Corel Corporation - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- National Instrument 51-102 Continuous Disclosure Obligations, s.13.1 -- An issuer wants relief from the requirement to include certain financial statements in a business acquisition report (BAR) -- The issuer filed a prospectus that contained financial statements relating to the significant probable acquisition -- The financial statements required to be included in the BAR are different from the financial statements included in the prospectus -- The prospectus contained all material facts in respect of the acquired business at the time the prospectus was filed -- Since the prospectus filing date and the issuer's Q1 2006 financial statements filing date, no change in the business or affairs of the acquired business that is material and adverse to the issuer - Issuer will include in the BAR the prospectus financial statements and Q1 2006 financial statements.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.3, 8.4, 13.1.

July 5, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA, SASKATCHEWAN, MANITOBA,

ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA AND NEWFOUNDLAND

AND LABRADOR

(THE "JURISDICTIONS")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

COREL CORPORATION (THE "FILER")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirement to include certain financial statements in the Business Acquisition Report (the BAR) to be filed by the Filer in connection with an acquisition which was completed on May 2, 2006 (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is incorporated under the federal laws of Canada and is headquartered in Ottawa, Ontario.

2. The Filer is a global packaged software company with distribution in over 70 countries worldwide. The Filer provides productivity and graphics and digital imaging software.

3. The authorized capital of the Filer consists of an unlimited number of common shares, no par value (Common Shares), and an unlimited number of preferred shares issuable in series (Preferred Shares) of which, as of May 2, 2006, 24,492,427 Common Shares and no Preferred Shares were issued and outstanding. Funds managed by Vector Capital Corporation or related entities and direct and indirect subsidiaries of those funds through which the Filer's shares are owned (Vector Capital) own approximately 72% of the Filer's Common Shares. Prior to the Acquisition (defined below), Corel Corporation and WinZip Computing LLC were under common control by Vector Capital.

4. The Common Shares are listed and posted for trading on the TSX under the trading symbol "CRE" and are quoted on the Nasdaq National Markets under the trading symbol "CREL". The Common Shares are registered under Section 12 of the United States Securities Exchange Act of 1934.

5. The Filer is a reporting issuer in each of the Jurisdictions.

6. To its knowledge, the Filer is not in default of any of the requirements of the applicable securities legislation in any of the provinces in which it is a reporting issuer.

7. The Filer filed financial statements required by its continuous disclosure obligations on May 5, 2006 for the quarter ended February 28, 2006 (the Q1 2006 Financial Statements).

8. Vector Capital acquired Corel Corporation in August 2003. Vector Capital subsequently acquired the business conducted by WinZip Computing Inc. (the WinZip Business) from an unaffiliated third-party on January 17, 2005. In 2005, Vector Capital decided to combine the business conducted by Corel Corporation and the WinZip Business in connection with the planned initial public offering of common shares of the combined company (the Offering). Upon closing of the Offering on May 2, 2006 Corel Corporation acquired the WinZip Business pursuant to a stock purchase agreement among Corel Corporation, Vector CC Holdings IV, SRL and Cayman Ltd. Holdco pursuant to which Corel Corporation purchased all of the issued and outstanding shares of all classes of capital stock of the WinZip Business (the Acquisition).

9. The Filer, Vector Capital and other minority shareholders sold 6,500,000 Common Shares of the combined company in Canada and the United States in the Offering pursuant to a supplemented PREP prospectus dated April 25, 2006 (the "Prospectus") and a registration statement on Form F-1 dated April 25, 2006, respectively.

10. Prior to the Acquisition, Corel Corporation and the WinZip Business were under common control. Vector Capital owned approximately 98% of Corel Corporation's common equity capital and 100% of the equity interests of the WinZip Business. In accordance with Statement of Financial Accounting Standards of the FASB No.141-Business Combinations and U.S. Generally Accepted Accounting Principles, the Filer presented combined consolidated financial statements in the Prospectus for Corel Corporation and the WinZip Business as if the WinZip Business had been acquired by the Filer on January 17, 2005, the date on which Corel Corporation and the WinZip Business became under common control of Vector Capital.

11. Ontario Securities Commission Rule 41-501 General Prospectus Requirements (as in effect as of the date of the Prospectus) (OSC Rule 41-501) and Quebec Regulation Q-28 Respecting General Prospectus Requirements (Quebec Regulation Q-28) set forth the financial statements that are required to be included in a long form prospectus (the Prospectus Financial Statement Requirements).

12. Consistent with the requirements of Section 6.4 of OSC Rule 41-501 and Quebec Regulation Q-28 and with discussions held between the Filer's advisors and staff of the Ontario Securities Commission, the Prospectus contained the following financial statements relating to the Acquisition:

a) the Combined Consolidated Balance Sheet for Corel Corporation as of November 30, 2005 and Consolidated Balance Sheet as of November 30, 2004 and the Balance Sheets for WinZip Computing, Inc. as of January 17, 2005, November 30, 2004 and 2003;

b) the Combined Consolidated Statement of Operations for Corel Corporation for the year ended November 30, 2005 and Consolidated Statements of Operations for the year ended November 30, 2004 and for the period from December 1, 2002 through August 28, 2003 and for the period from August 29, 2003 through November 30, 2003 and the Statements of Operations for WinZip Computing, Inc. for the period from December 1, 2004 through January 17, 2005 and for the years ended November 30, 2004 and 2003;

c) the Combined Consolidated Statement of Cash Flows for Corel Corporation for the year ended November 30, 2005 and Consolidated Statements of Cash Flows for the year ended November 30, 2004 and for the period from December 1, 2002 through August 28, 2003 and for the period from August 29, 2003 through November 30, 2003 and the Statements of Cash Flows for WinZip Computing, Inc. for the period from December 1, 2004 through January 17, 2005 and for the years ended November 30, 2004 and 2003;

d) Combined Consolidated Statement of Changes in Shareholders' (Deficit) Equity for Corel Corporation for the year ended November 30, 2005 and Consolidated Statements of Changes in Shareholders' (Deficit) Equity for the year ended November 30, 2004 and for the period from December 1, 2002 through August 28, 2003 and for the period from August 29, 2003 through November 30, 2003 and Statements of Changes in Shareholder's Deficit for WinZip Computing, Inc. for the period from December 1, 2004 through January 17, 2005 and for the years ended November 30, 2004 and 2003; and

e) Corel Corporation Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended November 30, 2005.

13. All material facts in respect of the WinZip Business and the Acquisition at the time the Prospectus was filed, including the Prospectus Financial Statements, were provided in the Prospectus. To the knowledge of the Filer, since the time the Prospectus was filed on April 26, 2006 and since the time the Q1 2006 Financial Statements were filed on May 5, 2006, there has not been any change in the business or affairs of the WinZip Business that is material and adverse to the Filer, taken as a whole.

14. Pursuant to the requirements of Part 8 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), the Filer is required to file a BAR relating to the Acquisition within 75 days after the date of the Acquisition.

15. Using the significance tests set forth in Section 8.3 of NI 51-102, the Acquisition was determined to be significant above the 40% level.

16. To comply with the requirements of Section 8.4 of NI 51-102 the Filer would be required to include the following financial statements in the BAR:

a) the audited Balance Sheets for WinZip Computing, Inc. as of November 30, 2005 and 2004;

b) the audited Statements of Operations, Statements of Cash Flows and Statements of Changes in Shareholder's Deficit for WinZip Computing, Inc. for the year ended November 30, 2005 and 2004;

c) the unaudited Balance Sheets for WinZip Computing, Inc. as of February 28, 2006 and November 30, 2005;

d) the unaudited comparative Statements of Operations, Statements of Cash Flows and Statements of Changes in Shareholder's Deficit for WinZip Computing, Inc. for the three months ended February 28, 2006;

e) the unaudited pro forma Balance Sheet of the Filer as of February 28, 2006 (as if the Acquisition had taken place on February 28, 2006); and

f) the unaudited pro forma Statements of Operations for the Filer for the year ended November 30, 2005 and for the three months ended February 28, 2006 (as if the Acquisition had taken place on December 1, 2004).

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the Filer incorporate by reference the Prospectus Financial Statements and the Q1 2006 Financial Statements in the BAR.