a PC, a practice referred to as an aftermarket purchase. However, software is now increasingly purchased at the time hardware is purchased and is frequently pre-installed on or included with PCs or digital cameras. By bundling highly functional and easy-to-use software with their products, OEMs and online services companies seek to enhance their value proposition, improve their margins, differentiate their products, increase customer retention and insulate their products from commoditization. These companies seek strategic relationships with software providers that offer high quality, affordable products, have established brands and are willing to customize their software, packaging, marketing programs and customer support to suit the specific business objectives of these companies.
 
  Increased importance of the Internet as a distribution channel. The Internet is rapidly becoming a method of choice for PC purchasers to upgrade software that was pre-installed on, or included with, their PC at the time of purchase. According to Jupiterresearch, 35% of aftermarket consumer software sales were made on the Internet in 2004. Full-featured Internet stores enable consumers to purchase software, to access information, download trial versions of the software and obtain customer support.
International Growth
  Increased PC and digital camera penetration in emerging economies. The decline in price of PCs and digital cameras combined with the economic growth in emerging economies are driving the demand for low cost packaged software products in countries with increasing PC and digital camera penetration levels. We believe areas with the greatest potential growth in demand include China, India, Eastern Europe and Latin America. Many emerging markets are characterized by first-time users of PCs and digital cameras that typically have not yet developed loyalty to a particular brand of software. We believe that these consumers are more likely to purchase software based on the relative price, quality and ease-of-use rather than brand loyalty because, unlike experienced software users, they do not need to consider the time, cost and effort involved in switching brands.

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Industry Consolidation
  Consolidation opportunities in the packaged software market. While the packaged software market has evolved from multiple major competitors to one or two dominant competitors in major product categories, in many cases smaller market participants still maintain an established and loyal user base. These smaller competitors generally have mature, stable software products comparable in quality to the market leaders, or in some instances, serve specific segments of the overall market with specialized functionality that may not have broad market appeal. These participants often have low brand recognition or limited scale and distribution capabilities. Because of their small market presence, they have not been sought after as acquisition targets by the dominant market participants.
      Packaged software companies that can capitalize on the widespread adoption of low cost technology, changing distribution channels and emerging economy growth opportunities are positioned to succeed. The companies able to do so will also have opportunities to further consolidate the packaged software industry.
Our Competitive Strengths
      Our key competitive strengths include the following:
  Industry-leading value proposition. We believe we offer the packaged software industry’s best combination of high quality, feature-rich functionality and affordability. Our products provide features and technical capabilities that are comparable to products offered by Microsoft and Adobe, typically at a price that is significantly lower than these competing products. In our principal product categories, Corel is among the only recognized alternatives to the dominant brands.
 
  Globally recognized brands. WordPerfect Office Suite, CorelDRAW Graphics Suite, Corel Paint Shop Pro and WinZip are globally recognized brands in the packaged software industry as a result of many years of intensive marketing, advertising and promotion. Brand recognition is particularly important in the packaged software industry because competing products have relatively similar features and consumers and small businesses, who often make purchase decisions based on brand recognition, comprise a significant portion of the target market.
 
  Easy-to-use, high quality products. Our products have been developed and tested over many years and we have received over 500 awards for excellence in software innovation, design and value. Substantial investments have been made to develop our products and they benefit from numerous user-driven upgrades. We are particularly focused on offering products that are easy-to-use and that can interoperate with major file formats.
 
  Scalable global distribution infrastructure. We have established global sales, marketing and distribution channels, including relationships with over 25,000 resellers and over 70 OEMs, a direct sales presence in 17 countries, and distribution capability in over 75 countries. Our products are available at major retailers worldwide. We believe very few packaged software companies of our size have a comparable distribution network.
 
  Flexible sales and distribution strategy. We offer OEMs, such as Dell, Wacom and Hewlett-Packard, and online services companies, such as Google and Yahoo!, creative and customized solutions, joint-marketing initiatives and specialized versions of our software. This flexible approach enables these companies to enhance their product and service offerings and provides them with an additional source of revenues. We provide OEMs and other software distributors with a viable alternative to the products offered by Microsoft and Adobe that can help reduce their dependence on these dominant brands.
 
  Established Internet presence through our e-Store. Our e-Store allows visitors to try our software, purchase it and seek customer support. Sales through our e-Store have grown rapidly and our e-Store affords us the opportunity to attract customers with minimal sales and marketing costs. Customers with older versions of our software, or limited functionality versions acquired through OEMs, can use our e-Store to upgrade to the most recent versions of our software. Our e-Store also complements our

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  other distribution channels by facilitating our collection of user data through online registration and enables us to provide online support services.

Our Strategy
      Our objective is to profitably grow our installed base of customers and increase sales to our existing users. We plan to achieve this objective through the following strategies:
  Broaden our distribution network to capitalize on the rapid adoption of low cost technologies. We view our relationships with OEMs, other distributors and online services companies as key growth drivers and we are focused on forging new distribution relationships and broadening our existing relationships. To accomplish this goal, we have a flexible “channel friendly” strategy of providing customized solutions tailored to the specific business needs of OEMs, other distributors and online services companies. We offer these parties:
  attractive pricing that help them realize high margins;
 
  marketing and sales support and incentives;
 
  customized versions of our software to meet the needs of their customer base; and
 
  private label packaging and customized promotional materials to complement distributors’ branding strategies.
  Increase upgrade conversion rates. Increasing upgrade conversion rates represents a significant incremental revenue opportunity for us. We intend to increase upgrade conversion rates through a number of strategic initiatives, including:
  increasing our database of registered users through on-line registration for new products to more effectively market product upgrades to them;
 
  embedding upgrade information directly in our software and employing other types of proactive marketing within our products; and
 
  offering products in tiers of functionality, such as entry-level, advanced and expert versions, enabling users at varying levels of product knowledge and sophistication to purchase the applications they need and then migrate to the more advanced versions over time.
  Leverage and expand presence in emerging markets. We plan to leverage and expand our presence in emerging markets, such as China, India, Eastern Europe and Latin America, by continuing to localize our products in additional languages, expanding our reseller network and direct sales force and developing additional regionally-focused versions of our e-Store. We believe these markets represent attractive growth opportunities for us because they are characterized by first time users of low cost PCs and digital cameras who have not yet developed loyalty to a particular brand of software. However, expansion of our operations in these emerging markets will involve a number of risks, challenges and uncertainties. See “Risk Factors— We are subject to risks associated with international operations that may harm our business.”
 
  Continue to respond to user needs to better serve specific market sectors and increase loyalty. We will continue to work with our loyal user base to help us develop additional product innovations, improve our products to better meet the needs of specific market segments and strengthen user loyalty. We have a strong track record of offering high quality products for specific markets such as the legal and education sectors and as we continue to expand we plan to target additional markets.
 
  Continue to deliver high operating margins and positive cash flow. We are committed to maximizing our operating margins and positive cash flow by keeping research and development activities focused on market driven add-on functionality, utility and geographic reach of our existing product lines and not speculative projects. We employ disciplined cost management policies and maintain stringent minimum return-on-investment criteria for acquisitions. Our existing administrative, mar-

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  keting and distribution infrastructure is highly scalable and we believe it will enable us to grow our revenues without experiencing a proportionate increase in fixed costs, thereby allowing us to continue to deliver high operating margins.
 
  Leverage existing platform and brands to maximize value from acquisitions. Our disciplined acquisition and integration strategy is focused on acquisitions of companies with proven and complementary products and established user bases that we believe will be accretive to earnings. As part of this strategy, in October 2004 we acquired Jasc to extend our reach in graphics and digital imaging software and we have recently agreed to acquire WinZip to enhance our productivity software offerings. We analyze acquisition candidates and effect acquisition transactions to ensure they meet our strategic and operational objectives. We seek acquisition candidates that we believe can benefit from our existing global marketing, sales, distribution and general and administrative infrastructure.

Products
      We provide high quality, affordable, and easy-to-use productivity and graphics and digital imaging software. The following table identifies our major software products within our two principal product categories:
                                     
    Year of           Entry-level
    Initial   Fiscal Quarter of   Current   Suggested
Primary Products By Category   Release   Last Release   Version   Retail Price*
                 
Productivity:
                               
   
WordPerfect Office Suite
    1982       Q1 2006       13     $ 99.00  
   
WinZip
    1991       Q4 2005       10       29.95  
   
iGrafx FlowCharter
    1991       Q1 2006       11       395.00  
   
iGrafx Process
    1991       Q1 2006       11       995.00  
Graphics and Digital Imaging:
                               
 
Graphics:
                               
   
CorelDRAW Graphics Suite
    1989       Q1 2006       13       399.00  
   
Corel DESIGNER Suite
    1995       Q2 2005       12       699.00  
   
Corel Painter
    1991       Q4 2004       9       429.00  
 
Digital Imaging:
                               
   
Corel Paint Shop Pro
    1991       Q4 2005       10       99.00  
   
Corel Photo Album
    2002       Q4 2005       6       49.00  
 
Entry-level suggested retail price reflects our suggested retail price as of the date of this prospectus for the respective products. This table does not reflect the prices for upgrade versions of our software products or products that are bundled with hardware or services and sold through OEMs.
Productivity
      Our productivity products include WordPerfect Office Suite, WinZip and our iGrafx products.
      WordPerfect Office Suite. The Standard Edition of WordPerfect Office Suite includes the WordPerfect, Quattro Pro and Presentations applications. Depending on the version of the suite, WordPerfect MAIL and Paradox are also available. WordPerfect is an easy-to-use word processing application that includes the ability to integrate charts, tables, images and graphics. Quattro Pro is a spreadsheet and database application with 3D chart functionality. Presentations is an application for producing multimedia presentations, overheads and transparencies. WordPerfect MAIL is an e-mail, calendaring and contact management application. Paradox is a database application.
      WordPerfect Office Suite is an innovative, full-featured software suite with a price much lower than Microsoft’s market-leading Microsoft Office. WordPerfect Office Suite is the leading alternative to Microsoft Office. WordPerfect Office Suite, which is compatible with Microsoft Office, allows users to open and save

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documents in multiple versions of the Microsoft Word, Excel and PowerPoint file formats. In addition, our software allows users to publish their documents in HTML and XML file formats. Users may also publish their documents in PDF, a feature not currently included with Microsoft Office. Our Workspace Manager gives users the option to choose Word, Excel or PowerPoint modes and re-arrange the menus and short-cut keys as they would appear and function in the respective Microsoft applications, making it easier for a new user to adopt WordPerfect Office Suite.
      WordPerfect Office Suite is currently available in five languages and is used principally by governments, legal professionals and corporate legal departments, academic institutions, small-to medium-sized businesses and consumers. Within a business setting, the program is particularly useful in departments that produce or edit a high volume of long, heavily formatted documents.
      In addition to the Standard Edition of WordPerfect Office Suite, we offer three enhanced versions for corporate, home and small business users. Along with the Standard Edition applications, the Professional Edition includes Paradox, making the Professional Edition a comparable alternative to Microsoft Office Professional. Our Home Edition includes additional features tailored for home users including a task manager, multi-media tools, home templates, encyclopedia and anti-virus software. Our Small Business Edition includes additional features tailored for our small business users such as a task manager, WordPerfect MAIL, additional business templates, Corel Paint Shop Pro and anti-virus software.
      WinZip. As one of the most frequently downloaded software products available on the Internet with over 150 million downloads to date and an average of over 600,000 downloads per week in 2005, WinZip has developed a strong and highly recognizable brand. The WinZip product line includes three primary products: WinZip, WinZip Companion for Outlook and WinZip Self Extractor. WinZip is a widely used compression utility for the Windows platform, allowing users to temporarily reduce the size of their computer files for more effective transmission and storage. WinZip also includes encryption functionality to provide additional security in protecting sensitive information. WinZip is based on the .zip file format, but supports a number of alternative compression formats as well. WinZip Companion for Outlook extends WinZip’s functionality to Microsoft’s Outlook email application, automating the compression and encryption of email file attachments. WinZip Self Extractor allows users to create archives that can be uncompressed without the need for the WinZip application.
      WinZip has a broad user base that includes consumers, small to medium-sized businesses and large corporations. WinZip is used worldwide, and is currently available in three languages. WinZip’s main competitors include commercial software such as PKZip, Stuffit, and WinRAR, open-source software such as 7-Zip and the basic compression functionality integrated into the Windows operating system. WinZip’s reliability, ease-of-use, functionality and loyal user base has allowed it to effectively compete with these offerings.
      iGrafx FlowCharter and iGrafx Process. Our iGrafx products allow enterprises to analyze, streamline and optimize their business processes. iGrafx’s main products are iGrafx FlowCharter and iGrafx Process. Uses of iGrafx FlowCharter include visually depicting the elements of a business process such as a supply chain solution. Uses of iGrafx Process include identifying, simulating and visually presenting how a business can improve its business processes. iGrafx’s main competitors are IDS-Scheer Aris, Proforma ProVision and Casewise Corporate Modeler. iGrafx products are currently available in six languages.
Graphics and Digital Imaging
Graphics
      Our graphics products include CorelDRAW Graphics Suite, Corel DESIGNER Technical Suite and Corel Painter.
      CorelDRAW Graphics Suite. CorelDRAW Graphics Suite is an industry-leading vector illustration software application and has received over 300 industry awards throughout the 17 years it has been on the market. The software allows users to create, manipulate and publish drawings and images in a variety of media including in print and on the web. Examples of its uses include creating logos, brochures, newsletters, reports,

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advertisements, signs, embroidery designs and technical illustrations. CorelDraw Graphics Suite consists of applications for illustration and page layout, digital imaging and motion graphics creation.
      CorelDRAW Graphics Suite is easy-to-use and is compatible with most industry standard file formats, allowing the import and export of files in the common formats used by our competitors, including Adobe and Microsoft. It is affordably priced compared to its main competitor, Adobe Creative Suite. Other competing products include Adobe Illustrator and Macromedia FreeHand. CorelDRAW Graphics Suite is used principally by graphic designers and sales and marketing personnel and is currently available in 17 languages.
      Corel DESIGNER Technical Suite. Corel DESIGNER Technical Suite offers users a graphics application for creating or updating complex technical illustrations. The suite consists of Corel DESIGNER for design, illustration and page layout, Corel PHOTO-PAINT for digital image editing and Corel TRACE for the conversion of bitmaps to vector images. We also offer Corel DESIGNER Professional which includes a filter for importing 3D computer-aided design diagrams.
      Corel DESIGNER Technical Suite is currently available in three languages and is primarily used by engineering departments and technical publishers, who use the software to create professional-quality graphics that can be easily used in business documents, presentations and web and intranet pages. Examples of its uses include creating product manuals, assembly instructions and product specification diagrams. Corel DESIGNER Technical Suite is also used in the manufacturing, automotive and aerospace industries from the conceptualization stage, through the design specification stage, to the production of technical manuals and marketing material. Corel DESIGNER Technical Suite provides an easy-to-use technical illustration application at an affordable price compared to its main competitors IsoDRAW, Autodesk AutoCAD LT and Deneba Canvas.
      Corel Painter. Corel Painter is a digital painting application that, when used with a pen tablet, simulates natural media, such as watercolors, inks, oil paints, chalks and pastels. Users include commercial artists, professional photographers, fine artists and professional digital artists who wish to create new works of art or enhance existing images. Because it is compatible with Adobe Photoshop, Corel Painter provides additional natural media functionality not otherwise available with Photoshop. Corel Painter’s main competitors are Alias Sketchbook and Adobe Photoshop. Corel Painter is currently available in six languages.
Digital Imaging
      Our digital imaging products include Corel Paint Shop Pro and Corel Photo Album.
      Corel Paint Shop Pro. Corel Paint Shop Pro allows users to create, manipulate and manage digital images with photo editing, digital art and precision graphic design tools. Primary examples of its uses include digitally altering photos by fixing scratches and blemishes, changing colors, digitally removing people, objects and “red-eye” from photos and combining photographs into collages. Corel Paint Shop Pro provides advanced functionality at an affordable price to users of digital cameras ranging from novices to professionals, graphics hobbyists and business users. Adobe Photoshop, a competing product, sells at a higher price and is directed at professional graphic designers. Corel Paint Shop Pro is currently available in seven languages.
      Corel Photo Album. Corel Photo Album allows users to store, organize, share and manage their digital photograph collections. Our software organizes photographs on users’ computers by date, folder, keyword or other desired criteria. Users of Corel Photo Album can organize and publish photo albums, create scrap-books, print and share photographs, create slide shows and create CD and DVD back-ups of digital images. In addition, the software provides basic photograph enhancement capability which seamlessly integrates with Paint Shop Pro for more advanced image editing. Corel Photo Album’s main competitors are Adobe Photoshop Elements, Picasa and Microsoft Digital Image Suite. Corel Photo Album is currently available in seven languages.
Customer Support
      We provide several customer support options to meet the varied needs of our customers. Support options range from 24 hour 7 day a week free support via the Internet to fee-based options through maintenance

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agreements for enterprise customers or on a per incident basis for individual consumers. Our customer service representatives provide technical support, answer questions about product specifications, sell our products and provide replacement media and documentation. We maintain a database of technical support articles on our web site that is updated regularly with useful information and frequently asked questions and answers regarding our products. We maintain an Internet news group to provide users with a mechanism to provide feedback as well as receive technical updates and notes. We also provide up-to-date information about common issues and useful tips on our web site. The majority of our in-house support personnel are located in Ottawa, Canada and Maidenhead, England.
Distribution, Sales and Marketing
Distribution
      We have a global, multi-channel distribution network, including OEMs, the Internet, retailers and resellers, in over 75 countries through which we are able to distribute our software.
      OEMs. We distribute our productivity and graphics and digital imaging software under license agreements with OEMs granting them the right to distribute copies of our software installed on their hardware products. We have relationships with over 70 OEMs, including Dell, Wacom, Hewlett-Packard and Lenovo.
      Internet Distribution. Our e-Store allows consumers to purchase most of our software products directly from us and is our fastest growing distribution channel.
      Retail and Reseller. Our retail and reseller channel encompasses our relationships with over 25,000 resellers, including the following:
  retailers including Office Depot, Best Buy, CompUSA, Staples and Amazon, sell our products to consumers and small businesses;
 
  software distributors, including Ingram Micro, Tech Data and Navarre, sell our products to their retail customer base;
 
  large account resellers, including CDW, Software House International, SoftChoice and Softmart USA, sell our software directly to large enterprises and help fulfill orders from our direct sales force; and
 
  value-added resellers, including independent software vendors, consultants, system integrators and custom application developers, generally service small to medium-sized businesses and provide varying degrees of technical support, implementation services and customization.
      Direct Sales. Our direct sales force facilitates sales through other channels and the establishment of key relationships with OEMs, retail chains and resellers. The direct sales force also directly targets government and large enterprise clients.
      Of overall sales of Corel products (excluding WinZip products) during fiscal 2005, approximately 60% consisted of products targeted to consumers and small businesses, approximately 29% consisted of site licenses geared towards large enterprises and government customers and approximately 11% consisted of sales of site licenses to educational institutions and of academic versions of Corel products.
Sales and Marketing
      Our global sales and marketing organization, which is comprised of approximately 200 employees located in 15 countries, is focused on increasing sales by establishing and maintaining personal contact with our distributors and customers.
      Our sales team is responsible for:
  communicating our value proposition and the benefits of our products;
 
  designing and implementing incentive programs for our distributors to promote our products;

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  identifying, establishing and developing relationships with OEMs and online services companies;
 
  ensuring that our distributors are prominently positioning our products and managing inventory levels effectively; and
 
  recruiting new resellers, retailers and distributors.
      Our marketing team focuses on:
  joint marketing and promotions with online services companies, OEMs and other distributors;
 
  selective, highly targeted advertising;
 
  direct mail; and
 
  public relations.
Research and Development
      We have a research and development team of approximately 190 software professionals, the majority of whom are located at our corporate headquarters in Ottawa. Following the acquisition of us by Vector Capital, we have shifted our focus from the development of new and unproven applications to a disciplined commitment to increasing the functionality, utility and geographic reach of our core software products. We plan to expand our product offerings through the acquisition of proven products and technology and to employ our research and development efforts to improve the utility of those products and technology to our customers. Our research and development expenses for 2003, fiscal 2004 and fiscal 2005 were $21.0 million, $14.6 million and $23.5 million, respectively.
      Our commitment to providing high-quality and useful software has led us to a more user-focused method of development. We rely on our intimate knowledge of the tasks and goals that users wish to accomplish to determine how our products should be changed so that we offer the greatest ease-of-use and functionality to our customers. For example, the latest version of CorelDRAW Graphics Suite includes “dynamic guides,” a feature that provides significant time-savings for our design professional users. Similarly, our most recent version of Corel Paint Shop Pro includes a “smart photo fix” feature that allows the application of the most common photo enhancement tools with a single command.
      User feedback also lets us target the development of derivative products that leverage our existing technologies for use in specific markets. For example, we have developed a version of our CorelDRAW product called Corel DRAWings for the embroidery market. Corel DRAWings integrates with embroidery machines to allow users to easily create and visualize designs and then to automatically transfer the stitch patterns to the desired fabric.
      Finally, we maintain an active research and development effort aimed at customizing versions of our standard applications for businesses with whom we have strategic relationships. For example, working with Dell, we have created a special “Starter Edition” version of our Corel Photo Album product. This version, with more limited functionality, is bundled with computers to provide basic digital imaging capabilities, while creating opportunities to upgrade to more full-featured versions. We are also working with Wacom Technology to support new capabilities that it added to its tablets and pens and with AOL to allow upload of photos from Photo Album to AOL’s “You’ve Got Pictures” service.
Internal Systems
      We use various standard applications to provide a flexible and scalable infrastructure to accommodate growth and information needs. We use in-house development resources to maintain these systems and provide custom integration of applications to meet our reporting and business needs. The primary applications we use include Oracle 9i for financial controls, reporting and human resources, IBM Websphere for our e-Store, Onyx customer relationship management database for customer and prospective customer information and RightNow Technology interactive knowledge base for customer and technical support. We believe these systems are sufficient to accommodate our anticipated growth.

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Outsourced Manufacturing
      ModusLink manufactures the principal materials and components used in the physically packaged versions of our products, including diskettes and CD-ROMs, product manuals and packaging, pursuant to a fixed price agreement. ModusLink prepares items to our specifications at manufacturing sites in the U.S., Netherlands and Taiwan and engages third-party printers for the printing of the packaging and the manuals to be included with our packaged software. We provide ModusLink with all packaging and manual design templates.
Intellectual Property
      Our intellectual property rights are important to our business. We rely on a combination of trademark, patent, copyright, trade secret, and other common law in the U.S., Canada and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect our proprietary technology, processes and other intellectual property. We have obtained registrations for in excess of 70 different trademarks in more than 60 different countries. We have over 45 issued patents in the U.S. and Canada and own over 300 copyright registrations. Our patents expire on various dates between 2010 and 2021. As part of our hiring process, our employees typically execute written agreements containing confidentiality undertakings, intellectual property assignments and non-competition and non-solicitation obligations in our favor.
      In addition to the foregoing, we believe the technological and creative skill of our personnel, product developments and frequent product enhancements are essential to establishing and maintaining a competitive advantage.
      Our products contain content and technology that we license from third parties. We generally enter into written agreements with independent contractors, consultants, strategic partners and third party content and technology providers, and through these written agreements we attempt to obtain and control access to, and distribution of, the intellectual property rights necessary for the continued marketing of our products.
      Despite our efforts to protect our intellectual property, third parties may use, copy or otherwise obtain and market or distribute our intellectual property or technology without our authorization or otherwise develop products with the same functionality as our products. Policing unauthorized use of our products and intellectual property is costly and virtually impossible on a worldwide basis. As a result, there is a risk that our efforts to protect our intellectual property will not be adequate to fully prevent the misappropriation of our intellectual property, particularly in emerging markets.
Competition
      We compete with other software vendors for customers at the retail level and in corporate accounts, and for access to distribution channels. Our two primary competitors are Microsoft and Adobe. We believe that Microsoft Office has in excess of 97% of the North American market for productivity software and that Adobe, after giving effect to its acquisition of Macromedia, has in excess of 70% of the global packaged graphics and digital imaging software market. We are the next largest provider of packaged productivity and graphics and digital imaging software in our target markets. We also compete with a number of smaller companies that target certain sectors of the packaged software market.
      WordPerfect and our graphics and digital imaging products provide features and technical capabilities that are generally comparable to higher-priced products offered by Microsoft and Adobe. We believe we further distinguish ourselves from our competitors by offering products that are easy-to-use and can interoperate with other major file formats.
      We also compete for strategic relationships with OEMs, online services companies and other distributors. We believe we can provide distributors with attractive pricing, channel specific marketing and sales support, incentives and customized versions of our products and packaging. We believe tailored responses to distributors’ needs distinguishes us from our competition and will allow us to broaden our distribution network.

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Executive Transition
      In June 2005, we replaced Amish Mehta, who had been interim President and Chief Executive Officer since the first quarter of fiscal 2004, with a new Chief Executive Officer, David Dobson. Mr. Dobson became a member of our board of directors in February 2006. Mr. Mehta, a partner at Vector Capital, became a member of our board of directors in January 2006. In addition, since our acquisition by Vector Capital, we have made a number of other changes in senior management, including the hiring of a new Chief Financial Officer and a new Executive Vice President of Sales and Marketing, Americas. These changes in senior management have facilitated the restructuring of our operations, including the implementation of cost-reduction measures and a renewed focus on our core products. Jacqueline Maartense resigned her position as our Executive Vice President, Global Marketing, in January 2006.
Employees
      As of the date of our acquisition by Vector Capital, we employed approximately 708 staff. Between August 2003 and May 2004, we reduced our staff by 228 persons, or 32% in connection with our initiatives to focus on our core products and eliminate excess costs. Our employee base grew from 480 to 574 following the integration of Jasc. As of November 30, 2005, we had approximately 580 full-time employees, of which 214 employees were engaged in sales and marketing, 191 were engaged in research and development and the remaining 175 were engaged in general administration, finance and customer support. We have employees in 15 countries, including 482 employees in our North American operations, 83 employees in Europe, the Middle East and Africa and 15 employees in other areas of the world. In addition, with the acquisition of WinZip, we expect to add up to 38 employees.
      We believe that our future success will depend in large part on our ability to attract and retain highly skilled technical, managerial, and sales and marketing personnel. Competition for employees is intense in the software industry. To date, we believe we have been successful in our efforts to recruit qualified employees, but there is a risk that we will not continue to be successful in the future. None of our employees are subject to collective bargaining agreements. Management believes relations with employees are generally good.
Subsidiaries
      Corel Corporation owns 100% of the equity interests in its principal subsidiaries, Corel UK Limited, a corporation organized under the laws of the United Kingdom, Corel GmbH, a corporation organized under the laws of Germany and Corel Inc., a corporation organized under the laws of the State of Delaware.
Properties
      The following chart outlines significant properties that we currently lease for operations. In addition to these, we lease office space in various countries around the world where we perform sales and marketing functions. Management believes that these facilities will be adequate for our immediate needs and that additional space is available if needed to accommodate expansion.
                         
        Area   Expiration
Location   Purpose   (in square feet)   Year
             
Ottawa, Canada
    Corporate Head Office       69,652       2010  
Tualitin, Oregon
    Sales and Development       10,908       2006  
Eden Prairie, Minnesota
    Sales and Development       74,224       2008  
Maidenhead, England
    Sales and Administration       10,549       2015  
Mansfield, Connecticut
    Sales, Operations and Administration       8,890       2006  
Munich, Germany
    Sales and Administration       6,657       2007  
Munich, Germany
    iGrafx Sales and Administration       3,152       2007  

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Legal Proceedings
      We currently, and from time to time, are involved in certain legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business, including assertions that we may be infringing patents or other intellectual property rights of others. We believe that the ultimate amount of liability, if any, for any pending claims of any type (either alone or combined) will not materially affect our financial position or results of operations. We also believe that, if necessary, we would be able to obtain any required licenses or other rights to disputed intellectual property rights on commercially reasonable terms. However, the ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an adverse impact on our business because of defense costs, negative publicity, diversion of management resources and other factors. Our failure to obtain any necessary license or other rights on commercially reasonable terms, or otherwise, or litigation arising out of intellectual property claims could materially adversely affect our business.
      We are currently a defendant in the ongoing patent infringement proceeding described below:
      Electronics For Imaging, Inc., Massachusetts Institute of Technology v. Corel Corporation et al. Plaintiffs filed this patent infringement action on December 28, 2001 against us and 213 other defendants in the U.S. District Court for the Eastern District of Texas, alleging infringement of U.S. patent 4,500,919. The patent expired on May 6, 2002. Plaintiffs allege that the defendants infringed the patent through the use of various color management and correction systems in their products. Plaintiffs seek unspecified damages and attorneys fees. Various motions including motions for summary judgment by both the plaintiffs and defendants, including us, were filed during the discovery phase of the proceeding. In July 2004 the court dismissed each summary judgment motion upon which we and the plaintiffs had joined issue. Following the decision on the summary judgment motions, the plaintiffs dismissed all claims against every remaining defendant except us, Microsoft and Roxio. The plaintiffs then stipulated to non-infringement in respect of us, Microsoft and Roxio and the action was dismissed in November 2004. In December 2004, the plaintiffs filed an appeal of various interlocutory rulings by the trial court including certain of the summary judgment decisions. The remaining defendants, including us, have filed opposition to the appeals. We have cross-appealed on the trial court’s dismissal of our request to have the action dismissed on summary judgment. The appeals and cross appeals have been fully briefed by all parties. Oral argument was heard on December 7, 2005. No decision on the appeal has been rendered to date. We believe we have meritorious defenses to the plaintiffs’ claims and intend to defend the litigation vigorously. However, we cannot assure you as to the ultimate outcome of the litigation.

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MANAGEMENT
Executive Officers and Directors
      The following table sets forth information with respect to our directors and executive officers.
             
Name   Age   Position
         
David Dobson(4)
    43     Chief Executive Officer, Director
Douglas McCollam
    53     Chief Financial Officer, Director
Randy Eisenbach
    55     Chief Operating Officer
Amanda Bedborough
    37     Executive Vice President, International Operations
Graham Brown
    42     Executive Vice President, Product Development
Christopher DiFrancesco
    42     Vice President, Legal, General Counsel and Secretary
Patrick Morley
    39     Executive Vice President, Sales and Marketing, Americas
Steven Cohen(1)(2)(3)
    40     Director
J. Ian Giffen(1)(2)(4)
    48     Director
Amish Mehta(3)
    32     Director
Alexander Slusky(2)(3)(4)
    38     Director
 
(1)  Independent director
(2)  Member of the audit committee
(3)  Member of the compensation committee
(4)  Member of the nominating and corporate governance committee
     David Dobson has served as our Chief Executive Officer since June 2005 and became a member of our board of directors in February 2006. From February 2004 to June 2005, he served as Corporate Vice President, Strategy at IBM. He previously served in various capacities at IBM in operations, finance, sales, marketing, strategy and general management from 1986 to 2004. Mr. Dobson joined IBM in Toronto in 1986. He has a Bachelor of Electrical Engineering and Management from McMaster University.
      Douglas McCollam has served as our Chief Financial Officer since January 2004 and became a member of our board of directors in October 2004. From July 1996 to January 2004 he served as Executive Vice President and Chief Financial Officer of NORDX/ CDT. He previously served in various capacities at Nortel Networks, including as Vice President Finance and Administration for Nortel CALA from 1993 to 1996. He served as Chief Financial Officer of Motorola Nortel Communications from 1991 to 1993, Group Controller Switching from 1989 to 1991 and Assistant Vice President, Corporate Financial Reporting and Analysis from 1987 to 1989. Mr. McCollam is a Certified Management Accountant and has a Bachelor of Commerce from Concordia University and an M.B.A. from the University of Chicago.
      Randy Eisenbach has served as our Chief Operating Officer since October 2002. From December 2000 to October 2002 he served as President and Chief Operating Officer of Enseo Corporation. Prior to joining Enseo he served in various capacities, including Chief Operating Officer and Executive Vice President, of 3dfx Interactive (formerly known as STB Systems) from 1985 to 2000. He has a Bachelor of Business Administration and an M.B.A. from Texas Tech University.
      Amanda Bedborough has served as our Executive Vice President, International Operations since January 2004. Prior to that Ms. Bedborough served as our Executive Vice President, Europe, the Middle East and Africa from October 2001 to December 2003. From September 1993 to March 2001 she served in a variety of capacities at 3dfx Interactive, including Vice President, Europe, the Middle East and Africa.
      Graham Brown has served as our Executive Vice President, Product Development since April 2002. He joined us in 1991, and previously served in a variety of capacities, including Vice President of Software Development, Business Applications from 1998 to 2000. He has a Bachelor of Engineering Science in Geography and Computer Science from the University of Waterloo.

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      Christopher DiFrancesco has served as our Vice President, Legal, General Counsel and Secretary since December 2003. He previously served as corporate counsel for us from September 2000 to November 2003. From 1998 to 2000 he served as Associate Counsel for the National Hockey League Players’ Association. From 1991 to 1998 he was with the law firm of Gowling Lafleur Henderson in Toronto, Canada. He has a Bachelor of Engineering Science in Mechanical Engineering and a Bachelor of Laws from the University of Western Ontario.
      Patrick Morley has served as our Executive Vice President, Sales and Marketing, Americas since September 2005. He previously served as Chief Executive Officer of Imprivata Corporation from April 2002 to September 2005. Prior to joining Imprivata Corporation he served as Vice President, North America of Macromedia from January 2001 to April 2002. He served as Vice President, Americas of Allaire Corporation from April 1997 to January 2001, prior to its acquisition by Macromedia. He has a B.A. in Mathematics and Computer Science from Providence College.
      Steven Cohen became a member of our board of directors in January 2006. He has served in various capacities at Teknion Corporation since February 2001 and is currently Teknion Corporation’s Senior Vice President, Corporate Development. He is also a Director and Chairman of the compensation committee of Pele Mountain Resources Inc., a junior exploration company listed on the TSX Venture Exchange. He has a Bachelor of Commerce from McGill University and an M.B.A. from Harvard Business School.
      J. Ian Giffen became a member of our board of directors in January 2006. Since 1996, Mr. Giffen has been an advisor to or director of software companies and technology investment funds. From January 1992 to January 1996, Mr. Giffen was Vice President and Chief Financial Officer of Alias Research until its acquisition by Silicon Graphics. Mr. Giffen is currently Chairman of the Board of Directors of 724 Solutions, a director of Sierra Systems, MKS, Descartes Systems and Strategic Vista, and a director or advisor to a number of other private companies. Mr. Giffen has previously served on the board of directors of a number of public and private companies including Macromedia, Financial Models, DPS, Open Text, Delano Technology, Algorithmics, DWL, Changepoint and MGI Software. He is a Chartered Accountant and has a B.A. in Business Administration from the University of Strathclyde in Glasgow, Scotland.
      Amish Mehta became a member of our board of directors in January 2006. He served as our interim President and Chief Executive Officer from November 2003 to June 2005. He has been at Vector Capital since August 2002. He previously served as Chief Executive Officer of CommercialWare from September 1999 to April 2001. Prior to that he worked at General Atlantic Partners from 1997 to 1999 and at McKinsey & Company from 1995 to 1997. He has a B.S. in Chemical Engineering from the University of Pennsylvania, a B.S. in Economics from the Wharton School and an M.B.A. from Harvard Business School.
      Alexander Slusky has been a member of our board of directors since August 2003 and has served as managing partner of Vector Capital since its inception in 1997. Prior to founding Vector Capital, he led the technology equity practice at Ziff Brothers Investments. Prior to joining Ziff Brothers Investments, he was employed at New Enterprise Associates. Mr. Slusky serves as a director on the boards of several private companies. He has a A.B. in Economics from Harvard University, and an M.B.A. from Harvard Business School.
      Executive officers are appointed by the board of directors to serve, subject to the discretion of the board of directors, until their successors are appointed.
Board of Directors
      Our board of directors currently consists of six members. We currently expect that Mr. McCollam will relinquish his board membership in 2006. Except with respect to Mr. McCollam, we expect that the term of office for each of the directors will expire at the time of our next annual shareholders meeting. As a “controlled company”, we are not required to comply (and we do not comply) with the requirement of the Nasdaq National Market to have a majority of our directors satisfy the independence requirements of the Nasdaq National Market.
      There are no family relationships among any of our directors or executive officers.

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Committees of the Board
      Following the closing of this offering, the standing committees of our board of directors will consist of an audit committee, a compensation committee and a nominating and corporate governance committee. As a controlled company we are not required to maintain a compensation committee or a nominating and corporate governance committee under Nasdaq rules nor are we required to maintain those committees under Canadian securities regulations. Although we intend to form a compensation committee and a nominating and corporate governance committee, the memberships of these committees will not comply with the independence requirements of the Nasdaq National Market that would be applicable if we were not a controlled company.
      Audit Committee. It is expected that our audit committee will be comprised of Messrs. Cohen, Giffen and Slusky. Our board of directors has determined that Messrs. Cohen and Giffen currently meet the independence requirements of the Nasdaq National Market, SEC rules and the rules and regulations of the Canadian provincial securities regulatory authorities. Mr. Slusky will be replaced on the audit committee by an independent board member prior to the one year anniversary of this offering.
      The principal duties and responsibilities of our audit committee will be to assist our board of directors in its oversight of:
  the integrity of our financial statements;
 
  our compliance with legal and regulatory matters;
 
  our independent registered public accounting firm’s qualifications and independence; and
 
  the performance of our internal audit function and independent registered public accounting firm.
      Our audit committee will also be responsible for:
  compensating, retaining and overseeing the work of our independent registered public accounting firm;
 
  establishing procedures for (a) receipt and treatment of complaints on accounting and other related matters and (b) submission of confidential employee concerns regarding questionable accounting or auditing matters; and
 
  pre-approving any non-audit services by our independent registered public accounting firm.
      The audit committee will have the power to investigate any matter brought to its attention within the scope of its duties. It will also have the authority to retain counsel and advisors to fulfill its responsibilities and duties. The audit committee will also act as a qualified legal compliance committee.
      Compensation Committee. It is expected that our compensation committee will be comprised of Messrs. Cohen, Mehta and Slusky. The principal duties and responsibilities of the compensation committee will be as follows:
  to review and approve goals and objectives relating to the compensation of our chief executive officer and, based upon a performance evaluation, to determine and approve the compensation of the chief executive officer;
 
  to make recommendations to our board of directors on the compensation of other executive officers and on incentive compensation and equity-based plans; and
 
  to produce reports on executive compensation to be included in our public filings to the extent required by applicable securities laws or listing requirements.
      Nominating and Corporate Governance Committee. It is expected that our nominating and corporate governance committee will be comprised of Messrs. Dobson, Giffen and Slusky. The principal duties and responsibilities of the nominating and corporate governance committee will be as follows:
  to identify individuals qualified for membership on our board of directors and to select, or recommend for selection, director nominees;

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  to develop and recommend to our board of directors a set of corporate governance principles; and
 
  to oversee the evaluation of our board of directors and management.
Disclosure Policy
      Our board of directors will adopt and periodically review and update our written corporate disclosure policy. This policy will, among other things:
  articulate legal obligations with respect to confidential corporate information;
 
  identify spokespersons who are the persons authorized to communicate with third parties such as analysts, media and investors;
 
  provide guidelines on the disclosure of forward-looking information;
 
  establish procedures for reviewing disclosure, prohibiting selective disclosure of material information and addressing inadvertent disclosure; and
 
  establish periods prior to the disclosure of certain financial information and material changes during which trading in our common shares by insiders is prohibited.
Director and Executive Officer Compensation
Compensation of Directors
      Initial cash compensation for our directors who are not also employed by us or our subsidiaries will be $25,000 per director per year. A director who serves as Chair of a committee will receive an additional $15,000 per year. Directors will also be reimbursed for out-of-pocket expenses for attending board and committee meetings.
      We expect that following this offering each new non-employee director that joins our board will receive options to purchase 12,809 common shares at an exercise price equal to the fair market value of those shares on the date of grant. These options vest as to 25% on the first anniversary of the date of grant and as to an additional 25% each year thereafter in quarterly installments. Upon the occurrence of a significant event (such as a change in control), as defined under the 2006 equity incentive plan described below, all options or other equity awards held by members of our board of directors under the plan shall immediately vest.
      See “Certain Relationships and Related Party Transactions” for information regarding additional stock options granted to members of our board of directors.
Compensation Committee Interlocks and Insider Participation
      None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

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Executive Compensation
      The following table sets forth a summary of compensation earned during the fiscal year ended November 30, 2005 by our Chief Executive Officer, Chief Financial Officer and our three next most highly compensated executive officers (the “Named Executive Officers”).
Summary Compensation Table
                                   
    Annual Compensation   Long Term Compensation    
             
Name And       Securities Underlying   All Other
Principal Position   Salary   Bonus   Options Granted   Compensation
                 
Amish Mehta(1)
                               
  Former Chief Executive Officer   $ 262,500     $ 223,125           $  
David Dobson(2)
                               
  Chief Executive Officer     140,754       203,500       413,971        
Douglas McCollam
                               
  Chief Financial Officer     203,500       183,150       8,540        
Randy Eisenbach
                               
  Chief Operating Officer     260,000       97,500       61,910        
Amanda Bedborough(3)
                               
  Executive Vice President, International Operations     398,805       85,937       44,831       104,772  
Jacqueline Maartense(4)
                               
  Executive Vice President, Global Marketing     244,200       61,538       34,157        
 
(1)  Mr. Mehta served as our interim Chief Executive Officer from November 2003 to June 2005.
(2)  Mr. Dobson joined us in June 2005. For Mr. Dobson’s annual compensation information see “Management—Employment Agreements.”
(3)  Ms. Bedborough’s salary includes $29,018 of auto allowance payments and other compensation includes $19,532 of retirement plan payments and $85,240 of insurance premiums.
(4)  Ms. Maartense resigned her executive officer position in January 2006.
Option Grants In the Last Fiscal Year
      The following table sets forth information regarding options for the purchase of shares granted during the fiscal year ended November 30, 2005 to the Named Executive Officers.
                                         
    Number of   % of Total            
    Securities   Options       Value of    
    Underlying   Granted to   Exercise Price   Securities    
    Options   Employees in   Per Share   Underlying    
Name   Granted(1)   Fiscal Year   ($/Security)   Options(2)   Expiration Date
                     
Amish Mehta
                             
David Dobson
    413,971       43.3       1.17     $ 7,381,103       June 27, 2015  
Douglas McCollam
    8,540       0.9       1.17       152,268       October 1, 2015  
Randy Eisenbach
    61,910       6.5       1.17       1,103,855       December 1, 2014  
Amanda Bedborough
    44,831       4.7       1.17       799,337       December 1, 2014  
Jacqueline Maartense(3)
    34,157       3.6       1.17       609,019       December 1, 2014  
 
(1)  The options vest as to 25% on the first anniversary of the date of grant and as to an additional 25% each year thereafter in quarterly installments.
(2)  Values based on the difference between the exercise price per share and the midpoint of the public offering price range per share set forth on the cover page of this prospectus.
(3)  Ms. Maartense resigned her position in January 2006; however her options will continue to vest pursuant to the terms of their original vesting schedule in accordance with her transition agreement. See “— Employment and Transition Agreements.”

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Options Held and Fiscal Year-End Option Values
      The following table shows the number of options to purchase common shares held by the Named Executive Officers. The value of unexercised in-the-money options of those persons has been based on an assumed initial public offering price of $19.00 per share.
                                 
    Unexercised   Value of Unexercised
    Options at   In-the-Money
    November 30, 2005   Options(1)
         
Name   Vested   Unvested   Vested   Unvested
                 
Amish Mehta
                       
David Dobson
    79,379       334,592     $ 1,415,328     $ 5,965,775  
Douglas McCollam
    19,845       68,073       353,836       1,213,742  
Randy Eisenbach
    19,748       54,971       352,107       980,133  
Amanda Bedborough
    40,169       44,352       716,213       790,796  
Jacqueline Maartense(2)
    12,809       38,427       228,384       685,153  
 
(1)  Values based on the difference between the exercise price per share and the midpoint of the public offering price range per share set forth on the cover page of this prospectus.
(2)  Ms. Maartense resigned her position in January 2006; however her options will continue to vest pursuant to the terms of their original vesting schedule in accordance with her transition agreement. See “— Employment and Transition Agreements.”
Share Option and Other Compensation Plans
Equity Incentive Plan
      Our equity incentive plan was adopted by our board of directors and approved by our shareholders in February 2006. Our equity incentive plan provides for the grant of options to our employees and employees of our subsidiaries, and restricted shares, share appreciation rights, restricted share units, performance share units, deferred share units, phantom shares and other share-based awards to our employees, consultants and directors, and employees, consultants and directors of our subsidiaries and affiliates. Options granted to our U.S. employees may be incentive stock options or non-qualified options for U.S. Federal income tax purposes
      Share Reserve. A total of 2,850,000 common shares are authorized for issuance under the equity incentive plan. Of these shares, no more than 500,000 may be issued upon exercise of incentive stock options under the plan and no more than 700,000 may be issued as restricted shares. Appropriate adjustments will be made to the number of authorized shares under our equity incentive plan and to the shares subject to outstanding awards in the event of any reorganization, recapitalization, share split, dividend or other change in our capital structure in order to account for the changed circumstances.
      Shares subject to awards under the equity incentive plan that lapse, expire, terminate, or are forfeited or settled in cash, and shares surrendered to us as payment of exercise price, withholdings tax, or as part of an award exchange program, will again become available for grants under the equity incentive plan. Common shares used to satisfy awards under the plan may be authorized and unissued shares, or shares acquired by us on the open market.
      No more than 500,000 common shares may be subject to the total awards granted under this equity incentive plan to any individual participant in a given calendar year.
      Administration of Awards. Our board of directors, or a committee of directors appointed by our board, will administer our equity incentive plan. The board or committee of directors will include the appropriate number of outside directors with the appropriate qualifications in the case of awards intended to satisfy the independence or other requirements of exceptions under U.S. Internal Revenue Code Section 162(m) for performance-based compensation, Rule 16b-3 under the Securities Exchange Act of 1934, or any applicable exchange or quotation system rules. The board or committee has the power and discretionary authority to determine the terms and conditions of the awards, including the individuals who will receive awards, the term of awards, the exercise price, the number of shares subject to each award, the limitations or restrictions on

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vesting and exercisability of awards, the acceleration of vesting or the waiver of forfeiture or other restrictions on awards, the form of consideration payable on exercise, whether awards will be adjusted for dividend equivalents and the timing of grants. The board or committee also has the power to modify, amend or adjust the terms and conditions of outstanding awards, to implement an award exchange program, to create other share-based awards for issuance under the equity incentive plan, to arrange for financing by broker-dealers (including payment by us of commissions), to establish award exercise procedures (including “cashless exercise”) and to establish procedures for payment of withholding tax obligations with cash or shares.
      Stock options. The committee may grant options that are, in the case of U.S. recipients, intended to qualify as incentive stock options for U.S. federal income tax purposes or non-qualified options. The committee will determine the exercise price of options granted under our equity incentive plan, but except as required by law of a foreign jurisdiction or due to a merger or other corporate transaction, the exercise price of an option may not be less than 100% of fair market value of our common shares on the date the option is granted. For incentive stock options granted to any participant who owns at least 10% of the voting power of all classes of our understanding share, the option award must not have a term longer than five years and must have an exercise price that is at least 110% of fair market value of our common shares on the date of grant. No options may be granted for a term longer than 10 years. Options may be exercised as provided in the applicable award agreement. Generally, when a participant is terminated by us for good cause, or a participant voluntarily resigns, outstanding unvested options granted under the equity incentive plan will be forfeited immediately. For other terminations of employment, vested options generally remain exercisable for three months after termination, except they generally remain exercisable for twelve months after death. Specific provisions of a written employment agreement may provide for different treatment. However, an option granted under our equity incentive plan is never exercisable after its term expires.
      Share Appreciation Rights. Share appreciation rights (SARs) may be granted in conjunction with a related option, as tandem SARs, or separately as free-standing SARs. SARs generally allow the participant to receive the appreciation on the fair market value of our common shares between the date of grant and the exercise date, for the number of shares with respect to which the SAR is being exercised. Tandem SARs are generally exercisable based on certain terms and conditions of the underlying options, although the committee may grant tandem SARs with a base price that is higher than the underlying option price. Free-standing SARs are granted with a base price not less than 100% of the fair market value of our common shares on the date of grant and are subject to terms and conditions as determined by the board or the committee. The board or the committee may provide that SARs be payable in cash, in common shares, or a combination of both, and subject to any limitations or other conditions as it deems appropriate. SARs may be payable on a deferred basis only to the extent provided for in the participant’s award agreement.
      Restricted Shares. Restricted share awards are common shares that vest in accordance with restrictions that are determined by the board or the committee. The board or the committee has the discretion to determine the individuals who will receive a restricted share award, the number of shares granted, when the shares will be paid to the participant, whether the participant will have the right to vote the restricted shares or receive dividend amounts, whether the shares will be issued at the beginning or the end of a restricted period and any other terms and conditions with respect to vesting, deferral, payment options and other award characteristics as it deems appropriate. The committee may also provide that the participant may be granted a cash award that is payable upon the vesting of the restricted shares. Generally, unless our board or the committee decides otherwise, upon a participant’s termination of employment for any reason, restricted shares that have not vested are immediately forfeited to us. When a participant terminates employment for disability, death, retirement, early retirement or other special circumstances, the committee may waive the forfeiture requirement and other restrictions on the shares. Specific provisions of a written employment agreement may provide for different treatment.
      Restricted Share Units. Restricted share unit awards may consist of grants of rights to receive common shares or the value of common shares or a combination of both, which may vest in installments or on a deferred basis.

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      Performance Share Units. Performance share units are awards of restricted share units that will result in the delivery of common shares or a payment of the value of common shares to a participant only if performance goals established by the board or the committee are achieved or the awards otherwise vest. The board or the committee will establish, in its discretion, performance goals, which will determine the number of performance share units and the value of common shares, if any, to be paid out to participants. The board or the committee will also set time periods during which the performance goals must be met. The performance goals may be based upon the achievement of corporation-wide, divisional or individual goals, or any other basis as determined by the board or the committee. The board or the committee will determine whether payment for performance share units will be made in cash, common shares or a combination of both. The initial value of performance share units will be established by the committee by the date of grant and will be set at an amount equal to the fair market value of our common shares on the date of grant. The committee may modify the performance goals as necessary to align them with our corporate objectives only if there has been a material change in our business, operations or capital or corporate structure.
      Deferred Share Units. Deferred share unit awards are awards similar to awards of restricted share units except that such awards may not be redeemed for common shares or for the value of common shares until the participant has ceased to hold all offices, employment and directorships with us and our affiliates.
      Other Share-Based Awards. The board or the committee may create other forms of awards in addition to the specific awards described in our equity incentive plan which may be granted alone or in tandem with other awards under the plan. The board or the committee has complete authority to determine the persons to whom and the time or times at which such other share-based awards will be granted, the number of common shares, if any, to be granted, whether the value of the awards will be based on shares or cash, and any other terms and conditions.
      Effect of a Significant Event. In the event of a significant event as defined in our equity incentive plan, and unless otherwise provided in an award agreement or a written employment contract between our company and a plan participant, our board of directors may provide that the successor corporation will assume each award or replace it with a substitute award, or the awards will become exercisable or vested in whole or in part upon written notice, or the awards will be surrendered for a cash payment, or any combination of the foregoing will occur. Upon a significant event, all options granted to members of our board of directors shall immediately vest. If a participant in the equity incentive plan is entitled to receive payments that would qualify as excess “parachute payments” under Section 280G of the U.S. Internal Revenue Code, those payments may be reduced so that the participant is not subject to the excise tax under Section 4999 of the U.S. Internal Revenue Code if such a reduction would result in the participant’s receiving a greater after-tax payment.
      Under the plan, and unless otherwise defined in an award agreement or a written employment agreement between us and a plan participant which governs (and subject to certain exceptions described in the plan), a significant event means:
  a person or group of persons (other than Vector Capital and its affiliates) becomes the beneficial owner of securities constituting 50% or more of voting power;
 
  50% of our current board of directors (including any successors approved by 50% of our current board) cease to constitute 50% of the board;
 
  a merger, consolidation, amalgamation or arrangement (or a similar transaction) involving us occurs, unless after the event, 50% or more of the voting power of the combined company is beneficially owned by stockholders who owned all of our common shares immediately before the event; or
 
  our shareholders approve a plan of complete liquidation or winding-up of our company, or the sale or disposition of all or substantially all our assets (other than a transfer to an affiliate).
      Transferability. Awards under our equity incentive plan generally are not transferable other than by will or by the laws of descent of distribution or as expressly permitted by the board. Except as noted, only the participant may exercise an award.

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      Section 162(m) Provisions. Awards to any participant whom the committee determines to be a “covered employee” under Section 162(m) of the U.S. Internal Revenue Code may be subject to restrictions, including the establishment of performance goals, as necessary for the award to meet the requirements for performance-based compensation.
      Additional Provisions. Our equity incentive plan will automatically terminate in 2016 unless we elect to terminate it sooner. In addition, our board of directors has the right to amend, suspend or terminate the plan at any time provided that such action does not impair any award previously granted under the plan. We will not be responsible if awards under the equity incentive plan result in penalties to a participant under Section 409A of the U.S. Internal Revenue Code. Amendments to the plan will be submitted for shareholder approval to the extent required by applicable law.
Prior Incentive Plans
      Effective December 1, 2003, we adopted a share option and phantom share unit plan (which we refer to as our prior plan). Our prior plan provided for the grant of units, options and phantom shares to our employees, officers and consultants.
      As of February 28, 2006, there were units with respect to 1,409,091 common shares outstanding under the prior plan and no separate options or phantom shares outstanding. Each unit consists of a stock option that enables the holder to acquire a fixed number of common shares at a stated exercise price and a phantom share unit in respect of the same number of shares as the option, with the same stated exercise price. Upon exercise of the stock option portion of the unit, we will issue common shares to the holder. Upon exercise of the phantom share unit portion of the unit, we may pay the holder an amount of cash equal to the fair market value of the common shares underlying the phantom share unit, less the exercise price, or we may deliver common shares with a fair market value equal to such amount of cash. In addition, in the case of a stock option exercise, we may effect a net settlement, in which we deliver the number of common shares equal in value to the fair market value of the common shares underlying the option, less the exercise price. A holder may not exercise both the stock option component of the unit and the phantom share unit component. When a holder exercises either the stock option component or the phantom share unit component, the other component is no longer exercisable. After this offering, no additional units, options or phantom share units will be granted under our prior plan, but the outstanding units granted under our prior plan will remain outstanding in accordance with their terms.
      Appropriate adjustments will be made under our prior plan to the number of shares subject to outstanding awards in the event of any future reorganization, recapitalization, share split, dividend or other change in our capital structure in order to account for the changed circumstances.
      Units granted under the prior plan generally vest as to 25% on the first anniversary of the date of grant and as to an additional 25% each year after such anniversary in quarterly installments.
Options To Purchase Securities
      The following chart sets forth information as of March 31, 2006 regarding outstanding units granted under our 2003 share option and phantom share unit plan. As of March 31, 2006, there were no outstanding awards under our 2006 equity incentive plan.

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        Common Shares        
    Fiscal Year   underlying Units        
Category   of grant   Granted   Exercised   Exercise Price
                 
All executive officers
                               
and past executive officers
    2004       109,443           $ 1.17  
      2005       664,173       4,270     $ 1.17  
      2006                    
                         
              773,616       4,270          
 
All directors and past directors
                               
who are not also executive officers
    2004       79,378           $ 1.17  
      2005       51,237           $ 1.17  
      2006       25,618           $ 15.69  
                         
              156,233                
 
All other employees
                               
or past employees
    2004       312,439           $ 1.17  
      2005       220,977           $ 1.17  
      2005       17,640           $ 13.82  
      2006       33,599           $ 15.84  
                         
              584,655                
 
All consultants
    2004       546           $ 1.17  
      2005       1,368           $ 1.17  
      2006                    
                         
              1,914                
                         
Total
            1,516,418 (1)     4,270          
                         
 
(1)  Of the total units granted in respect of 1,516,418 underlying common shares, units in respect of 100,068 underlying common shares were forfeited, terminated or otherwise cancelled prior to March 31, 2006.
Employment and Transition Agreements
      David Dobson. In June 2005, we entered into an employment agreement with David Dobson, our Chief Executive Officer. He currently receives an annual base salary of C$415,000 ($355,613 based on the exchange rate in effect as of the close of business on March 31, 2006) with an annual target bonus of 100% of the base salary based on meeting financial targets set by our board or compensation committee. If we terminate his employment without cause, we are obligated to continue paying his salary for 18 months, pay to him his annual target bonus of 100% of his base salary prorated for the portion of the year prior to the termination date and continue to make contributions in respect of Mr. Dobson to our executive group benefit plan for 18 months. In the event there is a change of control and we terminate Mr. Dobson’s employment for any reason other than for cause or he resigns for any reason within six months of the change of control, his share-based awards become fully exercisable on the earlier of the date of termination or the six—month anniversary of the change of control. We have made loans to Mr. Dobson. See “Certain Relationships and Related Party Transactions—Other Related Party Transactions.”
      Douglas McCollam. In December 2003, we entered into an employment agreement with Douglas McCollam, our Chief Financial Officer and a member of our Board of Directors. He currently receives an annual base salary of C$250,000 ($214,225 based on the exchange rate in effect as of the close of business on March 31, 2006), with an annual target bonus of 100% of the base salary based on meeting financial targets set by our board or compensation committee. If we terminate his employment without cause, we are obligated to pay to him a lump sum of one month of his then current base salary per year of service, up to a maximum of three months.
      Randy Eisenbach. In May 2005, we entered into an employment agreement with Randy Eisenbach, our Chief Operating Officer. He currently receives an annual base salary of $260,000, with an annual target bonus

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of $130,000 based on meeting targets set by our board or compensation committee each year. If we terminate his employment without cause or upon his death or disability while employed by us, we are obligated to pay to him a lump sum of six months of his then current base salary, maintain his benefits and pay his accommodation and travel expenses for six months.
      Amanda Bedborough. In January 2003, we entered into an employment agreement with Amanda Bedborough, our Executive Vice President, International Operations. She currently receives an annual base salary of £140,000, with an annual target bonus of £95,000 ($243,501 and $165,233, respectively, based on the exchange rate in effect as of the close of business on March 31, 2006) based on meeting targets set by our board or compensation committee each year. In addition, she may be eligible for a target bonus at the sole discretion of our board of directors. If we terminate her employment without cause, we are obligated to pay to her up to 18 months of her base salary and maintain her benefits for up to 18 months. In the event there is a change of control and we terminate Ms. Bedborough’s employment during the period beginning one month before and ending six months after the change of control, she is entitled to receive 18 months written notice. In lieu of notice, we may elect to pay her up to 18 months of her base salary and maintain her benefits for up to 18 months.
      Jacqueline Maartense. In January 2006, we entered into a transition agreement with Jacqueline Maartense, our Executive Vice President of Global Marketing. Under the agreement, Ms. Maartense resigned from her executive office effective as of January 2006. Ms. Maartense will continue to be an unsalaried employee of ours through June 8, 2007, and her options will continue to vest in accordance with the term of their original vesting schedule through that date and will be exercisable for 90 days thereafter. Promptly following June 8, 2007, Ms. Maartense will receive a severance payment of C$367,000 ($314,482 based on the exchange rate in effect as of the close of business on March 31, 2006).

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationship with Vector Capital
      Equity Ownership. In March 2003, an affiliate of Vector Capital acquired 22,890,000 of our Series A preferred shares, which represented a minority interest. Later that year Vector Capital initiated a transaction to take our company private by offering to purchase all of our outstanding shares for $1.05 per share. In August 2003, our acquisition by Vector Capital was completed. Our shares ceased trading on Nasdaq and the TSX on August 28, 2003 and September 2, 2003, respectively. In connection with this transaction, Vector Capital engaged a third party consulting firm to conduct due diligence and prepare a report. We purchased this report from Vector Capital for $500,000.
      Immediately following the offering, Vector Capital will own 16,157,614 of our common shares, or 66.0% of our common shares outstanding (or 61.7% assuming the over-allotment is exercised in full). In the twelve months ended November 30, 2003, we advanced $69.8 million of our funds, which were used to fund a portion of the purchase price of our acquisition by Vector Capital. In addition, in respect of its equity ownership, we paid distributions of $4.1 million, $41.0 million and $83.1 million during 2003, 2004 and 2005, respectively.
      Loans and Credit Support. In connection with the completion of the going private transaction, Vector Capital loaned us $17.0 million pursuant to two non-interest bearing promissory notes that we repaid in fiscal 2004. In connection with our existing credit facility, affiliates of Vector Capital have granted a security interest in their equity in Corel in favor of Credit Suisse First Boston, as collateral agent pursuant to a pledge agreement.
      Board Representation. Alexander Slusky, Managing Partner of Vector Capital, is currently a member of our board of directors and will serve on our compensation and audit committees. Amish Mehta, a partner at Vector Capital, served as our interim President and Chief Executive Officer from November 2003 to June 2005 and will serve on our board of directors and our compensation committee. As consideration for serving as an executive officer, Mr. Mehta was paid $450,000 and $486,000 for 2004 and 2005, respectively.
      Expense Reimbursements. In connection with certain transaction advisory work performed on our behalf we paid Vector Capital transaction fees and reimbursements for expenses of $750,000, $250,000, $2.4 million and $30,000 in 2003, 2004, 2005 and 2006 (through February 28, 2006), respectively. In addition, in connection with transaction advisory work performed on behalf of WinZip, WinZip paid Vector Capital advisory fees and reimbursements for expenses of $919,000 in fiscal 2005.
      Advisory Services Expense Reimbursement Agreement. Vector Capital may perform financial and strategic advisory and consulting services for us in the future, although they are not obligated to do so. We have entered into an advisory services agreement with Vector Capital pursuant to which they will be reimbursed by us for disbursements and reasonable out-of-pocket expenses incurred in connection with performing any advisory and consulting services at our request.
      These reimbursement payments are expected to be approximately $150,000 per year. Reimbursable expenses in excess of $250,000 in any fiscal year must be approved by the independent members of our audit committee prior to reimbursement. We have agreed to indemnify Vector Capital against any claims associated with the performance of its advisory and consulting services in accordance with the terms of the agreement. The agreement is terminable by us or Vector Capital at any time upon 90 days prior notice.
WinZip Acquisition
      In February 2006, we agreed to acquire all of the outstanding securities of WinZip, a provider of compression utility software, from Vector Capital concurrently with the closing of the offering, to complement our productivity software. The purchase price for the acquisition will be 4,322,587 of our common shares. In addition, we have agreed to repay on closing of the acquisition all of the outstanding bank debt of WinZip, which, as of February 28, 2006, totaled $19.2 million. We will grant options to purchase 74,680 of our common shares under our 2006 equity incentive plan in replacement for outstanding WinZip options. WinZip paid

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dividends totaling $12.0 million to Vector Capital in fiscal 2005 and paid a $7.5 million dividend to Vector Capital in March 2006.
      The purchase price for WinZip was determined, taking into account the respective historical and expected revenue and EBITDA contributions of us and WinZip, as well as an assumed valuation multiple of those contributions. The acquisition was negotiated in the context of entities under common control and therefore may not reflect economic or other terms that would result from an arm’s length transaction with an unaffiliated third party.
      The WinZip acquisition will be effected pursuant to an acquisition agreement between us and Vector Capital. The acquisition agreement contains customary covenants, representations and warranties. Generally, each party’s representations and warranties expire on the first anniversary of the closing date. However, Vector Capital’s representations as to its ownership and transfer of WinZip to us and certain tax matters and our representations as to the valid issuance of common shares in payment for WinZip will survive until the expiration of the applicable statutes of limitations. In addition to customary covenants, Vector Capital has agreed that, on closing, WinZip will have net debt of not more than $16.5 million. For these purposes, net debt will be equal to WinZip’s long-term debt less WinZip’s cash on hand and marketable securities.
      Under the acquisition agreement, we have agreed to indemnify Vector Capital, its directors, managers, officers, employees, representatives, agents, successors and assigns against damages incurred as a result of the breach or inaccuracy of any of our representations, covenants or agreements under the acquisition agreement. Vector Capital has agreed to indemnify us, WinZip, each of our/ WinZip’s affiliates and each of our/ WinZip’s respective directors, managers, officers, employees, representatives, agents, successors and assigns against damages incurred as a result of the breach or inaccuracy of any of Vector Capital’s representations, covenants or agreements under the acquisition agreement.
      Except with respect to Vector Capital’s indemnification obligations relating to its ownership and transfer of WinZip to us and certain tax matters and our indemnification obligations relating to the valid issuance of common shares in payment for WinZip, the indemnification obligations of each party are capped and are subject to a threshold. Except as described above, our indemnification obligations are capped at an amount equal to the dollar value of 93,239 of our common shares, based upon the initial public offering price, or $1,771,541 assuming the midpoint of the estimated price range set forth on the cover of this prospectus. Our indemnification obligations must be satisfied in cash. Vector Capital’s indemnification obligations generally must be satisfied by the return to us of up to 93,239 of our common shares, which represent a portion of the common shares issued to Vector Capital as consideration for the acquisition. Our sole remedy for a breach of the agreement by Vector Capital generally will be to recover all or a portion of these common shares. However, to the extent that Vector Capital is obligated to satisfy a claim in respect of its ownership and transfer of WinZip to us or certain tax matters, any amount of such claim in excess of the value of the indemnification shares held by Vector Capital at such time must be paid in cash. For purposes of this indemnity obligation, the indemnification shares will be valued at the initial public offering price per share, irrespective of the trading price of our common shares at the time any such indemnification payment obligation arises. Vector Capital has agreed not to transfer the indemnification shares for a period of one year from the closing date. To the extent that the threshold applies, neither party is obligated to make any indemnity payment or return of shares, respectively, unless and until the damages of the other exceed the threshold (and then the indemnifying party is liable for all damages, including those below the threshold).
Shareholder and Registration Rights
      Prior to the completion of this offering we will enter into a registration rights agreement with shareholders that will hold 16,492,427 common shares (representing 67.3% of our outstanding common shares immediately following this offering), pursuant to which the holders of a majority of those common shares will have the right to request that we file a registration statement with the SEC and applicable Canadian provincial securities authorities relating to the sale from time to time of those shares in the U.S. and Canada, and, if the holders of a majority of those shares so request, we will undertake an underwritten offering of those shares in the U.S. and Canada. We are not required, however, to effect any registration within 90 days after the effective date of a previous registration in which the holders of common shares were otherwise given the right

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to register the sale of their common shares. The existing shareholders will also have unlimited registration rights relating to the inclusion of their common shares on any registration statement filed by us on a form of registration statement that permits the inclusion of their common shares, subject to a reduction in the number of such common shares we are obligated to include if the lead underwriters participating in such transaction advise us that such reduction is necessary. The registration rights may not be exercised during the Underwriters’ lock-up period or during a period in which we advise the existing shareholders that the prospectus included in any such registration statement cannot be used for a limited period of time.
      We will agree to pay all costs and expenses in connection with each registration described above, except underwriting discounts and commissions applicable to the securities sold by the existing shareholders and to indemnify the existing shareholders against certain liabilities, including liabilities under the Securities Act of 1933 and Canadian provincial securities laws.
Other Related Party Transactions
      In June 2005, we agreed to lend David Dobson, our Chief Executive Officer, C$562,500 for the purposes of purchasing a home in Ontario, Canada. Interest accrued at the Royal Bank of Canada prime rate on C$250,000 of the amount borrowed. In June 2005, we granted units in respect of 413,971 common shares to Mr. Dobson at an exercise price of $1.17 per common share. A portion of these units representing the right to acquire 79,378 common shares vest upon the completion of this offering and the remainder vest over a four year period. Pursuant to the terms of Mr. Dobson’s employment agreement, in April 2006 we repurchased a portion of these units representing the right to acquire 11,348 common shares at a price of $18.83 per unit, or $213,676 in the aggregate. This amount was used to repay that portion of the loan described above that Mr. Dobson was obligated to repay under his employment agreement. Pursuant to the terms of his employment agreement, the remaining balance of such loan was forgiven by us in April 2006. In April 2006 we also agreed to repurchase units from Mr. Dobson representing the right to acquire 11,348 common shares at a price of $18.83 per unit, or $213,676 in the aggregate, such purchase being contingent upon, and to take effect immediately preceding, the completion of this offering. We agreed to repurchase the additional units from Mr. Dobson to help him defray additional expenses he incurred in connection with his relocation to Canada.
      In September 2005, we granted stock options to purchase 12,809 and 29,888 shares at an exercise price of $1.17 per share to Messrs. Cohen and Slusky, respectively. In January 2006, we granted options to purchase 12,809 common shares at an exercise price of $15.69 per share to each of Messrs. Giffen and Mehta.

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PRINCIPAL AND SELLING SHAREHOLDERS
      The following table sets forth information regarding the beneficial ownership of our common shares before and after giving effect to the completion of this offering including the vesting of certain options and the equity recapitalization described elsewhere in this prospectus and shows the number of shares and percentage of outstanding common shares owned by:
  each person who is known by us to own beneficially 5% or more of our common shares;
 
  each of the other selling shareholders;
 
  each member of our board of directors;
 
  each of the Named Executive Officers; and
 
  all members of our board of directors and our executive officers as a group.
      Beneficial ownership is determined in accordance with SEC rules, which generally attribute beneficial ownership of securities to each person who possesses, either solely or shared with others, the power to vote or dispose of those securities. These rules also treat as outstanding all shares that a person would receive upon exercise of stock options or warrants held by that person that are immediately exercisable or exercisable within 60 days of the determination date, which in the case of the following table is February 28, 2006. Shares issuable pursuant to exercisable stock options are deemed to be outstanding for computing the percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other person. The percentage of beneficial ownership for the following table is based on 15,169,840 common shares outstanding, as of February 28, 2006 and 24,492,427 common shares outstanding after the completion of this offering, assuming no exercise of the underwriters’ over-allotment option. Immediately prior to the closing of this offering, approximately 2.0% of the common shares will be held by residents of the United States and there will be 11 shareholders of record in the United States. We have only one class of equity securities outstanding and all holders of such class have the same rights, preferences and privileges. Our major shareholders do not have any voting rights that are different from the voting rights of shareholders generally. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all common shares shown as beneficially owned by them.

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    Shares        
    Beneficially       Shares Beneficially
    Owned Before   Shares to be Sold   Owned After this
    this Offering   in this Offering   Offering
             
Name and Address of Beneficial Owner(1)   Number   %   Number   Number   %
                     
Five Percent Shareholder:
                                       
Vector Capital(2)
    19,105,235       98.0 % (11)     2,947,621       16,157,614       66.0 % (14)
Each Other Selling Shareholder:(3)
                                       
Robert Voit(4)
    379,677       1.9 (12)     52,379       327,298       1.3 % (15)
Executive Officers and Directors:
                                       
Alex Slusky(5)
    19,122,314       98.1 (13)     2,947,621       16,174,693       66.0 (16)
David Dobson
    79,379       *             79,379       *  
Douglas McCollam(6)
    39,689       *             39,689       *  
Randy Eisenbach(7)
    24,018       *             24,018       *  
Jacqueline Maartense
    12,809       *             12,809       *  
Amanda Bedborough(8)
    41,236       *             41,236       *  
Amish Mehta(9)
          *                   *  
Steven Cohen
          *                   *  
J. Ian Giffen
          *                   *  
All directors and executive officers as a group (12 persons)(10)
    270,671       1.4             270,671       1.1  
 
  * Less than 1%.
  (1)  Except as otherwise indicated, the address for each beneficial owner is c/o Corel Corporation, 1600 Carling Avenue, Ottawa, Ontario, Canada K1Z 8R7
  (2)  All of these shares are held, directly or indirectly by Corel Holdings, L.P., a Cayman Islands limited partnership, Corel Holdings, L.P. is the registered owner of 7,941,379 of these shares. Vector CC Holdings, SRL, a Barbados entity, is the registered owner of the remaining 6,841,269 of these shares. The sole general partner of Corel Holdings, L.P. is Vector Capital Partners II International Ltd., which is wholly owned by VCPII International, LLC. The managing member of VCPII International LLC is Alexander Slusky. The address for each of Vector CC Holdings, SRL, Vector CC Holdings III, SRL and Corel Holdings, L.P. is c/o Vector Capital, 456 Montgomery Street, 19th Floor, San Francisco, California 94104. In March 2003, pursuant to a purchase agreement by and between Vector Capital and Microsoft Licensing, Inc., a wholly owned subsidiary of Microsoft Corporation, Vector Capital acquired 22,890,000 of our then-existing Series A preferred shares, representing all of our issued and outstanding Series A preferred shares after all of our remaining Series A preferred shares were converted into common shares. Vector Capital subsequently converted 12,500,000 Series A preferred shares into 12,500,000 common shares, retaining 10,390,000 Series A preferred shares. In August 2003, pursuant to a shareholder and court-approved plan of arrangement, Vector Capital’s 12,500,000 common shares were converted into 43,750,000 common shares. Vector Capital acquired an additional 92,997,891 common shares and Vector Capital continued to hold 10,390,000 Series A preferred shares. Immediately after completion of the plan of arrangement in August 2003, Vector Capital held 136,747,891 common shares, which at that time represented all of our issued and outstanding common shares. On June 25, 2004, we created Class B common shares and our then-existing 136,747,891 common shares held by Vector Capital were re-designated as Class A common shares and were amended to be convertible into Class B common shares. On June 25, 2004, 92,997,891 Class A common shares held by Vector Capital were converted to Class B common shares, and Vector Capital continued to hold 43,750,000 Class A shares. In December 2005, all of Vector Capital’s Class A common shares and Class B common shares were converted on a one-for-one basis into a total of 136,747,891 newly created common shares, and all of Vector Capital’s Series A Preferred Shares were converted on a 3.5-for-1.0 basis into a total of 36,365,000 common shares. In March 2006, we effected a 1.0 for 11.7 reverse split of our common shares resulting in Vector Capital holding a total of 14,782,648 of our common shares. Also includes 4,322,587 common shares that will be issued as consideration for the acquisition of WinZip concurrently with the closing of this offering.
  (3)  All shares held by other selling shareholders were acquired by such persons in our acquisition of Jasc.
  (4)  Robert Voit exercises sole voting control over 379,677 of our common shares pursuant to a Minority Shareholders Agreement dated as of October 25, 2004, which will terminate upon closing of this offering. Robert Voit is the sole beneficial owner of 340,120 of these common shares. The remaining 39,557 common shares represent all of the common shares beneficially owned by Susan Dub, Harold Fagley, Joseph Fromm, Jonathan Ort and Kris Tufto. Mr. Voit disclaims beneficial ownership with respect to all such common shares, except to the extent of his pecuniary interest in them.

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  (5)  Includes 17,079 common shares issuable upon the exercise of options that are exercisable within 60 days of February 28, 2006 all of which are vested and 4,322,587 common shares that will be issued as consideration for the acquisition of WinZip concurrently with the closing of this offering. With respect to the remaining 14,782,648 shares, Mr. Slusky, a principal of Vector Capital, has voting and investment power over the common shares owned by Vector Capital and therefore beneficially owns the common shares held by Vector Capital. Mr. Slusky, however, disclaims beneficial ownership of these common shares, except to the extent of his pecuniary interest in them. The address for Mr. Slusky is c/o Vector Capital, 456 Montgomery Street, 19th Floor, San Francisco, California 94104.
  (6)  Consists of 39,689 common shares issuable upon the exercise of options that are exercisable within 60 days of February 28, 2006 all of which are vested.
  (7)  Includes 19,748 common shares issuable upon the exercise of options that are exercisable within 60 days of February 28, 2006 all of which are vested.
  (8)  Consists of 41,236 common shares issuable upon the exercise of options that are exercisable within 60 days of February 28, 2006 all of which are vested.
  (9)  Mr. Mehta, a principal of Vector Capital, does not have voting or investment power over the common shares beneficially owned by Vector Capital. The address for Mr. Mehta is c/o Vector Capital, 456 Montgomery Street, 19th Floor, San Francisco, California 94104.
(10)  Includes 266,401 common shares issuable upon the exercise of options that are exercisable within 60 days of February 28, 2006 all of which are vested.
(11)  91.1% on a fully-diluted basis. Our fully-diluted share capital consists of 15,169,840 common shares outstanding, 4,322,587 common shares issuable in the acquisition of WinZip, 1,409,091 common shares subject to outstanding options, and 74,680 common shares issuable upon the exercise of replacement stock options to be granted under our 2006 equity incentive plan to holders of options to purchase shares of WinZip common stock, each as of February 28, 2006.
(12)  1.8% on a fully diluted basis.
(13)  91.2% on a fully diluted basis.
(14)  62.2% on a fully diluted basis.
(15)  1.3% on a fully diluted basis.
(16)  62.3% on a fully diluted basis.

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DESCRIPTION OF SHARE CAPITAL
General
      The following is a summary of the rights of our common shares and preferred shares as set forth in our articles of incorporation and corporate bylaws and certain related sections of the Canada Business Corporations Act, or CBCA. For more detailed information, please see our articles of incorporation and corporate bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part. We were previously existing under the Business Corporations Act (Ontario) and continued under the CBCA in January, 2006.
      On December 1, 2005, through an amalgamation with a wholly owned subsidiary, we reorganized our share capital. Following the amalgamation, our share capital consists of an unlimited number of preferred shares, issuable in series, each without par value and an unlimited number of common shares, each without par value. All of the outstanding Series A preferred shares, Class A common shares and Class B common shares of the pre-amalgamated corporation were converted into common shares of the post-amalgamated corporation. In March 2006, we effected a 1.0 for 11.7 reverse split of our common shares.
      Immediately following the closing of this offering, assuming the offering size set forth on the cover of this prospectus, we expect to have issued and outstanding 24,492,427 common shares and no preferred shares. Immediately following the closing of this offering, we also expect to have outstanding vested and unvested options to purchase a total of 1,486,760 common shares.
Common Shares
      The holders of our common shares are entitled to one vote for each share held at any meeting of shareholders. Subject to the prior rights of the holders of our preferred shares, the holders of our common shares are entitled to receive dividends as and when declared by our board of directors. Subject to the prior payment to the holders of our preferred shares, in the event of our liquidation, dissolution or winding-up or other distribution of our assets among our shareholders, the holders of our common shares are entitled to share pro rata in the distribution of the balance of our assets. There are no preemptive, redemption, purchase or conversion rights attaching to the common shares. Our common shares are issued in fully registered form. As of February 28, 2006 approximately 2.0% of the common shares were held by residents of the United States and there were 11 shareholders of record in the United States.
Preferred Shares
      Our preferred shares may be issued in one or more series. Our board of directors may amend our articles of incorporation to fix the authorized number of preferred shares in, and to determine the designation of the shares of, each series and to create, define and attach rights and restrictions to the shares of each series, subject to the rights and restrictions attached to our preferred shares as a class.
      Our preferred shares are entitled to preference over our common shares with respect to the payment of dividends and the distribution of our assets, whether voluntary or involuntary, or in the event of any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, and each series of preferred shares may also be given those preferences over our common shares and other series of preferred shares.
      Where we do not pay cumulative dividends in full with respect to a series of our preferred shares, the shares of all series of our preferred shares will participate ratably with respect to the accumulated dividends in accordance with the amounts that would be payable on those shares if all the accumulated dividends were paid in full. Where amounts payable are not paid in full on our winding-up, or on the occurrence of any other event as a result of which the holders of the shares of all series of our preferred shares are entitled to a return of capital, the shares of all series of our preferred shares will participate ratably in a return of capital in respect of our preferred shares as a class in accordance with the amounts that would be payable on the return of capital if all amounts so payable were paid in full.

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      We may not create or issue any shares ranking senior to any outstanding series of our preferred shares with respect to the payment of dividends or the distribution of assets in the event of our liquidation, dissolution or winding-up, whether voluntary or involuntary, or in the event of any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, without first receiving the approval of that outstanding series of our preferred shares given by a resolution passed at a meeting by the affirmative vote of not less than two-thirds of the votes cast at that meeting.
      The holders of our preferred shares are not entitled as a class to receive notice of, to attend or to vote at any meetings of our shareholders, except as may be specifically provided pursuant to the rights and restrictions attaching to any series of our preferred shares. The rights and restrictions attached to our preferred shares as a class may be amended with, in addition to any approval that may then be prescribed by applicable law, the approval of the registered holders of the preferred shares given by a resolution passed at a meeting by the affirmative vote of not less than two-thirds of the votes cast at such meeting.
Limitations on Liability and Indemnification of Directors and Officers
      Under the CBCA, we may indemnify a current or former director or officer of the company or another individual who acts or acted at our request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with us or another entity.
      However, indemnification is prohibited under the CBCA unless the individual:
  acted honestly and in good faith with a view to our best interests for which the individual acted as director or officer or in a similar capacity at our request;
 
  in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual’s conduct was lawful; and
 
  was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done.
      The CBCA provides that we may also advance moneys to a director, officer or other individual for costs, charges and expenses incurred in connection with a proceeding referred to above.
      Our bylaws require us to indemnify, to the fullest extent permitted by the CBCA, each of our current or former directors or officers and each person who acts or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor, and their heirs and legal representatives.
      Our bylaws authorize us to purchase and maintain insurance for the benefit of each of our current or former directors or officers and each person who acts or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor, and their heirs and legal representatives.
      We have entered into indemnity agreements with our directors and officers which provide, among other things, that we will indemnify him or her for expenses reasonably incurred by such individual in respect of a proceeding in which such individual is or may be joined as a party or is or may be liable for or in respect of penalty by reason of such individual being or having been a director or officer; provided that, we shall not indemnify such individual if, among other things, he or she did not act honestly and in good faith with a view to our best interests and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that his or her conduct was lawful.
      At present, we are not aware of any pending or threatened litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification would be required or permitted.
Other Important Provisions of Our Articles of Incorporation
      The following is a summary of certain other important provisions of our articles of incorporation and certain related sections of the CBCA. Please note that this is only a summary and is not intended to be

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exhaustive. For further information please refer to the full version of our articles of incorporation which are included as an exhibit to the registration statement of which this prospectus is a part.
Stated Objects or Purposes
      Our articles of incorporation do not contain stated objects or purposes and do not place any limitations on the business that we may carry on.
Directors
      Power to vote on matters in which a director is materially interested. The CBCA states that, a director must disclose, in accordance with the provisions of the CBCA, the nature and extent of an interest the director has in a material contract or material transaction, whether made or proposed, with us, if the director is a party to the contract or transaction, is a director or an officer, or an individual acting in a similar capacity, of a party to the contract or transaction or has a material interest in a party to the contract or transaction.
      A director who holds a disclosable interest in respect of any contract or transaction into which we have entered or propose to enter is not entitled to vote on any directors’ resolution to approve that contract or transaction, unless the contract or transaction:
  relates primarily to the director’s remuneration as a director, officer, employee or agent of us or an affiliate;
 
  is for indemnity or insurance otherwise permitted under the CBCA; or
 
  is with an affiliate.
      Directors’ power to determine the compensation of directors. The CBCA provides that the remuneration of our directors, if any, may be determined by our directors subject to the articles of incorporation and bylaws or, if our directors so decide, by our shareholders. That remuneration may be in addition to any salary or other remuneration paid to any of our officers or employees who are also directors.
      Retirement or non-retirement of directors under an age limit requirement. Neither our articles of incorporation nor the CBCA impose any mandatory age-related retirement or non-retirement requirement for our directors.
      Number of shares required to be owned by a director. Neither our articles of incorporation nor the CBCA provide that a director is required to hold any of our shares as a qualification for holding his or her office.
Action Necessary to Change the Rights of Holders of Our Shares
      Our shareholders can authorize the alteration of our articles of incorporation to create or vary the special rights or restrictions attached to any of our shares by passing a special resolution. However, a right or special right attached to any class or series of shares may not be prejudiced or interfered with unless the shareholders holding shares of those class or series to which the right or special right is attached consent by a special separate resolution. A special resolution means a resolution passed by: (a) a majority of not less than 2/3 of the votes cast by the applicable class or series of shareholders who vote in person or by proxy at a general meeting, or (b) a resolution consented to in writing by all of the shareholders holding the applicable class or series of shares.
Shareholder Meetings
      We must hold an annual general meeting of our shareholders at least once every calendar year at a time and place determined by our board of directors, provided that the meeting must not be held later than 15 months after the preceding annual general meeting. A meeting of our shareholders may be held anywhere in Canada, or provided the shareholders agree, anywhere outside of Canada.

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      Our directors may, at any time, call a meeting of our shareholders. Shareholders holding not less than five percent of our issued voting shares may also cause our directors to hold a general meeting.
      A notice convening a general meeting, specifying the date, time, and location of the meeting, and, where a meeting is to consider special business, the general nature of the special business, must be given to shareholders not less than 21 days prior to the meeting, although, as a result of applicable securities rules, the time for notice is effectively longer. Under the CBCA, shareholders entitled to notice of a meeting may waive or reduce the period of notice for that meeting, provided applicable securities rules are met. The accidental omission to send notice of any meeting of shareholders to, or the non-receipt of any notice by, any person entitled to notice does not invalidate any proceedings at that meeting.
      A quorum for general meetings is one person present and being, or representing by proxy, shareholders holding in the aggregate not less than 20% of the issued shares entitled to be voted at the meeting. If within half an hour from the time set for a general meeting, a quorum is not present, the meeting, if convened by requisition of shareholders, will be dissolved; but otherwise it will stand adjourned to the same day in the next week at the same time and place without any requirement to give notice of the adjourned to meeting to shareholders. If at the adjourned meeting a quorum is not present within half an hour from the time set for the meeting, the person or persons present and being, or representing by proxy, one or more shareholders entitled to attend and vote at the meeting constitute a quorum.
      Holders of our common shares are entitled to attend general meetings of our shareholders. Except as otherwise provided with respect to any particular series of preferred shares, and except as otherwise required by law, the holders of our preferred shares are not entitled as a class to receive notice of, attend or vote at any meetings of our shareholders. Our directors, our president (if any), our secretary (if any), our assistant secretary (if any), our auditor and any other persons invited by our directors are entitled to attend at any meeting of our shareholders but will not be counted in the quorum or be entitled to vote at the meeting unless he or she is a shareholder or proxyholder entitled to vote at the meeting.
Change of Control
      Our articles of incorporation do not contain any change of control limitations with respect to a merger, acquisition or corporate restructuring that involves us.
Shareholder Ownership Disclosure
      Although applicable securities laws regarding shareholder ownership by certain persons require certain disclosure, our articles of incorporation do not provide for any ownership threshold above which shareholder ownership must be disclosed.
Ownership and Exchange Controls
      Limitations on the ability to acquire and hold our common shares may be imposed by the Competition Act (Canada). This legislation permits the Commissioner of Competition of Canada, or Commissioner, to review any acquisition of a significant interest in us. This legislation grants the Commissioner jurisdiction, for up to three years, to challenge this type of acquisition before the Canadian Competition Tribunal if the Commissioner believes that it would, or would be likely to, substantially reduce or prevent competition in any market in Canada.
      This legislation also requires any person who intends to acquire our common shares to file a notification with the Canadian Competition Bureau if certain financial thresholds are exceeded, and that person would hold more than 20% of our common shares. If a person already owns 20% or more of our common shares, a notification must be filed when the acquisition would bring that person’s holdings to over 50%. Where a notification is required, the legislation prohibits completion of the acquisition until the expiration of a statutory waiting period, unless the Commissioner provides written notice that he or she does not intend to challenge the acquisition.

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      There is no limitation imposed by Canadian law or our articles of incorporation on the right of non-residents to hold or vote our common shares, other than those imposed by the Investment Canada Act, or Investment Act.
      The Investment Act requires any person that is not a “Canadian” as defined in the Investment Act, referred to in this discussion as a “non-Canadian,” who acquires control of an existing Canadian business, where the acquisition of control is not a reviewable transaction, to file a notification with Industry Canada. The Investment Act generally prohibits the implementation of a reviewable transaction by a non-Canadian unless after review the Minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. Under the Investment Act, the acquisition of control of us (either through the acquisition of our common shares or all or substantially all our assets) by a non-Canadian who is a World Trade Organization, or WTO, member country investor, including U.S. investors, would be reviewable only if the value of our assets was equal to or greater than a specified amount. The specified amount for 2006 is C$265 million. The threshold amount is subject to an annual adjustment on the basis of a prescribed formula in the Investment Act to reflect changes in Canadian gross domestic product. For non-WTO member investors, the corresponding threshold is C$5 million.
      The acquisition of a majority of the voting interests of an entity is deemed to be acquisition of control of that entity. The acquisition of less than a majority but one-third or more of the voting shares of a corporation or of an equivalent undivided ownership interest in the voting shares of the corporation is presumed to be acquisition of control of that corporation unless it can be established that, on the acquisition, the corporation is not controlled in fact by the acquiror through the ownership of voting shares. The acquisition of less than one-third of the voting shares of a corporation is deemed not to be acquisition of control of that corporation. Certain transactions in relation to our common shares would be exempt from review from the Investment Act, including:
  acquisition of our common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities;
 
  acquisition or control of us in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Act; and
 
  acquisition or control of us by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of us, through the ownership of voting interests, remains unchanged.
      There is no law, governmental decree or regulation in Canada that restricts the export or import of capital, or which would affect the remittance of dividends or other payments by us to non-resident holders of our common shares, other than withholding tax requirements.
Listing
      We have applied to list our common shares for quotation on the Nasdaq National Market under the symbol “CREL” and on the Toronto Stock Exchange under the symbol “CRE.”
Transfer Agent and Registrar
      CIBC Mellon Trust Company, located in Toronto, Ontario and Mellon Financial Services LLC, located in Jersey City, New Jersey are co-transfer agents and registrars for our common shares.

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SHARES ELIGIBLE FOR FUTURE SALE
      Future sales or the availability for sale of substantial amounts of our common shares in the public market could adversely affect prevailing market prices of our common shares and could impair our ability to raise capital through future sales of our securities. Upon completion of this offering, 24,492,427 common shares will be outstanding, of which 8,000,000 will be freely tradable without restriction or further registration under the U.S. Securities Act of 1933, as amended, unless held by our “affiliates,” as that term is defined in Rule 144 under the U.S. Securities Act. Upon completion of this offering, the selling shareholders will own 16,445,355 common shares representing an aggregate 67.1% ownership interest in us after the offering (or 15,645,355 common shares representing a 62.9% aggregate ownership interest in us, assuming the underwriters exercise their over-allotment option in full).
      If permitted under our new credit facility, we may issue common shares from time to time as consideration for future acquisitions, investments or other corporate purposes. In the event any such acquisition, investment or other transaction is significant, the number of common shares that we may issue may in turn be significant. In addition, we may also issue common shares in an acquisition pursuant to a registration statement or grant registration rights covering common shares issued in connection with any other acquisitions and investments.
Benefit Plan Shares
      Following the completion of this offering, we intend to file one or more registration statements under the U.S. Securities Act to register the common shares issuable under our 2003 Share Option and Phantom Unit Plan and our 2006 equity incentive plan. As a result, all common shares acquired in connection with our equity incentive plans will be freely tradable under the U.S. Securities Act, unless they are held by our affiliates, in which case resales could be effected as permitted by Rule 144 or pursuant to a resale registration statement.
Lock-Up Arrangements
      We, our executive officers, directors, certain option holders and the selling shareholders have agreed to a 180-day “lock-up,” subject to certain exceptions, with respect to substantially all of the issued and issuable common shares, including securities that are convertible into such securities and securities that are exchangeable or exercisable for such securities, which we may issue or they may own prior to this offering or purchase in or after this offering, as the case may be. This means that for a period of 180 days, subject to extension in certain circumstances, following the date of the final prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of any of these securities or request or demand that we file a registration statement related to any of these securities without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, subject to important exceptions described under “Underwriters”.
      Notwithstanding anything contained in the lock-up agreements, we may grant new options under our equity incentive plan, issue and sell our common shares upon the exercise of options outstanding at the time of the pricing of this offering and issue and sell common shares in connection with acquisitions, provided that the aggregate fair market value of such shares does not exceed $75.0 million, measured at the time of such acquisition, and the recipients agree to the restrictions in the lock-up agreements.
Shareholder and Registration Rights Agreement
      Certain of our shareholders will have registration rights for their common shares for resale in some circumstances. See “Related Party Transactions—Shareholder and Registration Rights Agreement.”
Rule 144
      In general, under Rule 144, as currently in effect, beginning 90 days after the date of this prospectus, any person, including an affiliate, who has beneficially owned our common shares for a period of at least one year is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of:
  1% of the then outstanding common shares; and

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  the average weekly trading volume in the common shares on Nasdaq during the four calendar weeks preceding the date on which the notice of the sale is filed with the Securities and Exchange Commission.
      Sales under Rule 144 are also subject to provisions relating to notice, manner of sale, volume limitations and the availability of current public information about us.
      Taking into account the lock-up agreements, the number of shares that will be available for sale in the U.S. public market under the provisions of Rule 144 will be as follows:
             
    Number of Shares    
    Eligible for Sale in    
Days after Date of This Prospectus   U.S. Public Market   Comment
         
Upon Effectiveness
    8,000,000     Shares sold in this offering
180 Days
    12,169,840     Lock-up expires; shares eligible for sale under Rule 144
365 Days
    4,322,587     Shares acquired by Vector Capital as consideration for the WinZip acquisition; eligible for sale under Rule 144
      Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares for at least two years, including the holding period of any prior owner other than an “affiliate,” is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
      This section summarizes the material United States federal income tax consequences to “U.S. Holders” (as defined below) of the ownership and disposition of our common shares, subject to the limitations in this prospectus. This section assumes that you hold your common shares as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), for United States federal income tax purposes. Since we are expected to be a “controlled foreign corporation” for United States federal income tax purposes immediately following this offering, this section also assumes that you are not a “United States shareholder” of ours (i.e., a United States person who owns 10 percent or more of the total combined power of all classes of our stock entitled to vote) within the meaning of Section 951(b) of the Code. In addition, this discussion does not address the tax consequences arising under the tax laws of any state, locality or foreign jurisdiction. Furthermore, this section does not purport to be a complete analysis of all of the potential United States federal income tax considerations that may be relevant to particular holders of