10-K405

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 30, 2001

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number 0-20562

COREL CORPORATION
(Exact name of Registrant as Specified in its Charter)

 

Canada	Not Applicable
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

1600 Carling Avenue
Ottawa, Ontario, Canada    KIZ 8R7
(Address of Principal Executive Offices including Zip Code)

(613) 728-8200
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class

Common shares, no par value

Common share purchase rights

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    [X]     No [   ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.4054 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

     As of February 15, 2002, the aggregate market value of Common Shares held by non-affiliates of the registrant, based on the closing sales price of $1.56 of the Registrant's Common Shares as reported on the NASDAQ National Market, was $125,928,529. As of that date 80,723,416 Common Shares were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     None

COREL CORPORATION

FORM 10-K

For The Fiscal Year Ended November 30, 2000

Index

Part I.
Item 1.	Business
Item 2.	Properties
Item 3.	Legal Proceedings and Government Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
Part II.
Item 5.	Market for the Registrant's Common Equity and Related Stockholder Matters
Item 6.	Selected Financial Data
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7a.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III.
Item 10.	Directors and Executive Officers of the Registrant
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management
Item 13.	Certain Relationships and Related Transactions
Part IV.
Item 14.	Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K
Signatures
Exhibits Index

All financial information contained in this report is expressed in United States dollars, unless otherwise stated.

PART I

PART I

Item 1. Business

GENERAL

For the purposes of this report, except in the Consolidated Financial Statements and Management's Discussion and Analysis thereon, unless the context otherwise requires, "Corel" and "the Company" refer to the consolidated operations of Corel Corporation and its wholly owned subsidiaries. The Company was incorporated as Corel Systems Corporation under the Canada Business Corporations Act by Articles of Incorporation, dated May 29, 1985. The name of the Company was changed to Corel Corporation in May 1992. The Company was continued under the Canada Business Corporation Act by Articles of Amalgamation dated December 1, 1998.

Corel develops, manufactures, licenses, sells and supports a wide range of software solutions for home and small business users, creative professionals and enterprise customers. Corel's software is available for use on most industry computers, including those produced by International Business Machines ("IBM") Corporation, Apple Computer, Inc., and Linux systems. The Company plans to leverage its technology assets and experience to enhance its relationships with existing customers, as well as target new customers in emerging markets created by the expansion of the Web and the increasing demand for graphics-rich visual communication. Corel also plans to develop applications for Microsoft Corporation's ("Microsoft") .NET platform as part of its commitment to offer customers flexible services and solutions.

Corel's business strategy emphasizes the development of a broad line of software solutions for business, academic and personal use, marketed through multiple channels of distribution. These software solutions are designed to provide customers with tools to create, publish and deploy content. The Company also plans to leverage and extend its technology base using partnerships and acquisitions to develop and market solutions that maximize customers' ability to exchange information.

Historically, the Company has been a developer and marketer of products for users seeking content creation software in either the Creative Products or Business Applications markets. The Creative Products group included graphics applications designed for business, academic and home markets. The Business Applications Products group created business productivity applications designed for those same markets. In January 2001, the Company's new management team announced a detailed strategy designed to capitalize on its current technology assets while laying the foundation for long-term revenue growth. Organized around three phases, the Company's first phase was centered on capitalizing on immediate opportunities, which include current rebranding efforts and releasing upgrades to existing products. Subsequent phases of the strategy are focused on making strategic investments to capture new opportunities in the enterprise market - opportunities driven by the proliferation of content and the need to more effectively create, manage and share that content within complex business environments. While addressing immediate opportunities and investing to capture new markets, the Company also consistently tracks trends in order to effectively address customer needs as they evolve with the expansion of wireless technology and Web-based services.

In line with the first two phases of the January 23, 2001 strategy, on October 29, 2001, Corel acquired Micrografx, Inc. Micrografx developed enterprise process and graphics software, solutions and services. The technology acquired will aid in the development of new products that enable customers to create graphics-rich content that can be output easily and simultaneously to multiple channels, including the Web. This acquisition also gave Corel access to a new market, Enterprise Process Management ("EPM").

On August 7, 2001, Corel and SoftQuad Software, Ltd. ("SoftQuad") announced a definitive agreement whereby Corel will acquire SoftQuad in a stock-for-stock transaction. SoftQuad is a developer of eXtensible Markup Language ("XML")-enabling technologies and commerce solutions for e-Business. Technologies acquired from this acquisition will provide the necessary technologies to develop cross-media publishing solutions. The transaction is subject to approval of SoftQuad's shareholders at a meeting to be held March 14, 2002.

The Company continues to develop and market primarily content creation software. Over the medium to long term, the Company plans to leverage and extend its stable of technologies in order to deliver customized solutions for the enterprise customer. The Company's Sales and Marketing groups have been reorganized to more effectively address three customer profiles: home and small business, creative professionals and enterprises. Today, the majority of the Company's revenues are generated through sales to home and small business customers. Acquisitions are expected to play an important role in supplementing the Company's current technology base. For example, the acquisition of Micrografx is expected to assist the Company with its plans to grow revenues with its EPM and technical graphics solutions. The Company believes that the rapid change in technology related to personal computers, and peripheral devices such as cell phones and portable digital assistants, has created an opportunity for the Company. Customers are seeking solutions that will enable them to create content and deliver it across multiple communication devices while maintaining the integrity of the content. The Company believes that this cross-media publishing space represents the greatest potential as the underlying technologies provide the opportunity to develop content solutions for enterprises.

The Sales group is responsible for building long-term business relationships with customers. This department is organized to serve three main customer types: end users, original equipment manufacturers ("OEM") and enterprises. The department also focuses directly on large organizations, offering tailored licence programs and organization-wide support. The department manages the channels that serve customers by working with distributors, resellers and OEMs. The Customer Service and Technical Support departments support Corel's products with technical support and customer service for end users and organizations.

During fiscal 2001, the Company established a new division, Strategic Relations, to foster key relationships with existing and potential high profile industry partners. As the Company advances its strategy to provide enterprise content solutions, it will become increasingly important to strengthen its partnerships with content management solution providers.

Other supporting departments are responsible for managing business operations and overall business planning. This includes the process of manufacturing and delivering finished goods and licences, as well as corporate functions such as finance, administration, human resources, legal, business development and information technology.

The Company has only one global operating segment and sells its products worldwide from four geographic regions. Note 14 to the Consolidated Financial Statements (see Item 8) sets forth financial information by product group, sales channel and geographic region and is incorporated herein by reference.

PRODUCTS Home and Small Business Applications

The Company develops and markets graphics and business applications. Primary examples of graphics applications include illustration, photo-editing, painting, 3D rendering, and animation programs. Corel's graphics applications are developed principally for Microsoft Windows ("Windows") and Macintosh operating systems, and are available in English and French as well as selected other languages. All of the following products have been developed and are available in market.

CorelDRAW Graphics Suite. CorelDRAW 10 Graphics Suite provides home and small business users with a set of integrated graphics applications. The suite's modules features common commands, and extensive use of object linking and embedding ("OLE") cross-application capabilities. CorelDRAW 10 Graphics Suite is available in several versions with certain combinations of modules, supporting utilities, clipart images, fonts and photos available for the various operating system platforms.

CorelDRAW 10 is an illustration program that allows users to produce color illustrations incorporating both text and objects. CorelPHOTO-PAINT 10 is a photo-editing and painting application that enables users to apply global photo-retouching and pixel-by-pixel editing to scanned or photographic images. Corel R.A.V.E. gives users the ability to create effects that take place over a period of time, resulting in an animation.Supporting utilities include: Microsoft Visual Basic for Applications 6.2, an application that allows developers to build custom business solutions by automating and integrating off-the-shelf software applications to meet specific customer needs; Canto Cumulus Desktop LE 5.0, a tool that organizes media and graphics files into a catalog which can be indexed so that users can find images, designs, clipart images, stock photos and QuickTime movies quickly and easily; Bitstream Font Navigator 4.0, which gives users a fast and easy way to find, install and organize fonts into manageable groups, and view and print font samples; Corel TEXTURE 10, a tool for creating realistic natural textures; CorelTRACE 10, a bitmap-to-vector conversion utility for images and text; Corel CAPTURE 10, a tool for capturing portions of, or the entire, application window. CorelDRAW 10 Graphics Suite also includes Adobe Acrobat Reader 4.0 and Adobe Photoshop compatible plug-in filters, including Digimarc Digital Watermarking and Human Software Squizz!.

Corel Picture Publisher. Corel Picture Publisher is a photo-editing, image composition and painting application. It features a variety of image-enhancing filters to improve the quality of scanned images, and special effects filters, such as the new Red Eye Removal and Smart Blur, that alter the appearance of images. Corel Picture Publisher is available in various versions for various operating systems.

CorelDRAW ESSENTIALS. Like CorelDRAW Graphics Suite, CorelDRAW ESSENTIALS is a suite that features graphics, page layout, photo-editing and painting tools to help users create graphics projects for print and the Web. CorelDRAW ESSENTIALS is designed for users who have moved beyond entry-level graphics products. It is a more sophisticated solution that provides more power and creative control but is easier to learn to use than a professional tool. It includes modified versions of CorelDRAW 9 and CorelPHOTO-PAINT 9, as well as Canto Cumulus Desktop LE 5.0, media asset management, Corel CAPTURE 9, a screen capture utility, Adobe Acrobat Reader 5, QuickTime 5, Digimarc Digital Watermarking, Human Software Squizz!, and clipart images, symbols, photos and fonts.

WordPerfect Family Pack. WordPerfect Family Pack 3 is a collection of software applications designed to meet the home computing needs of all the members of a household. Applications in WordPerfect Family Pack 3 include Task Manager, WordPerfect 9, Quattro Pro 9, Corel Print House 5, Corel Photo House 5, Compton's Interactive World Atlas, Mavis Beacon Teaches Typing 11, McAfee VirusScan, and Internet content filter CYBERsitter 2000.

Corel VENTURA. Corel VENTURA is a suite of high-end desktop publishing software programs for publishing documents of any size, length or complexity. The latest version of Corel VENTURA allows users to publish documents to HTML, portable electronic formats, such as Envoy and Adobe Acrobat, a CD-ROM, over an internal network or on the Internet.

Bryce. Bryce offers an easy way to create, explore and animate 3D imagery for multimedia, video and the Web.

Creative Professional

The Company develops software for creative professionals who are looking for innovative, powerful enhancement tools that easily integrate into their professional workflow. In July 2001, the Company launched procreate, a collection of enhancement tools designed specifically to address the preferences of this target customer. Available for both Macintosh and Windows, procreate products are optimized for Mac OS X, leveraging the strengths of Apple's next-generation operating system. All of the following products have been developed and are available in market.

KPT effects. KPT effects, a member of the procreate line of products, is a collection of image filters that produce effects for print and the Web. KPT effects includes plug-in filters that extend and enhance the creative possibilities of Adobe Photoshop and other compatible products.

Painter 7. Also part of the procreate line of products, Painter 7 captures the subtleties of an artist's style with true-to-life natural-media tools, including Watercolor, Liquid Ink, Color Reduction, oil paints, pens and pastels, enabling horizons of high-quality output for print and the Web.

KnockOut. The third product offered under the procreate line, KnockOut 2 is a masking tool that can perform complex masking functions while preserving fine image details, such as blurred or out of focus edges, hair, smoke and shadows.

Enterprise

The Internet has created new opportunities for businesses to enhance service and deliver information to partners and customers electronically. Today, Web sites are an important source of product and service information across many industries, and businesses rely on them to improve customer service and enhance market reach. This change, however, has brought with it new demands: whereas at one time corporations published predominantly in printed form only and updated publications in manageable cycles, today businesses are expected to deliver up-to-date information almost continuously, through Web sites, through wireless devices and in a variety of formats, as well as in printed form. This has taxed the existing print publishing processes. In this new environment, for example, information is often re-used from one publication media to another and across many documents. Changing it may imply revising hundreds of individual documents at once. Tracking and executing these revisions continuously to ensure accurate information delivery on multiple media, 24 hours a day, seven days as week, often requires new systems and processes. XML-based content creation provides the opportunity to effectively address the demands created by the need to continuously exchange information of varying formats across different devices. XML is a language that allows for the exchange of data on the World Wide Web that is an emerging standard for business-to-business ("B2B") e-commerce. Content management systems support the publishing process from authored document to final output, controlling and tracking the flow of work and managing revisions. XML, on the other hand, facilitates the re-use of information across documents and delivery media. XML and other open standard technologies enable organizations to streamline, automate and manage information flow from potentially many thousands of authors, and to manage and control the delivery of this information to many Web sites and printed documents. Today, traditional word processors and desktop publishing tools do not produce XML content that is suitable for cross-media publishing applications. The Company's vision is to offer solutions that not only enable non-technical authors within enterprises to create various types of content, but also to interact with and share XML content more easily, thereby allowing enterprises to deploy XML content management solutions more broadly within their organizations and across many delivery media.

Although the Company currently offers products for the enterprise market, its products and infrastructure require augmentation to address this market effectively. Targeted customers include small and medium enterprises and large organizations that produce or edit substantial documents, with power and control as their key requirements. Business applications are designed for use by a broad class of end users, regardless of business, industry or market segment. Primary examples of productivity applications are word processing, spreadsheet and presentation graphics programs. Corel's productivity software applications are currently available on the Windows operating system, and are available in English and French. Future versions of these offerings will be enhanced by implementing proprietary technology and technologies through acquisition, resulting in solutions that better meet the needs of enterprise customers.

The Company intends to expand its presence in the enterprise space by also offering future releases of technical graphics software. With the acquisition of Micrografx, the Company can expand on its ability to offer standards-based products and services that enable companies to leverage their valuable investments in engineering drawings, technical illustrations, schematics and diagrams, and to optimize them for use in innovative Web-based applications such as parts catalogues, technical documentation, shop-floor viewing, and real-time monitoring and control systems.

Also through the acquisition of Micrografx, the Company is able to offer enterprise customers Enterprise Process Management (EPM) solutions. These solutions are targeted at organizations implementing a strategy for business process improvement, requiring tools and services to model and simulate their business processes. These tools exist to help management supervise this key sequence of events and to assist the organization to perform at optimal levels. All of the following products have been developed and are available in market.

Upon the completion of the acquisition of SoftQuad, the Company will become a leading provider of solutions software products for the creation and management of XML-based content. SoftQuad's technology forms an integral piece of the Company's strategy to develop and market content solutions to existing and prospective enterprise customers.

WordPerfect Office. WordPerfect Office 2002 is a suite of software programs featuring seamless integration of the most commonly used desktop applications. It combines document creation with graphics and Internet capabilities. There are several versions of WordPerfect Office available. WordPerfect Office 2002 - Standard Edition contains the following applications: WordPerfect 10, Corel's principal word-processing program, providing all the features that users of word-processing products expect plus the ability to handle graphics, tables, spreadsheet data, charts, and images imported from other software programs; Quattro Pro 10, an integrated spreadsheet program with database, business graphics and Internet capabilities; Corel Presentations 10, a presentation graphics program for producing slide shows, overheads, transparencies and prints; and CorelCENTRAL 10, Corel's personal information manager and calendar application. In addition to the applications offered in the standard version, WordPerfect Office 2002 - Professional Edition includes Paradox 10, a powerful data management tool that delivers advanced features such as the ability to publish a database to the Web, and the speech-recognition technology of Dragon NaturallySpeaking.

iGrafx FlowCharter. iGrafx FlowCharter creates powerful, interactive diagrams of business processes, workflow, computer networks, Web sites, and databases, among others.

iGrafx Process Central. iGrafx Process Central is a central repository that integrates with iGrafx FlowCharter to give stakeholders real-time access to all enterprise process data, and save users time developing enterprise models by linking and re-using models whenever possible. It also provides comprehensive repository capabilities, such as access and security control, concurrency control, versioning and configuration management.

Corel DESIGNER. Corel DESIGNER is the technical graphics solution that bridges the gap between AutoCAD and camera-ready images, providing a graphical tool set that supports a range of file types. Engineering departments and technical publishers can take advantage of it to create presentation-quality graphics that can be easily utilized in office software documents, presentations, Web and Intranet pages, and much more. With tools for image editing and 3D creation, Corel DESIGNER is a complete graphics solution for technical illustration.

XMetal. Released in May 1999 by SoftQuad, XMetaL is SoftQuad's flagship product, and is expected to become a member of the Company's product line upon completion of the acquisition of SoftQuad in the first half of fiscal 2002. XMetaL is a software program that enables organizations to create XML content easily and avoid the complexities of formatting languages. As organizations continue to adopt XML, they will need to create valid XML documents that conform precisely to the rules of a specific application. For example, product descriptions for product catalogues, user guides for consumer products, articles, newsletters, purchase orders, bills of material and part specifications all have particular XML rules as to their structure and syntax. XMetaL enables non-technical individuals to create valid XML documents without having to remember and correctly apply all these rules. XMetaL reduces training costs and enables businesses to deploy XML applications broadly, both internally and to business partners.

RESEARCH AND DEVELOPMENT

The software industry is characterized by frequent changes in technology and user preferences, which require constant attention to software technology trends, shifting consumer demand and rapid product innovation. The pace of change has recently increased due to the burgeoning interest in the Internet, networking in general and new programming languages and platforms, such as XML and Microsoft's .NET platform.

Accordingly, Corel must be able to provide new software products, and modify and enhance existing products on a timely and continuing basis to be competitive. Corel employs a strategy of internally developing software, contracting for the development of certain products by third parties and acquiring or licensing technology that will, in most cases, be enhanced by Corel. Corel believes that its ability to maintain technological competitiveness will depend in large part upon its ability to successfully enhance its existing products, develop new products on a timely basis and acquire or license complementary technologies and products in a timely manner. The Company strives to become as informed as possible at an early stage about changing usage patterns and hardware advances that may affect software design.

Corel's research and development expenses were $25.3 million, $43.9 million and $40.0 million in fiscal 2001, 2000 and 1999, respectively.

MANUFACTURING

The principal materials and components used in Corel's products include computer media (diskettes, CD-ROMs or tapes) and documentation. Corel is often able to acquire component parts and materials on a volume discount basis.

Corel contracts all of its manufacturing activity to third parties. Manufacturing involves the duplication of computer media and user manuals, assembly of components, spot testing of the product and final packaging, all in accordance with Corel's specifications. Corel believes there is an adequate supply of and source for the raw materials used in its products, and that multiple sources are available for media duplication, manual printing and final packaging. Corel's products are generally shipped as orders are received and accordingly, Corel has historically operated with little backlog.

MARKETING, SALES AND DISTRIBUTION

Corel's marketing and sales efforts are directed toward several customer types including end users, corporate accounts and OEMs. Corel's marketing and sales staff seek to build long-term relationships with customers and end users of Corel products. In addition to the OEM channel, Corel has four major geographic sales and marketing areas: Canada, United States of America, Europe-Middle East-Africa (EMEA) and other.

End user marketing activities cover all of Corel's products and target end users who make individual buying decisions for the computers they use at work or at home. These activities include developing and administering reseller relationships, channel marketing and promotions, end user marketing programs and seminars, events and product training for resellers.

The corporate licensing unit has responsibility for sales and marketing activities that target groups of users in all organizations and enterprises. The unit works directly with these organizations and enterprises, as well as with channel partners such as distributors, value-added resellers (VARs) and large account resellers, to provide complete desktop productivity solutions to this customer segment. The unit's sales and marketing activities include providing technical training to channel resellers, and supporting and providing seminars, events and sales training for channel partners. The unit also has responsibility for administering the Corel Licence Programs (CLP) worldwide. Key products for the corporate licensing unit are graphics and productivity software applications.

The OEM customer unit works with OEMs that pre-install or bundle Corel software on their computers or peripheral hardware.

Finished Goods Channels

Distributors and Resellers. Corel sells its products worldwide to over 160 distributors for resale through software resellers. Distributors include Ingram Micro, Merisel, Tech Data and Navarre. Resellers include ASAP Software and Software House International. Within the United States and Canada, Corel has sales representatives and support personnel who solicit orders from distributors and resellers, and provide product training and sales support. In other countries, Corel's marketing personnel provide product training and sales support.

Licensing. Corel has a program designed to make it easier for large or small organizations to acquire and maintain Corel products. CLP consists of three separate programs. CLP Universal offers flexible software acquisition, licensing and Maintenance options specially designed to meet the needs of large multinational organizations. Targeted audiences include technology specialists and influential end users in large enterprises. Marketing efforts and fulfillment are generally co-ordinated through Corel's network of large account resellers. CLP Choice offers flexible software acquisition and licensing options specially designed to meet the needs of small- and medium-sized organizations. Marketing efforts and fulfillment are generally co-ordinated through Corel's network of distributors and resellers. CLP Freedom is designed to make it easy and affordable for organizations to standardize on a single software solution. This package allows organizations to license Corel's business or graphics software products for a one- or two-year term. The minimum licensing commitment to qualify is only 100 employees or workstations within an entire organization or a defined portion of an organization.

Solution Partners. Corel's Solution Partners program is a support relationship with independent developers and consultants that provide products, solutions or services around Corel products. The program supports independent software vendors, consultants, VARs, system integrators, custom application developers and solution developers, as well as technical support and training organizations. Under this business partnership strategy, the Company provides sales and product information, development services, access to beta software, discounts on Corel products and dedicated developer technical support.

Approved Service Bureaus. The Corel Approved Service Bureau Program (CASB) supports organizations that output and render files created with Corel's graphics software applications such as CorelDRAW and Corel VENTURA. Under CASB, the Company provides members with product information, free priority technical support and referral services through Corel's Bulletin Board service, and customer service and technical support networks.

Direct Marketing. Corel promotes some of its products through direct marketing techniques directed toward existing and potential users of Corel's products. Fulfillment of product to the end user is either by direct shipment or through resellers.

Online Distribution. Corel offers its products online through third-party Web sites, including buy.com and egghead.com, as well as through its own sites, which include Corel Store and ClipartCity.com.

OEM Channel

Corel markets certain productivity, graphics and consumer software under licence agreements with OEMs that grant the OEMs the right to distribute copies of Corel's products with their OEM hardware products. Corel has OEM agreements covering one or more of its products with most of the major PC and peripheral hardware vendors, including Agfa, Canon, Compaq, Cybermax, Dell, Epson, Gateway 2000, Hewlett-Packard, Packard Bell, PCChips, Quantex and Vobis.

Advertising and Promotion

Advertising, direct marketing and marketing materials are targeted to various end user groups through a variety of programs: (i) extensive worldwide advertising in consumer media and trade publications; (ii) joint promotions with computer retailers under which qualifying resellers and OEMs are reimbursed for certain advertising expenditures; (iii) trade show and user group participation; and (iv) direct corporate marketing efforts. The Company has an in-house tactical and strategic marketing department which, in conjunction with third-party agencies, is responsible for conceptualizing, producing, placing and monitoring the effectiveness of Corel's global ad copy, packaging and promotional material. The Company maintains a broad advertising campaign emphasizing the Corel brand identity.

CUSTOMERS

As described above, Corel has three main customer types: end users, organizations or enterprises, and OEMs. Most end users of Corel products are individuals in business, government agencies, educational institutions and at home. These end users obtain Corel products primarily through distributors, resellers and OEMs. Note 14 to the Consolidated Financial Statements (see Item 8) identifies, as required, customers that represent more than 10% of Corel's revenues.

PRODUCT SUPPORT

Corel provides product support options to meet the needs of users of Corel products. Support personnel are located in Ottawa, Ontario. Certain support is also provided by qualified third-party support organizations in accordance with Corel's specifications for quality and timeliness of the support response. Corel generally hires individuals with product expertise and provides them with the productivity tools, continuous product education, training and consistency processes to deliver quality support for Corel products. Coverage options currently range from standard no-charge toll telephone support to fee-based offerings, providing unlimited toll-free telephone and technical support for all Corel products, 24 hours a day, seven days a week.

Users have access to Corel's Knowledge Base, a database of technical support articles that is updated regularly with useful information regarding Corel products. Corel provides access to the Knowledge Base, technical support information and frequently asked questions and answers via its Web site (www.corel.com). Corel maintains a bulletin board service for European customers and a forum on CompuServe to provide users with a mechanism to provide feedback as well as receive technical updates and notes. Additionally, users can access Corel's automated Fax on Demand system where up-to-date information about common issues and tips and tricks is stored in numbered documents.

Corel's Customer Service representatives, including a number of third-party organizations, answer questions about product specifications and pricing, sell Corel products, and issue replacement media and documents.

COMPETITION

Competition within distribution channels may adversely affect the Company's business. Corel competes with other software vendors for access to distribution channels, and the attention of customers at the retail level and in corporate accounts. Other competitors with greater market share and significantly greater financial resources may command the attention of the retail accounts, the corporate market and OEMs. In order to compete for distribution channel space, the Company must offer compelling reasons to distribute its products at a reasonable price and offer compatibility with competitive products. The Company must also use innovative marketing ideas in order to compel the distributor to carry its products.

Inability to maintain distribution channel space could have a material adverse affect on the Company's business, results of operations and financial condition.

The marketplace is intensely competitive and rapidly changing, and the Company may not be able to compete successfully in the future. The software industry is highly competitive and subject to rapid technology change. Many of the Company's current and potential competitors have larger technical staffs, more established and larger marketing and sales organizations, and significantly greater financial resources. The rapid pace of technological change constantly creates new opportunities for existing and new competitors, and can quickly render existing technologies less valuable. As the market for the Company's products continues to develop, additional competitors may enter the market and competition may intensify. Inability to compete in the following factors could have a material adverse affect on the Company's business, product performance, product features, ease of use, reliability, hardware and competitor compatibility, brand name recognition, product reputation, pricing levels of advertising, availability and quality of customer support, and timeliness of product upgrades.

The Company's software products targeted at the home and small business user face substantial competition from a wide variety of companies, including Adobe Systems Incorporated, JASC Software, Inc., Macromedia Inc., and Microsoft. The Company's competitors in the creative professional marketplace include Adobe, Macromedia and Apple Computer, Inc. Enterprise solutions competitors (currently primarily in the productivity or office suite marketplace) include Microsoft, IBM (Lotus Development Corporation) and Sun Microsystems, Inc. As the Company makes advancements into the enterprise solutions market with content creation solutions, potential competitors include Adobe and Microsoft.

PROPRIETARY RIGHTS

Corel regards certain features of its internal operations, software and documentation as proprietary, and relies on contract, patent, copyright, trademark, trade secret laws and other measures to protect its proprietary information. The Company believes, however, that due to the rapid pace of innovation within its industry, factors such as the technological expertise and creative skills of its personnel are more important to establishing and maintaining technological leadership than are the various legal protections of its technology.

Corel provides its products to end users under non-exclusive licences, which generally have a perpetual term, with the exception of academic licences, and are transferable provided the transferor erases or destroys its copy of the product. In special circumstances, Corel makes source code available for certain of its products. The provision of source code may increase the likelihood of misappropriation or other misuse of Corel's intellectual property. Corel licenses its products pursuant to "shrink wrap" and/or "click wrap" licences that are not signed by licensees and therefore may be unenforceable under the laws of certain jurisdictions. In addition, the laws of some foreign countries do not protect Corel's proprietary rights to the same extent as do the laws of Canada and the United States.

From time to time, Corel receives notices from third parties asserting that Corel has infringed their patents or other intellectual property rights. Corel may find it necessary or desirable in the future to obtain licences from third parties relating to one or more of its products, or relating to current or future technologies. There can be no assurance that third parties will not assert infringement claims against Corel in the future with respect to current or future products, or that any such assertion will not require Corel to enter into royalty arrangements or result in costly litigation. As the number of software products in the industry increases and the functionality of these products further overlap, Corel believes that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, can be time consuming and expensive to defend.

EMPLOYEES

As of February 15, 2002, Corel employed approximately 889 people on a full-time basis. Corel's success depends to a significant extent upon the performance of its executive officers and key technical, sales and marketing personnel. Corel believes that its future success will also depend in large part on its 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, Corel believes it has been successful in its efforts to recruit qualified employees, but there can be no assurance that Corel will continue to be as successful in the future. None of Corel's employees are subject to collective bargaining agreements. Corel believes relations with its employees are favourable.

Item 2. Properties

		Area	Expiration
Location	Purpose	(in square feet)	year
Ottawa, Canada	Corporate head office	177,000	2015
Ottawa, Canada	Training	13,025	2002
Dublin, Ireland	Administration	7,292	2025
Dallas, Texas	Sales and marketing	13,904	2005
Portland, Oregon	Sales and development	10,908	2006
Annapolis, Maryland	Sales and development	10,588	2005
Maidenhead, U.K.	Sales and administration	10,500	2015
Munich, Germany	Sales and administration	7,261	2005

Item 3. Legal and Government Proceedings

On December 15, 1999, the Company filed suit against the United States of America in the U.S. District Court for the District of Columbia, in Washington, D.C., for the actions of its agency, the Department of Labor, in conducting an unlawful procurement. The Complaint claims that, in its goal to standardize its office automation suite, the Department of Labor violated various statutes, regulations and treaties by "sole-sourcing" its contract to a competing vendor rather than conducting an open and fair procurement in accordance with U.S. law. In dispute is the decision by the Department of Labor to standardize on a competing product despite the fact that, at the time of the award, the WordPerfect family of products was licensed for a majority of the Department's 20,000 work stations. As a remedy, the Company sought an immediate injunction against the further implementation of the "sole source" contract and to have it declared void. The Company also sought to have the standardization process and related procurement activities tendered in a fair and open competition in accordance with the applicable statutes, regulations and treaties. The Answer to the Complaint was filed by the Government on March 21, 2000. The Government filed a motion to have the Company's action dismissed for lack of jurisdiction and, in the alternative, for summary judgement. The Company filed its motion for preliminary injunction. All motions were argued on August 11, 2000, in conjunction with arguments on the merits of the case. In the final adjudication of this case on September 17, 2001, the Court dismissed the Company's action, stating that the Court lacked subject-matter jurisdiction over the Company's claims. The Company does not intend to appeal this judgement.

On March 13, 2000, the Company was served with a complaint filed against it and Dr. Michael C.J. Cowpland by plaintiffs Anthony Basilio and Fred Spagnola in the United States District Court for the Eastern District of Pennsylvania. The Complaint was filed on behalf of all persons who purchased or otherwise acquired Corel common shares between December 7, 1999 and December 21, 1999 (the "Class Period"). The Complaint alleges that the defendants violated various provisions of U.S. federal securities laws, including Section 10(b), Section 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934, as amended, by misrepresenting or failing to disclose material information about the Company's financial condition. The Complaint seeks an unspecified amount of money damages. Numerous other complaints were filed thereafter, each making similar allegations and referencing the same Class Period as the initial claims. The Court appointed Fred Spagnola, Michael Perron and David Chavez as Lead Plaintiffs, and the law firms of Weinstein, Kitchenoff Scarlato & Goldman Ltd., and Savett Frutkin Podell & Ryan, P.C. as Co-Lead Counsel. The Court has consolidated all pending cases in the Eastern District of Pennsylvania. An Amended Consolidated Complaint was served on or about August 14, 2000, which expanded the Class Period, from December 7, 1999 to March 20, 2000 (inclusive), and contains several new allegations. The Company filed a Motion to Dismiss the Consolidated Class Action Complaint on the grounds of Forum Non Conveniens and Failure to State a Claim, which was dismissed by the Court on May 31, 2001. On or about July 6, 2001, the Company and co-defendant Cowpland filed their answers to the amended Complaint, denying all liability to Plaintiffs and asserting various affirmative defenses. The Company has deposed four lead plaintiffs. Discovery requests have been served by both sides. By order dated February 1, 2002, the Court granted Plaintiffs' motion for class certification, but withheld judgement until a later date as to whether the Class Period could be expanded to March 20, 2000, from the initial Class Period claimed. A non-binding mediation is scheduled for March 7, 2002.

The Company is a party to a number of additional claims arising in the ordinary course of business relating to employment, intellectual property and other matters. Based on its review of the individual matters, the Company believes that such claims, individually, will not have a material adverse effect on its business, financial position or results of operations but, in the aggregate, may have a material adverse effect on its business, financial position or results of operations. Such possible effect cannot be reasonably estimated at this time.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters

Price Range of Common Shares

The Company's Common Shares are traded on The Toronto Stock Exchange (TSE) under the symbol COR and in the over-the-counter market on the NASDAQ National Market under the symbol CORL. The following table sets forth the range of quarterly high and low closing sale prices of the Common Shares in CDN$ on the TSE and in US$ on the NASDAQ National Market within the two most recent fiscal years.

	FISCAL 2001		FISCAL 2000
	High	Low	High	Low
The Toronto Stock Exchange	(Canadian dollars)
First Quarter	$ 5.90	$ 2.32	$ 57.95	$ 19.70
Second Quarter	4.02	3.07	21.60	3.00
Third Quarter	5.98	3.50	7.70	4.30
Fourth Quarter	5.01	3.00	9.05	4.01
NASDAQ National Market	(US dollars)
First Quarter	$ 3.88	$ 1.38	$ 39.25	$ 13.19
Second Quarter	2.65	2.00	15.88	3.03
Third Quarter	3.83	2.33	5.25	2.91
Fourth Quarter	3.20	1.87	6.06	2.59

As of February 15, 2002, there were 1,403 holders of record of Common Shares. A substantial number of Common Shares of the Company are held by depositories, brokerage firms and financial institutions in "street name." Based upon the number of annual reports and proxy statements requested by such nominees, the management of the Company determined that the number of beneficial holders of Common Shares approximates 105,000 holders.

Limitations Affecting Security Holders

There is no law or government decree or regulation in Canada that restricts the export or import of capital, or affects the remittances of dividends, insurance or other payments to a non-resident holder of Common Shares.

Dividend Policy

The Company has neither declared nor paid cash dividends on its Common Shares since its inception and does not anticipate paying any dividends in the foreseeable future, but intends to retain future earnings for reinvestment to finance the growth of its business. Any future determination to pay dividends will be at the discretion of the Board of Directors. From time to time, the Company repurchases Common Shares for cancellation. There is no Company policy with regards to the timing or amount of Common Share repurchases and cancellation. There are no plans to repurchase and cancel common shares at this time.

Item 6. Selected Financial Data

The Statement of Operations data set forth below with respect to the years ended November 30, 2001, 2000 and 1999, and the balance sheet data as at November 30, 2001 and 2000, are derived from the audited financial statements of Corel, incorporated by reference in Item 8 hereof, and should be read in conjunction with those financial statements and the notes thereto. The balance sheet data as at November 30, 1999, 1998 and 1997 are derived from audited financial statements of Corel not included in this report. The Statement of Operations data set forth below with respect to the fiscal years ended November 30, 1998 and 1997 are derived from audited financial statements not included in this Annual Report on Form 10-K. All amounts are in United States dollars.

	Year ended November 30
	2001	2000	1999	1998	1997
	(in thousands, except per share data)
Canadian GAAP
Revenue	$134,320	$157,487	$243,051	$246,827	$260,581
Income (loss) from continuing operations	(7,324)	(55,348)	16,716	(30,448)	(231,678)
Income (loss) from continuing
operations per share (fully diluted)	(0.10)	(0.80)	0.27	(0.51)	(3.84)
Cash and short-term investments	103,000	127,430	18,021	24,506	30,629
Working capital	85,797	106,662	23,781	4,692	27,356
Total assets	235,699	218,587	139,716	124,596	144,561
Novell obligations		10,000	6,594	12,322	18,362
Shareholders' equity	171,623	162,644	64,366	28,583	59,809

		Year ended November 30
	2001	2000	1999	1998	1997
	(in thousands, except per share data)
US GAAP
Revenue	$134,320	$157,487	$243,051	$246,827	$260,581
Income (loss) from continuing operations	(11,635)	(55,348)	16,716	(30,448)	(231,678)
Comprehensive income	(12,398)	(56,318)	18,780	(30,448)	(231,678)
Income (loss) from continuing
operations per share (diluted)	(0.16)	(0.80)	0.27	(0.51)	(3.84)
Cash and short-term investments	103,000	127,430	18,021	24,506	30,629
Working capital	85,704	106,353	22,743	4,692	27,356
Total assets	230,174	219,990	142,818	124,596	144,561
Novell obligations		10,000	6,594	12,322	18,362
Shareholders' equity	167,643	163,738	66,430	28,583	59,809

See Item 8 - Financial Statements and Supplementary Data, and the Notes to the Company's Consolidated Financial Statements, Note 15 - Significant Differences Between Canadian and United States GAAP for an explanation of differences.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Corel develops, manufactures, licenses, sells and supports software that creates content. It has traditionally differentiated its products into two main types of product lines: Creative Products and Business Applications. As these technologies evolve and the market demands change, Corel is refocusing its business to products that create content across multiple delivery channels.

On January 23, 2001, Corel announced a three-phase corporate strategy designed to reposition the Company for long-term growth and profitability. The first phase focused on fiscal discipline, maintenance of current business application's customers and growth of Creative Products lines. Fiscal 2001 proved this phase had been successfully implemented as evidenced by the significant cost reductions. The second phase of this strategy will focus on growth in current markets through strategic investments. The final phase will focus on long-term growth by generating new revenue in new market segments through acquisition or internal research and development.

In line with the first two phases of the January 23, 2001, strategy on October 29, 2001, Corel acquired Micrografx, Inc. (Micrografx). Micrografx developed enterprise process and graphics software, solutions and services. The technology acquired will aid in the development of new products that enable customers to create graphic-rich content that can be output easily and simultaneously to multiple channels, including the Web. Upon close, approximately 6.9 million common shares were issued to former Micrografx shareholders for a value of $16.0 million representing approximately 50% of the total consideration. The remaining consideration was in the form of 16,038,875 participation rights, which will convert one year after closing into $1.02 USD per participation right in cash or Corel common shares, contingent upon Corel's share price at that time. This acquisition also gives Corel access to a new market, Enterprise Process Management (EPM).

On July 17, 2001, Corel announced the release of the procreateproduct line, a new line of software developed for creative professionals--a key customer group identified in phase one of the corporate strategy.

On August 7, 2001, Corel and SoftQuad Software, Ltd. (SoftQuad) announced a definitive agreement whereby Corel will acquire SoftQuad in a stock-for-stock transaction. SoftQuad is a developer of XML-enabling technologies and commerce solutions for e-Business. Technologies acquired from this acquisition will assist in developing cross-media publishing solutions. The transaction is subject to approval of SoftQuad's shareholders at a meeting to be held on March 14, 2002.

Management is now focused on a three-point initiative: identifying key customer profiles, continuing to make strategic investments to capture new markets, and developing solutions for emerging markets in order to address the evolving needs of the Company's global customer base.

Forward-Looking Statements

The following information contains forward-looking statements, as defined by the United States Private Securities Litigation Reform Act of 1995, involving Corel's expectations about future financial results and other matters. These statements reflect management's current forecast of certain aspects of Corel's future business. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results of operations to differ materially from historical results or current expectations. The words "plan," "expect," "believe," "intend," "anticipate," "forecast," "target," "estimate" and similar expressions identify forward-looking statements. Risk factors include shifts in customer demand, product shipment schedules, product mix, competitive products and pricing, technological shifts and other variables. Readers are referred to Corel's most recent reports filed with the Securities and Exchange Commission for a more complete discussion of the other risks and uncertainties. The factors underlying forecasts are dynamic and subject to change. As a result, forecasts speak only as of the date they are given and do not necessarily reflect Corel's outlook at any other point in time. Corel does not undertake to update or review these forward-looking statements.

Results of Operations

Fiscal 2001 compared to fiscal 2000

Revenue

Management believes the 14.7% decrease in revenue to $134.3 million in fiscal 2001 is partially a result of focusing on profitability instead of revenue. As part of the corporate strategy, there has been a move away from the retail market and an emphasis on corporate sales. Certain non-profitable product lines were dropped during the year. WordPerfect was not localized in as many languages as it had been in the past. This resulted in a reduction in expenses which improved profitability while reducing revenue. Corel provides for estimated future returns, exchanges and price protection. The timing of establishment of the provision and actual usage may vary according to the respective product's life cycle and/or the amount of inventory in the distribution channel.

Revenue growth from new products resulting from merging technologies of the Company with recently acquired technology is not expected before the fourth quarter of fiscal 2002.

Revenue by product groups

Revenue of Creative Products remained relatively constant, showing a 2.6% decline from fiscal 2000. During the year, a number of new Creative Products were released: CorelDRAW ESSENTIALS, a software package for graphics users combining the functionality of CorelDRAW 9 and Corel PHOTO-PAINT 9, Corel GRAPHICS SUITE 10, a creative tool for the Mac environment, and the entire procreate line of products. These releases helped maintain revenue in a competitive market during an economic downturn. New products resulting from merging technologies of the Company with recently acquired technology are expected to result in increased revenues by the fourth quarter of 2002.

Business applications revenue declined 25.7% as a result of a change in focus for business applications. WordPerfect Office 2002 was released in the second quarter of 2001 and was not localized into as many languages as was done historically. This resulted in decreased revenues in many foreign jurisdictions. A decision to not reduce prices and a focus on profitable products resulted in a decline in revenues. However, expenses declined in greater proportion than the decline in revenues. The global economic downturn experienced in 2001 also negatively affected business application revenues.

Other product lines revenue declined 34.1% as Corel Linux OS was exclusively licensed for distribution to a third party in August 2001, resulting in obsolescence of the product line. Growth of other product revenue is expected in fiscal 2002 as Corel develops the newly acquired Enterprise Process Management product line.

Revenue by sales channels

Retail product revenue was down 2.8% from fiscal 2001 as a result of the general downturn in the economy. As Corel refocuses its direction and moves more to direct corporate sales, revenues from the retail channel are expected to decline as a percentage of overall revenues.

OEM revenue declined 34.9% from 2000 levels as a result of the change in Corel's focus and the general economic downturn. As Corel's product mix changes, product offerings for OEM become limited. OEM offers high volume, low cost products, a market Corel is moving away from with WordPerfect Office 2002 not being offered as an OEM product. With the downturn in the economy, OEM partners have looked to ways of cutting costs of products, resulting in a decrease in demand for products by OEMs.

Corporate licence revenue was down 24.7% as a result of corporations increasing the length of their upgrade cycles and thereby not upgrading their licences to the current version of WordPerfect. Also, increased competition in the legal and government market negatively affected corporate licensing sales.

As a result of Corel's growth strategy focusing on corporate customers, Corel expects to increase the number of direct sales made to corporate customers in fiscal 2002. New product lines will not be as heavily reliant on the retail channel as previous product lines. Consequently, Corel's channel mix is expected to shift from retail to corporate/direct sales in the coming year.

Revenue by region

The regional revenue mix did not change significantly in fiscal 2001 from fiscal 2000. North American revenue declined in proportion to the general decline in revenue as a result of the general decline in the economic environment.

Europe, Middle East and Africa (EMEA) revenue was down 16.8% as a result of Corel not localizing as many of its products as it had in the past. Revenue in EMEA is expected to increase in fiscal 2002 as a result of a significant increase in Corel's operating infrastructure in EMEA.

Revenue in the rest of the world was down 18.6% due primarily to Corel changing its product strategies and not offering WordPerfect Office 2002 to the OEM market. This decline also resulted from not localizing WordPerfect Office 2002 into as many languages as was done historically.

Cost of sales and gross profit

In cost of sales, Corel includes all costs associated with the acquisition of components, the assembly of finished products, product royalties, the amortization of software acquisition costs and shipping. Costs associated with warehousing are included in selling, general and administrative expenses. Deferred royalties and software, acquired for integration and sale with Corel products, that have been capitalized are currently being amortized over the greater of: a) the ratio that current gross revenues bear to the total of current and anticipated future gross revenues or, b) the straight line method over the remaining economic life generally estimated to be three to five years.

Gross profit as a percentage of revenue increased 10.6% as a result of improved inventory management and purchasing techniques. These process changes, such as building to requirements instead of building to sales forecast, resulted in fewer charges to cost of sales for obsolete products. The improved cost of sales can also be attributed to a significant reduction in the amount of inventory on hand as well as in the distribution channel.

With continued inventory management and the new corporate strategy, gross profit as a percentage of revenue is expected to improve slightly in fiscal 2002.

Advertising expenses

Advertising expenses, which include all marketing, advertising and trade show expenses, decreased by 33.6% as a result of the cost reduction plan implemented in fiscal 2000. During fiscal 2001, Corel used a more focused marketing strategy, resulting in advertising dollars being spent in areas that would provide the best benefit for the cost. Corel also reduced the number of trade shows it attended which further reduced advertising expenses.

As Corel rebrands itself and its products, advertising expenses are expected to increase significantly in fiscal 2002.

Selling, general and administrative expenses

All selling expenses (except for advertising expenses) are included in this category along with general and administrative expenses, including expenses associated with warehousing inventory. Selling, general and administrative expenses declined $23.8 million (27.8%) as a result of the cost-cutting plan implemented in the first half of fiscal 2000. This decrease was partly offset by increases of approximately $4.0 million in consulting fees that resulted from development of the corporate strategy. Additional non-recurring charges of approximately $1.5 million that occurred from the restructuring of the Company further offset the reduction in selling, general and administration expenses.

Research and development expenses

Research costs are expensed as incurred. Development costs related to software products developed for sale are expensed as incurred unless they meet the criteria for deferral under generally accepted accounting principles. Research and development expenses are reported net of Canadian investment tax credits.

Research and development expenses declined $18.6 million (42.4%) as a result of the cost-cutting plan implemented in the first half of fiscal 2000. One of the major cost-cutting measures that resulted was that WordPerfect Office 2002 was not localized into as many languages as were earlier versions.

Depreciation and amortization expenses

Depreciation and amortization decreased $1.8 million (24.2%) as a result of the cost-cutting plan implemented in the first half of fiscal 2000. There was a decrease in capital asset additions of $11.7 million, excluding the acquisition of Micrografx capital assets.

Interest revenue/expense

Interest revenue consisted primarily of interest earned from the investing of the Company's funds (cash and cash equivalents, restricted cash and short-term investments) resulting from Microsoft's investment in the Company in October 2000. Interest expense in fiscal 2000 related to Novell obligations for the acquisition of the WordPerfect technology from Novell, Inc. The obligation was repaid during fiscal 2001.

Income taxes

Corel operates in a number of different countries and consequently, its tax rates are affected by the profitability of its operations in those countries. In fiscal 2001, Corel recorded a tax expense of $4.0 million on a pretax loss of $2.8 million. The tax expense primarily related to withholding tax on income from foreign jurisdictions and income tax from prior year reassessments.

Fiscal 2000 compared to fiscal 1999

Revenue

Sales decreased 35% to $157.5 million in fiscal 2000 from $243.1 million in fiscal 1999. This decrease was due primarily to new versions of Corel's flagship products, WordPerfect and CorelDRAW, nearing the end of their life cycles in fiscal 2000. Sales were also negatively impacted in fiscal 2000 by lower product prices, which were implemented in an attempt to gain market share. Corel provides for estimated future returns, exchanges and price protection. The timing of establishment of the provision and actual usage may vary according to the respective product's life cycle and/or the amount of inventory in the distribution channel.

Revenue by product groups

Creative products revenues decreased 29% from $106.6 million in fiscal 1999 to $75.9 million in fiscal 2000. This decrease is primarily due to the release of CorelDRAW 10 Graphics Suite in the final month of the fiscal year. CorelDRAW 9 Graphics Suite was released in May 1999, resulting in the inclusion of approximately eight months of revenue in fiscal 1999 as opposed to one month of revenues of CorelDRAW 10 Graphics Suite in fiscal 2000. Creative products revenues were expected to increase approximately 20% in fiscal 2001 due primarily to increased demand for CorelDRAW 10 Graphics Suite, planned releases of updates to the products acquired from MetaCreations Corporation and the release of Corel GRAPHICS SUITE 10 for Macintosh. Included in creative products revenues for fiscal 1999 is $24.0 million of revenue relating to consumer applications products. In fiscal 2000, as Corel realigned itself and moved away from promoting these products, these revenues declined significantly and are no longer managed or accounted for as a separate segment.

Business application products revenues declined 41% from $132.9 million in fiscal 1999 to $78.9 million in fiscal 2000. This is due primarily to the lack of any major product launches in fiscal 2000.

Other revenues, related primarily to Corel LINUX OS, decreased 24% to $2.7 million in fiscal 2000 from $3.5 million in fiscal 1999 due to the Company's focus on its core products.

Revenue by sales channels

Corel distributes its products primarily through distributors (as retail packaged products), OEM licences and corporate licences.

Retail packaged products and corporate licences are sold primarily through distributors. Sales from retail packaged products declined 43% from $140.2 million in fiscal 1999 to $80.1 million in fiscal 2000. The decline in retail packaged product sales was primarily due to the decline in PC sales and the aforementioned change in the buying practices of retail distributors. In addition, for much of fiscal 2000, the core products were available only in releases nearing the end of their life cycles.

OEM channel sales are licence fees from original equipment manufacturers. These sales decreased 35% from $27.0 million in fiscal 1999 to $17.6 million in fiscal 2000. The decrease was due primarily to declining PC sales and products reaching the end of their life cycles.

Corporate licences declined 21% from $75.9 million in fiscal 1999 to $59.8 million in fiscal 2000. This decrease was primarily due to not having released new versions of WordPerfect during the year.

Revenue by region

Sales in North America declined 38% from $155.8 million in fiscal 1999 to $96.5 million in fiscal 2000. This was primarily due to products reaching the end of their life cycles and the aforementioned change in distributors' buying patterns. A general decline in the retail market in North America also contributed to slower sales.

Declining sales in Germany, the Netherlands and the United Kingdom resulted in European revenues declining 34% from $64.1 million in fiscal 1999 to $42.5 million in fiscal 2000.

Corel's products are sold primarily in US dollars in all regions other than Europe. In fiscal 2000, Corel began selling in Euros for many of its European customers. The relative weakness of the Euro to the US dollar in fiscal 2000 impacted sales slightly.

Cost of sales and gross profit

In cost of sales, Corel includes all costs associated with the acquisition of components, the assembly of finished products, product royalties, the amortization of software acquisition costs and shipping. Costs associated with warehousing are included in selling, general and administrative expenses. Deferred royalties and software acquired for integration and sale with Corel products that have been capitalized are currently being amortized over the greater of: a) the ratio that current gross revenues bear to the total of current and anticipated future gross revenues or, b) the straight line method over the remaining economic life generally estimated to be three to five years.

As products reach the end of their life cycles or as decisions are made to no longer actively market products, inventory then held (consisting of finished goods and raw materials associated with those products) may be in excess of estimated future sales of those products. Such excess inventories would then be considered obsolete and would be written off. In fiscal 2000, the Company determined that $14.2 million of such inventory was obsolete and consequently written off. In addition, in the fourth quarter of 2000, the Company determined that $1.6 million of prepaid royalties had no future value as the associated products were no longer actively marketed, and as such the prepaid royalties were written off. This, combined with decreases in product prices, resulted in a decrease in gross margin from 76% in fiscal 1999 to 70% in fiscal 2000.

Advertising expenses

Advertising expenses include all marketing, advertising and trade show expenses. In fiscal 2000, advertising expenses decreased 31% from $48.0 million in fiscal 1999 to $33.3 million in fiscal 2000. This was due primarily to Corel's cost reduction plan that was implemented in May 2000.

Selling, general and administrative expenses

All selling expenses (except for advertising expenses) are included in this category along with general and administrative expenses, including expenses associated with warehousing inventory. Selling, general and administrative expenses increased 4% from $82.2 million in fiscal 1999 to $85.7 million in fiscal 2000. While a cost reduction plan was implemented during the year, the benefits were not realized until the fourth quarter. There were a number of non-recurring charges such as severance, consulting fees and asset write-downs that resulted from the cost reduction plan implemented during the year.

Research and development expenses

Research costs are expensed as incurred. Development costs related to software products developed for sale are expensed as incurred unless they meet the criteria for deferral under generally accepted accounting principles. Research and development expenses are reported net of Canadian investment tax credits.

In fiscal 2000, gross research and development expenses increased by $3.8 million (10%) to $43.9 million from $40.0 million primarily as a result of the cost reduction plan implemented in June 2000. Netted against gross research and development expenses were $0.5 million and $8.9 million of Canadian investment tax credits in fiscal 2000 and fiscal 1999, respectively. Fiscal 1999 includes investment tax credits of $8.9 million related to the 1997 through 1999 taxation years that were recognized for accounting purposes as a result of an audit by the Canada Customs and Revenue Agency being completed during the year.

Depreciation and amortization expenses

Depreciation and amortization expenses, which do not include the amortization of purchased software, increased $1.0 million in fiscal 2000 to $7.4 million from $6.4 million in fiscal 1999 as a result of significant purchases of computer equipment made in the fourth quarter of fiscal 1999 having a full year of amortization.

Interest expense

In fiscal 2000, interest on investments was offset against a $3.0 million accrual for interest charges relating to proposed reassessments of prior year tax returns and interest expense on Novell obligations for the acquisition of the WordPerfect technology from Novell, Inc. resulting in net interest expense of $1.3 million compared to a $0.2 million expense in fiscal 1999.

Income taxes

Corel operates in a number of different countries and its tax rates are affected by the profitability of its business in those countries. In fiscal 2000, Corel recorded a tax expense of $4.7 million on a pretax loss of $47.8, primarily due to foreign tax rate differences associated with Corel's international operations and non-recognition of losses. In fiscal 1999, Corel booked a tax recovery of $3.9 million on pretax income of $13.2 million, primarily as a result of recognizing the benefit of previously unbooked losses carried forward.

Cost reduction plan

Cost reduction actions commenced in late April 2000 when Corel began to curtail discretionary spending, particularly in the area of direct marketing and travel. In early May 2000, Corel proceeded to identify broader areas of spending cuts, namely in the areas of future hiring, capital purchases and other discretionary purchases. In mid-May 2000, Corel began to consider employee terminations and commenced a formal process of planning for spending cuts that would reduce its quarterly expenses to a level commensurate with expected achievable revenues. Consideration was also given to the amount of spending that had occurred in the first quarter and spending estimates for the second quarter, with a normalization factor for what was considered non-recurring. In summary, this called for a quarterly cost structure of $45.0 million or a $10.0 million quarterly reduction from normalized spending rates.

On May 16, 2000, Corel announced that it had undertaken a cost reduction plan with the intention of eliminating $40.0 million in costs on an annualized basis. The cost reduction plan has been implemented in a series of steps.

On June 8, 2000, Corel announced a reduction in its workforce of approximately 320 positions from a combination of employee terminations, termination of contract positions, elimination of vacant positions, attrition and termination of the services of independent contractors. The costs of severance and other termination payments, estimated at $1.6 million, were recorded in Corel's third fiscal quarter ended August 31, 2000. The estimated annualized cost saving from the workforce reduction, without taking into account one-time implementation charges, is expected to be approximately $11.0 million.

On September 6, 2000, Corel announced that it had identified the remaining components of the previously targeted $40.0 million in expenditure cuts, designed to realign its costs with its expected achievable revenues. As part of this plan, Corel announced the proposed consolidation of its engineering operations based in Dublin, Ireland, to its corporate headquarters in Ottawa, Canada. A total of 139 positions at the Dublin facility were eliminated as a result of the move with the estimated costs of severance and other termination payments, being approximately $0.85 million recorded in the third quarter of fiscal 2000 and approximately $1.4 million in additional costs recorded in the fourth quarter of fiscal 2000.

Liquidity and capital resources

As of November 30, 2001, Corel's principal sources of liquidity included cash and cash equivalents, and short-term investments of $103.0 million ($127.4 million in 2000), and trade accounts receivable of $18.7 million ($28.6 million in 2000). Included in cash, cash equivalents, and short-term investments as of November 30, 2001 and November 30, 2000, were corporate debt amounts of $15.0 million and $110.0 million, respectively. At November 30, 2001, $19.4 million of cash was restricted in use as it was held as security against certain corporate financial obligations, including $16.3 million held in trust as a requirement of the participation rights issued in the acquisition of Micrografx.

Cash provided by operations was $15.1 million for fiscal 2001 compared to cash used in operations of $30.0 million for fiscal 2000. The increase of $45.1 million was primarily due to the Company's significant expense reductions in fiscal 2001, which reduced the loss for the year from $55.3 million in 2000 to $7.3 million in 2001.

Trade accounts receivable, net of provisions, decreased from the November 30, 2000 balance of $28.6 million to $18.7 million. The reduction was partly a result of the decrease in sales volume from 2000 to 2001. The balance of the reduction resulted from improved collection of receivables.

Accounts payable and accrued liabilities were $27.9 million at November 30, 2001 compared to $28.4 million at November 30, 2000. Ongoing reductions in accounts payable and accrued liabilities from Corel's cost reduction initiatives throughout fiscal 2001 were offset at the end of the year by Corel's assumption of liabilities in the acquisition of Micrografx, Inc.

Financing activities used $9.7 million in 2001 compared to providing $146.4 million in fiscal 2000. The main reason for the difference between 2001 and 2000 was the proceeds from various share and warrant issuances in fiscal 2000. During 2000, the issuance of common shares and common share purchase warrants resulted in net proceeds of $22.3 million, compared to $0.3 million in fiscal 2001. In addition, in fiscal 2000, the issuance of preferred shares to Microsoft Corporation provided $130.7 million to the Company. The significant use of cash in 2001 was $10.0 million, used to repay the Novell debt ($6.6 million in 2000). Repayment of Novell obligations was based on an agreement reached by Corel with Novell in fiscal 2000 whereby the balance due was fixed and was repaid in three equal payments of $5.0 million.

Investing activities used $107.9 million in fiscal 2001 compared to $7.0 million in fiscal 2000. In fiscal 2000, the primary source of cash from investing activities was proceeds from sales of shares of GraphOn Corporation ("GraphOn") of $14.6 million. The most significant uses of cash in fiscal 2001 was Corel's investment of $78.1 million in short-term investments and $16.3 million of funds placed in trust to satisfy the requirements of the participation rights issued as part of the acquisition of Micrografx. Corel's investment in capital assets decreased from $19.5 million in fiscal 2000 to $7.8 million in fiscal 2001 reflecting Corel's cost reduction initiatives.

On September 19, 2000, the Company announced it had entered into a share purchase agreement with an institutional investor. Subject to the terms and conditions of this agreement, the Company may issue and sell to the investor up to 14,690,000 shares in periodic draw-down periods over 24 months, if all associated warrants are exercised. The Company had not issued any shares under this agreement as of November 30, 2001.

At November 30, 2001, Corel's capital resource commitments consisted primarily of lease arrangements for office space. As part of the terms of the Micrografx acquisition, $16.3 million has been escrowed until October 2002 to meet potential obligations associated with the participation rights. No significant commitments exist for future capital expenditures. Corel believes available balances of cash and cash equivalents and short-term investments are sufficient to meet its working capital requirements for the foreseeable future.

New accounting pronouncements

In fiscal 1998, the FASB issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes standards for derivative instruments and hedging activities. It requires that all derivatives be recognized as either assets or liabilities on the Balance Sheet and be measured at fair value. SFAS 133 is effective for fiscal years beginning after June 15, 1999, which is the fiscal year beginning December 1, 1999 for the Company. Prior periods should not be restated. In June 1999, the FASB issued SFAS No. 137, which delays the effective date of SFAS 133 until fiscal years beginning after June 15, 2000, which was the fiscal year beginning December 1, 2000 for the Company. The adoption of this pronouncement has not had an impact on its results of operations or financial position.

During the year, the Canadian Institute of Chartered Accountants ("CICA") issued CICA 1581- "Business Combinations" ("CICA 1581") and FASB issued SFAS No. 141, "Business Combinations" ("SFAS 141"). These standards are effective for all business combinations initiated after June 30, 2001, and require that the purchase method of accounting be used for all business combinations initiated after that date. Corel applied CICA 1581 and SFAS 141 to the Micrografx acquisition and will apply these pronouncements to future acquisitions.

During the year, the CICA issued CICA 3062 - "Goodwill and Other Intangible Assets" ("CICA 3062") and FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). These standards are effective for fiscal years beginning after December 15, 2001, which is the fiscal year beginning December 1, 2002 for the Company, but applied immediately to any business combinations consummated after June 30, 2001. CICA 3062 and SFAS 142 require that goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, including goodwill recorded in past business combinations, but will be subject to annual impairment tests in accordance with the new guidelines. Other tangible assets will continue to be amortized over their useful lives. The Company believes that the adoption of these pronouncements will have a material effect on its results of operations and financial position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, which is the fiscal year beginning December 1, 2002 for the Company. The Company has not assessed the impact that the adoption of this standard will have on its results of operations or financial position.

In December 2001, the CICA issued AcG 13 - "Hedging Relationships" ("AcG 13"). The guideline presents the views of the Canadian Accounting Standards Board on the identification, designation, documentation and effectiveness of hedging relationships, for the purpose of applying hedge accounting. The guideline is effective for all fiscal years beginning on or after January 1, 2002, which is the fiscal year beginning December 1, 2002 for the Company. The Company does not believe that the adoption of this guideline will have a material impact on its results of operations or financial position, as it does not apply hedge accounting.

In January 2002, the CICA amended CICA 1650 - "Foreign Currency Translation" ("CICA 1650"). The amended standard eliminates the requirement to defer and amortize exchange gains and losses related to a foreign currency denominated monetary items with a fixed or ascertainable life extending beyond the end of the following fiscal year and require new disclosure surrounding foreign exchange gains and losses. The standard is effective for all fiscal years beginning on or after January 1, 2002, which is the fiscal year beginning December 1, 2002 for the Company. The Company has not assessed the impact that the adoption of this standard will have on its results of operations or financial position.

In January 2002, the CICA issued CICA 3870 - "Stock-Based Compensation and Other Stock-Based Payments" ("CICA 3870"). This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. This section sets out a fair value based method of accounting and is required for certain, but not all, stock-based transactions. The recommendations of this section should be adopted for fiscal years beginning on or after January 1, 2002, which is the fiscal year beginning December 1, 2002 for the Company, and applied to awards granted on or after the date of adoption. The Company has not assessed the impact that the adoption of this standard will have on its results of operations or financial position.

Item 7A. Quantitative And Qualitative Disclosures About Market Risk

Interest rate risk

Corel's exposure to market risk for changes in interest rates relates primarily to its investment portfolio of cash equivalents and short-term investments. The primary objective of the Company with respect to investments is security of principal. Investment criteria include selecting securities having an acceptable credit rating and diversifying both issuers and terms to maturity, which in no case exceed one year. Short-term investments include only those securities with active secondary or resale markets to ensure portfolio liquidity. Sustained low general interest rates, particularly in the United States, could significantly reduce Corel's interest income. Corel does not use derivative financial instruments in its investment portfolio.

At November 30, 2001, interest rates on the Company's investments ranged from 1.98% to 3.97% per annum (average rate approximately 3.4% per annum) with all investments maturing by the end of June 2002. The Company's cash, cash equivalents and short-term investments are denominated predominately in US dollars.

Foreign currency risk

Corel conducts business worldwide. Revenues and expenses are generated primarily in US dollars, but the Company does operate in foreign currencies, primarily in Canada and Europe and, to a lesser extent, in Australia, Latin America, Japan and other Asian countries. As the Company's business expands, its exposure to foreign currency risk will increase. Corel continues to monitor its foreign currency exposure to minimize the impact on its business operations. Corel has mitigated, and expects to continue to mitigate, a portion of its currency exposure through decentralized sales, marketing and support operations in which most costs are local currency based. As of November 30, 2001, Corel had no foreign currency hedges outstanding.

Item 8. Financial Statements and Supplementary Data

Corel Corporation

Index to Consolidated Financial Statements

Consolidated Financial Statements:

Management's Report

Management is responsible for the preparation of the Company's consolidated financial statements. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and that the consolidated financial statements reasonably present the Company's financial condition and results of operations. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). These principles are also generally accepted in the United States ("US GAAP") in all material respects except as disclosed in Note 15. Management has included in the Company's consolidated financial statements amounts based on estimates and judgements that it believes are reasonable under the circumstances.

PricewaterhouseCoopers LLP, the independent auditors of the Company, have audited the Company's consolidated financial statements in accordance with generally accepted auditing standards, and they provide an objective, independent review of the fairness of reported operating results and financial position.

The Board of Directors of the Company has an Audit Committee which meets with financial management and the independent auditors to review accounting, auditing, internal accounting controls, and financial reporting matters.

Derek J. Burney	John Blaine
President and CEO	Executive Vice President, Finance
	Chief Financial Officer and Treasurer

Auditors' Report to the Shareholders

We have audited the consolidated balance sheets of Corel Corporation as at November 30, 2001 and November 30, 2000 and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended November 30, 2001, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards in both Canada and the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2001 and November 30, 2000, and the results of its operations and its cash flows for the years ended November 30, 2001, 2000 and 1999 in accordance with generally accepted accounting principles in Canada.

PricewaterhouseCoopers LLP	Ottawa, Canada
Chartered Accountants	January 25, 2002,
	except for Note 13.B dated as of
	February 6, 2002

Consolidated Balance Sheets

(in thousands of US$)

	As at November 30
	2001	2000
Assets
Current assets:
Cash and Cash equivalents	$ 24,924	$ 127,430
Restricted cash	19,367	1,136
Short-term investments	78,076
Accounts receivable
Trade	18,689	28,620
Other	1,272	773
Inventory	799	3,117
Future tax asset		479
Prepaid expenses	1,779	1,050
Total current assets	144,906	162,605
Investments	9,886	11,996
Future tax asset		965
Deferred financing charges	250	550
Capital assets	43,123	42,471
Goodwill	37,534
Total assets	$ 235,699	$ 218,587
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$ 27,862	$ 28,441
Participation rights obligation	16,338
Current portion of Novell obligations		10,000
Income taxes payable	4,749	6,595
Deferred revenue	10,160	10,907
Total current liabilities	59,109	55,943
Future income tax liabilities	4,967
Total Liabilities	$ 64,076	$ 55,943
Commitments and contingencies
Shareholders' equity
Share capital
Preferred shares: Series A (2001 - 24,000; 2000 - 24,000)
Common shares (2001 - 80709; 2000 - 73,641)	$ 388,193	$ 371,890
Contributed surplus	4,990	4,990
Deficit	(221,560)	(214,236)
Total shareholders' equity	171,623	162,644
Total liabilities and shareholders' equity	$ 235,699	$ 218,587

(See accompanying Notes to Consolidated Financial Statements.)

On behalf of the Board

James Baillie	Jean-Louis Malouin
Director	Director

Consolidated Statements of Operations

(in thousands of US$, except share and per share data)

	For the year ended November 30,
	2001	2000	1999
Revenue	134,320	157,487	243,051
Cost of sales	25,927	47,025	59,516
Gross Profit	108,393	110,462	183,535
Expenses:
Advertising	22,091	33,258	47,964
Selling, general and administrative	61,828	85,662	82,229
Research and development	25,251	43,867	40,049
Depreciation and amortization	5,577	7,354	6,443
Settlement proceeds	(409)		(6,342)
Loss (gain) on foreign exchange	(71)	1,371	(246)
	114,267	171,512	170,097
Income (loss) from operations	(5,874)	(61,050)	13,438
Gain (loss) on investments	(2,359)	14,585
Interest revenue (expense)	5,420	(1,305)	(190)
Income (loss) before the undernoted	(2,813)	(47,770)	13,248
Less:
Income tax expense (recovery)	4,039	4,705	(3,946)
Share of loss of equity investments	472	2,873	478
Net Income (loss)	(7,324)	(55,348)	16,716
Income (loss) per share
Basic	$ (0.10)	$ (0.80)	$ 0.27
Diluted	$ (0.10)	$ (0.80)	$ 0.27
Weighted average number of common shares outstanding (000's)
Basic	74,325	69,498	62,194
Diluted	74,325	69,498	63,042

(See accompanying Notes to Consolidated Financial Statements.)

Consolidated Statements of Shareholders' Equity

(in thousands of US$ except share data)

	Number of shares (000s)		Share capital	Contributed surplus	Deficit	Total shareholders' equity
	Common	Preferred
Balance at November 30, 1998	59,478		$203,088	$1,099	$(175,604)	$28,583
Issuance of common shares pursuant to stock options	5,054		12,767			12,767
Issuance of common shares for acquisitions	1,000		6,300			6,300
Net income					16,716	16,716
Balance at November 30, 1999	65,532		222,155	1,099	(158,888)	64,366
Issuance of common shares pursuant to stock options	798		3,390			3,390
Issuance of common shares and warrants for cash	7,299		15,630	3,291		18,921
Issuance of common shares pursuant to warrants	12		36			36
Issuance of preferred shares for cash		24,000	130,679			130,679
Issuance of warrants for services				600		600
Net loss					(55,348)	(55,348)
Balance at November 30, 2000	73,641	24,000	371,890	4,990	(214,236)	162,644
Issuance of common shares pursuant to stock options	174		265			265
Issuance of common shares for acquisition	6,894		16,038			16,038
Net loss					(7,324)	(7,324)
Balance at November 30, 2001	80,709	24,000	$388,193	$4,990	$(221,560)	$171,623

(See accompanying Notes to Consolidated Financial Statements.)

Consolidated Statements of Cash Flows

(in thousands of US$)

	Year Ended November 30
	2001	2000	1999
Operating activities:
Net income (loss)	$ (7,324)	$ (55,348)	$ 16,716
Items which do not involve cash or cash equivalents:
Depreciation and amortization	16,347	17,904	15,539
Bad Debt expense	3,197	2,357	31
Write down of assets		984
Future income taxes	1,444	198	853
Loss (gain) on investments	2,359	(14,585)
Gain on disposal of assets	(306)		(809)
Share of loss of equity investments	472	2,873	478
Changes in operating assets and liabilities:
Restricted cash	(1,893)	(1,136)
Accounts receivable	10,277	26,974	(12,157)
Inventory	2,836	10,450	3,150
Income taxes recoverable		5,135	(5,135)
Prepaid expenses	430	992	2,576
Accounts payable and accrued liabilities	(9,897)	(25,843)	(7,925)
Income taxes payable	(2,051)	6,595	(7,549)
Deferred revenue	(747)	(7,565)	539
Net cash provided by (used in) operating activities	15,144	(30,015)	6,307
Financing activities:
Issuance of common shares	265	19,056	12,767
Issuance of preferred shares		130,679
Issuance of warrants		3,291
Reduction of Novell obligations	(10,000)	(6,594)	(5,728)
Net cash provided by (used in) financing activities	(9,735)	146,432	7,039
Investing activities:
Proceeds on sale of investments		14,585	2,922
Purchase of investments	(909)	(2,356)	(1,561)
Purchase of short-term investments	(78,076)
Purchase of capital assets	(7,817)	(19,511)	(19,198)
Cash restricted for participation rights obligation	(16,338)
Proceeds on disposal of assets	818	274	119
Acquisition of Micrografx, Inc.	(5,593)
Net cash used in investing activities	(107,915)	(7,008)	(17,718)
Increase (decrease) in cash and cash equivalents	(102,506)	109,409	(4,372)
Cash and cash equivalents at beginning of year	127,430	18,021	22,393
Cash and cash equivalents at end of year	$ 24,924	$ 127,430	$ 18,021
Supplemental non-cash information:
Purchase of Micrografx, Inc.	$ 32,376
Investment in Hemera Technologies, Inc.		$ 9,727
Purchase of MetaCreations assets		$ 4,000
Purchase of Rebel.com			$ 3,351

(See accompanying Notes to Consolidated Financial Statements.)

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

All dollar amounts included herein are expressed in thousands of US$ unless otherwise noted. Certain per share information is expressed in units of US$ unless otherwise noted.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). These principles are also generally accepted in the United States ("US GAAP") in all material respects except as disclosed in Note 15.

Nature of operations

Corel develops, manufactures, licenses, sells and supports a wide range of software solutions for home and small business users, creative professionals and enterprise customers. Corel products are available for users of most PCs, including International Business Machines ("IBM") Corporation and IBM-compatible PCs, Apple Computer, Inc.'s Macintosh ("Mac") and Linux systems.

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated. The Company follows the equity method of accounting for investments in other companies where it holds 20% or more of the outstanding voting shares and has the ability to exert significant influence. Under the equity method, the Company records its initial investment at cost and records its pro rata share of earnings or losses of equity investments in its results of operations. Certain amounts for periods ended November 30, 2000 and prior have been reclassified to conform to the current year presentation.

Estimates and assumptions

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Examples include the provisions for sales returns and bad debts, the length of product cycles and related capital asset lives. Actual results may differ from these estimates.

Software revenue recognition

The Company recognizes revenue from packaged software and licence fees when the software is delivered, there is persuasive evidence that an arrangement exists, the fee is fixed and determinable and collection is probable. Sales to distributors are subject to agreements allowing various rights of return and price protection. The Company establishes provisions for estimated future returns, exchanges and price protection. Where telephone support is included for a limited time (post contract support or "PCS", generally for 90 days) together with the licence fee, the entire licence fee is recognized upon delivery of the product and the insignificant costs to provide the support are accrued. Where support is provided together with an annual licensing fee, the entire fee is deferred and recognized ratably over the term of the licence agreement since the Company does not have vendor specific objective evidence of fair market value of this PCS. Revenue from professional services and other services are recognized as the services are delivered.

Research and development costs

Research costs are expensed as incurred. Development costs related to software products developed for sale are expensed as incurred unless they meet the criteria for deferral under generally accepted accounting principles.

Cash and cash equivalents

Cash includes cash equivalents, which are investments that are highly liquid and have terms to maturity of three months or less at the time of acquisition.

Cash equivalents typically consist of commercial paper, term deposits and banker's acceptances issued by major North American banks, and corporate debt. Cash and cash equivalents are carried at cost, which approximates their fair value.

Short-term investments

Short-term investments are investments that are generally held to maturity and have terms greater than three months at the time of acquisition. Short-term investments typically consist of commercial paper, Government of Canada Treasury Bills, and banker's acceptances. Short-term investments are carried at cost plus accrued interest, which approximates their fair value.

Restricted cash

The Company maintains restricted cash in investments with major financial institutions as security against certain corporate financial obligations.

Inventory

Inventory of product components is valued at the lower of average cost and replacement cost, and finished goods are valued at the lower of average cost and net realizable value.

Capital assets

Capital assets are recorded at cost. Amortization of licences commences with the market release of each new software product and version. Depreciation and amortization are calculated using the following rates and bases:

Furniture and equipment	20 - 33.3% declining balance
Computer equipment	33.3% straight line
Research and development equipment	20 - 50% declining balance
Leasehold improvements	Straight line over the term of the lease
Licences, purchased software, deferred royalties	The greater of: a) the ratio that current gross revenues bear to the total of current gross revenues and anticipated future gross revenues or, b) the straight line method over the remaining economic life, generally estimated to be three to five years

The Company regularly reviews the carrying value of its capital assets. If the carrying value of its capital assets exceeds the amount recoverable, a write-down is charged to the consolidated statement of operations.

Goodwill

Goodwill represents the excess of the purchase price of acquired companies over the estimated fair value of the tangible and intangible net assets acquired. Goodwill is not amortized. The Company evaluates the expected future net cash flows of the acquired businesses periodically, and adjusts goodwill for any impairment.

Income taxes

The Company accounts for income taxes under the asset and liability method. Under this method, future tax assets and liabilities are recognized for the estimated tax recoverable or payable which would arise if assets were recovered and liabilities settled at the financial statement carrying amounts. Future tax assets and liabilities are measured using substantially enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Changes to these balances are recognized in income in the period in which they occur.

Foreign currency

The functional currency of the Company and its subsidiaries, which are accounted for as integrated foreign operations, is the US dollar. Monetary assets and liabilities denominated in foreign currencies, other than the functional currency, are remeasured at the closing period-end rates of exchange. The gains or losses resulting from the remeasurement of these amounts have been reflected in earnings in the respective periods. Non-monetary items and any related amortization of such items are measured at the rates of exchange in effect when the assets were acquired or obligations incurred. All other income and expense items have been remeasured at the average rates prevailing during the respective periods.

Investment tax credits

Investments tax credits, which are earned as a result of qualifying research and development expenditures, are recognized and applied to reduce research and development expense in the year in which the expenditures are made and their realization is reasonably assured.

Stock options

The Company has stock option plans as described in Note 9. No compensation expense is recognized when shares or stock options are issued to employees. Any consideration paid by employees on the exercise of stock options is credited to share capital.

2. Inventory

	As at November 30
	2001	2000
Product components	$ 359.00	$ 1,424.00
Finished Goods	440.00	1,693.00
	$ 799.00	$ 3,117.00

3. Investments

		As at November 30
		2001	2000
Equity investments
	Hemera Technologies, Inc.	$9,294	$9,727
	LinuxForce, Inc.	204	243
	Rebel.com, Inc.
	Alchemy Software Development Limited
		9,498	9,970
Investments recorded at cost, including GraphOn Corporation		388	2,026
		$9,886	$11,996

Hemera Technologies, Inc.

On July 17, 2000, the Company purchased a 23% interest in Hemera Technologies, Inc. ("Hemera"), a privately held company. As consideration for these shares, the Company transferred its GraphicCorp division and related assets to Hemera. As of the effective date of the transaction, the fair value of the GraphicCorp division and its related assets was estimated at $9.7 million and the shares were valued at this amount. No gain or loss was recognized on the transfer. During fiscal 2001, Hemera received additional financing which resulted in the Company's interest in Hemera being diluted to 21%. The Company's share of Hemera's operating results was nominal in fiscal 2001 and 2000.

LinuxForce, Inc.

In December 1999, the Company purchased and currently maintains, a 33% interest in LinuxForce, Inc., a privately held company, for cash. The Company also holds a three-year option to purchase another 33% of LinuxForce, Inc. The Company's share of LinuxForce, Inc.'s operating results was nominal in fiscal 2000 and 2001.

Rebel.com, Inc.

In fiscal 2000, the Company's share of Rebel.com, Inc.'s net loss was $1.2 million, which was deducted from the carrying value of the investment, which reduced the investment in Rebel.com, Inc. to nil. Due to the magnitude of the losses, the remaining goodwill on the investment was written down to nil in fiscal 2000. On July 12, 2001, KPMG Inc. was named court-appointed receiver and manager of Rebel.com, Inc. and was subsequently appointed as trustee in bankruptcy of Rebel.com, Inc. on November 5, 2001. The receiver is liquidating the assets of Rebel.com, Inc. The Company does not expect to receive any amount from the liquidation.

Alchemy Software Development Limited

On November 28, 2000, the Company purchased and currently maintains, a 25% interest in Alchemy Software Development Limited, a privately held company. At the same time, the Company sold its Corel CATALYST software and related assets to Alchemy Software Development Limited. The transaction was accounted for as a non-monetary transaction and the net book value of the assets sold was nil, resulting in the shares being fair valued at nil with no gain or loss recognized. The Company's share of Alchemy Software Development Limited's operating results was nominal in fiscal 2001 and 2000.

Investments recorded at cost

On December 31, 1998, the Company sold its jBridge technology to GraphOn Corporation (GraphOn). In consideration for the transfer of technology, GraphOn issued to the Company 3,886,503 shares of common stock of GraphOn and a warrant to purchase up to 388,650 shares of additional common stock. The assets transferred had a nominal value in the Company's financial statements.

On July 12, 1999, GraphOn completed a merger with Unity First Acquisition Corp. ("Unity"), a publicly traded acquisition corporation. As part of the merger, Unity changed its name to GraphOn. Under the terms of the merger agreement, GraphOn shareholders received a fixed exchange ratio of 0.5576 share of Unity common stock for each share of GraphOn common stock. As result of the merger, the Company held 2,167,114 shares of common stock, representing 19.5% of the merged company and, during the year, exercised warrants to purchase 216,711 shares of common stock at an exercise price of $1.79 per share.

During fiscal 2000, the Company sold a total of 1,190,001 shares of GraphOn for a realized gain of approximately $14.6 million. The Company still owns 1,193,824 shares of common stock (including warrants exercised above) recorded at $0.4 million, representing 8.1% of total shares outstanding which, as of November 30, 2001, had a market value of $0.68 per share for an aggregate fair value of $0.8 million. The Company has accounted for the cost of this investment under the first-in, first-out method.

Other investments recorded at lesser of cost or net realizable value, totaled nil and $1.6 million at November 30, 2001 and 2000, respectively. During 2001, the Company acquired additional cost investments. The total write-down to net realizable value during 2001 resulted in a $2.4 million charge to income.

4. Capital Assets

	November 30, 2001		November 30, 2000
	Cost	Accumulated Amortization	Cost	Accumulated amortization
Furniture and equipment	$ 13,267	$ 10,431	$ 14,463	$ 10,877
Computer equipment	86,275	78,830	74,462	65,866
Research and development equipment	12,389	10,523	12,400	9,947
Leasehold improvements	2,888	2,608	3,707	3,426
Licenses, purchased software, deferred royalties	54,815	24,119	94,926	67,371
	169,634	$ 126,511	199,958	$ 157,487
Less: Accumulated amortization	126,511		157,487
Net book value	$ 43,123		$ 42,471

5. Accounts Payable and Accrued Liabilities

	As at November 30
	2001	2000
Trade accounts payable	$ 18,416	$ 11,518
Accrued payroll	4,900	4,005
Accrued liabilities	2,543	5,918
MetaCreations payable		4,000
Microsoft accrual	2,003	3,000
	$ 27,862	$ 28,441

Microsoft accrual

On October 2, 2000, concurrent with the issuance of Series A preferred shares, the Company entered into a technology support and settlement agreement with Microsoft Corporation ("Microsoft"). Together with the purchase of such Series A preferred shares, Microsoft received the option to request the Company to perform certain product development work. The Company is obligated to provide at least 30 full time equivalents (20 developers and 10 testers) for a 12-month period to Microsoft upon receipt of Microsoft's written intent to exercise the option. On May 17, 2001, the Company received written notice from Microsoft of its exercise of the option. The Company estimated the costs to perform the services described as being $3.0 million based on the estimated average cost per developer and tester required to perform the services when required. If the actual costs to perform the required services is less than $3.0 million, the remainder of the liability will be recorded as an increase in contributed surplus. As of November 30, 2001, the Company had applied approximately $1.0 million in costs against this obligation.

6. Novell Obligations

The Novell obligations comprised royalty and product return obligations pursuant to the March 1, 1996 acquisition of the WordPerfect family of software programs and related technologies from Novell, Inc. ("Novell").

The Company was obligated at the date of acquisition, to pay royalties at a rate of 2% of its net revenues to Novell to a maximum of a then present value of $30.0 million, imputing a 10% discount rate. The Company has recorded payments on this obligation as royalty expense included in cost of sales.

On October 30, 2000, the Company agreed to pay Novell the total sum of $15.0 million representing the present value of the future royalty obligation referred to above in three equal payments of $5.0 million made on October 31, 2000, January 24, 2001 and April 23, 2001. This $15.0 million represents a prepayment of otherwise future payable royalties and the Company has deferred this amount accordingly. These deferred royalties are being amortized to cost of sales over either three years, being the estimated remaining useful life of the underlying products, or at 2% of net revenues, whichever is greater.

7. Commitments and Contingencies

The Company rents office premises, sponsors various sporting events and venues, and is obligated to pay minimum product royalties under long-term agreements. Rent expense pursuant to lease obligations aggregated $5,313, $7,654 and $7,169 during the years ended November 30, 2001, 2000 and 1999, respectively. At November 30, 2001, the minimum commitments under long-term agreements, are as follows:

2002	$ 4,898
2003	4,235
2004	4,220
2005	4,042
2006	3,499
2007 and thereafter	38,530
	$ 59,424

The Company is party to a number of claims arising in the ordinary course of business relating to employment, intellectual property and other matters. Based on its review of the individual matters, the Company believes that such claims, individually, will not have a material adverse effect on its business, financial position or results of operations but, in the aggregate, may have a material adverse effect on its business, financial position or results of operations. Such possible effect cannot be reasonably estimated at this time.

8. Financial Instruments

Concentration of credit risk

The primary objective of the Company with respect to short-term investments is security of principal. The Company manages its investment credit risk through a combination of the (i) selection of securities with an acceptable credit rating; (ii) selection of term to maturity, which in no event exceeds one year in length; and (iii) diversification of debt issuers.

Included in cash, cash equivalents and short-term investments as of November 30, 2001 and November 30, 2000 were corporate debt amounts of $15.0 million and $110.0 million, respectively. These amounts were repaid, in full, at maturity in January 2002 and December 2001, respectively. All of the Company's short-term investments as at November 30, 2001 had maturity dates of less than two months from year end. The Company's cash, cash equivalents and short-term investments are denominated predominantly in US dollars.

Included in the restricted cash balance as at November 30, 2001 is $16.3 million invested with a major US financial institution. This investment relates to the participation rights obligation arising from the acquisition of Micrografx, Inc. (see Note 13).

Concentration of credit risk, with respect to accounts receivable, is limited due to the diversity of the Company's channel arrangements. The Company has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks. Ingram Micro Inc. accounted for $13.0 million (67.8%) and $10.4 million (36.5%) of accounts receivable at November 30, 2001 and November 30, 2000, respectively.

Fair value of financial instruments

The carrying amounts for cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable, accrued liabilities and the participation rights obligation approximate fair value due to the short maturity of these instruments, unless otherwise noted.

9. Share Capital

Common shares

There are an unlimited number of common shares authorized. On June 28, 2000, the Company issued 7,299,270 common shares and 3,649,635 common share purchase warrants at CDN $4.11 per unit for total gross proceeds of CDN $30.0 million. The values assigned to each of the components of the unit were based on their relative fair values at the date of the transaction. The warrants were exercisable until June 27, 2001 at a price of CDN $4.56. During fiscal 2000, 11,659 warrants were exercised for gross proceeds of CDN$53,165. The remaining warrants expired June 27, 2001.

On October 30, 2001, the Company completed the acquisition of Micrografx, Inc. ("Micrografx"). The aggregate purchase price paid was approximately $33.8 million consisting of 6,894,250 common shares valued at $16.0 million and participation rights valued at $16.3 million (see Note 13).

Series A preferred shares

There are an unlimited number of Series A preferred shares authorized. On October 2, 2000, the Company issued 24,000,000 Series A participating, convertible, non-voting, non-redeemable preferred shares to Microsoft for total gross proceeds of $135.0 million ($5.625 per share). Series A preferred shares are convertible into one common share but not in the hands of Microsoft or its affiliates. As part of the share purchase agreement on October 2, 2001, the Company filed with the United States Securities and Exchange Commission ("SEC"), a resale registration statement for 24,000,000 common shares underlying these preferred shares.

The dividend rights are the same as for common shares, other than dividends or other distributions to the extent payable in the form of common shares. Dividends on each full and each fractional Series A preferred share shall be cumulative.

In the event of liquidation of the Company, the greater of the $5.625 per share purchase price plus all accrued and unpaid dividends, and the amount per share that could be distributed to common shareholders, assuming the conversion of the preferred shares, shall be distributed to the holders of the preferred shares. If such payment is made, Series A preferred shareholders will have no further claim on assets.

Equity line financing

On October 3, 2000, the Company completed a standby financing share purchase agreement with an institutional investor. Subject to the terms and conditions of this agreement, the Company may issue and sell to the investor up to 14,690,000 shares in periodic draw-down periods over 24 months if all associated warrants are exercised. At November 30, 2001, the Company has not issued or sold any shares under this arrangement. However, pursuant to the terms of the arrangement, the Company has issued 169,500 warrants to the investor and 56,500 warrants to each of its advisors, Whale Securities Co., L.P. and Richard Geyser. The warrants are exercisable at any time until October 3, 2003 at $3.91 per share for the investor and $4.28 per share by Whale Securities Co., L.P. and Richard Geyser. As at November 30, 2001, no warrants have been exercised. The Company has deferred $0.6 million in financing charges, representing the fair value of the warrants issued to secure this financing. This commitment fee is being amortized over 24 months.

Stock option plans

The Company's stock option plans are administered by the Compensation Committee, which is a subcommittee of the Board of Directors. The Compensation Committee designates eligible participants to be included under the plans and designates the number of options and share price of the options, subject to applicable securities laws and stock exchange regulations. At November 30, 2001, there were approximately 13.9 million and 7.0 million common shares reserved for issuance under the Corel Corporation Stock Option Plan and the Corel Corporation Stock Option Plan 2000, respectively. Information with respect to stock option activity for 1999, 2000 and 2001 is as follows:

Number of shares (000s)	Price per share (CDN$)
	Range	Weighted average

Outstanding at November 30, 1998	8,281	$2.10 - $22.38	$8.65
Granted	3,022	3.37 - 11.70	3.41
Exercised	(5,054)	2.10 - 13.50	4.03
Forfeited	(1,883)	2.10 - 13.50	7.06
Expired	(1,313)	2.10 - 22.38	10.25
Outstanding at November 30, 1999	3,053	2.10 - 13.50	5.03
Granted	3,869	5.35 - 29.90	14.49
Exercised	(798)	2.06 - 13.50	4.08
Forfeited	(1,115)	2.10 - 15.25	14.44
Expired	(591)	7.70 - 13.50	7.88
Outstanding at November 30, 2000	4,418	3.00 - 29.90	10.65
Granted	2,840	3.30 - 4.80	4.22
Exercised	(174)	3.00 - 4.80	3.26
Forfeited	(2,198)	3.00 - 29.90	7.81
Expired	(364)	4.00 - 7.70	7.58
Outstanding at November 30, 2001	4,522	$3.00 - $15.25	$4.97

For various price ranges (in CDN$), weighted average characteristics of outstanding stock options at November 30, 2001 were as follows:

		Outstanding options
Range of grant price	Shares (000s)	Remaining life (years)	Weighted average
$ 3.00 - $ 5.00	2,894	3.4	$4.09
5.01 - 8.00	1,228	2.3	5.68
8.01 - 15.25	400	2.8	9.1
Outstanding at November 30, 2001	4,522	3.06	$4.97

The outstanding options expire between April 15, 2002 and November 7, 2005.

On November 16, 2000, the Board of Directors passed a resolution that allowed certain employees holding options granted in March 2000 at a price of CDN $15.25 (or the then US$ equivalent) and one senior officer with options at a price of $20.62 US to tender a maximum aggregate number of approximately 1.8 million options held by them for repricing. The exercise price of the repriced options, namely CDN $5.70 (or the then US$ equivalent), was the closing price of the Company's common shares on the Toronto Stock Exchange (TSE) on November 15, 2000. The condition of the repricing was to introduce a vesting schedule where one third of the options remained vested, one third vested March 30, 2001 and the remaining options will vest on March 30, 2002. Repricing of any of these options held by insiders, as defined by the Securities Act (Ontario), required shareholder approval, which was obtained. Non-employee directors' options were excluded from the repricings. At November 30, 2001, 1,544,500 options had been tendered for repricing to CDN $5.70 while 186,000 options had been tendered for repricing to US $3.63. The market price of the underlying common shares at November 30, 2001 was CDN $3.95 and US $2.52, respectively.

10. Earnings Per Share

The calculations of the earnings per share are based on the weighted daily average number of shares outstanding during the year. The calculation of diluted earnings per share assumes that all outstanding options and warrants have been exercised at the later of the beginning of the fiscal period or the option issuance date. As the impact of the exercise of these options and warrants is anti-dilutive in 2001 and in 2000, outstanding options and warrants have been excluded from the calculation of diluted earnings per share. See Note 9 for these other potentially dilutive instruments. In 1999, the dilutive effect of the weighted average share calculation results from the potential exercise of employee stock options.

11. Cost of Sales

	Year ended November 30
	2001	2000	1999
Cost of goods sold	$ 10,935	$ 28,036	$ 35,377
License amortization	11,014	11,880	12,674
Royalties	3,978	7,109	11,465
	$ 25,927	$ 47,025	$ 59,516

12. Income Taxes

Income tax expense (recovery) consists of the following:

	Year ended November 30
	2001	2000	1999
Current:
Canadian	$1,296	$3,913	$2,098
Foreign	1,275	(529)	(122)
	2,571	3,384	1,976
Future:
Canadian	965	594	(6,897)
Foreign	503	727	975
	1,468	1,321	(5,922)
Income tax expense (recovery)	$4,039	$4,705	$(3,946)

The reported income tax provision differs from the amount computed by applying the Canadian statutory rate to income before taxes for the following reasons:

	Year ended November 30
	2001	2000	1999
Income (loss) before income taxes and share of loss of equity investments:
Canadian	$(4,417)	$8,779	$11,491
Foreign	1,604	(56,549)	1,757
	(2,813)	(47,770)	13,248
Expected statutory rate	42.0%	44.0%	44.6%
Expected tax expense (recovery)	$(1,181)	$(21,038)	$5,911
Foreign tax rate differences	479	21,865	7,048
Change in valuation allowance	2,053	6,470	(16,783)
Non-deductible expenses and non-taxable income		(494)
Reassessment of prior years Withholding tax on foreign income	998 1,149
Other	541	(2,098)	(122)
Reported income tax expense (recovery)	$4,039	$4,705	$(3,946)

The tax effects of significant temporary differences which gave rise to future taxes at November 30, 2001 and 2000 are:

	Year ended November 30
	2001	2000
Assets
Reserves and allowances	$2,328	$3,807
Book and tax differences on assets	10,033	3,344
Net operating loss carryforwards	23,324	19,304
Other	725	965
	36,410	27,420
Less: valuation allowance	(36,410)	(25,976)
Future income tax asset		$1,444
Current		$479
Long term		965
Future income tax asset		$1,444
Liabilities
Book and tax differences on assets	$4,967
Future income tax liability	$4,967

The valuation allowance for future taxes is required due to the Company's operating history and management's assessment of various uncertainties related to their future realization. Changes in the valuation allowance include losses acquired from the purchase of Micrografx and changes in the revaluation of losses in various jurisdictions. Since the realization of future tax assets is dependent upon generating sufficient taxable income in the tax jurisdictions which gave rise to the future tax asset, the amount of the valuation allowance for future taxes may be reduced if it is demonstrated that positive taxable income in the various tax jurisdictions is sustainable in the future.

As at November 30, 2001, the Company has tax loss carryforwards of approximately $139.0 million which expire during the years 2007 to 2020. Approximately $28.0 million of these losses acquired with the purchase of Micrografx are restricted in the amount of the loss, which may be claimed each year based on U.S. tax loss limitations. A valuation allowance of approximately $8.5 million has been taken against the Micrografx losses. The benefit resulting from any subsequent realization of those losses would be allocated to reduce goodwill from the acquisition of Micrografx.

13. Business Acquisitions

A. Micrografx, Inc. ("Micrografx")

On October 30, 2001, the Company completed the acquisition of all of the issued and outstanding stock of Micrografx, a Dallas, Texas-based provider of enterprise process management and graphics software, solutions and services. The Company's consolidated statements of operations reflect the results of operations of Micrografx from the date of the acquisition.

The aggregate purchase price paid was approximately $33.8 million, consisting of 6,894,250 shares of newly issued common shares of Corel at a value of $16.0 million and 16,038,875 participation rights that were valued at $16.3 million (see Note 9). The value of the participation rights is to be paid in cash or common shares of Corel on October 30, 2002. In the event Corel's common share price at that time is equal to or less than $2.29, Corel will pay the remaining transaction value in cash. If Corel's common share price on October 30, 2002 is higher than $2.29, Corel will issue common shares with a then-current value equivalent to the remaining one-half of the transaction value plus, on a per share basis, 18 % of any increase in the value of Corel common shares in the 12 month period following the close.

The components of the aggregate purchase price were as follows (in thousands):

Common shares	$ 16,038
Participation rights	16,338
Other costs of acquisition	1,457
Total purchase price	$ 33,833

Other costs of acquisition include professional fees and other costs directly related to the acquisition.

The Micrografx acquisition has been accounted for in accordance with the purchase method of accounting. The purchase price has been allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as follows:

Cash	$ 4,164
Other current assets	5,531
Developed software	8,760
In-process research and development	4,311
Property and equipment	323
Future tax liabilities	(4,967)
Bridge loan	(8,300)
Other liabilities	(13,523)
Net liabilities acquired	(3,701)
Total purchase price	33,833
Goodwill	$ 37,534

The estimates of fair value were determined by the Company's management based on information furnished by the management of Micrografx and an independent valuation of developed software and in-process research and development products.

Goodwill will be re-evaluated on an annual basis for impairment. All losses due to impairment will be recorded against income in the year impairment is determined. Factors that contributed to goodwill include synergies to be achieved by combining Micrografx technologies with the Company's technologies, access to certain distribution channels and customer lists as well as additional workforce skill sets.

To determine the fair market value of the developed software and in-process research and development, the Company considered the three traditional approaches of value: the cost approach, the market approach and the income approach.

The Company relied primarily on the income approach, under which fair market value is a function of the future revenues expected to be generated by an asset, net of all allocable expenses. The income approach focuses on the income-producing capability of the developed software, core technology, and purchased research and development projects, and best represents the present value of the future economic benefits expected to be derived. In determining the amount of the purchase price to allocate to in-process research and development, factors such as stage of completion and technological uncertainties were considered by the Company and its independent appraiser in determining the present value of the future benefits to be received. If these projects are not successfully developed, the Company may not realize the value assigned to the in-process research and development.

B. SoftQuad Software, Ltd. ("SoftQuad")

On August 7, 2001, Corel and SoftQuad announced that they had signed a definitive agreement whereby Corel will acquire SoftQuad in a stock-for-stock transaction. SoftQuad is a developer of XML-enabling technologies and commerce solutions for e-Business. The transaction is subject to approval by SoftQuad's shareholders. Each common share, or equivalent, of SoftQuad will be exchanged for .4152 of a Corel common share on closing, being the ratio of $1.50 to $3.6129, assuming Corel's common share price at closing is between $2.71 per share and $4.52 per share. For prices outside this range, Corel would issue more shares at a lower price and fewer shares at a higher price. The maximum number of shares Corel could issue is approximately 11.6 million.

Subsequent to November 30, 2001, Corel will be providing a bridge loan of $2.0 million to SoftQuad to be used for operating activities. On February 6, 2002 the SEC declared the registration statement effective. SoftQuad shareholders are scheduled to vote on the acquisition on March 14, 2002.

14. Segmented Information

The Company has only one global operating segment, as detailed in the Consolidated Financial Statements included herein. The Company sells its products worldwide from four geographic regions. A summary of sales by product group, sales channel, region and major customer from consolidated operations is as follows:

	Year ended November 30
	2001	2000	1999
By product group
Creative products	$ 73,949	$ 75,919	$ 106,592
Business applications products	58,624	78,917	132,948
Other	1,747	2,651	3,511
	$ 134,320	$ 157,487	$ 243,051
By sales channel
Retail packaged products	$ 77,838	$ 80,069	$ 140,200
OEM licenses	11,475	17,640	26,972
Corporate licenses	45,007	59,778	75,879
	$ 134,320	$ 157,487	$ 243,051
By region
Canada	$ 7,666	$ 13,181	$ 13,833
U.S.A.	76,287	83,355	141,972
Europe, Middle East and Africa	35,313	42,453	64,123
Other	15,054	18,498	23,123
	$ 134,320	$ 157,487	$ 243,051
By major customer
Ingram Micro, Inc.	$ 39,241	$ 27,123	$ 43,810
All others	95,079	130,364	199,241
	$ 134,320	$ 157,487	$ 243,051

15. Significant Differences Between Canadian and United States GAAP

The Company's financial statements are prepared on the basis of Canadian GAAP, which differs in some respects from US GAAP. There were no differences in reported cash flows for the periods presented. Significant differences between Canadian GAAP and US GAAP are reflected in the balance sheets and Statements of Operations set forth below:

Balance Sheet		As at November 30
	Notes	2001	2000
Assets
Current assets		$144,906	$162,605
Investments	(B)	10,310	13,399
Other non-current assets		250	1,515
Capital assets	(A)	38,812	42,471
Goodwill	(A)	35,896
Total assets		$230,174	$219,990
Liabilities
Current liabilities		$54,360	$49,348
Income taxes payable	(B)	4,842	6,904
Future income tax liabilities	(A)	3,329
Total liabilities		62,531	56,252
Shareholders' equity	(A)	167,312	162,644
Cumulative comprehensive income	(B)	331	1,094
Total liabilities and shareholders' equity		$230,174	$219,990

Statement of Operations information		Year ended November 30
	Notes	2001	2000	1999
Net income (loss) in accordance with Canadian GAAP		$(7,324)	$(55,348)	$16,716
Adjustments to reconcile to US GAAP:
Write-off of purchased in-process research and development		(4,311)
Net income (loss) in accordance with US GAAP		$(11,635)	$(55,348)	$16,716
Comprehensive income	(C)
Net income (loss) in accordance with US GAAP		$(11,635)	$(55,348)	$16,716
Unrealized holding gains (losses) on available for sale securities	(B)	(979)	(1,699)	3,102
Related income tax	(B)	216	729	(1,038)
Comprehensive income (loss)		$(12,398)	$(56,318)	$18,780
Income (loss) per share
Basic		$(0.16)	$(0.80)	$0.27
Diluted		$(0.16)	$(0.80)	$0.27

A. In-process research and development

Associated with the allocation of the purchase price of the acquisition of Micrografx is $4.3 million for in-process research and development which, for US GAAP purposes, is to be expensed in the year of acquisition if the related technology has not reached technological feasibility and does not have an alternative future use (see Note 13). This adjustment results in a $4.3 million reduction of capital assets and increase in the reported net loss. This adjustment reduces the book value of the assets acquired and, in turn, the related tax difference on those assets resulting in a reduction of $1.6 million to the future tax liability and goodwill.

B. Available for sale securities

SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") requires available-for-sale securities to be marked to market with unrealized holding gains or losses being accounted for in other comprehensive income. Accordingly, the reported carrying value of investments would be decreased by $0.4 million at November 30, 2001 and increased by $1.4 million at November 30, 2000. In addition, income taxes payable would be decreased by $0.1 million at November 30, 2001 and increased by $0.3 million at November 30, 2000.

C. Comprehensive income

The Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") effective December 1, 1998. SFAS 130 requires disclosure of comprehensive income, which includes reported net earnings adjusted for other comprehensive income. Other comprehensive income includes items that cause changes in shareholders' equity but are not related to share capital or net earnings which, for the Company, comprises only unrealized holding gains on available-for-sale securities.

Stock options plans

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for its employee stock option plan. Accordingly, the Company also applies United States Financial Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB No. 25" ("FIN 44"), providing clarification of the accounting rules for stock-based compensation under APB 25. FIN 44 does not change FASB Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") and, as such, no compensation expense has been recognized for its stock-based compensation plan. Had compensation cost for the Company's employee stock option plan been determined based on the fair value at the grant date for awards under the plan, consistent with the methodology prescribed under the SFAS 123, the Company's net income (loss) would have changed to the pro forma amounts indicated as follows:

	Year ended November 30
	2001	2000	1999
Net Income (loss) in accordance with US GAAP	$ (11,635)	$ (55,348)	$ 16,716
Estimated stock-based compensation costs	(2,101)	(22,810)	(1,665)
Pro forma net income (loss)	$ (13,736)	$ (78,158)	$ 15,051
Pro forma income (loss) per share	$ (0.18)	$ (1.12)	$ 0.24

The fair values of all options granted during 2001, 2000 and 1999 were estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2001	2000	1999
Expected option life (years)	3	3.07	3.34
Volatility	110	105	86
Risk free interest rate	4.53%	6.13%	4.78%
Dividend yield	nil	nil	nil

The fair values (in USD) at the date of grant for stock options granted during 2001, 2000 and 1999 were $1.85, $6.62 and $1.35 per option, respectively.

The Black-Scholes model, used by the Company to calculate option values, as well as other currently accepted option valuation models, were developed to estimate the fair value of freely tradeable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require highly subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated values. Accordingly, management believes that these models do not necessarily provide a reliable single measure of the fair value of the Company's stock option awards.

On November 16, 2000, the Board of Directors passed a resolution that allowed certain employees holding options granted in March 2000 at a price of CDN $15.25 (or the then US$ equivalent) and one senior officer with options at a price of $20.62 US to tender a maximum aggregate number of approximately 1.8 million options held by them for repricing. The exercise price of the repriced options, namely CDN $5.70 (or the then US$ equivalent), was the closing price of the Company's common shares on the Toronto Stock Exchange (TSE) on November 15, 2000. The condition of the repricing was to introduce a vesting schedule where one third of the options remained vested, one third vested March 30, 2001 and the remaining options will vest on March 30, 2002. Repricing of any of these options held by insiders, as defined by the Securities Act (Ontario), requires shareholder approval. Non-employee directors' options were excluded from the repricings. At November 30, 2001, 1,544,500 options had been tendered for repricing to CDN $5.70 while 186,000 options had been tendered for repricing to US $3.63. The market price of the underlying common shares at November 30, 2001 was CDN $3.95 and US $2.52, respectively.

In accordance with FIN 44, the option repricing, as described above, will result in variable plan accounting for the re-priced options. Future periods may reflect compensation charges or credits depending on the fair market price of the underlying shares.

New accounting pronouncements

In fiscal 1998, the FASB issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes standards for derivative instruments and hedging activities. It requires that all derivatives be recognized as either assets or liabilities on the Balance Sheet and be measured at fair value. SFAS 133 is effective for fiscal years beginning after June 15, 1999, which is the fiscal year beginning December 1, 1999 for the Company. Prior periods should not be restated. In June 1999, the FASB issued SFAS No. 137, which delays the effective date of SFAS 133 until fiscal years beginning after June 15, 2000, which was the fiscal year beginning December 1, 2000 for the Company. The adoption of this pronouncement has not had an impact on its results of operations or financial position.

During the year, the Canadian Institute of Chartered Accountants ("CICA") issued CICA 1581 - "Business Combinations" ("CICA 1581") and FASB issued SFAS No. 141, "Business Combinations", ("SFAS 141"). These standards are effective for all business combinations initiated after June 30, 2001, and require that the purchase method of accounting be used for all business combinations initiated after that date. Corel applied CICA 1581 and SFAS 141 to the Micrografx acquisition and will apply these pronouncements to future acquisitions.

During the year, the CICA issued CICA 3062 - "Goodwill and Other Intangible Assets" ("CICA 3062") and FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). These standards are effective for fiscal years beginning after December 15, 2001, which is the fiscal year beginning December 1, 2002 for the Company, but applied immediately to any business combinations consummated after June 30, 2001. CICA 3062 and SFAS 142 require that goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, including goodwill recorded in past business combinations, but will be subject to annual impairment tests in accordance with the new guidelines. Other tangible assets will continue to be amortized over their useful lives. The Company believes that the adoption of these pronouncements will have a material effect on its results from operations and financial position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", ("SFAS 144"). This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, which is the fiscal year beginning December 1, 2002 for the Company. The Company has not assessed the impact that the adoption of this standard will have on its results of operations or financial position.

In December 2001, the CICA issued AcG 13 - "Hedging Relationships" ("AcG 13"). The guideline presents the views of the Canadian Accounting Standards Board on the identification, designation, documentation and effectiveness of hedging relationships, for the purpose of applying hedge accounting. The guideline is effective for all fiscal years beginning on or after January 1, 2002, which is the fiscal year beginning December 1, 2002 for the Company. The Company does not believe that the adoption of this guideline will have a material impact on its results of operations or financial position, as it does not apply hedge accounting.

In January 2002, the CICA amended CICA 1650 - "Foreign Currency Translation" ("CICA 1650"). The amended standard eliminates the requirement to defer and amortize exchange gains and losses related to a foreign currency denominated monetary items with a fixed or ascertainable life extending beyond the end of the following fiscal year, and require new disclosure surrounding foreign exchange gains and losses. The standard is effective for all fiscal years beginning on or after January 1, 2002, which is the fiscal year beginning December 1, 2002 for the Company. The Company has not assessed the impact that the adoption of this standard will have on its results of operations or financial position.

In January 2002, the CICA issued CICA 3870 - "Stock-Based Compensation and Other Stock-Based Payments" ("CICA 3870"). This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. This section sets out a fair value-based method of accounting and is required for certain, but not all, stock-based transactions. The recommendations of this section should be adopted for fiscal years beginning on or after January 1, 2002, which is the fiscal year beginning December 1, 2002 for the Company, and applied to awards granted on or after the date of adoption. The Company has not assessed the impact that the adoption of this standard will have on its results of operations or financial position.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

The following table sets forth certain information with respect to the executive officers and directors of Corel as at

February 15, 2002:

Name	Age	Position with the Company
Derek J. Burney	39	President and Chief Executive Officer, Director
Amanda Bedborough	32	Executive Vice President, EMEA Operations
John Blaine	39	Executive Vice President, Finance, Chief Financial Officer and Treasurer
Graham Brown	38	Executive Vice President, Engineering
Steven Houck	32	Executive Vice President, Strategic Relations
Gary Klembara	50	Executive Vice President, Sales
Ian LeGrow	31	Executive Vice President, Product Strategy
Annette McCleave	42	Executive Vice President, Marketing
Rene Schmidt	44	Executive Vice President, Chief Technology Officer
James C. Baillie	64	Chair of the Board of Directors
Lyle B. Blair	71	Director
David A. Galloway	58	Director
Hunter S. Grant	59	Director
James L. Hopkins	55	Director
Jean-Louis Malouin	58	Director
Hon. Barbara McDougall	64	Director

Derek J. Burney joined the Company in April 1994 as the Project Leader for CorelFLOW. Mr. Burney was appointed Technology Manager in August 1995 and Director of CAD 3D in February 1996. He held this position until October 1997 when he left the Company to work at IMSI (International Microcomputer Software Inc.) in the product group that purchased CorelCAD, Corel Visual CADD, CorelFLOW, Corel Lumiere Suite, Corel Click & Create and Corel Family Tree Suite, from the Company. Upon his return to the Company in May 1998, Mr. Burney served as Senior Vice President Engineering until December 1998, at which time he was appointed Executive Vice President, Engineering. Mr. Burney held this position until August 2000, at which time he was appointed Interim President and CEO. In October 2000, he was appointed President and Chief Executive Officer and appointed to the Board of Directors.

Amanda Bedborough joined the Company in October 2001 as Executive Vice President, EMEA Operations, responsible for leading Corel's operations in the Europe, Middle East and Africa region. Before joining Corel, Ms. Bedborough had been Vice President, EMEA Operations for 3dfx Interactive since April 1999. Prior to holding that position, she was employed for over five years with STB Systems, Inc., serving as the company's International Sales and Marketing Director from November 1996.

John Blaine joined the Company in April 2000 as Executive Vice President, Finance and Chief Financial Officer. Mr. Blaine is responsible for the Company's worldwide financial operations. Prior to joining the Company, Mr. Blaine served as Vice President and Controller in the Dublin, Ohio corporate offices of Sterling Commerce Inc., an electronic commerce software and services provider.

Graham Brown joined the Company in 1991. He has served as Developer and Project Lead for CorelDRAW, Development Manager for Corel VENTURA Publisher and WordPerfect, and Director of Software Development for WordPerfect Office. Mr. Brown served as Vice President of Software Development, Business Applications from June 1998 to October 2000 when he was appointed Executive Vice President, Business Applications. In January 2002 Mr. Brown was appointed Executive Vice President, Engineering.

Steven Houck joined the Company in 1995 as a consultant for its multimedia division. He then moved on to become manager of the Company's OEM Accounts. In December 1999, he was appointed to Executive Vice President, Sales. Mr. Houck held that position until October 2001 when he was named to his current position of Executive Vice President, Strategic Relations.

Gary Klembara joined the Company as Corel's Executive Vice President, Sales in October 2001. Mr. Klembara was Executive Vice President, Sales for Micrografx, Inc., from July 2000 to October 2001. Prior to joining Micrografx, Mr. Klembara was Executive Vice President, Worldwide Sales for Image2web, Inc., a Micrografx subsidiary. Prior to June 2000 he was National Director of Sales, Consultants and Systems Integrators Division of Compaq Computer.

Ian LeGrow joined the Company in 1994 and has held various positions in product development. Mr. LeGrow was Vice President of Software Development, CorelDRAW Graphics Suite from June 1998 to October 2000. In October 2000 he was appointed Executive Vice President, Creative Products. In January 2002, he was appointed to his current position of Executive Vice President, Product Strategy.

Annette McCleave joined the Company in 1990 as a member of the technical marketing team and served as Product Manager for CorelDRAW and Director of Product Management. From September 1999 to November 1999, she served as Vice President of Product Management. In June 1998, she was appointed Vice President of the New Ventures Division. She served as Executive Vice President, Corporate Communications from October 2000 until February 2001. In February 2001, she was appointed Executive Vice President, Marketing.

Rene Schmidt joined Corel in October 1995. Prior to his appointment as Executive Vice President, Linux Products in October of 2000, Mr. Schmidt led the scripting, common user interface and installation teams, and managed the Paradox, Quattro Pro, Corel LINUX OS and Linux porting development teams. Mr. Schmidt was appointed Chief Technology Officer in February, 2001. Prior to joining Corel Mr. Schmidt held several positions, including Chief Software Architect and Software Development Manager, over an eleven year period with Instantel, Inc.

James C. Baillie joined the Board of Directors as Chairman in August 2000. Mr Baillie is counsel to Torys, Barristers and Solicitors, where he practices in the general area of business law with an emphasis on financial institutions and securities law. Mr. Baillie was the Chair of the Ontario Securities Commission between 1978 and 1980, and was also the initial Chair of the federal government's Task Force on the Future of the Canadian Financial Services Sector from December 1996 to July 1997. Currently, Mr Baillie is the Chair of the Independent Electricity Market Operator (Ontario) and is a director of Sun Life Financial Services of Canada Inc.

Lyle B. Blair has been a director since September 1989. Mr. Blair has been Chairman of L.B. Blair Management Ltd. since 1976. L.B. Blair Management Ltd. has owned and operated several companies, including, from 1980 to 1992, Storwal International Inc., an office furniture manufacturer, and Thames Valley Beverages, the largest independent Ontario Pepsi bottler, from 1976 to 1988. Prior to 1976, Mr. Blair held senior international positions with Procter & Gamble Inc. and Pepsico Inc.

David A. Galloway joined the Board of Directors in October 2001. Mr. Galloway joined Torstar Corporation in 1981, became CEO of Harlequin, a division of Torstar, in 1982, and was appointed to his current position of President and CEO of Torstar in 1988.

Hunter S. Grant has been a director since September 1989. Mr. Grant was the Co-Publisher, President and General Manager of the Recorder and Times Limited, a newspaper publishing company, from July 1977 until July 1998. He is currently the President of Kingmer Holding Ltd.

James L. Hopkins joined the Board of Directors in October 2001, concurrent with Corel's completion of its acquisition of Micrografx, Inc. Prior to the acquisition, Mr. Hopkins served as Chairman and Chief Executive Officer of Micrografx Inc., having been appointed to those positions in September 2000 and October 2000, respectively. Prior to that, Mr. Hopkins was Managing Director of the Austin, Texas office of Hoak Breedlove Wesneski & Co., a technology investment banking firm. From 1991 through May 1999, Mr. Hopkins held a variety of positions with STB Systems, Inc., leading to the position of Vice President of Strategic Marketing and Chief Financial Officer.Mr. Hopkins remains on the Board of Directors for 3dfx Interactive in San Jose, CA as well as two early-stage, Texas-based, privately held software companies.

Jean-Louis Malouin became a director in November 1997. Dr. Malouin is a professor in the Faculty of Administration at the University of Ottawa where he served as Dean between 1992 and 2000. From 1989 to 1992, Dr. Malouin was the Dean of Administration at the University of Alberta and is a former dean at the Université Laval. He is an expert in operations and production management, management information systems design and research methodology. He has served as a management consultant for numerous organizations and institutions, including the Canadian International Development Agency (CIDA), the Université du Québec and the Ottawa Economic Development Corporation (OCEDCO).

Hon. Barbara McDougall became a director in April 1998. Since February 1999, Mrs. McDougall has been President and Chief Executive Officer of the Canadian Institute of International Affairs. Prior to that appointment, she was a private consultant on corporate governance and on international business. Mrs. McDougall was also chairperson of the Board of Directors of AT&T Canada. Her current corporate directorships include the Bank of Nova Scotia, Stelco Inc., and the Independent Order of Foresters. Prior to 1993, Mrs. McDougall was a Member of Parliament and Cabinet Minister in the Canadian Federal Government.

Under the Canada Business Corporations Act, a majority of the Board of Directors and a majority of Board Committee members must be resident Canadians. All directors hold office until the next annual meeting of shareholders and until their successors have been elected. The executive officers of the Company serve at the discretion of the Board of Directors of the Company. There are no family relationships among any of the directors and executive officers of the Company.

The Audit Committee reviews the internal accounting procedures of the Company, consults with and reviews the services provided by the Company's independent auditors.

The Compensation Committee has a mandate to: (a) monitor compliance with provincial legislation applicable in respect of employment practices of the Company, (b) determine the appropriate allocation of stock options to eligible participants in the Corel Corporation Stock Option Plan, (c) determine Chief Executive Officer and senior officer compensation, (d) monitor compliance with statutory requirements for employment matters, including remittances and legislation, and (e) review general policy matters relating to employment and wage equity, compensation and benefits of employees of the Company generally. The Compensation Committee met three times in fiscal 2001 and acted by way of resolution on other occasions.

The Company has a policy of compensation based on merit and performance and does not discriminate or distinguish with respect to persons performing similar functions. Compensation in the Company, as compared to industry surveys, is consistent with industry standards at the level necessary to attract and retain qualified personnel.

Item 11. Executive Compensation

The following table, presented in CDN$, in accordance with the regulations of the Securities Act (Ontario), sets forth all compensation paid in respect of the individuals who were, at November 30, 2001, the Chief Executive Officer and the other four most highly compensated executive officers of the Company (the "named executive officers").

Summary Compensation Table

					Long-term
		Annual compensation			compensation
				Other
				annual	Securities	All
Name and principal				compen-	under options	other
Position	Year	Salary	Bonus	sation (1)	granted (#)	compensation
Derek J. Burney	2001	$303,461	$122,500		187,500
President and	2000	293,077	57,884		225,000
Chief Executive Officer	1999	240,000	Nil		81,000
Steven Houck	2001	200,753	135,456		19,000
Executive Vice President,	2000	211,299	65,100		63,600
Strategic Relations	1999	168,850	Nil		4,200
John Blaine	2001	238,212	48,000		75,000
Executive Vice President,	2000	134,135	Nil		100,000
Finance, CFO and Treasurer	1999	-	-		-
Annette McCleave	2001	205,827	45,150		56,250
Executive Vice President,	2000	167,500	Nil		54,700
Marketing	1999	139,699	Nil		13,000
Ian LeGrow	2001	196,596	40,000		56,250
Executive Vice President,	2000	163,269	Nil		54,700
Product Strategy	1999	130,828	Nil		16,000

Notes:

⁽¹⁾ Perquisites and other personal benefits do not exceed the lesser of CDN $50,000 and 10% of the total of the annual salary and bonus for any of the named executive officers.

The following table sets forth the stock options granted under the Corel Corporation Stock Option Plan 2000 during the fiscal year ended November 30, 2001 to the named executive officers.

Option Grants for the Year Ended November 30, 2001

and Potential Realizable Value of Each Grant of Options

					Potential realizable value at assumed annual rates of stock price appreciation for option term (CDN$)
	Number of	% of total	Exercise
	securities	options	or base
	underlying	granted to	price
	options	employees in	($/share)	Expiration
Name	granted (#)	fiscal year	(CDN$)	date	5% ($)	10 % ($)
Derek J. Burney	125,000	4.40%	$ 4.80	August 10, 2005	$ 129,304	$ 278,460
	62,500	2.20%	$ 3.30	October 1, 2005	44,448	95,721
Steven Houck	12,500	0.44%	$ 3.12*	August 10, 2005	8,405*	18,100*
	6,500	0.23%	$ 2.09*	October 1, 2005	2,928*	6,305*
John Blaine	50,000	1.76%	$ 4.80	August 10, 2005	51,722	111,384
	25,000	0.88%	$ 3.30	October 1, 2005	17,779	38,288
Annette McCleave	37,500	1.32%	$ 4.80	August 10, 2005	38,791	83,538
	18,750	0.66%	$ 3.30	October 1, 2005	13,334	28,717
Ian LeGrow	37,500	1.32%	$ 4.80	August 10, 2005	38,791	83,538
	18,750	0.66%	$ 3.30	October 1, 2005	13,334	28,717

(*) in US$.

The following table sets forth each exercise of stock options under the Corel Corporation Stock Option Plan during the fiscal year ended November 30, 2001 by the named executive officers.

Aggregated Option Exercises During the Fiscal Year Ended

November 30, 2001 and Fiscal Year-End Option Values

				Value of unexercised
			Unexercised	in-the-money
	Securities	Aggregat	options at	options at
	acquired	value	Nov. 30, 2001	Nov. 30, 2001
	on exercise	realized	Exercisable/Unexercisable	Exercisable/Unexercisable
Name	(#)	(CDN$)	(#)	(CDN$)
Derek Burney			228,502 / 199,998	$22,822 / $27,083
Steven Houck			48,735 / 33,865	$932* / $1,863*
John Blaine			118,335 / 56,665	$5,417 / $10,833
Annette McCleave			60,218 / 55,732	$6,963 / $8,125
Ian Legrow			71,218 / 55,732	$13,343 / $8,125

(*) in US$.

All options are exercisable as to one-third on each of the date of original grant and the first and second anniversaries thereof, except for options granted prior to October 2000, which are exercisable when granted (with the exception of options granted during an employee's probationary period, usually six months in length).

Compensation of Directors

Directors who are salaried officers of the Company receive no compensation for serving on the Board of Directors. The other directors (the "independent directors"), of whom there are currently seven, receive an annual retainer of CDN $16,000 (CDN $25,000 for Board Chair) and a fee of CDN $1,000 (CDN $2,000 for Board and Committee Chairs and Board Vice-Chair) for each Board of Directors and Committee meeting they attend, and are reimbursed for travelling costs and other out-of-pocket expenses incurred in attending such meetings.

On August 15, 2000, a Deferred Share Units Plan ("DSP") for non-employee members of the Board of Directors was established by the Company. Under the DSP, each director may elect to be paid up to 100% of his or her compensation in deferred share units ("DSUs"). A DSU is credited by means of a bookkeeping entry in the books of the Company to an account in the name of the director and payable only at the end of his or her mandate on the Board of Directors, in cash or by way of Common Shares equal in number to the DSUs credited to the director's account, based on the market value of the Common Shares at that time. The number of DSUs credited to each director is determined on the basis of the portion elected by each director of the amount payable to such director for the director's retainer and meeting fees for each financial quarter, divided by the value of a DSU (which is equal to the closing price of the Common Shares on The Toronto Stock Exchange ("TSE") on the third trading day after the announcement of the results for such financial quarter). DSUs are credited with dividend equivalents when dividends are paid on Common Shares and such dividend equivalents are converted into additional DSUs. Additional compensation consisting of options for Common Shares may be awarded to non-employee directors as the Board of Directors deems appropriate.

The total compensation earned by non-employee directors in the financial year ending November 30, 2001 for duties performed during that fiscal year was CDN $243,263. As of February 6, 2002, a total of 67,249 units have been credited to directors.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

The Corporation has entered into an employment agreement with Derek J. Burney dated as of October 17, 2001. The employment agreement sets forth the remuneration of Mr. Burney, including salary, bonus, vacation entitlement, car allowance and ancillary perquisites. Mr. Burney receives an annual base salary of CDN $350,000. Mr. Burney may terminate his employment with the Corporation at any time by giving 30 days notice of termination to the Corporation. If the Corporation terminates Mr. Burney without cause or good reason (as defined within the employment agreement), the Corporation will pay severance in the amount of 20 months' salary, which period increases by one month for every four months of service by Mr. Burney, which period shall not exceed 24 months in total (the "severance period"). If Mr. Burney is subsequently employed by another party for any portion of the severance period, the severance payment will be reduced by 50% during the period in which Mr. Burney has obtained alternate employment. Mr. Burney is also entitled to incentive payments earned during the severance period and accelerated vesting of any options that vest within the severance period.

On a change of control (as defined within the employment agreement), if Mr. Burney is terminated, he is entitled to an amount equivalent to 24 months' salary along with the other benefits described above.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as ofFebruary 15, 2002, certain information with respect to the beneficial ownership of Common Shares by (1) each person known by the Company to be a beneficial owner of more than 5% of its outstanding Common Shares, (2) by each director and named executive officer and (3) by all directors and executive officers as a group.

	Common shares beneficially owned	Exercisable options	Percentage owned (1)
Derek J. Burney	25,000	282,668	*
James C. Baillie	50,000	8,335	*
John Blaine		126,668	*
Lyle B. Blair		28,334	*
David A. Galloway		1,667	*
Hunter S. Grant	5,000	28,334	*
James Hopkins	267,463	4,167	*
Steven Houck	5,000	60,585	*
Ian LeGrow		84,017	*
Jean-Louis Malouin	1,000	28,334	*
Annette McCleave		73,017	*
Barbara McDougall		33,334	*
Directors and Executive Officers as a group (13 persons) (2)	353,463	959,828	*

* Indicates less than 1%

(1) Percentage ownership is calculated using as a denominator the total number of Common Share

outstanding plus the number of Common Shares which the beneficial owner indicated has a right to acquire pursuant to options currently exercisable or exercisable within 60 days.

(2) The address for each director and executive officer is Corel Corporation, 1600 Carling Avenue, Ottawa, Ontario, Canada, K1Z 8R7.

Statements contained in the table as to securities beneficially owned by directors, executive officers and beneficial owners of more than 5% of the Company's outstanding Common Shares are, in each instance, based upon information obtained from such directors and executive officers. Statements contained in the table as to securities beneficially owned by beneficial owners of holders of 5% or more of the Company's outstanding Common Shares are based on Schedules 13G or 13D filed by such persons with the U.S. Securities and Exchange Commission.

Item 13. Certain Relationships and Related Transactions

None

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as a part of this Annual Report on Form 10-K.

1. Financial Statements

2. Financial Statements Schedule

The following financial statements schedule and related auditors' report are filed as part of this report herewith as Exhibits 99.1 and 99.2:

Schedule II Valuation and Qualifying Accounts for the years ended November 30, 2001, 2000 and 1999

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

3. Exhibits

Exhibit
3.1	Certificate and Articles of Incorporation. (1)
3.2	By-law No. 6. (1)
3.3	Certificate and Articles of Amalgamation of Corel Corporation and Corel Inc. Computer Corp. (1)
3.4	Amendment to Articles of Incorporation. (6)
4.1	Specimen of Common Share Certificate. (1)
4.2	Shareholder Rights Plan Agreement dated February 11, 1999, as amended and restated as of March 31, 1999, by and between the Company and Montreal Trust Company of Canada, as rights agent. (3)
10.1	Corel Corporation Stock Option Plan, as amended. (4)
10.2	Corel Corporation Stock Option Plan 2000. (4)
10.3	Share Purchase Agreement dated September 18, 2000 by and between the Company and Albans Investments Limited. (6)
10.4	Registration Rights Agreement dated September 18, 2000 by and between the Company and Albans Investments Limited. (6)
10.5	Escrow Agreement dated September 18, 2000 by and between the Company, Albans Investments Limited and Epstein Becker & Green, P.C., as escrow agent. (6)
10.6	Form of Share Purchase Warrant between the Company and each of Albans Investment Limited, Whale Securities Co., L.P., and Richard Geyser. (6)
10.7	Share Purchase Agreement dated October 2, 2000 by and between the Company and Microsoft Corporation. (5)
10.8	Registration Rights Agreement dated October 2, 2000 by and between the Company and Microsoft Corporation. (5)
10.9	Technology and Services Agreement dated October 2, 2000 by and between the Company and Microsoft Corporation. (5)
10.10	Employment Agreement dated as of October 17, 2001 between the Company and Derek J. Burney. (2)
10.11	Merger Agreement dated as of July 16, 2001 as amended and restated between the Company, Calgary I Acquisition Corp. and Micrografx, Inc. (7)
10.12	Participation Rights Agreement dated as of October 30, 2001 between the Company and The Bank of New York, as Trustee. (2)
10.13	Merger Agreement dated as of August 7, 2001 as amended and restated between the Company, Calgary II Acquisition Corp. and SoftQuad Software, Ltd. (8)
21.1	Subsidiaries of Registrant. (2)
23.1	Consent of PricewaterhouseCoopers LLP Chartered Accountants. (2)
99.1	Financial Statement Schedule - Schedule II - Valuation and Qualifying Accounts for the years ended November 30, 2001, 2000 and 1999. (2)
99.2	Auditors' Report to the Board of Directors on Financial Statement Schedules. (2)

(1) Previously filed as an exhibit to the Company's Registration Statement No. 33-50886 and incorporated herein by reference

(2) Filed herewith

(3) Previously filed as an exhibit to the Company's Registration Statement No. 000-20562 and incorporated herein by reference

(4) Previously filed as an exhibit to the Company's Registration Statement No. 333-42790 and incorporated herein by reference

(5) Previously filed as an exhibit to the Current Report on Form 8-K dated October 2, 2000 and incorporated herein by reference

(6) Previously filed as an exhibit to the Annual report on Form 10-K dated February 21, 2001 and incorporated herein by reference

(7) Previously filed as an exhibit to the Current Report on Form 8-K dated July 16, 2001 and incorporated herein by reference

(8) Previously filed as Annex A to the Company's Registration Statement 333-69868 and incorporated herein by reference

(b) Reports on Form 8-K

During the three-month period ended November 30, 2001, the Company filed one Current Report on Form 8-K, including information requested under Item 5 and Item 7 as follows:

On October 30, 2001, the Company reported the completion of the acquisition of Micrografx, Inc.

(c) Exhibits

The response to this portion of Item 14 is submitted as a separate section of this report.

(d) Financial Statement Schedules

The response to this portion of Item 14 is submitted as a separate section of this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Ottawa, Province of Ontario, Canada, on February 26, 2002.

COREL CORPORATION
By	/s/ John Blaine
	John Blaine
	Executive Vice President, Finance,
	Chief Financial Officer and Treasurer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Derek J. Burney and John Blaine, his or her Attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said Attorney-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on February 26, 2002.

Signature	Title
/s/ James C. Baillie	Chair of the Board of Directors
James C. Baillie
/s/ Derek J. Burney	President and Chief Executive Officer, Director
Derek J. Burney
/s/ Lyle B. Blair	Director
Lyle B. Blair
/s/ David Galloway	Director
David Galloway
/s/ Hunter S. Grant	Director
Hunter S. Grant
/s/ James Hopkins	Director
James Hopkins
/s/ Jean-Louis Malouin	Director
Jean-Louis Malouin
/s/ Barbara McDougall	Director
Barbara McDougall
/s/ John Blaine	Chief Financial Officer,
John Blaine	Executive Vice President, Finance and Treasurer
	(principal financial and accounting officer)

Schedule II - 1

Index to Exhibits

Exhibit Number	Description
3.1	Certificate and Articles of Incorporation. (1)
3.2	By-law No. 6. (1)
3.3	Certificate and Articles of Amalgamation of Corel Corporation and Corel Computer Corp. (1)
3.4	Amendment to Articles of Incorporation. (6)
4.1	Specimen of Common Share Certificate. (1)
4.2	Shareholder Rights Plan Agreement dated February 11, 1999, as amended and restated as of March 31, 1999, by and between the Company and Montreal Trust Company of Canada, as rights agent. (3)
10.1	Corel Corporation Stock Option Plan, as amended. (4)
10.2	Corel Corporation Stock Option Plan 2000. (4)
10.3	Share Purchase Agreement dated September 18, 2000 by and between the Company and Albans Investments Limited. (6)
10.4	Registration Rights Agreement dated September 18, 2000 by and between the Company and Albans Investments Limited. (6)
10.5	Escrow Agreement dated September 18, 2000 by and between the Company, Albans Investments Limited and Epstein Becker & Green, P.C., as escrow agent. (6)
10.6	Form of Share Purchase Warrant between the Company and each of Albans Investment Limited, Whale Securities Co., L.P., and Richard Geyser. (6)
10.7	Share Purchase Agreement dated October 2, 2000 by and between the Company and Microsoft Corporation. (5)
10.8	Registration Rights Agreement dated October 2, 2000 by and between the Company and Microsoft Corporation. (5)
10.9	Technology and Services Agreement dated October 2, 2000 by and between the Company and Microsoft Corporation. (5)
10.10	Employment Agreement dated as of October 17, 2001 between the Company and Derek J. Burney. (2)
10.11	Merger Agreement dated as of July 16, 2001 as amended and restated between the Company, Calgary I Acquisition Corp. and Micrografx, Inc. (7)
10.12	Participation Rights Agreement dated as of October 30, 2001 between the Company and The Bank of New York, as Trustee. (2)
10.13	Merger Agreement dated as of August 7, 2001 as amended and restated between the Company, Calgary II Acquisition Corp. and SoftQuad Software, Ltd. (8)
21.1	Subsidiaries of Registrant. (2)
23.1	Consent of PricewaterhouseCoopers LLP Chartered Accountants. (2)
99.1	Financial Statement Schedule - Schedule II - Valuation and Qualifying Accounts for the years ended November 30, 2001, 2000 and 1999. (2)
99.2	Auditors' Report to the Board of Directors on Financial Statement Schedules. (2)

(1) Previously filed as an exhibit to the Company's Registration Statement No. 33-50886 and incorporated herein by reference

(2) Filed herewith

(3) Previously filed as an exhibit to the Company's Registration Statement No. 000-20562 and incorporated herein by reference

(4) Previously filed as an exhibit to the Company's Registration Statement No. 333-42790 and incorporated herein by reference

(5) Previously filed as an exhibit to the Current Report on Form 8-K dated October 2, 2000 and incorporated herein by reference

(6) Previously filed as an exhibit to the Annual report on Form 10-K dated February 21, 2001 and incorporated herein by reference

(7) Previously filed as an exhibit to the Current Report on Form 8-K dated July 16, 2001 and incorporated herein by reference

(8) Previously filed as Annex A to the Company's Registration Statement 333-69868 and incorporated herein by reference

© 2002 Corel Corporation. All rights reserved. Corel, CorelDRAW, Corel R.A.V.E., Real Animated Vector Effects, Corel CAPTURE, CorelPHOTO-PAINT, CorelTRACE, Corel TEXTURE, Corel VENTURA, Corel DESIGNER, Bryce, KPT, effects, Quattro, Painter 7, Paradox, CorelCENTRAL, Presentations, procreate, WordPerfect, iGrafx and the procreate logo are trademarks or registered trademarks of Corel Corporation. Other product, font and company names and logos may be trademarks or registered trademarks of their respective companies

EX-10.10

EMPLOYMENT AGREEMENT

BETWEEN

DEREK BURNEY

AND

COREL CORPORATION

MADE AS OF OCTOBER 17, 2001

EMPLOYMENT AGREEMENT

THIS AGREEMENT made as of October 17, 2001;

B E T W E E N:

COREL CORPORATION
(the "Corporation")

OF THE FIRST PART,

- and -

DEREK BURNEY
(the "Executive")

OF THE SECOND PART.

WHEREAS the Executive has been employed with the Corporation since April 4, 1993 in a variety of capacities, having been appointed as Interim Chief Executive Officer on August 15, 2000 and appointed Chief Executive Officer on October 2, 2000;

AND Whereas the Executive and the Corporation wish to formalize the terms and conditions of the Executive's employment as CEO with the Corporation;

THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements contained in this Agreement, the parties agree as follows:

ARTICLE 1 - DEFINITIONS

1.1 Board

"Board" means the board of directors of the Corporation.

1.2 Change of Control

"Change of Control" means any change whereby less than one-half of the directors of the Corporation are persons who were directors twelve (12) months previously, unless the continuing directors and the Executive agree and the directors, by resolution, confirm that there has been no change of control.

1.3 Confidential Information

"Confidential Information" means confidential information of the Corporation, including trade secrets, customer lists and other confidential information concerning the business and affairs of the Corporation.

1.4 Date of Termination

"Date of Termination" means the date on which a proper Notice of Termination is given to or by the Executive.

1.5 Good Reason

"Good Reason" means:

(a) the Corporation and its subsidiaries, taken as a whole, cease to operate as a going concern;

(b) any action by the Corporation without the Executive's consent that constitutes constructive termination of the Executive's employment with the Corporation, including (i) any material reduction in the Executive's offices, titles, reporting relationships, powers, authority, duties or responsibilities; (ii) any reduction in the Executive's base salary; and (iii) any material reduction in the value of the Executive's employee group insurance or health benefit plans and programmes;

(c) the Corporation fails to pay, when due, any amount payable by it to the Executive pursuant to this Agreement;

(d) a Change of Control (provided that a Change of Control will cease to be Good Reason six (6) months after the Executive first becomes aware of the Change of Control); or

(e) any term of the Executive's employment with the Corporation is changed without the Executive's consent in any proceedings under any bankruptcy, reorganization, arrangement, dissolution, winding-up or liquidation statute or law of any jurisdiction, including the Companies' Creditors Arrangement Act (Canada).

1.6 Permanent Disability

"Permanent Disability" means the Executive's absence from his duties with the Corporation on a full time basis for more than six (6) consecutive months as a result of the Executive's incapacity due to physical or mental illness.

1.7 Severance Period

"Severance Period" means a period of eighteen (18) months from the Date of Termination, such period to increase by one month for every four (4) months the Executive serves as CEO after June 1, 2001 and such period not to exceed twenty-four (24) months in total.

1.8 Subsidiary

"Subsidiary" has the meaning ascribed to it in the Business Corporations Act.

ARTICLE 2 - EMPLOYMENT

2.1 Employment

Subject to the terms and conditions of this Agreement, the Corporation will employ the Executive in the office of Chief Executive Officer and the Executive will have the powers and authority to perform the duties and functions of the chief executive officer of a corporation, subject always to the control and direction of the Board. In performing such duties and functions, the Executive will have direction and control over all other officers and employees of the Corporation.

2.2 Review

The Executive and Corporation agree that they will review the terms and conditions of the Executive's employment every three (3) years and recommend changes, if any, to this Agreement, subject to Section 7.9.

2.3 Place of Employment

The Executive will perform his work and services for the Corporation primarily at its head office in Ottawa. The Executive acknowledges that the board of directors has the discretion to change the location of the head office of the Corporation, in which case the Executive will be required to relocate. In the event that the Executive agrees to relocate, all expenses incurred by the Executive and his family will be fully reimbursed. In the event that the board of directors decides to move the location of the head office more than 100 kilometres away from Ottawa and the Executive refuses to relocate and other mutually acceptable terms and conditions for continued employment are not agreed to, the Executive's employment will be terminated and he will be entitled to the payments provided for under section 5.3. The Executive acknowledges that the performance of his duties and functions will necessitate frequent travel to other places.

ARTICLE 3 - REMUNERATION AND BENEFITS

3.1 Base Salary

The Corporation will pay the Executive an annual base salary of $350,000.00, retroactive to the date of his appointment as Interim CEO on August 15, 2000. The Executive's base salary will be reviewed annually following completion of the Corporation's financial year ending November 30, 2001, by the Compensation Committee of the board of directors at the time of the review of compensation for members of the Executive Management Team or other senior management employees of the Corporation.

3.2 Benefits

The Executive will be entitled to participate in all health, disability, death, pension and other employee benefit plans and programmes of the Corporation in effect from time to time in accordance with their terms.

3.3 Incentive Plans

The Corporation shall pay the Executive an annual bonus if the Corporation achieves certain revenue, pre-tax operating income and/or development or other targets to be agreed each year in advance by the board of directors and the Executive. If one hundred percent (100%) of the objectives set for a given year are attained, the Executive shall be entitled to a bonus in the amount of forty-five percent (45%) of his annual base salary. The amount of bonus, if any, to which the Executive will be entitled for attaining a lesser percentage of objectives will be determined by the board of directors.

3.4 Stock Option Plans

The Executive will be eligible for a grant of options, at the discretion of the board of directors, in accordance with the policy and practice in place for other senior executives of the Corporation and in accordance with the terms and conditions of the stock option plan in place for senior executives of the Corporation.

3.5 Vacation

The Executive will be entitled to paid vacation each year in accordance with the policy and practice in place for other senior executives of the Corporation. The Executive will take his vacation at a time or times reasonable for each of the Corporation and the Executive in the circumstances.

3.6 Expenses

The Corporation will reimburse the Executive for all reasonable out-of-pocket expenses properly incurred by him in the course of the Executive's employment with the Corporation. The Executive will provide the Corporation with appropriate statements and receipts verifying such expenses.

3.7 Automobile

The Executive will be entitled to an automobile allowance consistent with that offered by the Corporation to its senior executives from time to time.

3.8 Parking

The Corporation will pay for a parking space for the Executive at its place of business.

3.9 Supplementary Pension Benefit

The Executive will be eligible for enrolment in the pension plan, if any, available to other senior executives of the Corporation and on the same terms and conditions applicable to other senior executives of the Corporation, subject to the condition that the Executive's compensation, as set out in Section 3.1, was determined on the assumption that any pension contributions made on behalf of the Executive will not result in contribution in excess of current RRSP contribution limits. The Executive acknowledges that the Corporation is currently reviewing the feasibility of a corporate pension plan and no decision has been made, as of this date, on the availability of a plan for company employees and executives.

3.10 Membership Fees

The Corporation agrees to reimburse the Executive for the cost of a membership at the Rideau Club in Ottawa, for such time as he remains in the position of CEO of the Corporation, including any minimum use fees which are not otherwise claimed by the Executive pursuant to Section 3.6.

3.11 Legal Fees

The Corporation will reimburse the Executive for legal fees incurred for the review of this Agreement, to a maximum of $2,000.00.

ARTICLE 4 - EXECUTIVE'S COVENANTS

4.1 Full Time Service

The Executive will devote all of his time, attention and effort to the business and affairs of the Corporation and its subsidiaries and will well and faithfully serve the Corporation and its subsidiaries and will use his best efforts to promote the interests of the Corporation and its subsidiaries.

4.2 Duties and Responsibilities

The Executive will duly and diligently perform all the duties assigned to him and commensurate with his CEO position while in the employ of the Corporation, and will truly and faithfully account for and deliver to the Corporation all money, securities and things of value belonging to the Corporation which the Executive may from time to time receive for, from or on account of the Corporation.

4.3 Rules and Regulations

The Executive will be bound by and will faithfully observe and abide by all the rules and regulations of the Corporation from time to time in force which are brought to his notice or of which he should reasonably be aware.

4.4 Confidential Information

(a) The Executive acknowledges that, by reason of his employment with the Corporation, he will have access to Confidential Information. The Executive agrees that, during and after his employment with the Corporation, he will not disclose to any person, except in the proper course of his employment with the Corporation, or use for his own purposes or for any purposes other than those of the Corporation, any Confidential Information acquired by him.

(b) Any breach of Section 4.4(a) by the Executive will result in material and irreparable harm to the Corporation although it may be difficult for the Corporation to establish the monetary value flowing from such harm. The Executive therefore agrees that the Corporation, in addition to being entitled to the monetary damages which flow from the breach, will be entitled to injunctive relief in a court of appropriate jurisdiction in the event of any breach by the Executive of Section 4.4(a). In addition, the Corporation will be relieved of any further obligation to make any payments to the Executive or provide him with any benefits as outlined in Section 5.3, except those in Sections 5.3(a)(i) and 5.3(a)(ii), in the event of a breach by the Executive of Section 4.4(a).

ARTICLE 5 - TERMINATION

5.1 Termination by the Corporation

The Corporation may terminate the Executive's employment with the Corporation at any time by giving a Notice of Termination to the Executive.

5.2 Termination by the Executive

The Executive may terminate his employment with the Corporation at any time by giving 30 days' Notice of Termination to the Corporation.

5.3 Payments on Termination Without Cause or for Good Reason

(a) If the Executive's employment with the Corporation is terminated by the Corporation pursuant to Section 5.1 for any reason other than cause or Permanent Disability, or is terminated by the Executive pursuant to Section 5.2 for Good Reason, and subject to and conditional upon the Executive complying with the provisions of Article 6, the Corporation will:

(i) pay to the Executive an amount equal to the salary earned by him up to the Date of Termination and any outstanding vacation pay calculated as of such Date;

(ii) reimburse the Executive in accordance with Section 3.6 for any expenses incurred by him up to and including the Date of Termination;

(iii) subject to Sections 5.3(b) and (c), pay to the Executive an amount equivalent to the salary that would have been payable to him, on the basis of Section 3.1, for the Severance Period, such payment to be made as a lump sum payment equivalent to twelve months' salary immediately upon termination of employment, with the remaining amount to be paid within twelve (12) months of the Date of Termination at such times as the board of directors shall determine in its discretion, but in such amounts and at such times as shall be not less than equal monthly installments and not more than twelve (12) such installments commencing thirty (30) days following the Date of Termination;

(iv) maintain the Executive's benefits referred to in Section 3.2 for the Severance Period or, if that is not possible, pay to the Executive an amount equal to the cost of such benefits to the Corporation, grossed up so that the after tax value of the payments is equal to the cost of the benefits to the Corporation;

(v) give the Executive credit under the Corporation's pension plan for an additional period of service with the Corporation equal to the Severance Period or, if that is not possible, pay to the Executive an amount equal to the then present value of the benefits under the Corporation's pension plan attributable to such service, grossed up so that the after tax value of the payments is equal to then present value of the benefits;

(vi) pay to the Executive an amount equivalent to the amount that would have been payable to him under incentive plans for the Severance Period, such amount to be calculated as a percentage of base salary at the Date of Termination, the percentage to be an average of the percentages used to calculate the Executive's incentive payment in the preceding two years;

(vii) permit the Executive to exercise at any time within six (6) months from the Date of Termination all options granted to the Executive on or after October 1, 2001 that would otherwise vest during the Severance Period and permit the Executive to exercise all other options vested on the Date of Termination within 30 days of the Date of Termination;

(viii) continue the automobile arrangements outlined in Section 3.7 for the Severance Period.

(ix) pay during the Severance Period the membership fees at Rideau Club pursuant to Section 3.10 of this Agreement.

(b) Notwithstanding the foregoing, the payments contemplated by Section 5.3(a)(iii), excluding the lump sum payment described therein, will be reduced by fifty per cent (50%) during any period when the Executive has obtained alternate employment or has otherwise mitigated any damages arising from the termination of his employment. The Executive has a duty to mitigate his damages and will promptly notify the Corporation of such employment or mitigation.

(c) Notwithstanding Section 5.3(a)(iii), in the event there is a Change of Control, the Corporation will pay to the Executive an amount equivalent to the twenty-four (24) months' salary, on the basis of Section 3.1, such entire payment to be made immediately as a lump sum payment, together with such other payments to which the Executive is entitled pursuant to Section 5.3(a)(i) to (ix).

(d) The parties agree that the provisions of Section 5.3 are fair and reasonable and that the amounts payable by the Corporation to the Executive or for his benefit pursuant to Section 5.3 are reasonable estimates of the damages which will be suffered by the Executive in the event of the termination of his employment with the Corporation in the circumstances set out in this Section 5.3 and will not be construed as a penalty and such payments will be deemed to include all termination pay and severance pay owing to the Executive pursuant to the Employment Standards Act (Ontario) in respect of the termination of his employment.

(e) The parties agree that the payments under Section 5.3(a)(ii) or 5.3(c) will be deemed to include all termination pay and severance pay owing to the Executive pursuant to the Employment Standards Act (Ontario) in respect of the termination of his employment.

5.4 Payments on Termination by Corporation for Cause or by Reason of Permanent Disability or on Termination by the Executive Without Good Reason

(a) If the Executive's employment with the Corporation is terminated by the Corporation pursuant to Section 5.1 for cause or by reason of Permanent Disability, or if such employment is terminated by the Executive pursuant to Section 5.2 without Good Reason, the Corporation will:

(i) pay to the Executive an amount equal to the salary earned by him up to the Date of Termination and any outstanding vacation pay calculated as of such date;

(ii) reimburse the Executive in accordance with Section 3.6 for any expenses incurred by him up to and including the Date of Termination;

(iii) pay to the Executive any amounts owing to him under the incentive plans in accordance with the terms of such Plans and based on service up to the Date of Termination but not after the Date of Termination; and

(iv) arrange for the Executive to receive any pension benefits to which he is entitled pursuant to the Corporation's pension plan.

(b) If the Executive's employment with the Corporation is terminated by the Corporation pursuant to Section 5.1 by reason of Permanent Disability, the Corporation will:

(i) continue to pay to the Executive an amount equal to his salary at the rate in effect immediately prior to such termination for the balance, if any, of the applicable waiting period for long term disability benefits stipulated in the Corporation's long term disability plan (the "Waiting Period");

(ii) maintain during the Waiting Period and during any period in which the Executive is receiving long term disability benefits pursuant to the Corporation's long term disability plan (the "Long Term Disability Period") those of the Executive's benefits referred to in Section 3.2 which are normally continued for the Corporation's employees who are in receipt of either short term disability benefits or long term disability benefits; and

(iii) give the Executive credit under the Corporation's pension plan for an additional period of service with the Corporation equal to the Waiting Period and the Long Term Disability Period;

(iv) permit the Executive or his legal representative to exercise at any time within six (6) months from the Date of Disability all options granted to the Executive on or after October 1, 2001 and held by the Executive at the Date of Termination that have vested on the Date of Termination or would otherwise vest during the twelve month period following the Date of Termination and permit the Executive or his legal representative to exercise all other options vested on the Date of Disability within such six (6) months period;

(c) The Executive and the Corporation agree that the termination of the Executive's employment by the Corporation by reason of Permanent Disability is not contrary to the Ontario Human Rights Code and that further accommodation would be undue hardship on the Corporation.

5.5 Payments on Death of the Executive

(a) if the Executive's employment with the Corporation is terminated by death, the Corporation will:

(i) pay to the Executive an amount equal to the salary earned by him up to the Date of Death and any outstanding vacation pay calculated as of such date;

(ii) reimburse in accordance with Section 3.6 for any expenses incurred by him up to and including the Date of Death;

(iii) pay to the Executive any amounts owing to him under the incentive plans in accordance with the terms of such Plans and based on service up to the Date of Death but not after the Date of Death;

(iv) arrange for the Executive to receive any pension benefits to which he is entitled pursuant to the Corporation's pension plan; and

(v) permit the legal representative of the Executive to exercise at any time within six (6) months from the Date of Death all options granted to the Executive on or after October 1, 2001 and held by the Executive at the Date of Death that have vested on the Date of Death or would otherwise vest during the six (6) months period following the Date of Death and permit the legal representative of the Executive to exercise all other options vested on the Date of Death within twelve (12) months of the Date of Death;

5.6 Return of Property

Subject to Section 5.3(a)(viii), upon any termination of his employment with the Corporation, the Executive will deliver or cause to be delivered to the Corporation promptly all books, documents, money, securities or other properties of the Corporation that are in the possession, charge, control or custody of the Executive.

5.7 No Termination Claims

Upon any termination of the Executive's employment by the Corporation in compliance with this Agreement or upon any termination of the Executive's employment by the Executive, the Executive will have no action, cause of action, claim or demand against the Corporation, any related or associated corporations or any other person as a consequence of such termination.

5.8 Resignation as Director and Officer

Upon any termination of the Executive's employment under this Agreement, the Executive will sign forms of resignation indicating his resignation as a director and officer of the Corporation, if applicable.

5.9 Provisions which Operate Following Termination

Notwithstanding any termination of the Executive's employment under this Agreement for any reason whatsoever and with or without cause, the provisions of Sections 4.4, 5.3, 5.4, 5.5, 5.6, 5.7, 6.1, 6.2 and 6.3 of this Agreement and any other provisions of this Agreement necessary to give efficacy thereto will continue in full force and effect following such termination.

ARTICLE 6 - NON-COMPETITION AND NON-SOLICITATION

6.1 Non-Competition

(a) The Executive will not, without the prior written consent of the Corporation, at any time for a period of (i) six (6) months following the termination of the Executive's employment under this Agreement for cause or (ii) the end of the Severance Period if terminated without cause, either individually or in partnership or jointly or in conjunction with any person as principal, agent, employee, shareholder (other than a holding of shares listed on a Canadian or United States stock exchange that does not exceed 5% of the outstanding shares so listed) or in any other manner whatsoever carry on or be engaged in or be concerned with or interested in or advise, lend money to, guarantee the debts or obligations of or permit his name or any part of his name to be used or employed by any person engaged in or concerned with or interested in within North America, (i) a business which is competitive with any business carried on by the Corporation during the term of employment or during any Severance Period, or (ii) following termination of the Executive's employment under this Agreement for cause, a business which is competitive with any business carried on by the Corporation at the date of such termination.

(b) The Executive confirms that all restrictions in Section 6.1(a) are reasonable and valid and that the Executive waives all defences to the strict enforcement of such restrictions by the Corporation.

6.2 Non-Solicitation

(a) The Executive will not, without the prior consent of the Corporation, during the term of his employment or at any time for a period of twelve (12) months following the termination of the Executive's employment under the Agreement for whatever reason and with or without cause, either individually, or in partnership, or jointly, or in conjunction with any person as principal, agent, employee or shareholder (other than a holding of shares listed on a Canadian or United States stock exchange that does not exceed 5% of the outstanding shares so listed) or in any other manner whatsoever on his own behalf or on behalf of anyone competing or endeavouring to compete with the Corporation, directly or indirectly solicit, or gain the custom of, interfere with or endeavour to entice away from the Corporation any person who:

(i) is a client of the Corporation at the Date of Termination for whatever reason of this Agreement and with whom the Executive dealt during the Executive's employment;

(ii) was a client of the Corporation at any time during the Executive's employment at the Corporation and with whom the Executive dealt during the Executive's employment; or

(iii) has been pursued as a prospective client by or on behalf of the Corporation at any time within twelve (12) months prior to the Date of Termination of this Agreement for whatever reason and in respect of whom the Corporation has not determined to cease all such pursuit.

(b) The Executive confirms that all restrictions in Section 6.2(a) are reasonable and valid and that the Executive waives all defences to the strict enforcement of such restrictions in Section 6.2(a) by the Corporation.

(c) Sections 6.2(a)(i),(ii) and (iii) are each separate and distinct covenants, severable one from the other and if any such covenant or covenants are determined to be invalid or unenforceable, such invalidity or unenforceability will attach only to the covenant or covenants as determined and all other such covenants will continue in full force and effect.

(d) The Executive, for a period of twelve (12) months following the termination of the Executive's employment under the Agreement for whatever reason and with or without cause, will not interfere with or entice away any person who is an employee of the Corporation at the Date of Termination of this Agreement for whatever reason.

6.3 Breach

Any breach of the provisions of Sections 6.1(a), 6.2(a), or 6.2(d) by the Executive will result in material and irreparable harm to the Corporation although it may be difficult for the Corporation to establish the monetary value flowing from such harm. The Executive therefore agrees that the Corporation, in addition to being entitled to the monetary damages which flow from the breach, will be entitled to injunctive relief in a court of appropriate jurisdiction in the event of any breach or threatened breach by the Executive of any of the provisions of Sections 6.1(a), 6.2(a) or 6.2(d). In addition, the Corporation will be relieved of any further obligations to make any payments to the Executive or provide him with any benefits as outlined in Section 5.3, except those in Section 5.3(a)(i) and 5.3(a)(ii), in the event of a breach by the Executive of any of the provisions of Sections 6.1(a), 6.2(a) or 6.2(d)

ARTICLE 7 - GENERAL

7.1 Notices

Any demand, notice or other communication ("Communication") to be given in connection with this Agreement will be given in writing by personal delivery, by registered mail or by electronic means of communication addressed to the recipient as follows:

To the Corporation:

1600 Carling Avenue
Ottawa, ON K1Z 8R7

Attention: Chairman

To the Executive:

23 Wendell Avenue

Stittsville, ON K2S 1G8

or such other address, individual or electronic communication number as may be designated by notice given by either party to the other. Any Communication given by personal delivery will be conclusively deemed to have been given on the day of actual delivery of the Communication and, if given by registered mail, on the third day, other than a Saturday, Sunday or statutory holiday in Ontario, following the deposit of the Communication in the mail and, if given by electronic communication, on the day of transmittal of the Communication if given during the normal business hours of the recipient and on the business day during which such normal business hours next occur if not given during such hours on any day. If the party giving any Communication knows or ought reasonably to know of any difficulties with the postal system which might affect the delivery of mail, any such Communication may not be mailed but must be given by personal delivery or by electronic communication.

7.2 Time of Essence

Time will be of the essence of this Agreement.

7.3 Deductions

The Corporation will deduct all statutory deductions from any amounts to be paid to the Executive under this Agreement.

7.4 Sections and Headings

The division of this Agreement into Articles and Sections and the insertion of headings are for the convenience of reference only and will not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Agreement.

7.5 Number

In this Agreement words importing the singular number only will include the plural and vice versa and words importing the masculine gender will include the feminine and neuter genders and vice versa and words importing persons will include individuals, partnerships, associations, trusts, unincorporated organizations and corporations and vice versa.

7.6 Benefit of Agreement

This Agreement will enure to the benefit of and be binding upon the heirs, executors, administrators and legal personal representatives of the Executive and the successors and permitted assigns of the Corporation respectively.

7.7 Entire Agreement

(a) Subject to Section 7.7 (b), this Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and cancels and supersedes any prior understandings and agreements between the parties to this Agreement with respect to the subject matter of this Agreement. There are no representations, warranties, forms, conditions, undertakings or collateral agreements, express, implied or statutory between the parties other than as expressly set forth in this Agreement.

(b) The Executive executed on May 6, 1998, in favour of the Corporation, an agreement concerning Confidential Information, Industrial and Intellectual Property, and Non-Competition and Non-Solicitation, a copy of which is attached hereto as Schedule "A". The obligations and conditions set forth in Schedule "A" continue in full force and effect to the extent that they are not inconsistent with the provisions of this Agreement, in which case the provisions of this Agreement shall take precedence.

7.8 Pre-Contractual Representations

The Executive hereby waives any right to assert a claim based on any pre-contractual representations, negligent or otherwise, made by the Corporation.

7.9 Amendments and Waivers

No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by both of the parties to this Agreement. No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided in the written waiver, will be limited to the specific breach waived.

7.10 Severability

If any provision of this Agreement is determined to be invalid or unenforceable in whole or in part, such invalidity or unenforceability will attach only to such provision or part of such provision and the remaining part of such provision and all other provisions of this Agreement will continue in full force and effect.

7.11 Governing Law

This Agreement will be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable in Ontario.

7.12 Attornment

For the purpose of all legal proceedings this Agreement will be deemed to have been performed in the Province of Ontario and the courts of the Province of Ontario will have jurisdiction to entertain any action arising under this Agreement. The Corporation and the Executive each hereby attorns to the jurisdiction of the courts of the Province of Ontario provided that nothing in this Agreement contained will prevent the Corporation from proceeding at its election against the Executive in the courts of any other province or country.

7.13 Copy of Agreement

The Executive hereby acknowledges receipt of a copy of this Agreement duly signed by the Corporation.

IN WITNESS WHEREOF the parties have executed this Agreement.

Corel Corporation

By: _______________________________

Name:

Title:

By:	_____________________________
Name:
Title:

WITNESS:

Signature Derek J. Burney

Name (Please print)

EX-10.12

______________________________________________________________________________

COREL CORPORATION

TO

THE BANK OF NEW YORK,

Trustee

_____________________________________

PARTICIPATION RIGHTS AGREEMENT

Dated as of October 30, 2001

______________________________________________________________________________

TABLE OF CONTENTS

Page

ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 1

Section 101. Definitions. 1

Section 102. Compliance Certificates and Opinions. 5

Section 103. Form of Documents Delivered to Trustee. 6

Section 104. Acts of Holders. 7

Section 105. Notices, etc., to Trustee and Company. 7

Section 106. Notice to Holders; Waiver. 8

Section 107. Conflict with Trust Indenture Act. 8

Section 108. Effect of Headings and Table of Contents. 8

Section 109. Successors and Assigns. 8

Section 110. Benefits of Agreement. 8

Section 111. Governing Law. 9

Section 112. Legal Holidays. 9

Section 113. Severability Clause. 9

Section 114. No Recourse Against Others. 9

ARTICLE TWO PR FORMS 9

Section 201. Forms Generally. 9

Section 202. Form of Face of PR. 10

Section 203. Form of Reverse of PR. 11

Section 204. Form of Trustee's Certificate of Authentication. 13

ARTICLE THREE THE PRs 13

Section 301. Title and Terms. 13

Section 302. Registrable Form. 14

Section 303. Execution, Authentication, Delivery and Dating. 14

Section 304. Withholding Rights. 15

Section 305. Registration. 15

Section 306. Mutilated, Destroyed, Lost and Stolen PRs. 15

Section 307. Presentation of PR Certificate. 16

Section 308. Persons Deemed Owners. 16

Section 309. Cancellation. 16

Section 310. No Rights as Shareholder. 16

ARTICLE FOUR THE TRUSTEE 17

Section 401. Certain Duties and Responsibilities. 17

Section 402. Certain Rights of Trustee. 18

Section 403. Not Responsible for Recitals or Issuance of PRs. 20

Section 404. May Hold PRs. 20

Section 405. Money Held in Trust. 20

Section 406. Compensation, Reimbursement and Indemnification of the Trustee. 20

Section 407. Disqualification; Conflicting Interests. 21

Section 408. Corporate Trustee Required; Eligibility. 21

Section 409. Resignation and Removal; Appointment of Successor. 21

Section 410. Acceptance of Appointment by Successor. 22

Section 411. Merger, Conversion, Consolidation or Succession to Business. 23

Section 412. Appointment of Co-Trustee. 23

ARTICLE FIVE HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY 24

Section 501. Company to Furnish Trustee Names and Addresses of Holders. 24

Section 502. Preservation of Information; Communications to Holders. 25

Section 503. Reports by Trustee. 26

Section 504. Reports by Company. 26

Section 505. Notice to Holders. 26

ARTICLE SIX AMENDMENTS 27

Section 601. Amendments Without Consent of Holders. 27

Section 602. Amendments with Consent of Holders. 27

Section 603. Execution of Amendments. 28

Section 604. Effect of Amendments. 28

Section 605. Conformity with Trust Indenture Act. 28

Section 606. Reference in PRs to Amendments. 29

ARTICLE SEVEN COVENANTS 29

Section 701. Payment of Amounts, if Any, to Holders. 29

Section 702. Maintenance of Office or Agency. 29

Section 703. Money for PR Payments to Be Held in Trust. 30

Section 704. Fund; Investment of Moneys by Trustee. 30

ARTICLE EIGHT REMEDIES OF THE TRUSTEE AND HOLDERS ON EVENT OF DEFAULT 32

Section 801. Event of Default Defined; Acceleration of Maturity; Waiver of Default. 32

Section 802. Collection of Indebtedness by Trustee; Trustee May Prove Debt. 33

Section 803. Application of Proceeds. 35

Section 804. Suits for Enforcement. 36

Section 805. Restoration of Rights on Abandonment of Proceedings. 36

Section 806. Limitations on Suits by Holders. 36

Section 807. Unconditional Right of Holders to Institute Certain Suits. 36

Section 808. Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default. 37

Section 809. Control by Holders. 37

Section 810. Waiver of Past Defaults. 37

Section 811. Trustee to Give Notice of Default, but May Withhold in Certain Circumstances. 38

Section 812. Right of Court to Require Filing of Undertaking to Pay Costs. 38

ARTICLE NINE CONSOLIDATION, MERGER, SALE OR CONVEYANCE 39

Section 901. Company May Consolidate, Etc. 39

Section 902. Successor Substituted. 39

Section 903. Opinion of Counsel to Trustee. 40

AGREEMENT, dated as of October 30, 2001, between COREL CORPORATION, a corporation continued under the laws of Canada (hereinafter called the "Company"), and The Bank of New York, a New York banking corporation, trustee (hereinafter called the "Trustee").

RECITALS OF THE COMPANY

WHEREAS, the Company has duly authorized the creation of an issue of Participation Rights (hereinafter called the "PRs"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Agreement;

WHEREAS, pursuant to the Merger Agreement dated as of July 16, 2001 (the "Merger Agreement"), among the Company, Calgary I Acquisition Corp. (the "Merger Subsidiary") and Micrografx, Inc., a Texas corporation ("Micrografx"), the Company has agreed to issue and deliver to stockholders of Micrografx, among other securities, a PR for each issued and outstanding share of common stock, par value $.01 per share, of Micrografx ("Micrografx Common Stock") and a PR for each share of common stock of Micrografx into which each issued and outstanding share of Series A Preferred Stock of Micrografx is convertible immediately prior to the effective time (the "Effective Time") of the merger of Micrografx with the Merger Subsidiary (other than shares of Micrografx Common Stock to be cancelled pursuant to the Merger Agreement and other than any shares of Micrografx Common Stock held by Dissenting Shareholders (as defined in the Merger Agreement)); and

WHEREAS, all things necessary have been done to make the PRs, when executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company and to make this Agreement a valid agreement of the Company, in accordance with their and its terms.

NOW, THEREFORE, for and in consideration of the premises and the consummation of the transactions referred to above, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the PRs, as follows:

ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 101. Definitions.

For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;

(b) all accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles, and the term "generally accepted accounting principles" means such accounting principles as are generally accepted at the time of any computation;

(c) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; and

(d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision.

Certain terms, used principally in Article Four, are defined in that Article.

"Act," when used with respect to any Holder, has the meaning specified in Section 104.

"Affiliate" means a person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person.

"Agreement" means this instrument as originally executed and as it may from time to time be supplemented or amended pursuant to the applicable provisions hereof.

"Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board.

"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

"Breakpoint Amount" means $2.3698, as adjusted from time to time pursuant to Section 3.01(e).

"Business Day" means any day (other than a Saturday or a Sunday) on which banking institutions in The City of New York, New York or in the State of the principal office of the Trustee are not authorized or obligated by law or executive order to close.

"Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

"Common Stock" means the common shares of the Company.

"Company" means the Person named as the "Company" in the first paragraph of this instrument, until a successor Person shall have become such pursuant to the applicable provisions of this Agreement, and thereafter "Company" shall mean such successor Person. To the extent necessary to comply with the requirements of the provisions of Trust Indenture Act Sections 310 through 317 as they are applicable to the Company, the term "Company" shall include any other obligor with respect to the PRs for the purposes of complying with such provisions.

"Company Request" or "Company Order" means a written request or order signed in the name of the Company by the chairman of the Board of Directors, the president, chief financial officer, any vice president, the controller, the treasurer, the secretary or any assistant secretary, and delivered to the Trustee.

"Control" (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock or as trustee or executor, by contract or otherwise.

"Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Agreement is located at 101 Barclay Street, floor 21 West, New York, New York 10286.

"Current Market Value" has the meaning set forth in Section 203.

"Default Amount" means an amount in cash equal to the First Anniversary Payment; provided, that if an Event of Default occurs due to the failure to timely issue and deliver the First Anniversary Stock (as provided in Section 801(d), then the "Default Amount" shall be equal to a cash amount in United States dollars equal to the value of the First Anniversary Stock based on the then Current Market Value thereof).

"Default Interest Rate" means 10% per annum.

"Default Payment Date" means the date upon which the PRs become due and payable pursuant to Section 801.

"Disposition" means (i) a merger, consolidation, amalgamation, arrangement, or other business combination involving the Company as a result of which at least 50% of the shares of Common Stock shall be converted, exchanged or otherwise disposed of, (ii) a sale, transfer or other disposition, in one or a series of transactions, of all or substantially all of the assets of the Company or (iii) a reclassification of Common Stock as any other capital stock of the Company or any other Person; provided, however, that a "Disposition" shall not mean, or occur upon, a merger of the Company and any wholly owned subsidiary of the Company.

"Disposition Payment Date" has the meaning set forth in Section 203.

"Effective Time" has the meaning set forth in the Preamble.

"Event of Default" has been the meaning set forth in Section 601.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"First Anniversary Date" means October 30, 2002.

"First Anniversary Payment" has the meaning set forth in Section 203.

"First Anniversary Payment Date" has the meaning set forth in Section 203.

"First Anniversary Stock" has the meaning set forth in Section 203.

"Fund" has the meaning set forth in Section 704.

"Holder" means a Person in whose name a PR is registered in the Security Register.

"Merger Agreement" has the meaning set forth in the preamble.

"Independent Financial Expert" means an independent nationally recognized investment firm.

"Officer's Certificate" means a certificate signed by the chairman of the Board of Directors, the president, any vice president, the controller, the treasurer, the secretary or any assistant secretary of the Company in his or her capacity as such an officer, and delivered to the Trustee.

"Opinion of Counsel" means a written opinion of counsel, who may be general counsel for the Company, and who shall be reasonably acceptable to the Trustee.

"Outstanding," when used with respect to PRs means, as of the date of determination, all PRs theretofore authenticated and delivered under this Agreement, except:

(a) PRs theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;

(b) From and after the earlier of the First Anniversary Payment Date, the Disposition Payment Date, or the Default Payment Date, PRs, or portions thereof, for whose payment cash or securities of the Company has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such PRs; and

(c) PRs in exchange for or in lieu of which other PRs have been authenticated and delivered pursuant to this Agreement, other than any such PRs in respect of which there shall have been presented to the Trustee proof satisfactory to it that such PRs are held by a bona fide purchaser in whose hands the PRs are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite Outstanding PRs have given any request, demand, direction, consent or waiver hereunder, PRs owned by the Company or any other obligor upon the PRs or any affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, direction, consent or waiver, only PRs which the Trustee knows to be so owned shall be so disregarded.

"Paying Agent" means any Person other than the Company authorized by the Company to pay the amount determined pursuant to Section 301, if any, on any PRs on behalf of the Company, which shall initially be The Bank of New York that is the Trustee.

"Permitted Investments" has the meaning set forth in Section 704.

"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

"PR Certificate" means a certificate representing any of the PRs.

"Responsible Officer," when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee including any vice president, assistant vice president, treasurer, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Agreement.

"Security Register" has the meaning specified in Section 305.

"Surviving Person" has the meaning set forth in Section 901.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this Agreement was executed, except as provided in Section 605.

"Trustee" means the Person named as the "Trustee" in the first paragraph of this Agreement, until a successor Trustee shall have become such pursuant to the applicable provisions of this Agreement, and thereafter "Trustee" shall mean such successor Trustee.

"vice president" when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title of "vice president".

Section 102. Compliance Certificates and Opinions.

Upon any application or request by the Company to the Trustee to take any action under any provision of this Agreement, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Agreement (including any covenants, compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Agreement relating to such particular application or request, no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement shall include:

(a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.

Section 103. Form of Documents Delivered to Trustee.

In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Any certificate, statement or opinion of an officer of the Company or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants in the employ of the Company, unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate or opinion of any independent firm of public accountants filed with the Trustee shall contain a statement that such firm is independent.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Agreement, they may, but need not, be consolidated and form one instrument.

Section 104. Acts of Holders.

(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement to be given or taken by one or more Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company pursuant to Section 105. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Agreement and (subject to Section 401) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any reasonable manner which the Trustee deems sufficient.

(c) The ownership of PRs shall be proved by the Security Register.

(d) At any time prior to (but not after) the evidencing to the Trustee, as provided in this Section 104, of the taking of any action by the Holders of the PRs specified in this Agreement in connection with such action, any Holder of a PR the serial number of which is shown by the evidence to be included among the serial numbers of the PRs the Holders of which have consented to such action may, by filing written notice at the Corporate Trust Office and upon proof of holding as provided in this Section 104, revoke such action so far as concerns such PR. Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any PR shall bind every future Holder of the same PR or the Holder of every PR issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, suffered or omitted to be done by the Trustee, any Paying Agent or the Company in reliance thereon, whether or not notation of such action is made upon such PR.

Section 105. Notices, etc., to Trustee and Company.

Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Agreement to be made upon, given or furnished to, or filed with:

(a) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed, in writing and either delivered by facsimile or mailed, first-class prepaid, to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration; or

(b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to the Company addressed to it at 1600 Carling Avenue, Ottawa, Ontario, K1Z 8R7, Attention: Chief Financial Officer, or at any other address previously furnished in writing to the Trustee by the Company.

Section 106. Notice to Holders; Waiver.

Where this Agreement provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Agreement provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event as required by any provision of this Agreement, then any method of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice.

Section 107. Conflict with Trust Indenture Act.

If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control.

Section 108. Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 109. Successors and Assigns.

All covenants and agreements in this Agreement by the Company shall bind its successors and assigns, whether so expressed or not.

Section 110. Benefits of Agreement.

Nothing in this Agreement or in the PRs, express or implied, shall give to any Person (other than the parties hereto and their successors hereunder, any Paying Agent and the Holders) any benefit or any legal or equitable right, remedy or claim under this Agreement or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and their successors and of the Holders.

Section 111. Governing Law.

This Agreement and the PRs shall be governed by and construed in accordance with the laws of the State of New York.

Section 112. Legal Holidays.

In the event that the First Anniversary Payment Date, the Disposition Payment Date or the Default Payment Date, as the case may be, shall not be a Business Day, then (notwithstanding any provision of this Agreement or the PRs to the contrary) payment on the PRs need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the required date.

Section 113. Severability Clause.

In case any provision in this Agreement or in the PRs shall be invalid, illegal or unenforceable under applicable laws, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 114. No Recourse Against Others.

A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the PRs or this Agreement or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a PR waives and releases all such liability. The waiver and release are part of the consideration for the issue of the PRs.

ARTICLE TWO
PR FORMS

Section 201. Forms Generally.

The PRs and the Trustee's certificate of authentication shall be in definitive form only and shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Agreement and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may be required by law or any rule or regulation pursuant thereto, all as may be determined by officers executing such PRs, as evidenced by their execution of the PRs. Any portion of the text of any PR may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the PR.

The definitive PRs shall be printed, lithographed or engraved on steel engraved borders or produced by any combination of these methods or may be produced in any other manner, all as determined by the officers executing such PRs, as evidenced by their execution of such PRs.

Section 202. Form of Face of PR.

COREL CORPORATION

No. Certificate for Participation Rights

This certifies that __________________ (the "Holder"), is the registered holder of the number of Participation Rights ("PRs") set forth above. Each PR entitles the Holder, subject to the provisions contained herein and in the Agreement referred to on the reverse hereof, to a payment from Corel Corporation, a corporation continued under the laws of Canada (the "Company"), in an amount and in the form determined pursuant to the provisions set forth on the reverse hereof and as more fully described in the Agreement. Such payment or issuance shall be made on the third Business Day following the First Anniversary Date (the "First Anniversary Payment Date") or on the Disposition Payment Date or the Default Payment Date, as the case may be, each as defined in the Agreement referred to on the reverse hereof.

This PR Certificate represents the right to receive the payment or issuance of the amounts described in this Certificate and as more fully set forth in the Agreement. Such payment shall be made in the Borough of Manhattan, The City of New York, or at any other office or agency maintained by the Company for such purpose either (i) in currency of the United States of America as at the time is legal tender for the payment of public and private debts; (provided, however, the Company may pay such amounts by its check payable in such money), or (ii) by delivering Common Stock (as defined in the Agreement referred to on the reverse hereof), in accordance with the provisions set forth on the reverse hereof. The Bank of New York has been appointed as Paying Agent in the Borough of Manhattan, The City of New York.

Reference is hereby made to the further provisions of this PR Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this PR Certificate shall not be entitled to any benefit under the Agreement, or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.

Dated: COREL CORPORATION

By__________________________________

Attest:

[SEAL]

_____________________________

Authorized Signatory

Section 203. Form of Reverse of PR.

This PR Certificate is issued under and in accordance with the Participation Rights Agreement, dated as of October 30, 2001 (the "Agreement"), between the Company and The Bank of New York, trustee (the "Trustee," which term includes any successor Trustee under the Agreement), and is subject to the terms and provisions contained in the Agreement, to all of which terms and provisions the Holder of this PR Certificate consents by acceptance hereof. The Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Agreement for a full statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the holders of the PRs. Copies of the Agreement can be obtained by contacting the Trustee.

The Company shall pay to the Holder hereof on the third Business Day next following October 30, 2002 (the "First Anniversary Date"), a Disposition Payment Date or a Default Payment Date, as applicable, for each PR represented hereby (i) if the Current Market Value on the First Anniversary Date is the Breakpoint Amount or less, US $1.0187 in cash (the "First Anniversary Payment"), and (ii) if the then Current Market Value is more than the Breakpoint Amount, such number of whole shares of Common Stock (the "First Anniversary Stock") as shall result upon the multiplication of the number of PRs represented by this PR Certificate by a fraction of which (A) the numerator is the sum of (x) US $1.0187 and (y) 18% of the positive difference obtained by subtracting from the then Current Market Value the Breakpoint Amount and (B) the denominator is the then Current Market Value. The determination of these amounts by the Company absent manifest error shall be final and binding on the Company and the Holder.

The Company will not issue fractional shares of Common Stock. Instead the fraction will be rounded up or down to the nearest whole share.

The Company shall reserve out of its authorized but unissued Common Stock enough shares of Common Stock to permit issuance and delivery of the First Anniversary Stock. All shares of Common Stock which may be issued upon payment of the First Anniversary Stock shall be duly authorized, fully paid and non-assessable. The Company will use to its reasonable best efforts to comply in all materials respect with all securities laws regulating the offer and delivery of shares of Common Stock upon issuance and delivery of the First Anniversary Stock, and will list such shares on each securities exchange or market on which the Common Stock is listed prior to the First Anniversary Date.

Upon the consummation of a Disposition, as defined below, the Company shall pay to the Holder hereof for each PR represented hereby cash or other consideration amount as if such Disposition Date were the First Anniversary Date. Consistent with the formulae applicable to determining what the Holder would be entitled to receive on the First Anniversary, the "Current Market Value" shall be based upon the per share value receivable in connection with the disposition by the holders of Common Stock at the time of the Disposition (as determined in good faith by the Company and an Independent Financial Expert) and, in applying such formulation of the "Current Market Value" (A) if the Current Market Value is less than or equal to the Breakpoint Amount, then for each PR represented hereby the Holder shall be entitled to receive the First Anniversary Payment in cash, and (B) if the Current Market Value is higher than the Breakpoint Amount, then the Holder of each PR shall be entitled to receive for each PR the consideration in the Disposition to which he would have been entitled to receive had the PRs been settled for First Anniversary Stock immediately prior to consummation of the Disposition. Any determinations or judgments as to what the Holders are entitled to receive in a Disposition shall be final and binding absent manifest error. Such determinations by the Company and such Independent Financial Expert absent manifest error shall be final and binding on the Company and the Holder. Such payment shall be made on the date (the "Disposition Payment Date") established by the Company, which in no event shall be more than 30 days after the date on which the Disposition was consummated. As soon as practicable after the Disposition, the Company shall give the Holder hereof and the Trustee notice of such Disposition, the cash or other consideration to be received and the Disposition Payment Date.

If an Event of Default occurs and is continuing, either the Trustee or the Holders holding an aggregate of at least 25% of the Outstanding PRs, by notice to the Company (and to the Trustee if given by the Holders), may declare the PRs due and payable, and upon such declaration, the Company shall promptly pay to the Holders for each PR held by the Holders the Default Amount with cash interest at the Default Interest Rate from the Default Payment Date through the date payment is made or duly provided for.

Notwithstanding any provision of the Agreement or of this PR Certificate to the contrary, other than in the case of interest on the Default Amount, no interest shall accrue on any amounts payable on the PRs to the Holder.

Payment of any amounts on the PRs (including issuance of any shares) shall be made only upon presentation by the Holder thereof at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or the Corporate Trust Office and at any other office or agency maintained by the Company for such purpose.

"Current Market Value" means with respect to the First Anniversary Date, the Disposition Date or the Default Payment Date, the volume weighted average price on the Nasdaq (or the principal exchange on which shares of Common Stock are then listed) of shares of Common Stock during the 20 consecutive trading day period that ends on such date, as determined by the Company and communicated to the Trustee.

"Disposition" means (i) a merger, amalgamation, arrangement, consolidation, or other business combination involving the Company as a result of which 50% or more of the shares of Common Stock shall be converted, exchanged, or otherwise disposed of, (ii) a sale, transfer or other disposition, in one or a series of transactions, of all or substantially all of the assets of the Company or (iii) a reclassification of Common Stock as any other capital stock of the Company or any other Person; provided, however, that "Disposition" shall not mean a merger or amalgamation of the Company and any wholly owned subsidiary of the Company.

The Agreement permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the holders of PRs under the Agreement at any time by the Company and the Trustee with the consent of the holders of a majority of the PRs at the time outstanding.

No reference herein to the Agreement and no provision of this PR Certificate or of the Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay or deliver any amounts determined pursuant to the terms hereof and of the Agreement at the times, place, and amount, and in the cash or securities of the Company, herein prescribed.

The PRs represented by this PR Certificate shall not be transferable or exchangeable, except by devise or descent.

The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this PR Certificate is registered as the owner hereof for all purposes, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary.

All capitalized terms used in this PR Certificate without definition shall have the meanings assigned to them in the Agreement.

Section 204. Form of Trustee's Certificate of Authentication.

TRUSTEE'S CERTIFICATE OF AUTHENTICATION.

This is one of the PR Certificates referred to in the within-mentioned Agreement.

Dated: __________________________________

Trustee

By__________________________________

Authorized Signatory

ARTICLE THREE
THE PRs

Section 301. Title and Terms.

(a) The aggregate number of PR Certificates which may be authenticated and delivered under this Agreement is limited to the number equal to the number of shares of Micrografx Common Stock and Preferred Stock issued and outstanding immediately prior to the Effective Time (other than shares of Common Stock in the treasury of Micrografx and shares of Micrografx Common Stock owned by the Company or any direct or indirect wholly owned subsidiary of the Company or of Micrografx), plus PRs required to be issued after the Effective Time on exercise of warrants of Micrografx assumed by the Company at the Effective Time so outstanding, except for PRs authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other PRs pursuant to Sections 304, 306 or 606.

(b) The PRs shall be known and designated as the "Participation Rights" of the Company.

(c) The Company shall pay to each Holder the payments required under the PRs at the times and in the amounts and forms therein provided. The determinations of such amounts and forms by the Company absent manifest error shall be final and binding on the Company and the Holders.

(d) Notwithstanding any provision of this Agreement or the PR Certificates to the contrary, other than in the case of interest on the Default Amount, no interest shall accrue on any amounts payable on the PRs to any Holder.

(e) In the event the Company shall in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the number of outstanding shares of Common Stock, the Company shall appropriately adjust the Breakpoint Amount and the calculation of the First Anniversary Stock. Whenever an adjustment is made as provided in this Section 301(e), the Company shall (i) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (ii) promptly file with the Trustee a copy of such certificate and (iii) mail a brief summary thereof to each Holder. The Trustee shall be fully protected in relying on any such certificate and on any adjustment therein contained. Such adjustments absent manifest error shall be final and binding on the Company and the Holders. The Trustee has no duty to determine when an adjustment under this Article Three should be made, how it should be made or what it should be. The Trustee shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued hereunder. The Trustee shall not be responsible for the Company's failure to comply with this Article Two.

Section 302. Registrable Form.

The PRs shall be issuable only in registered form.

Section 303. Execution, Authentication, Delivery and Dating.

The PRs shall be executed on behalf of the Company by its chairman of the Board of Directors or its president or any vice president or its treasurer, under its corporate seal which may, but need not, be attested. The signature of any of these officers on the PRs may be manual or facsimile.

PRs bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such PRs or did not hold such offices at the date of such PRs.

At any time and from time to time after the execution and delivery of this Agreement, the Company may deliver PRs executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such PRs; and the Trustee in accordance with such Company Order shall authenticate and deliver such PRs as provided in this Agreement and not otherwise.

Each PR shall be dated the date of its authentication.

No PR shall be entitled to any benefit under this Agreement or be valid or obligatory for any purpose unless there appears on such PR a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any PR shall be conclusive evidence, and the only evidence, that such PR has been duly authenticated and delivered hereunder and that the Holder is entitled to the benefits of this Agreement.

Section 304. Withholding Rights.

The Company shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any Holder such amounts as the Company is required to deduct and withhold or remit pursuant to the applicable rules under any provision of federal, provincial, local or foreign tax law, and the Company may sell the shares of First Anniversary Stock to which such Holder is entitled for the purposes of obtaining cash necessary to remit any such amount to the applicable authority. To the extent that amounts are so withheld by the Company, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Holder in respect of which such deduction and withholding was made by the Company.

Section 305. Registration.

The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 702 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of PRs. The PRs shall not be exchangeable or transferable, except by devise or descent.

Section 306. Mutilated, Destroyed, Lost and Stolen PRs.

If any mutilated PR is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any PR, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such PR has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated PR or in lieu of any such destroyed, lost or stolen PR, a new PR Certificate of like tenor and amount of PRs, bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen PR has become or is to become due and payable within 15 days, the Company in its discretion may, instead of issuing a new PR Certificate, pay such PR on the due date.

Upon the issuance of any new PRs under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

Every new PR issued pursuant to this Section in lieu of any destroyed, lost or stolen PR shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen PR shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Agreement equally and proportionately with any and all other PRs duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen PRs.

Section 307. Presentation of PR Certificate.

Payment of any amounts on the PRs (including issuance of any shares) shall be made only upon presentation by the Holder thereof at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or the Corporate Trust Office and at any other office or agency maintained by the Company for such purpose.

Section 308. Persons Deemed Owners.

The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any PR is registered as the owner of such PR for the purpose of receiving payment on such PR and for all other purposes whatsoever, whether or not such PR be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.

Section 309. Cancellation.

All PRs surrendered for payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any PRs previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all PRs so delivered shall be promptly cancelled by the Trustee. No PRs shall be authenticated in lieu of or in exchange for any PRs cancelled as provided in this Section, except as expressly permitted by this Agreement. All cancelled PRs held by the Trustee shall be disposed of as directed by a Company Order, provided, that the Trustee shall not be required to destroy cancelled PRs..

Section 310. No Rights as Shareholder.

The Holders, as such, shall not be entitled (i) to receive any dividends in respect of the Common Stock issuance to such Holder upon surrender of his PR Certificate or (ii) to vote or to receive notice of any meeting of the Company's shareholders or otherwise exercise any rights of or to receive any notice delivered to, holders of Common Stock until such Holder surrenders his PR Certificate. Upon the surrender of a PR Certificate in accordance with the provisions of the Agreement and the issuance of shares of Common Stock to which such Holder of such PR Certificate is entitled, each Holder shall be entitled to receive payment of all dividends per share of Common Stock payable to holders of Common Stock of the Company as of or after the date of such surrender.

ARTICLE FOUR
THE TRUSTEE

The Company hereby appoints The Bank of New York as Trustee of the Company in respect with the PRs and the PR Certificates upon the terms and subject to the conditions set forth herein and tin the PR Certificates, and The Bank of New York hereby accepts such appointment.

At the Effective Time, the Company shall (i) deposit with the Trustee the Fund for the benefit of the Holders pursuant to Section 704 and (ii) provide the Trustee with a list of Holders pursuant to Section 501. The Trustee shall hold such Fund, and if the Current Market Value is less than or equal to the Breakpoint Amount on any applicable date shall distribute such Fund based on the list of Holders as set forth in Sections 704 and 501 and in accordance with a Company Order. If the Current Market Value is greater than the Breakpoint Amount on any applicable date, then the Company shall deliver to the Trustee on such date certificate(s) evidencing such number of shares of Common Stock to be issued to Holders pursuant Section 501 to hold in trust for the benefit of Holders.

Section 401. Certain Duties and Responsibilities.

(a) With respect to the Holders of PRs issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to the PRs and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. In case an Event of Default with respect to the PRs has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

(b) In the absence of bad faith on its part, prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default which may have occurred, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement, but need not investigate or determine the accuracy of facts or mathematical computations set forth therein.

(c) No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that

(1) this Subsection (c) shall not be construed to limit the effect of Subsections (a) and (b) of this Section;

(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;

(3) no provision of this Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it; and

(4) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders pursuant to Section 809 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement.

(d) Whether or not therein expressly so provided, every provision of this Agreement relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

Section 402. Certain Rights of Trustee.

The Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Trustee. Subject to the provisions of Trust Indenture Act Sections 315(a) through 315(d) and Section 401 hereof:

(a) the Trustee may rely conclusively and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;

(c) whenever in the administration of this Agreement the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate;

(d) the Trustee may consult with counsel of its choice and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request or direction of any of the Holders pursuant to this Agreement, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, coupon, security, or other paper or document unless requested in writing to do so by the Holders of not less than a majority in aggregate number of the PRs then Outstanding; provided that, if the payment within a reasonable time to the Trustee of the reasonable costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such investigation shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand;

(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(h) the permissive rights of the Trustee to do things enumerated in this Agreement shall not be construed as a duty and the Trustee shall be liable for its negligence, bad faith or willful misconduct;

(i) the Trustee shall not be required to give any note or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises; and

(j) except for (i) a default under Section 801(a) or (d) (solely with respect to the delivery of the First Anniversary Stock) and (ii) any other event of which the Trustee has "actual knowledge," which event, with the giving of notice or the passage of time or both, would constitute an Event of Default, the Trustee shall not be deemed to have notice of any default or event unless specifically notified in writing of such event by the Company or the Holders of not less than 25% in aggregate number of PRs Outstanding; as used herein, the term "actual knowledge" means the actual fact or statement of knowing, without any duty to make any investigation without regard thereto.

No provision of this Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Notwithstanding anything contained herein, the Trustee may not satisfy any expenses incurred, fees owed or other amount due it from the Fund, but will look solely to the Company for such amounts.

Section 403. Not Responsible for Recitals or Issuance of PRs.

The recitals contained herein and in the PRs, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Agreement or of the PRs. The Trustee shall not be accountable for the use or application by the Company of PRs or the proceeds thereof.

Section 404. May Hold PRs.

The Trustee, any Paying Agent, or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of PRs, and, subject to Sections 407 and 412, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, or such other agent.

Section 405. Money Held in Trust.

Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder. The Company and the Trustee agree that the Fund shall be structured in such a fashion as to maximize the protection of funds contained therein against claims from and of the Company's creditors.

Section 406. Compensation, Reimbursement and Indemnification of the Trustee.

The Company agrees

(a) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and

(c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability, damage, claim or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, including the enforcement of this Section 406. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Company need not pay for any settlement made without its consent.

When the Trustee incurs expenses or renders services after an Event of Default specified in Section 801(b) or 801(c) occurs, the reasonable expenses and the compensation for services (including the reasonable fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any bankruptcy law.

The provisions of this Section 406 shall survive the resignation or removal of the Trustee and the termination of this Agreement.

Section 407. Disqualification; Conflicting Interests.

The Trustee shall be subject to the provisions of Section 310(b) of the Trust Indenture Act during the period of time provided for therein. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the penultimate paragraph of Section 310(b) of the Trust Indenture Act.

Section 408. Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority and, to the extent there is such an institution eligible and willing to serve, having an office or agency in The City of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

Section 409. Resignation and Removal; Appointment of Successor.

(a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 410.

(b) The Trustee, or any trustee or trustees hereafter appointed, may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation or notice of removal, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.

(c) The Trustee may be removed at any time by (i) the Company, by a Board Resolution or (ii) an Act of the Holders of a majority of the Outstanding PRs, delivered to the Trustee and to the Company.

(d) If at any time:

(1) the Trustee shall fail to comply with Section 407 after written request therefor by the Company or by any Holder who is an original Holder of PRs or who has been a bona fide Holder of a PR for at least six months, or

(2) the Trustee shall cease to be eligible under Section 408 and shall fail to resign after written request therefor by the Company or by any such Holder, or

(3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) who is an original Holder of PRs or the Holder of any PR who has been a bona fide Holder of a PR for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within six months after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority of the Outstanding PRs delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with Section 410, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders of the PRs and so accepted appointment, the Holder of any PR who has been a bona fide Holder for at least six months may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee.

(f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of PRs as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. If the Company fails to send such notice within ten days after acceptance of appointment by a successor Trustee, the successor Trustee shall cause the notice to be mailed at the expense of the Company.

Section 410. Acceptance of Appointment by Successor.

Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money and copies of books and records held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts.

No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

Section 411. Merger, Conversion, Consolidation or Succession to Business.

Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any PRs shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the PRs so authenticated with the same effect as if such successor Trustee had itself authenticated such PRs; and such certificate shall have the full force which it is anywhere in the PRs or in this Agreement provided that the certificate of the Trustee shall have; provided that the right to adopt the certificate of authentication of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation.

Section 412. Appointment of Co-Trustee.

It is the purpose of this Agreement that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement, and in particular in case of the enforcement thereof on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted to take any action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an individual or institution as a separate or co-trustee. The following provisions of this Section are adopted to these ends.

In the event that the Trustee appoints an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Agreement to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies, and only to the extent that the Trustee by the laws of any jurisdiction (including particularly the State) is incapable of exercising such powers, rights and remedies and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them.

Should any instrument in writing from the Company be required by the separate or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Company; provided that if an Event of Default shall have occurred and be continuing, if the Company does not execute any such instrument within 15 days after request therefor, the Trustee shall be empowered as an attorney-in-fact for the Company to execute any such instrument in the Company name and stead. In case any separate or co-trustee or a successor to either shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate or co-trustee.

Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions:

(i) all rights and powers conferred or imposed upon the Trustee shall be conferred or imposed upon and may be exercised or performed by such separate trustee or co-trustee; and

(ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder.

Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article.

Any separate trustee or co-trustee may at any time appoint the Trustee as its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee.

ARTICLE FIVE
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

Section 501. Company to Furnish Trustee Names and Addresses of Holders.

The Company will furnish or cause to be furnished to the Trustee (a) semiannually, not later than April 1 and September 30, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of March 15 and September 15, respectively, and (b) at such times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request, a list, in such form as the Trustee may reasonably require, of the names and the addresses of the Holders as of a date not more than 15 days prior to the time such list is furnished; provided, however, that, if and so long as the Trustee shall be the security registrar, no such list need be furnished.

Section 502. Preservation of Information; Communications to Holders.

(a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 501 and the names and addresses of Holders received by the Trustee in its capacity as security registrar. The Trustee may destroy any list furnished to it as provided in Section 501 upon receipt of a new list so furnished.

(b) If three or more Holders (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a PR for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Agreement or under the PRs and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application at its election, either

(1) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 502(a), or

(2) inform such applicants as to the approximate number of Holders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 502(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application.

If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder whose name and address appear in the information preserved at the time by the Trustee in accordance with Section 502(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.

(c) Every Holder of PRs, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 502(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 502(b).

Section 503. Reports by Trustee.

Within 60 days after May 15 of each year commencing with the May 15 occurring after the initial issuance of PRs hereunder, the Trustee shall transmit by mail to the Holders of PRs, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, and to the Company a brief report dated as of such May 15 which satisfies the requirements of Section 313(a) of the Trust Indenture Act.

Section 504. Reports by Company.

The Company shall:

(a) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; and

(b) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Agreement as may be required from time to time by such rules and regulations.

The Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to Subsections (a) and (b) of this Section as may be required by rules and regulations prescribed from time to time by the Commission.

Section 505. Notice to Holders.

The Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, not more than 30 days nor less than 15 days prior to the First Anniversary Date, the address at which PR Certificates should be presented in accordance with the terms of Section 307 hereof for the payment of amounts on the PRs due on or about the First Anniversary Date. Such notice shall also include any other relevant instructions or information pertaining to the proper presentation of PR Certificates for payment.

ARTICLE SIX
AMENDMENTS

Section 601. Amendments Without Consent of Holders.

Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more amendments hereto, in form satisfactory to the Trustee, for any of the following purposes:

(a) to convey, transfer, assign, mortgage or pledge to the Trustee as security for the PRs any property or assets in addition to the Fund; or

(b) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the PRs; or

(c) to add to the covenants of the Company such further covenants, restrictions, conditions or provisions as its Board of Directors and the Trustee shall consider to be for the protection of the Holders of PRs, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Event of Default permitting the enforcement of all or any of the several remedies provided in this Agreement as herein set forth; provided that in respect of any such additional covenant, restriction, condition or provision such amendment may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such an Event of Default or may limit the remedies available to the Trustee upon such an Event of Default; or

(d) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Agreement; provided that in each case, such provisions shall not materially adversely affect the interests of the Holders.

Section 602. Amendments with Consent of Holders.

With the consent of the Holders of not less than a majority of the Outstanding PRs, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into one or more amendments hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Holders under this Agreement; provided, however, that no such amendment shall, without the consent of the Holder of each Outstanding PR affected thereby:

(a) modify the definition of First Anniversary Payment Date, First Anniversary Payment, First Anniversary Stock, Breakpoint Amount, Disposition Payment Date, Default Payment Date, Current Market Value or Default Interest Rate or modify Sections 203 or 301(e) or reduce the amounts payable in respect of the PRs;

(b) reduce the amount of the Outstanding PRs, the consent of whose Holders is required for any such amendment; or

(c) modify any of the provisions of this Section, except to increase any such percentage or to provide that certain other provisions of this Agreement cannot be modified or waived without the consent of the Holder of each PR affected thereby.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such act shall approve the substance thereof.

Promptly after the execution by the Company and the Trustee of any amendment pursuant to the provisions of this Section, the Company shall mail a notice thereof by first class mail to the Holders of PRs at their addresses as they shall appear on the Security Register, setting forth in general terms the substance of such amendment. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment.

Section 603. Execution of Amendments.

In executing any amendment permitted by this Article, the Trustee shall be entitled to receive, and (subject to Section 401) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement. The Trustee may, but shall not be obligated to, enter into any such amendment which affects the Trustee's own rights, duties or immunities under this Agreement or otherwise.

Section 604. Effect of Amendments.

Upon the execution of any amendment under this Article, this Agreement shall be modified in accordance therewith, and such amendment shall form a part of this Agreement for all purposes; and every Holder of PRs theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

Section 605. Conformity with Trust Indenture Act.

Every amendment executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.

Section 606. Reference in PRs to Amendments.

PRs authenticated and delivered after the execution of any amendment pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such amendment. If the Company shall so determine, new PRs so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such amendment may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding PRs.

ARTICLE SEVEN
COVENANTS

Section 701. Payment of Amounts, if Any, to Holders.

The Company will duly and punctually pay the cash amounts, or deliver shares of Common Stock, if any, in the manner provided for in Section 307 on the PRs in accordance with the terms of the PR Certificates and this Agreement, the payment of such cash amounts or issuance of such shares constituting debt obligations of the Company owing to the Holders.

Section 702. Maintenance of Office or Agency.

As long as any of the PRs remain Outstanding, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where PRs may be presented or surrendered for payment. The Company also will maintain in the Borough of Manhattan, The City of New York, an office or agency where notices and demands to or upon the Company in respect of the PRs and this Agreement may be served. The Company hereby initially designates the office of the Trustee at the Corporate Trust Office as the office or agency of the Company where PRs may be presented for payment, and the Corporate Trust Office as the office or agency where such notices or demands may be served, in each case, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

The Company may from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the PRs may be presented or surrendered for any or all such purposes, and may from time to time rescind such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligations as set forth in the preceding paragraph. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such office or agency.

Section 703. Money for PR Payments to Be Held in Trust.

Whenever the Company shall have one or more Paying Agents for the PRs, it will, on or before the First Anniversary Payment Date, the Disposition Payment Date or the Default Payment Date, as the case may be, deposit with a Paying Agent to the extent not available in the Fund a sum in same day funds sufficient to pay the amount, if any, so becoming due, or the shares of Common Stock then issuable, such sum or shares to be held in trust by the Trustee for the benefit of the Persons entitled to such amount, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act.

The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that (A) such Paying Agent will hold all sums held by it for the payment of any amount payable on PRs in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and (B) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the PRs) to make any payment on the PRs when the same shall be due and payable.

Any money (or securities) deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment on any PR and remaining unclaimed for one year after the First Anniversary Payment Date, the Disposition Payment Date or the Default Payment Date, as the case may be, shall be paid or delivered to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such PR shall thereafter, as an unsecured general creditor, look only to the Company for payment or delivery thereof and all liability of the Trustee or such Paying Agent with respect to such trust money (or securities of the Company) shall thereupon cease, but the Company will remain obligated (subject to applicable escheat laws) to pay the required amount or deliver the required Common Stock as the case may be if PRs are thereafter presented to it .

Section 704. Fund; Investment of Moneys by Trustee.

To secure payments due on the PRs, the Company has deposited with the Trustee $16,366,651.44 (the "Fund"). These amounts shall be held by the Trustee for the benefit of the Holders in trust and applied by the Trustee to the making of all cash payments due on the PRs. The Company and the Trustee agree that the deposit of the Fund with the Trustee constitutes a transfer of the Fund from the Company to the Trustee to be held in trust for the benefit of the Holders. Further, the Company hereby agrees that, subject only to the immediately following sentence, upon the execution of this Agreement by the Trustee, the Trustee will, without any further act of the Company, become the owner of and be indefeasibly and irrevocably vested with the Fund in trust for the benefit of the Holders on the terms and subject to the conditions of this Agreement.

Pending application of the monies as described above, such monies held by the Trustee as part of the Fund shall, upon Company Request and as stated therein, be invested or reinvested by the Trustee until required to be paid out by the Trustee as provided in this Agreement, in any one or more of the following (herein called "Permitted Investments") selected by the Company:

(1) obligations of or guaranteed by the United States of America or any agency thereof for which the full faith and credit of the obligor shall be pledged and which shall mature (except in the case of obligations guaranteed by REA) not more than one year after the purchase thereof;

(2) obligations of any state or municipality, or subdivision or agency of either thereof, which shall mature not more than one year after the purchase thereof and are rated AA (or equivalent) or better by at least two nationally recognized statistical rating organizations or having a comparable rating in the event of any future change in the rating system of such agencies;

(3) certificates of deposit issued by, or time deposits of, any bank or trust company (including the Trustee) organized under the laws of the United States of America or any State thereof having capital and surplus of not less than $500,000,000 (determined from its most recent report of condition, if it publishes such reports at least annually pursuant to law or the requirements of Federal or State examining or supervisory authority) and maturing not more than one year after the purchase thereof, or repurchase obligations entered into with any such institution;

(4) commercial paper of bank holding companies or of other issuers (excluding the Company) generally rated in the highest category by at least two nationally recognized statistical rating organizations and maturing not more than one year after the purchase thereof; and

(5) money market funds having a rating in the highest investment category granted thereby by a recognized credit rating agency at the time of acquisition, including any fund for which the Trustee or an affiliate of the Trustee serves as an investment advisor, administrator, shareholder servicing agent, custodian or subcustodian, notwithstanding that (A) the Trustee or an affiliate of the Trustee charges and collects fees and expenses from such funds for services rendered (provided that such charges,, fees and expenses are on terms consistent with terms negotiated at arm's length) and (B) the Trustee charges and collects fees and expenses for services rendered, pursuant to this Agreement.

Unless an Event of Default shall have occurred and be continuing, any interest received by the Trustee on any such investments which shall exceed the amount of accrued interest, if any, paid by the Trustee on the purchase thereof, and any such profit which may be realized from any sale, redemption or maturity of each investments, shall be paid to the Company. In case the net proceeds realized upon any sale, redemption or maturity shall amount to less than the purchase price paid by the Trustee in the purchase of the investments so sold, the Trustee shall notify the Company in writing thereof, and the Company shall pay to the Trustee the amount of the difference between such purchase price and the amount so realized within three Business Days, and the amount so paid shall be held by the Trustee in like manner and subject to the same conditions as the proceeds realized upon such sale. Such investments shall be held by the Trustee as a part of the Fund, but upon the Company Request the Trustee shall sell all or any designated part of the same, and the proceeds of such sale shall be held by the Trustee subject to the same provisions hereof as the cash used by it to purchase the investments so sold. The Company will reimburse the Trustee for any brokerage commissions or other expenses incurred by the Trustee in connection with the purchase or sale of such investments. The Trustee may aggregate such costs and expenses of and such receipts from such investments on a monthly basis (or such other periodic basis as the Company and the Trustee may agree in writing from time to time) so as to net each against the other during such period and pay to the Company amounts due to it or notify the Company of amounts due from it on a net basis for such period. Upon payment of all Outstanding PRs out of the Fund or through issuance of Common Stock, or as otherwise provided herein, any amounts remaining therein will be paid to the Company.

The Trustee shall not be liable for any loss on investments made hereunder.

The Company may at any time deliver a statement signed by a Company officer showing in good faith that the amounts held in the Fund exceed the maximum First Anniversary Payment, in which event and in the absence of any Event of Default the Company may withdraw cash or investments so held in the amount of the excess.

ARTICLE EIGHT
REMEDIES OF THE TRUSTEE AND HOLDERSON EVENT OF DEFAULT

Section 801. Event of Default Defined; Acceleration of Maturity; Waiver of Default.

"Event of Default," with respect to PRs, means each one of the following events which shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(a) default in the payment of all or any part of the cash amounts payable in respect of any of the PRs as and when the same shall become due and payable;

(b) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Company or for substantially all of its property or ordering the winding up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days;

(c) the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Company or for substantially all of its property, or make any general assignment for the benefit of creditors; or

(d) default in the issuance and delivery to the Holders of all or part of the First Anniversary Stock (which must be listed on each securities exchange or market on which the Common Stock is listed prior to the issuance and delivery thereof) as and when the same shall become issuable and deliverable.

If an Event of Default described above occurs and is continuing, then, and in each and every such case, unless all of the PRs shall have already become due and payable, either the Trustee or the Holders of not less than 25% of the PRs then Outstanding hereunder by notice in writing to the Company (and to the Trustee if given by the Holders) may declare the PRs to be due and payable immediately, and upon any such declaration the Default Amount shall become immediately due and payable from the Fund and, to the extent that sufficient cash is not available in the Fund to make payment of the full Default Amount (plus the Default Interest Rate) to all Holders, then the Trustee shall notify the Company under Section 703, obtain such shortfall amount, and distribute the full Default Amount (plus such additional amounts as arise out of application of the Default Interest Rate) to the Holders (provided, that to the extent that the Company does not immediately fulfill its obligations under Section 703, then the Trustee shall pay and distribute on a pro rata basis to the Holders all cash in the Fund, with the balance to be paid and distributed as soon as possible thereafter). The Default Amount shall thereafter bear interest at the Default Interest Rate until payment is made or duly provided for the benefit of the Holders.

The foregoing provisions, however, are subject to the condition that if, at any time after the PRs shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all amounts which shall have become due otherwise than by acceleration (with interest upon such overdue amount at the Default Interest Rate to the date of such payment or deposit) and such amount as shall be sufficient to cover reasonable compensation to the Trustee, its agents, attorneys and counsel, and all other expenses and liabilities incurred and all advances made, by the Trustee except as a result of negligence or bad faith, and if any and all Events of Default under this Agreement, other than the nonpayment of the amounts which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein, then and in every such case the Holders of a majority of all the PRs then Outstanding, by written notice to the Company and to the Trustee, may waive all defaults with respect to the PRs and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereof.

Section 802. Collection of Indebtedness by Trustee; Trustee May Prove Debt.

The Company covenants that in case default shall be made in the payment of all or any part of the PRs when the same shall have become due and payable, whether at the First Anniversary Date, the Disposition Payment Date, the Default Payment Date or otherwise, then upon demand of the Trustee, the Company will pay to the Trustee for the benefit of the Holders of the PRs the whole amount that then shall have become due and payable on all PRs (with interest from the date due and payable to the date of such payment upon the overdue amount at the Default Interest Rate); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and any expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of its negligence or bad faith.

In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceedings to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon such PRs and collect in the manner provided by law out of the property of the Company or other obligor upon such PRs, wherever situated, the moneys adjudged or decreed to be payable.

In case there shall be pending proceedings relative to the Company or any other obligor upon the PRs under Title 11 of the United States Code or any other applicable Federal or State bankruptcy, insolvency or other similar law of Canada or any province thereof or of any other applicable jurisdiction, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or its property or such other obligor, or in case of any other judicial proceedings relative to the Company or other obligor upon the PRs, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the cash payment on any PRs shall then be due and payable as therein expressed or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section, shall be entitled and empowered, by intervention in such proceedings or otherwise:

(a) to file and prove a claim or claims for the whole amount owing and unpaid in respect of the PRs, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Holders allowed in any judicial proceedings relative to the Company or other obligor upon the PRs, or to the creditors or property of the Company or such other obligor;

(b) unless prohibited by applicable law and regulations, to vote on behalf of the Holders in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or person performing similar functions in comparable proceedings; and

(c) to collect and receive any moneys or other property payable or deliverable on any such claims, and to promptly distribute the Fund and all amounts receivable with respect to the claims of the Holders and of the Trustee on their behalf and any trustee, receiver, or liquidator, custodian or other similar official is hereby authorized by each of the Holders to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to the Holders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 406.

Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the PRs or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar person.

All rights of action and of asserting claims under this Agreement, or under any of the PRs, may be enforced by the Trustee without the possession of any of the PRs or the production thereof on any trial or other proceedings relative thereto, and any such action or proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders.

In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Agreement to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders, and it shall not be necessary to make any Holders of such PRs parties to any such proceedings.

Section 803. Application of Proceeds.

Any monies (including PRs of the Company) collected by the Trustee pursuant to this Article in respect of any PRs shall be applied in the following order at the date or dates fixed by the Trustee upon presentation of the several PRs in respect of which monies (including PRs of the Company) have been collected and stamping (or otherwise noting) thereon the payment in exchange for the presented PRs if only partially paid or upon surrender thereof if fully paid:

FIRST: To the payment of costs and expenses in respect of which monies have been collected, including reasonable compensation to the Trustee and each predecessor Trustee and their respective agents and attorneys and of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 406;

SECOND: To the payment of the whole amount then owing and unpaid upon all the PRs, with interest at the Default Interest Rate on all such amounts, and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the PRs, then to the payment of such amounts without preference or priority of any PR over any other PR, ratably to the aggregate of such amounts due and payable; and

THIRD: To the payment of the remainder, if any, to the Company or any other person lawfully entitled thereto.

Section 804. Suits for Enforcement.

In case an Event of Default has occurred, has not been waived and is continuing, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Agreement by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement or to enforce any other legal or equitable right vested in the Trustee by this Agreement or by law.

Section 805. Restoration of Rights on Abandonment of Proceedings.

In case the Trustee shall have proceeded to enforce any right under this Agreement and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the Holders shall continue as though no such proceedings had been taken.

Section 806. Limitations on Suits by Holders.

No Holder of any PR shall have any right by virtue or by availing itself of any provision of this Agreement to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Agreement, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy hereunder, unless such Holder previously shall have given to the Trustee written notice of default and of the continuance thereof as hereinbefore provided, and unless also the Holders of not less than 25% of the PRs then Outstanding shall have made written request upon the Trustee to institute such action or proceedings in its own name as trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 809; it being understood and intended, and being expressly covenanted by the taker and Holder of every PR with every other taker and Holder and the Trustee, that no one or more Holders of PRs shall have any right in any manner whatever by virtue or by availing itself or themselves of any provision of this Agreement to effect, disturb or prejudice the rights of any other such Holder of PRs, or to obtain or seek to obtain priority over or preference to any other such Holder or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Holders of PRs. For the protection and enforcement of the provisions of this Section, each and every Holder and the Trustee shall be entitled to such relief as can be given either at law or in equity.

Section 807. Unconditional Right of Holders to Institute Certain Suits.

Notwithstanding any other provision in this Agreement and any provision of any PR, the right of any Holder of any PR to receive payment of the amounts payable or shares issuable in respect of such PR on or after the respective due dates expressed in such PR, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.

Section 808. Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default.

Except as provided in Section 806, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

No delay or omission of the Trustee or of any Holder to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and, subject to Section 806, every power and remedy given by this Agreement or by law to the Trustee or to the Holders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Holders.

Section 809. Control by Holders.

The Holders of a majority of the PRs at the time Outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the PRs by this Agreement; provided that such direction shall not be otherwise than in accordance with law and the provisions of this Agreement; and provided further that (subject to the provisions of Section 401) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, shall determine that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by its board of directors, the executive committee, or a trust committee of directors or Responsible Officers of the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability or if the Trustee in good faith shall so determine that the actions or forbearances specified in or pursuant to such direction would be unduly prejudicial to the interests of Holders of the PRs not joining in the giving of said direction, it being understood that (subject to Section 401) the Trustee shall have no duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Holders.

Nothing in this Agreement shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction or directions by Holders.

Section 810. Waiver of Past Defaults.

In the case of a default or an Event of Default specified in clause (b) or (c) of Section 801, the Holders of PRs of a majority of all the PRs then Outstanding may waive any such default or Event of Default, and its consequences, except a default in respect of a covenant or provisions hereof which cannot be modified or amended without the consent of the Holder of each PR affected. In the case of any such waiver, the Company, the Trustee and the Holders of the PRs shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Upon any such waiver, such default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured, and not to have occurred for every purpose of this Agreement; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.

Section 811. Trustee to Give Notice of Default, but May Withhold in Certain Circumstances.

The Trustee shall transmit to the Holders, as the names and addresses of such Holders appear on the Security Register, notice by mail of all defaults which have occurred, such notice to be transmitted within 90 days after the occurrence thereof unless such defaults shall have been cured before the giving of such notice (the term "default" or "defaults" for the purposes of this Section being hereby defined to mean any event or condition which is, or with notice or lapse of time or both would become, an Event of Default); provided that, except in the case of default in the payment of the amounts payable in respect of any of the PRs, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors or trustees and/or Responsible Officers of the Trustee in reasonable good faith determines that the withholding of such notice is in the interests of the Holders.

Section 812. Right of Court to Require Filing of Undertaking to Pay Costs.

All parties to this Agreement agree, and each Holder of any PR by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Agreement or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the reasonable costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith or the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder or group of Holders holding in the aggregate more than 10% of the PRs Outstanding or to any suit instituted by any Holder for the enforcement of the payment of any PR on or after the due date expressed in such PR.

ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE

Section 901. Company May Consolidate, Etc.

Without limiting the effect of provisions in the PRs relating to Dispositions, the Company shall not consolidate with or amalgamate with or enter into an arrangement with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:

(1) in case the Company shall consolidate with, amalgamate with or enter into an arrangement with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety (the "Surviving Person") shall be a corporation, partnership or trust organized and existing under the laws of Canada or of the United States of America, any state or province thereof or the District of Columbia and shall expressly assume payment of amounts on all the PRs and the performance of every covenant of this Agreement on the part of the Company to be performed or observed;

(2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Surviving Person, the Company or any Subsidiary as a result of such transaction as having been incurred by the Surviving Person, the Company or such Subsidiary at the time of such transaction, no Event of Default shall have happened and be continuing; and

(3) the Company has delivered to the Trustee an Officer's Certificate, stating that such consolidation, merger, conveyance, transfer or lease complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

Section 902. Successor Substituted.

Upon any consolidation of or merger by the Company with or into any other Person, or any conveyance, transfer or lease of the properties and assets substantially as an entirety to any Person in accordance with Section 901, the Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Agreement with the same effect as if the Surviving Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor corporation shall be relieved of all obligations and covenants under this Agreement and the PRs.

Section 903. Opinion of Counsel to Trustee.

The Trustee, subject to the provisions of Sections 401 and 402, shall be entitled to receive an Opinion of Counsel, prepared in accordance with Sections 103 and 104, as conclusive evidence that any such consolidation, merger, sale, lease or conveyance, and any such assumption, and any such liquidation or dissolution, complies with the applicable provisions of this Agreement.

* * * * * * *

This Agreement may be signed in any number of counterparts with the same effect as if the signatures to each counterpart were upon a single instrument, and all such counterparts together shall be deemed an original of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.

COREL CORPORATION

By:___________________________

Title:

THE BANK OF NEW YORK

By:___________________________

Title:

EX-21.1

COREL CORPORATION SUBSIDIARIES (DIRECT AND INDIRECT)
NAME		JURISDICTION
Corel Inc.		Delaware
	Corel UK Limited	UK
	Corel SARL	France
	Corel GmbH	Germany
	Corel K.K.	Japan
	Corel Pty Ltd	Australia
	Micrografx Italia S.r.L.	Italy
	Micrografx Technology N.V.	Netherlands Antilles
	Micrografx B.V.	Netherlands
	Micrografx (Europe) AG	Switzerland
	InterCAP Graphics Systems GmbH	Germany
Corel International Corp.		Barbados
Corel do Brasil Ltda.		Brazil
Corel International (UK) Limited		UK
Corel International (France) SARL		France
Corel International (Germany) GmbH		Germany
Corel Corporation Limited		Ireland
3721035 Canada Inc.		Canada
Carleton Acquisition Co.		Delaware
Calgary II Acquisition Corp.		Delaware

NOTES:

1. Indented names are subsidiaries of the entity listed immediately above such subsidiary.

2. Inclusion in this exhibit is not a representation that the subsidiary is a significant subsidiary. Some subsidiaries may be inactive or in process of being liquidated.

3. The majority of voting shares of all subsidiaries are owned by Corel Corporation, its subsidiaries or employee nominees.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-42790) and Form S-3 (No. 333-55988) of Corel Corporation of our report dated January 25, 2002, except for Note 13.B dated as of February 6, 2002, relating to the consolidated financial statements of Corel Corporation in the Annual Report on Form 10-K of Corel Corporation for the year ended November 30, 2001. We also consent to the incorporation by reference of our report dated January 25, 2002, except for Note 13.B dated as of February 6, 2002, relating to the financial statement schedules, which appears in this Form 10-K.

/s/PricewaterhouseCooper LLP
PricewaterhouseCoopers LLP	Ottawa, Canada
Chartered Accountants	February 27, 2002

EX-99.1

Exhibit 99.1

Corel Corporation

Valuation and Qualifying Accounts

Years Ended November 30, 2001, 2000 and 1999

Included in accounts receivable are the following reserves and related activity:

Year Ended	Description	Opening Balance	Additions	Deductions	Ending Balance
			(In thousands of US$)
November 30, 2001	Promotional rebates	2,617	5,437	6,699	1,355
	Sales reserve	18,788	41,720	42,225	18,283
	Allowance for doubtful accounts	8,206	4,142	4,637	7,711
November 30, 2000	Promotional rebates	3,277	17,433	18,093	2,617
	Sales reserve	40,929	8,210	30,351	18,788
	Allowance for doubtful accounts	6,720	3,696	2,210	8,206
November 30, 1999	Promotional rebates	6,197	8,208	11,128	3,277
	Sales reserve	21,882	55,309	36,262	40,929
	Allowance for doubtful accounts	6,804	28	112	6,720

EX-99.2

Exhibit 99.2

Auditors' Report to the Board of Directors on Financial Statement Schedules

Our audits of the consolidated financial statements referred to in our report to the shareholders dated January 25, 2002, except for Note 13.B dated as of February 6, 2002, appearing in the 2001 Annual Report on Form 10-K also included an audit of the financial statement schedule II listed in Item 14(a)2 of this Form 10-K. In our opinion, this financial statement schedule represents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/PricewaterhouseCooper LLP
PricewaterhouseCoopers LLP	Ottawa, Canada
Chartered Accountants	January 25, 2002,
	except for Note 13.B dated as of February 6, 2002