by Gail Kailing with WTT staff February 3, 2003 -- On January 22, 2003 Creo announced it had entered into agreements to acquire approximately 2.6 million shares of Printcafe common stock from other shareholders at a purchase price of $1.30 per share. Upon completion of the purchase, Creo's ownership will increase to approximately 55 percent from its current level of approximately 30 percent. Creo also asked the Printcafe board of directors to consider a proposal for Creo to acquire all outstanding Printcafe common shares not owned by Creo for a purchase price of $1.30 per share. The strategy to gain a majority holding in Printcafe would most likely keep other potential bidders away and allow Creo to easily acquire the entire company. However, on January 23, EFI made an offer for all outstanding shares for $2.60 per share. EFI has indicated to WhatTheyThink.com that their goal is to own 100% of Printcafe and not settle for only a majority or minority ownership. Creo has indicated that they would not relinquish their holding and are committed to buying the company. Additionally, Creo says the agreements mentioned above are binding meaning they believe that majority ownership is inevitable. It is expected that if Creo closes on majority ownership in Printcafe, EFI would decide to withdraw or allow their offer to expire. One of the closely watched issues is whether the shareholders who agreed to sell their shares to Creo for $1.30 per share had any recourse to possibly receive a higher price (at least $2.60 per share) from EFI. HarbourVest surrendered their shares on Thursday giving Creo another 14.4% of Printcafe. The purchase of the remaining 10% (held by funds owned by J. & W. Seligman & Co.) is scheduled to close on February 24, 2003. Creo now owns just over 44% of Printcafe’s stock. On Friday, January 31, after the close of the Market, Creo and Creo SRL filed the Schedule 13-D regarding the acquisition of these shares. What is a Schedule 13-D? Under Section 13-d of the Securities Act of 1934 a form must be filed with the SEC within ten business days of acquiring direct or beneficial ownership (the owner enjoys the “benefits of ownership” even though the title is in another name) of 5% or more of any class of equity securities in a publicly held corporation. The purchaser of such stock must also file a Schedule 13-D with the stock exchange on which the shares are listed (if any) and the company itself. Required information includes the way the shares were acquired, the purchaser's background, and future plans regarding the target company. The law is designed to protect against insidious takeover attempts and to keep the investing public aware of information that could affect the price of their stock. Key items from this Schedule 13-D - 10,632,877 shares of Printcafe Common Stock were outstanding as of November 13, 2002. - The Schedule was filed by Creo Inc. and Creo SRL, a wholly-owned subsidiary. (Creo SRL’s business office is in St. James, Barbados.) - In an agreement letter dated January 21, 2003, Creo agreed to purchase 1,078,060 shares at $1.30 per share for a total of $1,401,478 from J. W. Seligman & Co., Inc. - In an agreement letter dated January 21, 2003, and amended on January 29, 2003, Creo agreed to purchase 1,532,052 shares at $1.30 per share for a total of $1,991,667.60 from HarbourVest Partners VI – Direct Fund L. P. - On January 30, 2003, Creo and HarbourVest consummated (“closed”) the sale and purchase of the shares. Creo SRL’s close date with Seligman is February 24, 2003. - Creo SRL is the beneficial owner of a total of 5,814,195 shares of Printcafe stock, including 3,185,395 owned prior to or acquired in connection with Printcafe’s IPO. Creo Inc., because it owns all the capital stock of Creo SRL, is the beneficial owner of all the Printcafe stock owned by Creo SRL. The Seligman Agreements - Creo has three separate agreements: Seligman New Technologies Fund II, Inc. (678,960 shares), Seligman Communications and Information Fund, Inc. (391,100 shares), and Seligman Communications and Information Portfolio (8,000 shares). - The closing date is February 24, 2003. Seligman has elected to receive payment of the purchase price and any additional amounts that might be payable according to the terms of the agreement in cash. - If in the period between November 17, 2002 and February 24, 2005 Creo purchases additional Printcafe shares in an Acquisition Triggering Transaction at a higher price, Seligman will receive the difference. - If in the same period, Creo sells all of their shares of Printcafe stock in a Disposition Triggering Transaction at a higher price, Seligman will receive the difference. - Definitions: Acquisition Triggering Transaction – “a recapitalization, reorganization, conveyance of shares or assets, tender or exchange offer, consolidation, amalgamation or merger or other similar transaction” after which Creo holds or controls 60% or more of the outstanding Printcafe shares, OR Creo purchases a block of more than 750,000 shares of Printcafe common stock from any party, OR Creo purchases ANY Printcafe common stock from HarbourVest Partners VI – Direct Fund, L.P., or Mellon Ventures II, L.P., or any of their affiliates. Disposition Triggering Transaction – “a recapitalization, reorganization, conveyance of shares or assets, tender or exchange offer, consolidation, amalgamation or merger or other similar transaction” after which any person or group other than Creo acquires ownership or controls 60% or more of the outstanding Printcafe shares. - The agreement is described as “binding on the parties hereto and their respective successors and assigns.” HarbourVest Agreement (HarbourVest is an affiliate of Mellon Ventures.) - An agreement to acquire 1,532,052 shares of Printcafe stock. - Closing date was January 30, 2003. - HarbourVest elected to receive payment for the purchase price and any additional amounts that might be payable according to the terms of the agreement in cash. - If in the period between January 30, 2003 and January 30, 2005 Creo purchases additional Printcafe shares in an Acquisition Triggering Transaction at a higher price, HarbourVest will receive the difference. - If in the same period, Creo sells all of their shares of Printcafe stock in a Disposition Triggering Transaction at a higher price, HarbourVest will receive the difference. - Definitions: Acquisition Triggering Transaction – “a recapitalization, reorganization, conveyance of shares or assets, tender or exchange offer, consolidation, amalgamation or merger or other similar transaction” after which Creo holds or controls 70% or more of the outstanding Printcafe shares, OR Creo purchases a block of more than 1,000,000 shares of Printcafe common stock from another stockholder of Printcafe, in one transaction or as a series of related transactions. Disposition Triggering Transaction – “a recapitalization, reorganization, conveyance of shares or assets, tender or exchange offer, consolidation, amalgamation or merger or other similar transaction” after which any person or group other than Creo or its affiliates acquires ownership or controls 70% or more of the outstanding Printcafe shares, OR the dissolution or liquidation of Printcafe. Summary: The "Triggering Transaction" clauses do not appear to cover the situation that Printcafe is in now. Once Creo takes ownership of these shares, they could theoretically turn down any offer, even if it were $10 per share and not be required to sell those shares. (See sidebar letter about Creo's intent.) Was there any legal recourse for HarbourVest to seek a better price and did they consider options before closing on their shares with Creo? Is there any legal recourse for the Seligman funds and are they considering their options to seek a better price for their shares? We were unable to reach representatives of the two fund companies this weekend for comment. (We plan to contact them today. EFI declined to comment on Creo’s filing at this time.) What happens with Seligman’s shares will most likely determine the future owner of Printcafe. See our free, special Printcafe Watch page. Search the Archive: Printcafe, EFI or Creo. Stock Activity: Printcafe, EFI or Creo. - Compare All Three - - - Creo’s Letter to Printcafe’s Board Included in this filing was the letter Creo sent to Printcafe’s Board of Directors on January 23. The letter informed Printcafe of Creo’s intention to acquire the company and strongly urged Printcafe’s board to act promptly and in Creo’s favor. The highlights are noted below: Employee and Integration Matters “We expect that the operations of Printcafe would be combined with those of Creo and would be run as a unit of Creo. We view Printcafe's employees as one of its most valuable assets. We anticipate that a substantial number of those employees would be offered the opportunity to remain with the business, and we hope that they take advantage of those opportunities. As you know, Creo is a worldwide operation and a global leader in its businesses, and we believe that your best employees will enjoy significantly enhanced career opportunities with Creo after completion of the transaction.” Time of the Essence, Expiration Date “We believe that in light of the current market and business conditions affecting Printcafe's operations, it is in the best interests of both of our companies to move expeditiously on this matter. We are prepared to devote the necessary resources to be in a position to submit a final proposal, to negotiate a definitive agreement and to close a transaction quickly. Accordingly, our offer will remain open until 5 pm, Pacific time, on February 7, 2003 and will thereupon expire if we have not entered into a definitive acquisition agreement with you.” Majority Ownership is a Big Deal “Finally, in considering our proposal you should also be aware that Creo views its investment in Printcafe as an integral part of its long-term business strategy, particularly for integrated print production and business management solutions, and accordingly we would not consider reducing or disposing of our investment in Printcafe or participating in any transaction that has that result. In this regard, we would like to confirm again that we have entered into unconditional agreements to acquire a total of 2,610,112 additional shares of Printcafe common stock, giving us beneficial ownership at this time of approximately 55% of Printcafe's outstanding common stock. We believe that Printcafe's board must take that important factor into account when evaluating Printcafe's strategic alternatives. “We also want to emphasize that we are prepared to meet with you and your advisors at any time to negotiate price and any other terms in this offer as part of your process of considering strategic alternatives. In light of this and the factors mentioned above, we urge you in the strongest possible terms not to commit Printcafe to any transaction or take any other action without giving us a full opportunity to negotiate a transaction with you.” GNK Related Premium Features: 2/03/03 -- Three Funds Owned by Seligman May Determine Printcafe's New Owner - Special Report 1/27/03 -- Creo and EFI Comment on Plans for Printcafe: Joseph Cutts, CFO, EFI and Rochelle van Halm, Media Relations Manager at Creo - Interview 1/24/03 -- Dr. Joe's Take on the Printcafe bidding war - Dr. Joe Webb 1/23/03 -- Fresh, Innovative: EFI Targets the Commercial Print World - eXpert Row (Jeremy Smith, Penned before and without knowledge of recent events) 1/23/03 -- Electronics For Imaging: Fourth Quarter Conference Call - Raine Radar 1/23/03 -- Printcafe Software and Creo: This one may take some time - Special Report