---

 

The information in this proxy statement/prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

	We look forward to your support.
	Sincerely,
	Aram H. Keith
	Chairman of the Board and Chief Executive Officer

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	(1) the approval of the Agreement and Plan of Merger and Reorganization, dated as of April 14, 2005, as amended May 9, 2005, among Stantec Inc., Keith and Stantec Consulting California Inc., a wholly-owned subsidiary of Stantec, a copy of which is attached as Appendix A to the enclosed proxy statement/prospectus; and
	(2) to transact such other business as may properly come before the special meeting, including authority to adjourn or postpone the special meeting to another time and place for the purpose of soliciting additional proxies.

	By Order of the Board of Directors
	Gary C. Campanaro
	Secretary

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		Page
Additional Information			1
Presentation of Financial and Other Information			2
Exchange Rate Data			2
Questions and Answers About the Merger			3
Summary			8
The Companies			8
Comparative Per Share Market Price and Exchange Rate Data			9
The Merger			9
The Special Meeting			10
The Merger Agreement			10
Other Agreements			10
Recommendation of Keith’s Board of Directors			10
Opinion of Keith’s Financial Advisor			10
Interests of Keith and Stantec Executive Officers and Directors in the Merger			11
Material U.S. Federal Income Tax Consequences			11
Material Canadian Federal Income Tax Consequences			12
Accounting Treatment of the Merger			12
Regulatory Matters Related to the Merger			13
No Solicitation			13
Conditions to the Merger			13
Termination			14
Termination Fee			14
Comparison of Shareholder Rights			14
Risk Factors			15
Forward-Looking Statements			27
Selected Historical and Pro Forma Consolidated Financial Data of Stantec Inc.			29
Selected Historical Consolidated Financial Data of The Keith Companies, Inc.			30
Comparative Per Share Data			31
Dividends			32
Comparative Per Share Market Price			32
Management’s Discussion and Analysis of the Financial Condition and Results of Operations of Stantec			34
Description of Stantec’s Business			47
Management of Stantec			56
Information Concerning the Special Meeting			67
Keith Special Meeting			67
Date, Time and Place			67
Purpose of the Special Meeting			67
Record Date; Voting Power			67
Required Vote; Quorum; How to Vote			67
Revocation of Proxy			68

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			Page
	Exchange of Share Certificates			69
	Questions About Voting Your Shares			69
	Miscellaneous			69
The Merger				70
	Background of The Merger			70
	Recommendation of the Keith Board of Directors			75
	Reasons for Keith’s Board Recommendation			75
	Opinion of Keith’s Financial Advisor			77
	Reasons for Stantec’s Board Recommendation			83
	Interests of Keith’s and Stantec’s Executive Officers and Directors in the Merger			84
	Material U.S. Federal Income Tax Consequences of the Merger			86
	Material Canadian Federal Income Tax Consequences of the Merger			93
	Anticipated Accounting Treatment			94
	Regulatory Matters Related to the Merger			95
	Merger Fees, Costs and Expenses			95
	Dissenters’ Rights			95
	Stock Exchange Listing			97
	Resale of Stantec Common Shares			97
The Merger Agreement				98
	Structure of the Merger			98
	Effective Time and Closing of the Merger			98
	Surviving Corporation Governing Documents, Officers and Directors			98
	Merger Consideration			98
	Representations and Warranties			99
	Conduct of Business Pending the Merger			101
	Additional Agreements			102
	Conditions to the Merger			104
	Termination, Amendment and Waiver			106
	General Provisions			106
Other Agreements				107
Beneficial Ownership of Securities				108
Description Of Stantec Share Capital				109
Comparison of Shareholders’ Rights				110
Experts				123
Legal Matters				124
Shareholder Proposals				124
Enforceability of Civil Liabilities				124
Where You Can Find More Information				125
Index to Consolidated Financial Statements				F-1
Appendix A — Agreement and Plan of Merger among Stantec, Stantec Consulting California Inc. and Keith, dated as of April 14, 2005, as amended May 9, 2005				A-1
Appendix B — Opinion of Bear, Stearns & Co. Inc.				B-1
Appendix C — Stockholders Support Agreement				C-1
Appendix D — Dissenters’ Rights and Procedures				D-1

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The Keith Companies, Inc. 19 Technology Drive Irvine, California, USA 92618-2334 Phone: (949) 923-6001 Attention: Investor Relations		Stantec Inc. 10160-112 Street Edmonton, Canada, T5K 2L6 Phone: (780) 917-7000 Attention: Investor Relations		The Altman Group, Inc. 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Phone: (201) 806-2205 Attention: Charlotte Brown

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		Years Ended December 31,
		2000				2001				2002				2003				2004
Average(1)		US$	0.6725			US$	0.6443			US$	0.6368			US$	0.7186			US$	0.7701

(1)	The average of the exchange rates on the last day of each month during the year indicated.

Month

Dec. 2004

Jan. 2005

Feb. 2005

March 2005

April 2005

May 2005

High

US$

0.8434

US$

0.8346

US$

0.8134

US$

0.8322

US$

0.8233

US$

0.8082

Low

US$

0.8063

US$

0.8050

US$

0.7962

US$

0.8024

US$

0.7957

US$

0.7872

2

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Q1:	What am I being asked to vote on?

A1:

You are being asked to vote to approve the Agreement and Plan of Merger and Reorganization and its terms, which is referred to in this proxy statement/prospectus as the merger agreement, dated as of April 14, 2005, as amended May 9, 2005, among Stantec, Keith and Stantec Consulting, a newly formed, wholly-owned subsidiary of Stantec. If the merger is completed, Keith will no longer be a public company.

Q2:	What consideration will be paid in connection with merger?

A2:

The merger consideration to be paid by Stantec includes a fixed amount of cash equal to US$11.00 per share of Keith common stock, as well as Stantec common shares, which as of June 20, 2005, had a value of approximately US$11.59. The number of shares that Stantec will issue as merger consideration is partly fixed and partly variable. The fixed component is equal to 0.23 Stantec common shares per share of Keith common stock. The variable component is equal to an amount of Stantec common shares equal to US$5.50 per share of Keith common stock, based on the 20-day average trading price of Stantec common shares prior to the merger. As a consequence, the actual number of Stantec common shares that will be issued in the merger and that you may receive as merger consideration is not known at this time. Based on the closing sale price of Stantec common shares and the U.S. dollar-Canadian dollar exchange rate as of June 20, 2005, 0.23 Stantec common shares had a value of approximately US$6.09 and US$5.50 equaled approximately 0.21 Stantec common shares.

The 20-day average trading price of Stantec common shares means the simple average of the daily weighted average sales price of Stantec common shares on the Toronto Stock Exchange, as reported by Bloomberg L.P., for each of the 20 consecutive trading days ending on, and including, the second trading day prior to the merger. The weighted average sales price for each trading day is converted from Canadian dollars to U.S. dollars at the inverse of the noon buying rate quoted by the Federal Reserve Bank of New York on such trading day.

Q3:	What will I receive in the merger?

A3:	You will have the right to select the form of merger consideration you will receive by electing one of the following options:

	Option 1: a mix of cash and Stantec common shares;
	Option 2: all Stantec common shares; or
	Option 3: all cash.
	Because Stantec will pay a fixed amount of cash and will issue a specific amount of shares in connection with the merger, the actual consideration you will receive will not be known until after all

3

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	shareholder elections have been made. Once all elections have been made, the following procedure will be used to determine the actual form of merger consideration that you will receive:

	(1)	If you elect Option 1 (a mix of cash and Stantec common shares), you will receive US$11.00 and the amount of Stantec common shares described in answer 2 above, regardless of the number of Keith shareholders that elect this option.
	(2)	If you elect Option 2 (all Stantec common shares) you will receive 0.23 Stantec common shares per share of Keith common stock plus a variable amount of Stantec common shares equal to US$16.50 per share of Keith common stock, based on the 20-day average trading price of Stantec common shares. However, if the number of Stantec common shares that Keith shareholders elect to receive is greater than the total number of Stantec common shares that Stantec is required to issue, then you will receive a proportionate allocation of Stantec common shares and cash based on the formula set out in Section 2.01(e) of the merger agreement.
	(3)	If you elect Option 3 (all cash) you will receive US$16.50 cash plus cash equal to the value of 0.23 Stantec common shares, based on the 20-day average trading price of Stantec common shares. However, if the amount of cash that Keith shareholders elect to receive is greater than the total amount of cash that Stantec is required to pay, then you will receive a proportionate allocation of cash and Stantec common shares based on the formula set out in Section 2.01(f) of the merger agreement.

	Based on the closing sale price of Stantec common shares and the U.S. dollar-Canadian dollar exchange rate as of June 20, 2005, for each share of Keith common stock a holder who elects to receive (1) a mix of cash and Stantec common shares will receive US$11.00 and approximately 0.44 Stantec common shares, (2) all Stantec common shares will receive approximately 0.85 Stantec common shares and (3) all cash will receive approximately US$22.59, subject to pro rata adjustment in the case of (2) and (3).
	If you do not make an election, you will be deemed to have elected, and will receive, Option 1, a mix of cash and Stantec common shares.
	You will not receive any fractional Stantec common shares in the merger. Instead, Stantec will pay you cash for any fractional Stantec common share you would have otherwise received, taking into account all shares of Keith common stock you own.
	If, for some reason, the merger would not qualify as a tax-free reorganization under the provisions of Section 368(a) of the United States Internal Revenue Code of 1986, as amended, referred to in this proxy statement/prospectus as the Code, Stantec has the option, at its sole discretion, to complete the merger by paying cash merger consideration of US$22.00 per share of Keith common stock rather than the merger consideration described above. In such circumstances, you would receive US$22.00 in cash for each and every share of Keith common stock you own. In the event that Stantec exercises this option, Keith and Stantec will recirculate a revised proxy statement/ prospectus and resolicit the vote of Keith shareholders to approve the merger. If the merger does not qualify as a tax-free reorganization and Stantec does not exercise its option to pay all cash, Keith will not be obligated to consummate the merger. Furthermore, in such situation Stantec and Keith will not consummate the merger without recirculating a revised proxy statement/ prospectus and resoliciting the vote of Keith shareholders to approve the merger.

Q4:	How does the Keith board of directors recommend that I vote?

A4:	The Keith board of directors unanimously recommends that you vote “FOR” approval of the merger agreement and its terms.

4

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Q5:	Why is the Board of Directors recommending that I vote for approval of the merger agreement?

A5:	The board of directors of Keith believes the merger consideration is fair and that the merger is in the best interests of Keith stockholders. For a more detailed explanation of the beliefs of the board of directors of Keith, see “The Merger — Keith’s Reasons for the Merger.”

Q6:	What vote of Keith’s shareholders and what vote of Stantec shareholders is required in connection with the merger?

A6:

Approval of the merger agreement requires the affirmative vote of the holders of at least a majority of Keith’s outstanding common stock. Aram H. Keith, Margie R. Keith and The Aram H. Keith and Margie R. Keith Revocable Trust entered into a Stockholders Support Agreement pursuant to which the shareholders granted Stantec an irrevocable proxy to vote their shares of Keith common stock, representing approximately 17% of the outstanding shares of Keith common stock, in favor of the merger. No vote of Stantec shareholders is required (or will be sought) in connection with the merger.

Q7:	What happens if I do not vote?

A7:	IF YOU DO NOT VOTE YOUR SHARES, THAT WILL BE THE EQUIVALENT OF A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT AND, THEREFORE, WILL BE THE SAME AS A VOTE AGAINST THE MERGER.

Q8:	When do you expect the merger to be completed?

A8:	We expect to complete the merger as promptly as practicable after we receive approval of Keith shareholders at the special meeting. We currently anticipate closing the transaction in the third calendar quarter of 2005.

Q9:	What do I need to do now?

A9:	After carefully reading and considering the information contained in the proxy statement/prospectus, please fill out, sign and date the proxy card, and then mail your signed proxy card in the enclosed prepaid envelope as soon as possible so that your shares may be voted at the special meeting.

Q10:	If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A10:

You should instruct your broker to vote your shares. Please check with your broker and follow the voting procedures your broker provides. Your broker will advise you whether you may submit voting instructions by telephone or internet. If you do not instruct your broker, your broker will generally not have the discretion to vote your shares without your instructions. Because approval of the merger agreement requires an affirmative vote of the holders of at least a majority of the outstanding shares of Keith common stock, these so-called “broker non-votes,” where the broker does not vote for or against approval of the merger agreement, have the same effect as votes cast against approval of the merger agreement. See “The Special Meeting — Required Vote; Quorum; How to Vote.”

Q11:	May I change my vote after I have mailed my signed proxy card?

A11:	Yes. You may change your vote at any time before your proxy is voted at the special meeting. You can do this in several ways. You can send a written notice stating that you want to revoke your proxy, or you can complete and submit a new proxy card. If you choose either of these methods, you must submit your notice of revocation or your new proxy card to:

	The Altman Group, Inc. 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Phone: (201) 806-2205 Attention: Charlotte Brown

5

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	You can also attend the special meeting and vote in person. Simply attending the special meeting, however, will not revoke your proxy; you must vote at the special meeting.
	If you have instructed a broker to vote your shares, you must follow the voting procedures received from your broker to change your vote.

Q12:	If I want to attend the special meeting, what do I do?

A12:	You must come to 19 Technology Drive, Irvine, California 92618, at 10:30 a.m. Pacific Time, on [                    ], 2005.

Q13:	Should I send in my stock certificates now?

A13:

No. If the merger is completed and you hold any Keith stock certificates, you will receive written instructions for exchanging those Keith stock certificates for the merger consideration. You may not have received any stock certificates because your shares of Keith common stock were directly registered. The written instructions you will receive will advise you what to do if your shares were directly registered.

Q14:	What if I cannot find my stock certificate?

A14:

There will be a procedure for you to elect to receive your merger consideration even if you lost one or more of your Keith stock certificates. This procedure, however, may take time to complete. In order to ensure that you will be able to receive your merger consideration promptly after the merger is completed, if you cannot locate your Keith stock certificates after looking for them carefully, we urge you to contact Keith’s transfer agent, U.S. Stock Transfer Corporation, as soon as possible and follow the procedure for replacing your Keith’s stock certificates. U.S. Stock Transfer Corporation, can be reached at 1-800-835-8778, or you can write to U.S. Stock Transfer Corporation at the following address: 1745 Gardena Avenue, Glendale, CA 91204-2991.

Q15:	Can I dissent and require appraisal of my shares?

A15:

Dissenters’ rights will be available under Chapter 13 of the California Corporations Code, referred to in this proxy statement/prospectus as the CCC, for Keith shareholders in connection with the merger if demands for payment are made with respect to 5% or more of the outstanding Keith common stock. In general, to preserve their dissenters’ rights, Keith shareholders who wish to exercise these rights must:

	•	deliver a written demand to Keith for purchase of their shares of Keith common stock, which must be received by Keith no later than the date of the special meeting;
	•	vote their shares of Keith common stock “AGAINST” approval of the merger proposal;
	•	continuously hold their shares of Keith common stock from the date they make the demand through the closing of the merger; and
	•	comply with the other provisions of Chapter 13 of the CCC.

	If, after the effective time of the merger, that shareholder withdraws or otherwise loses the right to demand purchase of its shares of Keith common stock, those shares shall be treated as if they had been converted as of the effective time of the merger into the right to receive the merger consideration. See “The Merger — Dissenters’ Rights” beginning on page 95.
	The text of the CCC governing dissenters’ rights is attached to this proxy statement/prospectus as Appendix D. Your failure to comply with the procedures described in Appendix D will result in the loss of your dissenters’ rights.

6

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Q16:	Are there risks that I should consider in deciding whether to vote for approval of the merger agreement?

A16:	Yes. We have set forth in the section entitled “Risk Factors” beginning on page 15 of this proxy statement/prospectus a number of risk factors that you should consider carefully in connection with the merger.

Q17:	Will Keith common stock continue to be traded on the Nasdaq National Market after the merger is completed?

A17:	No. If the merger is consummated, Keith common stock will no longer be listed for trading on the Nasdaq National Market. However, Stantec has applied to list Stantec common shares for trading on the New York Stock Exchange.

Q18:	Who can help answer my additional questions about the merger?

A18:	If you have questions about the merger, you should contact any of the following:

The Keith Companies, Inc. 19 Technology Drive Irvine, California, USA 92618-2334 Phone: (949) 923-6001 Attention: Investor Relations		Stantec Inc. 10160-112 Street Edmonton, Canada, T5K 2L6 Phone: (780) 917-7000 Attention: Investor Relations		The Altman Group, Inc. 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Phone: (201) 806-2205 Attention: Charlotte Brown

7

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8

---

 

9

---

 

10

---

 

11

---

 

12

---

 

13

---

 

14

---

 

	(1) a mix of cash and stock equal to (A) US$11.00 in cash, (B) 0.23 common shares of Stantec and (C) that number of Stantec common shares equal to US$5.50, based on the 20-day average trading price of Stantec common shares prior to the merger;
	(2) all Stantec common shares equal to (A) 0.23 Stantec common shares and (B) that number of Stantec common shares equal to US$16.50, based on the 20-day average trading price of Stantec common shares prior to the merger; or
	(3) all cash equal to (A) US$16.50 and (B) cash equal to the value of 0.23 common shares, based on the 20-day average trading price of Stantec common shares prior to the merger.

	•	changes in the business, operations or prospects of Stantec or Keith;
	•	changes in economic conditions and the outlook for economic conditions;
	•	market reaction to the proposed merger; and
	•	the timing of the consummation of the merger.

15

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	Failure to complete the merger could negatively impact the price of Keith common stock and Keith’s future business and operations.

	•	failure to complete the merger may seriously harm investors’ and analysts’ perception of Keith’s underlying business and prospects which could seriously harm Keith’s stock price;
	•	the price of the Keith common stock, which currently reflects a premium as a result of the proposed merger, may decline to price ranges similar to, or below, those that existed prior to the announcement of the merger;
	•	costs related to the merger, such as legal, accounting, financial advisory and financial printing fees must be paid by Keith, even if the merger is not completed;
	•	Keith may be required to pay Stantec a termination fee of US$3.0 million plus its expenses, if the merger agreement is terminated in certain circumstances;
	•	the diversion of Keith’s management’s attention from the day-to-day business of Keith and the unavoidable disruption to Keith’s employees and its relationships with customers may, in turn, detract from Keith’s ability to grow revenue and minimize costs and lead to a loss of market position that Keith could be unable to regain;
	•	Keith management may not pursue operating plans and acquisitions and other opportunities that could be beneficial to Keith;
	•	the announcement of the merger could have an adverse effect on Keith’s revenue in the near-term if customers delay, defer or cancel contracts pending resolution of the merger; if this were to occur, Keith’s results of operations and quarterly revenue could be substantially below the expectations of market analysts and could cause a reduction in the trading price of the Keith common stock; and
	•	Keith would not realize the benefits it expects to receive by being part of a combined company with Stantec, as well as the potentially enhanced financial and competitive position Keith believes would result from the merger.

	An election to receive all shares or all cash may not result in a payment in all shares or all cash.

16

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	The fairness opinion provided by Bear Stearns was given as of the date of the merger agreement and does not reflect subsequent changes in circumstances.

	The fairness opinion provided by Bear Stearns is based on various assumptions and is subject to various limitations.

	Keith’s shareholders may receive a lower return on their investment after the merger.

	Stantec and Keith may experience difficulties in integrating Keith’s business with the existing operations of Stantec and so may not realize the anticipated benefits of the merger.

17

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	Uncertainties associated with the merger or Stantec as a new owner may cause Keith to lose customers.

	Uncertainties associated with the merger may cause a loss of employees.

	Keith’s directors and officers have conflicts of interest in recommending the merger to Keith’s shareholders and may have different interests than you in approving the merger agreement.

	•	future employment arrangements;
	•	severance benefits in the merger;
	•	receipt of unvested Stantec restricted common shares in exchange for unvested Keith restricted common stock;
	•	acceleration of the vesting of stock options as a result of the merger; and
	•	indemnification against certain liabilities arising both before and after the merger.

	Stantec is governed by the laws of Canada and a substantial portion of its assets are, and many of its directors and officers reside, outside of the United States. As a result, it may not be possible for shareholders to enforce civil liability provisions of the securities laws of the United States in Canada.

	Stantec expects to maintain its status as a “foreign private issuer” under the rules and regulations of the SEC and, thus, will be exempt from a number of rules under the Securities Exchange Act of 1934 and will be permitted to file less information with the SEC than a company incorporated in the United States.

18

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	Stantec common shares are not currently listed on any U.S. stock exchange or quotation system and its listing application may not be approved. As a result, there may not be a liquid market for Stantec’s common shares in the United States.

	The merger agreement contains provisions that may discourage other companies from trying to acquire Keith for greater merger consideration.

	We may be unsuccessful in our goal to increase the size and profitability of our operations, which could lead to a reduction in our market share and our competitiveness as our industry consolidates.

19

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	If we are unable to effectively manage our growth, we may experience a decline in our revenue and profitability.

	From time to time, we have pursued and may continue to pursue and invest in business opportunities that are not directly within our core competencies. These new business opportunities may require a disproportionate amount of management’s time to develop profitably and may not perform as expected.

	We may be unable to secure the additional capital required to fund our acquisition strategy, which could lead to a reduction in our market share and our competitiveness.

20

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	The professional consulting services industry is highly competitive, which could have a negative impact on our profit margins and our market share.

	Economic downturns could have a negative impact on our businesses as our clients may curtail investment in infrastructure projects.

	A significant portion of our revenue is derived from clients in the real estate industry. Consequently, our business could suffer materially if there is a downturn in the real estate market.

	•	changes in employment levels and other general economic conditions;
	•	changes in interest rates and in the availability, cost and terms of financing;
	•	the impact of present or future environmental, zoning or other laws and regulations;
	•	changes in real estate tax rates and assessments and other operating expenses;
	•	changes in levels of government infrastructure spending and fiscal policies; and
	•	natural or manmade disasters and other factors which are beyond our control.

21

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	We derive significant revenue from contracts with government agencies. Any disruption in government funding or in our relationship with those agencies could adversely affect our business.

	We may have difficulty in attracting and retaining qualified professionals, which may harm our reputation in the marketplace and restrict our ability to implement our business strategy.

	If we are unable to engage qualified subcontractors, we may lose projects, revenue and clients.

	The nature of our business exposes us to potential liability claims and contract disputes, which may reduce our profits.

22

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	Our insurance may not cover all claims for which we may be liable and expenses related to insurance coverage may adversely impact our profitability.

	If we experience delays and/ or defaults in customer payments, we could suffer liquidity problems or we could be unable to recover our expenditures.

	We bear the risk of cost overruns in a significant number of our contracts. We may experience reduced profits or, in some cases, losses under these contracts if costs increase above our estimates.

23

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	Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future earnings.

	Because we report our results in Canadian dollars and a substantial portion of our revenue and expenses are recorded in U.S. dollars, our results are subject to currency exchange risk.

	We may not be able to adequately protect our intellectual property, which could force us to take costly protective measures such as litigation.

24

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	Adverse weather conditions and natural or other disasters may cause a delay or elimination of our net revenue which otherwise would have been recognized and adversely affect our profitability.

	One of our primary competitive advantages is our reputation and experience. If our reputation is damaged due to client dissatisfaction, our ability to win additional business may be materially damaged.

	Because Stantec’s business is more diverse than Keith’s in terms of geographic presence and professional service offerings, Stantec’s share price could be impacted by different factors than those that affect the price of Keith common stock.

	Our share price has historically been subject to volatility. As a result, the price of our common shares may decrease in the future due to a number of company and industry specific or general economic factors.

25

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	Our share price could be adversely affected if a large number of our common shares are offered for sale or sold.

	If we need to sell or issue additional common shares and/ or incur additional debt to finance future acquisitions, your stock ownership could be diluted and our results of operations could be adversely affected.

26

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	•	difficulties in integrating Stantec and Keith and in achieving anticipated cost savings and growth opportunities;
	•	difficulties in implementing Stantec’s business strategy, including difficulties in the identification of suitable acquisition candidates, satisfactory completion of acquisitions and the successful integration of acquisition targets;
	•	the inability to secure additional capital financing to fund our acquisition growth strategy.
	•	increase in competition by United States, Canadian and international competitors;
	•	the impact of adverse economic conditions and future catastrophic events;
	•	delays, cancellations, or suspension of, or changes in the scope of, existing contracts;
	•	changes in the level of government funding for infrastructure projects both within North America and abroad;
	•	limited availability of qualified professional personnel and qualified subcontractors;
	•	loss of key employees or customers due to the merger;
	•	future litigation or regulatory action;
	•	delays or defaults in customer payments for services performed;
	•	cost overruns on fixed-price, guaranteed maximum price, or unit price contracts;
	•	exposure to risks inherent in doing business in countries other than Canada and the United States;
	•	fluctuation in interest rates and exchange rates;
	•	protection of intellectual property;
	•	adverse changes in future results of operations, liquidity and financial position; and
	•	fluctuations in the market price of Keith common stock or Stantec common shares.

27

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28

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			Years Ended December 31,																								Three Months Ended March 31,
																							Pro Forma												Pro Forma
			2000				2001				2002				2003				2004				2004				2004				2005				2005
			(In thousands of Canadian dollars, except for share data)
Statement of Income Data:
	Gross revenue		C$	265,568			C$	356,942			C$	428,456			C$	459,942			C$	520,879			C$	658,619			C$	117,317			C$	141,144			C$	175,293
	Net revenue			221,263				298,772				365,148				391,396				449,151				575,657				103,566				119,133				150,913
	Income before income taxes			20,867				27,306				33,095				39,628				44,660				54,639				8,896				10,362				12,323
	Net income			11,226				15,370				20,192				25,070				30,190				36,070				5,658				6,735				7,937
	Earnings per share — diluted			0.76				0.88				1.07				1.31				1.59				1.58				0.30				0.35				0.34
	Weighted average shares outstanding — diluted			14,851,022				17,378,646				18,799,484				19,118,016				19,007,289				22,867,289				19,176,483				19,424,308				23,284,308

																							As of March 31,
			As of December 31,
																											Pro Forma
			2000				2001				2002				2003				2004				2005				2005
			(In thousands of Canadian dollars)
Balance Sheet Data:
	Total assets		C$	179,161			C$	217,492			C$	299,001			C$	326,575			C$	362,100			C$	344,719			C$	576,764
	Total long-term debt, including current portion and bank indebtedness			26,375				39,518				62,256				61,726				33,975				28,527				119,483
	Net assets			92,233				107,450				151,426				160,528				189,056				197,084				305,249
	Capital stock			60,259				61,555				83,973				84,281				87,656				88,138				199,275

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																								Three Months Ended
				Years Ended December 31,																				March 31,
				2000				2001				2002				2003				2004				2004				2005
				(U.S. dollars in thousands, except for share data)
Statement of Income Data :
	Gross revenue			US$	57,835			US$	74,314			US$	106,487			US$	99,950			US$	105,346			US$	24,496			US$	27,838
		Net revenue			53,381				66,844				91,598				90,744				96,754				22,463				25,907
	Costs of revenue				34,118				42,655				59,286				58,359				60,363				14,482				16,117
		Gross profit			19,263				24,189				32,312				32,385				36,391				7,981				9,790
	Selling, general and administrative expenses				11,078				14,330				19,535				21,070				23,013				5,591				6,843
		Income from operations			8,185				9,859				12,777				11,315				13,378				2,390				2,947
	Interest (expense) income, net				(310	)			289				431				264				481				69				186
	Other income (expense), net				44				(54	)			625				259				46				(1	)			14
		Income before provision for income taxes and discontinued operations			7,919				10,094				13,833				11,838				13,905				2,458				3,147
	Provision for income taxes				3,199				3,916				5,397				4,617				5,468				959				1,202
		Income from continuing operations			4,720				6,178				8,436				7,221				8,437				1,499				1,945
	Loss from discontinued operations, net of income taxes				—				329				628				—				430				—				—
		Net income		US$	4,720			US$	5,849			US$	7,808			US$	7,221			US$	8,007			US$	1,499			US$	1,945
	Earnings per share from continuing operations — diluted			US$	0.89			US$	0.87			US$	1.07			US$	0.91			US$	1.05			US$	0.19			US$	0.24
	Earnings per share — diluted			US$	0.89			US$	0.82			US$	0.99			US$	0.91			US$	1.00			US$	0.19			US$	0.24
	Weighted average shares outstanding — diluted				5,299,679				7,092,505				7,868,877				7,957,344				8,039,457				8,004,901				8,119,308

			As of December 31,
																							March 31,
			2000				2001				2002				2003				2004				2005
			(U.S. dollars in thousands)
Balance Sheet Data:
	Working capital		US$	7,343			US$	38,781			US$	39,613			US$	47,416			US$	55,472			US$	57,315
	Total assets			33,312				71,492				82,226				87,536				97,969				99,008
	Total debt, excluding issuable common stock			5,745				1,912				70				—				—				—
	Total shareholders’ equity			18,239				53,733				63,612				71,962				81,921				84,153

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			Year Ended				Three Months Ended
			December 31, 2004				March 31, 2005
Statement of Operations Data:
Net income from operations per diluted share:
	Stantec		C$	1.59			C$	0.35
	Keith		C$	1.37			C$	0.29
	Stantec pro forma		C$	1.58			C$	0.34
	Keith merger equivalent(1)		C$	0.74			C$	0.16
Balance Sheet Data:
Net book value per diluted share:
	Stantec		C$	9.95			C$	10.15
	Keith		C$	13.32			C$	12.71
	Stantec pro forma						C$	13.11
	Keith merger equivalent(1)						C$	6.16

(1)

The Keith merger equivalent per diluted share represents the Stantec pro forma per share amount that is attributable to one share of Keith common stock that has been exchanged for 0.47 Stantec common shares calculated as described above. As the holders of Keith common stock will receive a combination of cash and Stantec common shares, the exchange ratio excludes the cash portion of the merger consideration.

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		Stantec								Keith
		High				Low				High				Low
Quarter Ended
June 30, 2005 (through June 20, 2005)		C$	32.99			C$	27.65			US$	22.25			US$	16.25
March 31, 2005		C$	29.25			C$	24.50			US$	17.43			US$	15.25
December 31, 2004		C$	26.48			C$	20.35			US$	18.75			US$	13.60
September 30, 2004		C$	27.15			C$	20.60			US$	15.49			US$	13.25
June 30, 2004		C$	29.39			C$	24.20			US$	14.89			US$	13.50
March 31, 2004		C$	27.39			C$	22.20			US$	14.86			US$	13.45
December 31, 2003		C$	23.48			C$	19.11			US$	14.46			US$	11.55
September 30, 2003		C$	21.48			C$	17.55			US$	13.39			US$	9.85
June 30, 2003		C$	20.15			C$	15.50			US$	11.16			US$	9.23
March 31, 2003		C$	18.24			C$	14.50			US$	13.00			US$	9.00
Year Ended
December 31, 2004		C$	29.39			C$	20.35			US$	18.75			US$	13.25
December 31, 2003		C$	23.48			C$	14.50			US$	14.46			US$	9.00
December 31, 2002		C$	20.50			C$	12.87			US$	16.15			US$	8.91
December 31, 2001		C$	14.25			C$	7.25			US$	26.00			US$	7.26
December 31, 2000		C$	8.00			C$	5.25			US$	8.50			US$	3.06

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		Stantec								Keith
		High				Low				High				Low
May 31, 2005		C$	30.70			C$	28.02			US$	21.56			US$	20.35
April 30, 2005		C$	29.45			C$	27.65			US$	21.33			US$	16.25
March 31, 2005		C$	29.25			C$	27.32			US$	17.35			US$	16.40
February 28, 2005		C$	28.00			C$	24.61			US$	17.15			US$	15.25
January 31, 2005		C$	26.40			C$	24.50			US$	17.43			US$	16.70
December 31, 2004		C$	26.48			C$	24.25			US$	18.49			US$	16.35

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34

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Measure		Expected Range				Result Achieved
Debt to equity ratio(1)			At or below 0.5 to 1				<0.0
Return on equity(2)			At or above 14	%			17.3	%
Net income as % of net revenue			At or above 5	%			6.7	%
Gross margin as % of net revenue			Between 52 and 54	%			54.2	%
Administrative and marketing expenses as % of net revenue			Between 39 and 41	%			40.9	%
Effective income tax rate			Between 36.5 and 37.5	%			32.4	%

(1)	Debt to equity ratio is calculated as long-term debt plus current portion of long-term debt plus bank indebtedness less cash, all divided by shareholders’ equity.
(2)	Return on equity is calculated as net income for the year divided by average shareholders’ equity over each of the last four quarters.

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		Quarter Ended March 31,
		2005				2004
		(in millions of Canadian dollars,
		except per share data)
Gross revenue			141.1				117.3
Net income			6.7				5.7
Earnings per share — basic			0.36				0.31
Earnings per share — diluted			0.35				0.30
Cash dividends declared per common share			—				—
Total assets — as at March 31			344.7				323.4
Outstanding common shares — as at March 31			18,933,019				18,464,818
Outstanding share options — as at March 31			1,006,499				1,323,666

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		Quarter Ended March 31,
		Percentage of Net
		Revenue								Percentage
										Increase
		2005				2004				2005 vs. 2004
Gross revenue			118.5%				113.3%				20.3	%
Net revenue			100.0%				100.0%				15.0	%
Direct payroll costs			45.7%				45.9%				14.6	%
Gross margin			54.3%				54.1%				15.5	%
Administrative and marketing expenses			43.0%				42.3%				17.0	%
Depreciation of property and equipment			2.3%				2.5%				5.3	%
Amortization of intangible assets			0.2%				0.1%				73.7	%
Net interest expense			0.1%				0.7%				(88.9	)%
Foreign exchange losses			0.1%				0.0%				n/a
Share of income from associated companies			0.1%				0.1%				(45.6	)%
Income before income taxes			8.7%				8.6%				16.5	%
Income taxes			3.0%				3.1%				12.0	%
Net income for the period			5.7%				5.5%				19.0	%

Gross Revenue		Q1 2005 vs. Q1 2004
		(in thousands of
		Canadian dollars)
Increase (decrease) in gross revenue due to:
Acquisitions completed in current and prior two years		C$	23,209
Net internal growth			3,267
Impact of foreign exchange rates on revenue earned by foreign subsidiaries			(2,649	)
Total increase in gross revenue		C$	23,827

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		2004				2003				2002
		(In millions of Canadian dollars,
		except per share data)
Gross revenue			520.9				459.9				428.5
Net income			30.2				25.1				20.2
Earnings per share — basic			1.63				1.37				1.12
Earnings per share — diluted			1.59				1.31				1.07
Cash dividends declared per common share			—				—				—
Total assets			362.1				326.6				299.0
Total long-term debt			34.0				44.6				62.3
Outstanding common shares — as at December 31			18,871,085				18,327,284				18,282,720
Outstanding share options — as at December 31			1,071,333				1,479,100				1,296,200

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		Percentage of Net Revenue												Percentage Increase
														2004 vs.				2003 vs.
		2004				2003				2002				2003				2002
Gross revenue			116.0	%			117.5	%			117.3	%			13.2	%			7.3	%
Net revenue			100.0	%			100.0	%			100.0	%			14.8	%			7.2	%
Direct payroll costs			45.8	%			46.9	%			47.6	%			12.0	%			5.7	%
Gross margin			54.2	%			53.1	%			52.4	%			17.2	%			8.6	%
Administrative and marketing expenses			40.9	%			39.5	%			39.9	%			18.7	%			6.4	%
Depreciation of property and equipment			2.7	%			2.5	%			2.6	%			20.9	%			4.3	%
Amortization of intangible assets			0.2	%			0.2	%			0.3	%			0.2	%			(14.3	)%
Net interest expense			0.6	%			0.7	%			0.7	%			6.4	%			0.3	%
Foreign exchange (gains) losses			0.0	%			0.2	%			0.0	%			(115.3	)%			743.9	%
Share of income from associated
companies			(0.1	)%			(0.1	)%			(0.1	)%			(33.6	)%			63.4	%
Income before income taxes			9.9	%			10.1	%			9.0	%			12.7	%			19.7	%
Income taxes			3.2	%			3.7	%			3.5	%			(0.6	)%			12.8	%
Net income			6.7	%			6.4	%			5.5	%			20.4	%			24.2	%

		2004 vs. 2003				2003 vs. 2002
Gross revenue (in millions of Canadian dollars)
Increase (decrease) due to:
Acquisitions completed in current and prior two years		C$	42.3			C$	41.0
Net internal growth			30.0				10.2
Impact of foreign exchange			(11.3	)			(19.8	)
Total increase over prior year		C$	61.0			C$	31.4

		2004 vs. 2003				2003 vs. 2002
Net revenue (in millions of Canadian dollars)
Increase (decrease) due to:
Acquisitions completed in current and prior two years		C$	36.4			C$	36.7
Net internal growth			31.3				7.0
Impact of foreign exchange			(9.9	)			(17.4	)
Total increase over prior year		C$	57.8			C$	26.3

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41

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42

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		Payments Due by Period
						Less than												More than
		Total				1 Year				2 - 3 Years				4 - 5 Years				5 Years
		(In thousands of Canadian dollars)
Long-term debt(1)		C$	33,975			C$	12,820			C$	19,585			C$	1,459			C$	111
Interest on debt(2)			2,824				1,479				1,269				76				—
Other liabilities			19,868				3,050				6,079				3,400				7,339
Operating lease commitments			207,666				29,509				50,301				34,211				93,645
Total contractual obligations		C$	264,333			C$	46,858			C$	77,234			C$	39,146			C$	101,095

(1)	Does not include C$90,956,000 of debt expected to be incurred under our credit facility in connection with the merger.
(2)	Based on an estimated average interest rate of 5.42% per year. Does not include interest on C$90,956,000 of debt expected to be incurred under our credit facility in connection with the merger at an expected interest rate of approximately 4.1% per year.

44

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45

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46

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47

---

 

	1. architecture & interior design;
	2. buildings engineering;
	3. facilities planning & operations;
	4. program & project management;
	5. strategic management;
	6. environmental infrastructure;
	7. environmental management;
	8. bio/pharmaceuticals;
	9. manufacturing/ industrial;
	10. power resources & chemicals;
	11. infrastructure management & pavement engineering;
	12. transportation infrastructure;
	13. transportation planning & traffic engineering;
	14. planning & landscape architecture;
	15. urban land engineering;
	16. surveys; and
	17. quality control/assurance.

48

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	•	assimilative capacity
	•	wastewater collection systems
	•	municipal & industrial wastewater treatment
	•	infiltration & inflow/ CSO
	•	odor and corrosion control
	•	wastewater pumping
	•	water treatment
	•	water storage
	•	distribution systems
	•	water reclamation & reuse

49

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	•	environmental site management
	•	environmental assessment
	•	water resources management
	•	heritage and natural resource assessment
	•	waste management
	•	risk assessment
	•	health and safety
	•	air quality assessment
	•	ecotoxicology and GLP testing
	•	microbiology laboratory

50

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Year		Business Acquired		Services Provided		Location
2004		The Sear-Brown Group, Inc.		engineering, planning, and architectural		New York, Ohio,
				services		Pennsylvania
						and Puerto Rico
2004		GBR Architects Limited		architectural design services		Manitoba
2004		Dunlop Architects Inc.		architectural design services		Ontario
2004		Shaflik Engineering Ltd.		electrical engineering services		British Columbia
				specializing in traffic and sport facility
				lighting
2003		Ecological Services Group		environmental management services		Ontario
		Inc.
2003		APAI Architecture Inc.		architectural design services		British Columbia
2003		Optimum Energy		engineering management consulting		Alberta
		Management Inc.		services
2003		Inner Dimension Design		interior design services		Saskatchewan
		Associates Inc.
2002		McCartan Consulting Ltd.		mechanical engineering services		Saskatchewan
2002		Webster & Simmonds		surveying services		Ontario
		Surveying Ltd.
2002		Cosburn Patterson Mather		engineering and planning services		Ontario
		Limited		specializing in the land development and
				real estate industry
2002		GKO Design Consultants		consulting services specializing in		Alberta
		Inc.		energy, resources, chemicals and
				pharmaceuticals
2002		M.R.S.F.M. Holdings Ltd.		civil and structural engineering		British Columbia
		(Graeme & Murray		consulting services
		Consultants Ltd.)
2002		GeoViro Engineering Ltd.		environmental consulting services		British Columbia

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Year		Business Acquired		Services Provided		Location
2002		Site Consultants, Inc.		civil and environmental engineering,		North Carolina
				land use planning and surveying
				services
2002		English Harper Reta		architectural design services		California
		Architects
2002		The RPA Group Limited		project management services		Ontario, Alberta
						and British
						Columbia
2002		Beak International		specialist environmental consulting		Ontario
		Incorporated		services

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		Percentage of				Jurisdiction of
Subsidiary		Voting Shares				Incorporation
659243 B.C. Ltd.			100			British Columbia
0714993 B.C. Ltd.			100			British Columbia
0715004 B.C. Ltd.			100			British Columbia
0715007 B.C. Ltd.			100			British Columbia
3053837 Nova Scotia Company			100			Nova Scotia
APAI Architecture Inc.			100			British Columbia
Architectura Inc.			0	(1)		Alberta
Dunlop Murphy Hilgers Architects Inc.			50			Ontario
GKO Power Engineering Ltd.			100			Alberta
International Insurance Group Inc.			100			Barbados
J. Muller International — Stanley Joint Venture Inc.			30			New Brunswick
Pentacore ADA Consulting, LLC			100			Nevada
Planning & Stantec Limited			50			Trinidad & Tobago
Project Delivery Holdings LLC			100			New York
SB K-12 Architecture and Engineering, P.C.			0	(1)		New Jersey
S.B. Long Island Architecture, Engineering and Land Surveying, P.C.			0	(1)		New York
SEA, Incorporated			100			Nevada
Spink Corporation, The			100			California
SSBV Consultants Inc.			33.33			British Columbia
Stantec Architecture Inc.			0	(1)		North Carolina
Stantec Architecture Ltd.			0	(1)		Canada
Stantec Consulting Associates P.C.			0	(1)		New York
Stantec Consulting California Inc.			100			California
Stantec Consulting Caribbean Ltd.			100			Barbados
Stantec Consulting Inc.			100			Arizona
Stantec Consulting International Ltd.			100			Canada
Stantec Consulting Ltd.			100			Canada
Stantec Consulting Services Inc.			100			New York
Stantec Engineering (Puerto Rico) P.S.C.			0	(1)		Puerto Rico
Stantec Facilities Ltd.			100			Alberta
Stantec Geomatics Ltd.			50	(1)		Alberta
Stantec Holdings (Delaware) II Inc.			100			Delaware
Stantec Holdings Ltd.			100			Alberta

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		Percentage of				Jurisdiction of
Subsidiary		Voting Shares				Incorporation
Stantec International Enterprises Limited			100			Bahamas
Stantec International Limited			100			Barbados
Stantec Technology International Inc.			100			Delaware
Teshmont Consultants Inc.			50			Canada

(1)	We have entered into an agreement with respect to 100% of the voting shares of this subsidiary that allows us to direct control over any disposition of the voting shares of this subsidiary.

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Name		Age				Position
Ronald Triffo			66			Chairman of the Board
Anthony P. Franceschini			54			President, Chief Executive Officer and Director
Neilson A. “Dutch” Bertholf, Jr.			72			Director
Robert J. Bradshaw			57			Director
E. John (Jack) Finn			73			Director
William D. Grace			69			Director
Susan E. Hartman			54			Director
Robert R. Mesel			69			Director
Donald W. Wilson			48			Vice President & Chief Financial Officer
Jeffrey S. Lloyd			40			Vice President, Secretary & General Counsel

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	•	reviewing and recommending for approval to the board, the annual audited financial statements and other continuous disclosure documents, including:

	a) the financial content of the annual report,
	b) the annual management information circular and proxy materials,
	c) the annual information form, and
	d) the management discussion and analysis section of the annual report;

	•	reviewing and authorizing the release of the quarterly unaudited financial statements including management discussion and analysis, quarterly interim report to shareholders and quarterly press release of our earnings;
	•	reviewing and recommending for approval to the board, all financial statements, financial reports, and the financial content of prospectuses, and any other reports requiring board approval prior to being submitted to any regulatory authority;

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	•	reviewing the Chief Executive Officer and Chief Financial Officer certification of annual and interim disclosure;
	•	discussing with management our major financial risk exposures and the steps management has taken to monitor and control such exposures;
	•	reviewing with management on an annual basis, our obligations pursuant to guarantees that have been issued and material obligations that have been entered into, and the manner in which these guarantees and obligations have been, or should be, disclosed in the financial statements.
	•	reviewing and assessing, in conjunction with management and the external auditor:

	a) the appropriateness of our accounting policies and financial reporting practices, and considering any available alternatives;
	b) any significant proposed changes in financial reporting and accounting policies and practices to be adopted by us;
	c) any new or pending developments in accounting and reporting standards that may affect or impact Stantec; and
	d) the key estimates and judgments of management that may be material to our financial reporting;

	•	assessing the performance of the external auditor and considering whether to recommend its annual appointment to the board for ultimate recommendation to the shareholders;
	•	reviewing, approving and executing the annual engagement letter with the external auditor;
	•	approving the engagement of the external auditor for all non-audit services and the fees for such services, and considering whether any non-audit service compromises the independence of the external audit work;
	•	reviewing all fees paid to the external auditor for audit services and, if appropriate, recommending the fees for board approval;
	•	reviewing with the external auditor the results of the annual audit examination;
	•	reviewing any litigation, claim or other contingency, including tax assessments, that could have a material effect upon our financial position or operating results;
	•	reviewing annually, or as required, the appropriateness of the system of internal controls and approval policies and practices concerning the expenses of our officers;
	•	reviewing and approving the expense accounts of our board chair and the chief executive officer;
	•	reviewing the adequacy of our insurance program;
	•	reviewing and determining the disposition of any complaints received under our Whistle Blower Policy — Complaint Resolution Process; and
	•	reviewing and determining the disposition of any complaints received from our shareholders or any regulatory body.

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	•	developments in the area of corporate governance generally;
	•	composition and size of the board;
	•	appropriate candidates for nomination to the board;
	•	providing an orientation and education program for new directors;
	•	evaluating the performance of the board, any committees, and individual directors;
	•	considering and approving any requests by an individual director to engage outside experts at our expense.

	•	compensation policies reflecting the rationale for each element of executive pay, including the link between compensation and performance and the level of competitiveness of the total compensation package;
	•	administration of our Employee Share Option Plan;
	•	executive management compensation, including bonuses, stock options, pensions and benefits;
	•	compensation for the Chief Executive Officer;
	•	senior management performance reviews;
	•	succession plans for executive management positions.

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	•	1,600 DSUs a year (400 per quarter);
	•	An additional C$1,500 per quarter if they chair a board committee; and
	•	C$1,800 for every board meeting or board committee meeting they attend.

• Chairman compensation		C$150,000
• Chair and meeting fees		C$114,600
• DSUs (valued at date of issue)		C$257,840

															Long-Term
															Compensation
															Awards
							Annual Compensation
															Securities under				All Other
Name and Principal Position			Year				Salary				Bonus(1)				Options(2)				Compensation
A.P. Franceschini				2004			C$	375,004			C$	844,350				nil			C$	9,000(3	)
	President & CEO			2003			C$	367,793			C$	717,338				150,000			C$	11,250(4	)
				2002			C$	250,000			C$	748,705				nil			C$	6,500(3	)
D.W. Wilson				2004			C$	224,030			C$	250,000				5,000			C$	69,439(5	)
	Vice President & CFO			2003			C$	196,165			C$	195,000				6,500			C$	5,500(3	)
				2002			C$	183,787			C$	116,212				7,000			C$	5,176(3	)
R.L. Alarie				2004			C$	233,649			C$	350,000				5,000			C$	3,750(3	)
	Executive Vice-President			2003			C$	196,165			C$	230,000				6,000			C$	5,500(3	)
	Stantec Consulting Ltd.			2002			C$	175,013			C$	200,000				9,000			C$	200,631(6	)
M.E. Jackson				2004			C$	218,460			C$	250,000				5,000			C$	5,869(3	)
	Senior Vice President			2003			C$	176,542			C$	205,000				8,000			C$	5,100(3	)
	Stantec Consulting Ltd.			2002			C$	165,009			C$	135,000				8,000			C$	200,255(7	)
W.B. Lester				2004			C$	230,994			C$	350,000				5,000			C$	6,192(3	)
	Executive Vice President			2003			C$	220,664			C$	350,000				7,000			C$	6,000(3	)
	Stantec Consulting Ltd.			2002			C$	225,000			C$	325,000				12,000			C$	5,500(3	)

(1)	Represents bonuses earned and calculated in respect of the indicated financial year.
(2)	Options to purchase our common shares. See below for further information regarding option grants and exercises during the most recently completed financial 2 year.
(3)	Represents a payment to the executive officer’s registered retirement savings/employee share purchase plan.
(4)	Represents a payment to Mr. Franceschini’s registered retirement savings/employee share purchase plan (C$9,000) and a service award (C$2,250)
(5)	Represents a payment to Mr. Wilson’s registered retirement savings/employee share purchase plan (C$5,980) and a payout of vacation time that Mr. Wilson had accrued but not taken during his time at Stantec (C$63,459).

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(6)	Represents a payment to Mr. Alarie’s registered retirement savings/employee share purchase plan (C$5,176) and a performance payment arising in connection with the acquisition of PEL Group Inc. by Stantec Consulting Ltd. in 1997 (C$195,455).
(7)	Represents a payment to Mr. Jackson’s registered retirement savings/employee share purchase plan (C$4,800) and a performance payment arising in connection with the acquisition of PEL Group Inc. by Stantec Consulting Ltd. in 1997 (C$195,455).

Market Value of

% of Total

Securities

Options

Underlying

Securities

Granted

Options on the

under

to Employees in

Date of Grant

Expiration

Name

Options(1)

Financial Year

Price (C$/Common Share)

(C$/Security)

Date

A.P. Franceschini

Nil

0.00%

N/A

N/A

N/A

D.W. Wilson

5000

(2)

2.99%

C$

24.50

C$

24.50

December 14, 2011

R.L. Alarie

5000

(2)

2.99%

C$

24.50

C$

24.50

December 14, 2011

M.E. Jackson

5000

(2)

2.99%

C$

24.50

C$

24.50

December 14, 2011

W.B. Lester

5000

(2)

2.99%

C$

24.50

C$

24.50

December 14, 2011

(1)	Options granted under our Employee Share Option Plan to purchase our common shares.
(2)	1,667 options are exercisable on December 14, 2005, 1,667 options are exercisable on December 14, 2006, and 1,666 options are exercisable on December 14, 2007.

Value of Unexercised

Aggregate

Unexercised Options at

In-the-Money

Securities

Value

Financial Year End

Options at the Fiscal

Acquired on

Realized

(#)

Year End(1)

Name

Exercise (#)

(C$)

Exercisable/ Unexercisable

Exercisable/ Unexercisable

A.P. Franceschini

240,000

C$

4,214,000

112,000 / 90,000

C$

1,732,060 / C$210,300

D.W. Wilson

Nil

nil

26,335 / 11,665

C$

493,258 / C$61,582

R.L. Alarie

4,700

C$

70,560

5,000 / 12,000

C$

46,900 / C$67,760

M.E. Jackson

Nil

nil

8,001 / 12,999

C$

78,516 / C$71,064

W.B. Lester

39,000

C$

690,200

2,334 / 13,666

C$

12,790 / C$83,390

(1)	The closing price of our common shares on the Toronto Stock Exchange on December 31, 2004 was C$26.48.

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63

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														Options
		Plan				Options				Options				Available for
		Maximum				Outstanding				Exercised				Future Grant
Balance as of March 21, 2005 (prior to proposed change)			1,754,938				1,012,833				697,365				44,740
Percentage of common shares outstanding as of March 21, 2005 (prior to proposed change)			9.27	%			5.35	%			3.68	%			0.24	%
Balance as of March 21, 2005 (after proposed change, based upon number of issued and outstanding common shares as of March 21, 2005)			1,892,718				1,012,833				0				879,885
Percentage of common shares outstanding as of March 21, 2005 (after proposed change)			10.00	%			5.35	%			0	%			4.65	%

Number of Securities Remaining

Available for Future Issuance

Number of Securities to

Weighted-average Exercise

under Equity Compensation

be Issued upon Exercise of

Price of Outstanding

Plans (Excluding Securities

Outstanding Options

Options

Reflected in Column (a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

1,033,833

C$

13.63

44,740(1

)

(1)	This number is equal to the maximum number of options to purchase common shares authorized to be issued under the Stantec Employee Share Option Plan (1,754,938) less 676,365 options which have been exercised over the life of the Stantec Employee Share Option Plan less the 1,033,833 options outstanding as at January 31, 2005.

Number of Options

Strike Price

Vesting Date

Expiry Date

30,000

C$

16.10

January 3, 2004

January 3, 2010

30,000

C$

18.85

January 3, 2005

January 3, 2011

30,000

C$

21.60

January 3, 2006

January 3, 2012

30,000

C$

24.35

January 3, 2007

January 3, 2013

30,000

C$

27.10

January 3, 2008

January 3, 2013

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65

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	•	has unanimously determined that the merger is fair to and in the best interests of Keith and its shareholders;
	•	has unanimously approved and declared advisable the merger agreement; and
	•	unanimously recommends that Keith common shareholders vote “FOR” the approval of the merger agreement and its terms;

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	•	sending a written notice to the proxy solicitation agent stating that the earlier proxy is revoked;
	•	submitting a proxy bearing a later date (using a new proxy card and following the instructions provided on the proxy card); or
	•	attending the special meeting, revoking your proxy and voting in person.

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The Keith Companies, Inc. 19 Technology Drive Irvine, California, USA 92618-2334 Phone: (949) 923-6001 Fax: (949) 923-6026 Attention: Investor Relations		The Altman Group, Inc. 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Phone: (201) 806-2205 Attention: Charlotte Brown

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70

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71

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72

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	•	the significant number of conditions to Stantec’s performance of its obligations at closing;
	•	the absence of a requirement that Keith receive a tax opinion from its counsel as a condition to Keith’s performance of its obligations at closing;
	•	the requirement that the Stantec common stock be listed on the New York Stock Exchange or the Nasdaq National Market as a condition to Stantec’s performance of its obligations at closing;
	•	the requirement that key members of Keith management execute employment agreements as a condition to Stantec’s performance of its obligations at closing;
	•	the treatment of the outstanding stock options and restricted shares of Keith;
	•	a requirement that Keith have a minimum cash balance at closing of at least US$48 million;
	•	the limitation on Keith’s ability to terminate the agreement in response to an unsolicited acquisition proposal with superior terms; and
	•	the obligation to pay Stantec’s expenses in addition to a break-up fee in the event the agreement was terminated in certain circumstances by Keith.

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74

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	•	the current state of Keith’s business, including the fact that continued expansion and geographic and industry diversification, each of which was considered essential to protect its competitive position, would require significant future investment in the expansion of its operations, infrastructure, technology platform and managerial team;
	•	Keith’s prospects and strategic objectives to expand its market share and diversify its service offerings, which are limited by a shortage of attractive acquisition targets meeting Keith’s acquisition criteria, expansion opportunities and qualified employees;
	•	Keith’s dependence on the residential real estate market in California and the fact that a decline in demand in this market sector could have a disproportionate effect on its net revenues and profitability;
	•	the range of possible benefits to Keith shareholders of continuing to operate independently and the timing and the likelihood of accomplishing growth and diversification of Keith’s service offerings by

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		operating independently, and the Keith board of directors’ assessment that the merger with Stantec presented a superior alternative to continuing to operate independently; and
	•	the limited attention of the public market to small capitalization stocks outside the technology sector, such as Keith.

	•	the fact that as of April 13, 2005, the trading day prior to approval of the merger by the Keith board of directors, the value of the merger consideration represented a premium of approximately US$4.87, or 28.6% over the US$17.00 closing sale price for Keith common stock as reported on the Nasdaq National Market on April 13, 2005;
	•	management’s review of the companies which might be expected to be interested in acquiring Keith and management’s discussion with several companies regarding their interest in an acquisition and the preliminary discussion by members of the Keith senior management with certain of these potential acquirors and the lack of any offers to acquire Keith, all of which led the board to believe that the likelihood of obtaining a superior offer, either through an auction or otherwise, was outweighed by the benefits to the Keith shareholders of the merger;
	•	geographic and industry diversification achieved by a combination with Stantec would reduce Keith’s exposure to cyclicality within the residential real estate service sector;
	•	the financial presentation and written opinion of Bear Stearns to the Keith board of directors to the effect that, as of April 14, 2005, and based on the qualifications, assumptions, limitations and other matters set forth in its written opinion, the consideration to be received by the public shareholders of Keith pursuant to the merger agreement is fair, from a financial point of view, to those holders (the full text of this opinion, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Bear Stearns in connection with the opinion, is attached as Appendix B to this proxy statement/ prospectus);
	•	the likelihood that the proposed acquisition would be consummated, in light of the conditions to the parties’ obligations to complete the merger and the reputation and financial capabilities of Stantec;
	•	the extensive arms-length negotiations between Stantec and Keith, leading the board to believe that the merger consideration offered by Stantec represented the highest amount Stantec would agree to pay and that the terms of the merger agreement and related documents, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, were as favorable to Keith as Stantec would be willing to accept;
	•	the potential for synergies between Stantec and Keith, which include diversification of service offerings and geographic coverage, Keith’s opportunity to integrate Stantec’s more advanced enterprise reporting and management technology systems and other overhead cost savings, that could lead to improved prospects for growth and revenue generation at Stantec, which would benefit former Keith shareholders;
	•	the fact that pursuant to the merger agreement, Keith is not prohibited from responding in the manner provided in the merger agreement to certain alternative proposals which the Keith board of directors determines may constitute a superior offer and where Keith’s board of directors determines in good faith, after consultation with independent legal counsel, that failure to respond would cause the members of the Keith board of directors to breach their fiduciary duties under applicable law; and
	•	the fact that the provisions of the merger agreement allow Keith’s board of directors, under certain circumstances to withdraw its recommendation for the approval of the merger or terminate the merger agreement if it is presented with a superior proposal.

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	•	the risk that the announcement and pendency of the merger could have a material adverse impact on Keith’s business and operations;
	•	the risk that the merger may not be completed if either Keith’s or Stantec’s legal counsel were not to deliver a tax opinion which is a condition to each of Keith’s and Stantec’s obligation to complete the merger;
	•	the risk that the merger may not be completed if the Stantec common shares to be issued in the merger are not listed on either the New York Stock Exchange or the Nasdaq National Market, which is a condition to Keith’s obligation to complete the merger;
	•	the risk that the merger may not be completed if the other conditions to Stantec’s obligation to complete the merger are not satisfied and the right of Stantec to terminate the merger agreement under certain circumstances;
	•	the fact that the restrictions contained in the merger agreement on Keith’s rights to solicit superior proposals, as well as the US$3.0 million termination fee plus reimbursement of certain Stantec expenses under certain circumstances, presents an additional cost to any other potential acquiror which might be interested in acquiring Keith; and
	•	the interests that certain of Keith directors and executive officers may have with respect to the merger in addition to their interests as Keith shareholders generally, as described in “The Merger — Interests of Keith’s and Stantec’s Executive Officers and Directors in the Merger.”

	•	reviewed certain publicly available historical financial statements and other business and financial information of Keith and Stantec;

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	•	reviewed certain operating and financial data concerning Keith and Stantec’s business and prospects prepared by the managements of Keith and Stantec, respectively;
	•	discussed Keith’s business, operations, historical financial results, a range of projected financial results and future prospects with senior executives of Keith;
	•	reviewed certain projections for Stantec for the year ended December 31, 2005 published by certain equity research analysts;
	•	discussed Stantec’s business, operations, historical and projected financial results and future prospects with senior executives of Stantec and Keith;
	•	reviewed the historical prices, trading multiples and trading volumes for Keith’s common stock and Stantec’s common stock;
	•	reviewed publicly available financial data, stock market performance data and trading multiples of companies generally comparable to Keith and Stantec;
	•	reviewed the financial terms, to the extent publicly available, of certain mergers and acquisitions transactions involving companies generally comparable to Keith;
	•	performed discounted cash flow sensitivity analyses based on the range of projected financial results for Keith furnished to it by senior executives of Keith;
	•	reviewed the potential pro forma impact of the merger on Stantec’s financial results, financial condition and capitalization;
	•	reviewed the financial terms and conditions of the merger agreement; and
	•	performed such other studies, analyses, inquiries and investigations as it deemed appropriate.

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	Comparable Company Analysis

Name		Location		Trading Symbol
Chicago Bridge & Iron Company N.V.		The Netherlands		NYSE: CBI
Granite Construction Incorporated		Westonville, California		NYSE: GVA
Jacobs Engineering Group Inc.		Pasadena, California		NYSE: JEC
Michael Baker Corporation		Moon Township, Pennsylvania		AMEX: BKR
Shaw Group, Inc.		Baton Rouge, Louisiana		NYSE: SGR
Tetra Tech, Inc.		Pasadena, California		NASDAQ: TTEK
TRC Companies, Inc.		Windsor, CT		NYSE: TRR
URS Corporation		San Francisco, California		NYSE: URS
Washington Group International, Inc.		Boise, Idaho		NASDAQ: WGII

		Keith(1)				Mean				Median				Harmonic Mean
Price to 2005 estimated earnings per share			18.9				17.9				16.6				16.9
Price to 2006 estimated earnings per share			17.1				16.0				15.3				15.6
Price to 2005 estimated enterprise value/ EBITDA per share			8.0				7.4				6.8				7.1
Price to 2006 estimated enterprise value/ EBITDA per share			7.1				6.6				6.2				6.3

(1)	Based on merger consideration of US$21.87 per share, which in turn was based on the closing price of the Stantec common stock on April 14, 2005 assuming an exchange rate of C$1.00 to US$0.808.

	Precedent Transaction Analysis

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Announcement Date		Acquiror		Target
12/10/2003		CH2M Hill Companies, Ltd.		Lockwood Greene Engineers, Inc.
12/19/2002		EMCOR Group, Inc.		Consolidated Engineering Services Inc.
11/20/2001		MACTEC, Inc.		Law Companies Group, Inc.
03/31/2001		American Capital Strategies Ltd.		Weston Solutions, Inc.
03/24/2000		MACTEC, Inc.		Harding Lawson Associates Group, Inc.
05/10/1999		IT Group, Inc.		EMCON
05/05/1999		URS Corporation		Dames & Moore Group
05/03/1999		Investor Group		Isolux-Wat SA

		Keith(1)				Mean				Median				Harmonic Mean
Price to Premium, One Week Prior			27.1	%			29.1	%			33.3	%			NM
Enterprise Value to LTM Revenue			1.42	x			0.42				0.40				0.32
Enterprise Value to LTM EBITDA			9.0	x			5.6				4.2				4.5
Equity Value to LTM Net Income			21.9	x			22.8				15.6				15.3

(1)	Based on merger consideration of US$21.87 per share

	Discounted Cash Flow Sensitivity Analysis

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			2006-2008 Revenue Growth Rate
2006-2008 Operating Margin(1),(2)				8.0	%			10.0	%			12.0	%			14.0	%
	10.0%		$	15.52			$	15.90			$	16.31			$	16.72
	12.0%		$	17.42			$	17.90			$	18.41			$	18.93
	14.0%		$	19.32			$	19.90			$	20.51			$	21.14
Perpetual Growth Rate(2),(3)				8.0	%			10.0	%			12.0	%			14.0	%
	3.00%		$	16.96			$	17.42			$	17.90			$	18.39
	3.25%		$	17.18			$	17.66			$	18.15			$	18.65
	3.50%		$	17.42			$	17.90			$	18.41			$	18.93
	3.75%		$	17.66			$	18.16			$	18.68			$	19.22
	4.00%		$	17.92			$	18.44			$	18.97			$	19.52
Discount Rate(1),(3)				8.0	%			10.0	%			12.0	%			14.0	%
	14.5%		$	16.36			$	16.78			$	17.23			$	17.69
	14.0%		$	16.86			$	17.32			$	17.79			$	18.28
	13.5%		$	17.42			$	17.90			$	18.41			$	18.93
	13.0%		$	18.03			$	18.55			$	19.09			$	19.65
	12.5%		$	18.72			$	19.28			$	19.85			$	20.45

(1)	Assumes a perpetual growth rate of 3.5%
(2)	Assumes a discount rate of 13.5%
(3)	Assumes an operating margin of 12.0%

	Relative Contribution Analysis

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	Pro Forma Transaction Analysis

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	•	the combination of Stantec and Keith will make up one of the most diversified design firms in North America and represents a significant step toward Stantec’s goal to become a top 10 global design firm;
	•	Stantec and Keith are complementary in terms of services and geography and have similar corporate cultures;
	•	the acquisition serves Stantec’s objective of being a top tier service provider in each market it serves;
	•	the combination of Stantec’s and Keith’s urban land groups will create a leading service provider for the land development market in North America, with a significant presence in California, Nevada, Arizona, Alberta and Ontario, each a fast growing region with strong land development markets;
	•	the addition of Keith will increase Stantec’s U.S. operations by about 70% and will provide a solid foundation in California, one of the largest markets in North America;
	•	Keith’s strong presence in California will provide a significant opportunity to cross-sell Stantec’s public sector services in transportation and environment market segments and position Stantec for further growth in California;
	•	Keith has a history of profitability; and
	•	the acquisition of Keith is expected to be accretive to Stantec’s earnings.

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84

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	•	an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;
	•	a corporation, or any entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia;
	•	an estate that is subject to U.S. federal income tax regardless of its source; or
	•	a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.

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	•	banks, insurance companies and financial institutions;
	•	tax-exempt organizations;
	•	mutual funds;
	•	persons that have a functional currency other than the U.S. dollar;
	•	traders in securities who elect to apply a mark-to-market method of accounting;
	•	dealers in securities or foreign currency;
	•	holders of Keith common stock who acquired their Keith common stock in connection with Keith’s stock option plans or in other compensatory transactions;
	•	holders of Keith common stock who hold their common stock as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment;
	•	Except to the extent discussed below, U.S. Holders of Keith common stock who will hold 5% or more of either the total voting power or the total value of the outstanding stock of Stantec after the merger, determined after taking into account ownership under the applicable attribution rules of the Code and Treasury regulations (referred to in this proxy statement/ prospectus as 5% transferee shareholders); and
	•	holders who will hold 10% or more of Stantec equity either directly, indirectly through one or more entities, or as a result of certain constructive ownership rules of the Code, following the merger;

	The Merger

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	•	the sum of the amount of cash and the fair market value, as of the date of the merger, of the Stantec common shares received by the U.S. Holder, minus the adjusted tax basis of the Keith common stock surrendered in exchange therefor, or
	•	the amount of cash received by the U.S. Holder in the merger (excluding cash received in lieu of fractional Stantec common shares, which is discussed below).

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89

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90

---

 

	The Reverse-Subsidiary Merger

91

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	Ownership of Stantec Common Shares

92

---

 

93

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	Conversion of Keith Common Stock

	Dividends on Stantec Common Shares

	Disposition of Stantec Common Shares

94

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95

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	•	state the number of shares of Keith common stock the dissenting shareholder holds of record;
	•	contain a statement of what the dissenting shareholder claims to be the fair market value of the shares as of April 14, 2005, the last trading day before the announcement of the merger, without giving effect to any appreciation or depreciation due to the merger; and
	•	be received by Keith no later than the date of the special meeting to vote on the merger.

	•	a statement of the price determined by the Keith board of directors to represent the fair market value of the shares;
	•	a brief description of the procedure that the shareholder must follow, if the shareholder desires to exercise dissenters’ rights; and
	•	a copy of sections 1300, 1301, 1302, 1303 and 1304 of Chapter 13 of the CCC (which sets out the procedures that must be followed to perfect a shareholder’s dissenters’ rights).

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	(i) US$11.00 cash, 0.23 Stantec common shares, referred to as the fixed ratio stock, and that number of Stantec common shares equal to US$5.50 divided by the 20-day average trading price of Stantec common shares on the Toronto Stock Exchange; or
	(ii) the fixed ratio stock, and that number of Stantec common shares equal to US$16.50 divided by the average 20-day trading price of Stantec common shares on the Toronto Stock Exchange; or
	(iii) cash equal to the sum of (A) US$16.50 and (B) the product of 0.23 and the average 20-day trading price of Stantec common shares, referred to as the cash payment.

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	•	incorporation, valid existence and qualification to do business of Keith and each of its subsidiaries;
	•	corporate authorization and validity of the merger agreement and the inapplicability of takeover statutes to the merger;
	•	capitalization of Keith;
	•	the absence of any conflict of the merger agreement with Keith’s articles of incorporation or bylaws, with applicable laws or with any material agreement to which Keith or any of its subsidiaries is a party and, subject to certain exceptions set forth in the merger agreement, the absence of governmental consents, filings and approvals necessary to complete the merger;
	•	the approval by Keith’s board of directors of the merger agreement and the recommendation of the merger agreement by Keith’s board of directors to Keith’s shareholders and the vote required by the shareholders of Keith to complete the merger;
	•	the proper filing of documents with the Securities and Exchange Commission, referred to as the SEC;

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	•	the general accuracy of financial statements and the absence of undisclosed liabilities;
	•	accounts receivable, accounts payable, work in progress, accrued project liabilities and revenue recognition;
	•	the adequacy of internal control over financial reporting;
	•	the receipt of the opinion of the financial advisor as to the fairness, from a financial point of view, of the merger consideration to Keith’s shareholders;
	•	the absence of material changes or events in the business of Keith since December 31, 2004;
	•	the absence of material pending or threatened litigation outstanding against Keith or any of its subsidiaries;
	•	employee benefit plans;
	•	labor and employment matters;
	•	title to leased real property and to assets;
	•	ownership and validity of intellectual property rights;
	•	tax matters and the payment of taxes;
	•	various environmental matters, including compliance with environmental laws;
	•	validity and effect of, and absence of defaults under, material contracts;
	•	adequacy of insurance;
	•	customers and suppliers;
	•	interested party transactions; and
	•	brokers’ and finders’ fees related to the merger.

	•	incorporation, valid existence and qualification to do business of Stantec and Stantec Consulting;
	•	corporate authorization and validity of the merger agreement;
	•	Stantec’s capitalization;
	•	the absence of any conflict of the merger agreement with Stantec’s or Stantec Consulting’s articles of incorporation or bylaws, with applicable laws or with any agreement to which Stantec or Stantec Consulting is a party and, subject to certain exceptions set forth in the merger agreement, the absence of governmental consents, filings and approvals necessary to complete the merger;
	•	Stantec’s and Stantec Consulting’s possession of all permits and regulatory approvals required to conduct its business, and compliance by Stantec and Stantec Consulting with all applicable foreign, federal, state and local laws;
	•	the proper filing of documents with the Alberta Securities Commission;
	•	the general accuracy of financial statements and the absence of undisclosed liabilities;
	•	accounts receivable, accounts payable, work in progress, accrued project liabilities and revenue recognition;
	•	the adequacy of internal control over financial reporting;
	•	the absence of material pending or threatened litigation outstanding against Stantec or Stantec Consulting;

100

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	•	approval of the merger agreement by the sole shareholder of Stantec Consulting and the absence of any requisite vote of Stantec’s shareholders to consummate the transactions contemplated by the merger agreement;
	•	Stantec Consulting’s operations;
	•	tax matters;
	•	approval of the merger and the merger agreement by the board of directors of each of Stantec and Stantec Consulting and approval by the board of directors of Stantec of the registration and listing of Stantec common shares to be issued in connection with the merger;
	•	the absence of material changes or events in the business of Stantec;
	•	absence of ownership of Keith shares by Stantec or any of its subsidiaries;
	•	brokers’ and finders’ fees related to the merger;
	•	ownership and validity of intellectual property rights; and
	•	various environmental matters, including compliance with environmental laws.

	•	general economic, political or regulatory conditions or securities markets in general that do not have a disproportionate effect on Keith or Stantec, as applicable;
	•	the industry in which Stantec and Keith operate that does not have a disproportionate effect on Keith or Stantec, as applicable; or
	•	the public announcement or consummation of the transactions contemplated by the merger agreement.

	•	operate other than in the ordinary course of business and consistent with past practice;
	•	change or amend its articles of incorporation or bylaws;
	•	(1) issue any shares of capital stock, or any options, warrants, convertible securities or rights to acquire any shares of such capital stock or any other ownership interest (except for issuances of Keith common stock issuable pursuant to Keith’s stock awards outstanding on the date of the merger agreement) or (2) sell, pledge, dispose of, grant or encumber any material assets of Keith or any subsidiary;
	•	split, combine or reclassify any of its capital stock or purchase or otherwise acquire any of its capital stock (other than in connection with the cashless exercise of Keith stock options outstanding on the date of the merger agreement);
	•	declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock, except for dividends by any direct or indirect wholly-owned subsidiary to Keith or any other wholly-owned subsidiary;

101

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	•	hire any additional employees other than in the ordinary course of business or increase the compensation payable or to become payable or the benefits provided to its directors, officers or employees, except for increases in the ordinary course of business in salaries or wages of employees of Keith or any subsidiary who are not directors or officers of Keith or any subsidiary, or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of Keith or of any subsidiary, or establish or amend any arrangement for the benefit of any current or former director, officer, employee or consultant;
	•	(1) acquire any corporation or other business organization or any material amount of assets; (2) incur any indebtedness for borrowed money or issue any debt securities or become responsible for the obligations of any person, or make any loans or advances, or grant any security interest in any of its assets except in the ordinary course of business and consistent with past practice; (3) enter into any material contract; (4) authorize certain capital expenditures; or (5) enter into or amend any contract, agreement, commitment or arrangement with respect to any matter set forth in this paragraph;
	•	implement or adopt any change in its accounting principles, practices or methods, other than as is consistent with or as may be required by law, GAAP or regulatory guidelines;
	•	make any tax election or settle or compromise any material United States federal, state, local or non-United States income tax liability;
	•	discharge any obligation other than the discharge of liabilities (1) reflected or reserved against on the consolidated balance sheet of Keith and its subsidiaries as of March 31, 2005; (2) subsequently incurred in the ordinary course of business and consistent with past practice, or (3) subsequently incurred not in the ordinary course of business which will not exceed US$100,000;
	•	amend or consent to the termination of any material contract, or amend, waive, modify or consent to the termination of Keith’s or any subsidiary’s rights thereunder;
	•	commence or settle any material litigation; or
	•	announce an intention, enter into any formal or informal agreement or otherwise make a commitment, to do any of the foregoing.

102

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103

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	•	the registration statement having been declared effective under the Securities Act and no stop order or proceeding seeking a stop order being pending by or before the SEC;
	•	Keith’s shareholders having affirmatively voted to approve the merger agreement by the requisite vote;
	•	no order preventing the consummation of the merger being in effect;
	•	any waiting period applicable to the consummation of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, referred to as the HSR Act, having expired or having been terminated, such waiting period having been terminated effective May 20, 2005; and
	•	the Stantec common shares to be issued in the merger having been authorized for listing on the Toronto Stock Exchange. Stantec has received conditional approval to list such Stantec common shares on the Toronto Stock Exchange.

104

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	•	the representations and warranties of Keith being true and correct when made and as of the effective time;
	•	Keith having performed in all material respects all of its obligations under the merger agreement;
	•	all consents, approvals and authorizations legally required to be obtained to consummate the merger having been obtained from all governmental authorities;
	•	no material adverse effect as defined in the merger agreement having occurred with respect to Keith;
	•	Keith having deposited with the exchange agent for the benefit of the holders of Keith shares the lesser of (a) US$18,000,000 and (b) the maximum amount of cash that would not preclude the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;
	•	Keith having at least US$40,000,000 of cash or cash equivalents on deposit (less the amount of cash deposited with the exchange agent);
	•	the number of dissenting shares being less than 5% of the issued and outstanding Keith shares;
	•	prior to the effective time, the termination and cancellation of Keith’s plan qualified under Section 401(k) of the Code; however, the board of directors of Keith will not terminate and cancel the 401(k) plan if Stantec provides written notice to that effect to Keith at least two (2) days prior to the effective time; and
	•	Stantec having received the opinion of Shearman & Sterling LLP, counsel to Stantec, to the effect that, for U.S. federal income tax purposes, the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.

	•	the representations and warranties of Stantec and Stantec Consulting being true and correct when made and as of the effective time;
	•	Stantec and Stantec Consulting having performed in all material respects all of their obligations under the merger agreement;
	•	No material adverse effect as defined in the merger agreement having occurred with respect to Stantec;
	•	Keith having received the opinion of Akin Gump Strauss Hauer & Feld, counsel to Keith, to the effect that, for U.S. federal income tax purposes, the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code;
	•	the Stantec common shares to be issued in the merger having been authorized for listing or quotation on the U.S. exchange.

105

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	•	by mutual written consent of Stantec and Keith; or
	•	by either Stantec or Keith if:

	•	the effective time has not occurred on or before December 31, 2005;
	•	Keith’s shareholders fail to approve and adopt the merger agreement at the special meeting; or
	•	the other party breaches any representation, warranty, covenant or agreement such that the terminating party’s closing conditions are not satisfied and the breach is either not reasonably capable of being cured or has not been cured within 15 days after notice of the breach;

	•	by Stantec if:

	•	(1) Keith’s board of directors withdraws, modifies or changes in a manner adverse to Stantec its recommendation of the approval and adoption of the merger agreement, (2) the board of directors of Keith recommends to the shareholders of Keith a competing transaction or enters into any letter of intent or any agreement accepting any competing transaction, (3) Keith fails to include in the proxy statement the recommendation of Keith’s board of directors in favor of the approval and adoption of the merger agreement and the merger, (4) the board of directors of Keith fails to reaffirm its recommendation in favor of the approval and adoption of the merger agreement and the approval of the merger within five business days after Stantec requests in writing that such recommendation be reaffirmed, (5) through the fault of Keith, the merger is not, prior to December 15, 2005, submitted for the approval of the holders of Keith common stock at the special meeting, (6) Keith intentionally breaches its obligations under “Additional Agreements — No Solicitation of Transactions,” or (7) a tender offer or exchange offer for 15% or more of the outstanding shares of capital stock of Keith is commenced, and Keith’s board of directors fails to recommend against acceptance of such tender offer or exchange offer by its shareholders within 10 days (each of the foregoing being referred to as a triggering event);

	•	by Keith in order to accept a superior proposal of a third party.

106

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107

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		Before the Merger								After the Merger
		Number of				Percentage of				Number of				Percentage of
		Shares				Class				Shares				Class
		Beneficially				Beneficially				Beneficially				Beneficially
Name of Beneficial Owner(1)(2)		Owned				Owned				Owned				Owned
Ronald Triffo			617,091				3.2	%			617,091				2.7	%
Anthony P. Franceschini			332,025				1.7	%			332,025				1.4	%
Aram H. Keith(3)			—				—				640,385				2.8	%
Neilson A. “Dutch” Bertholf, Jr.			10,000				*				10,000				*
Robert J. Bradshaw			55,000				*				55,000				*
E. John (Jack) Finn			29,000				*				29,000				*
William D. Grace			18,000				*				18,000				*
Susan E. Hartman			—				—				—				—
Robert R. Mesel			2,500				*				2,500				*
Donald W. Wilson			79,783				*				79,783				*
Jeffrey S. Lloyd			23,683				*				23,683				*
Raymond L. Alarie			14,248				*				14,248				*
Mark E. Jackson			23,194				*				23,194				*
W. Barry Lester			15,709				*				15,709				*
All directors and executive officers as a group			1,220,233				6.4	%			1,860,618				8.1	%

*	Indicates less than 1%.

(1)	Unless otherwise provided, the address for each “Beneficial Owner” is 10160 — 112 Street, Edmonton, Alberta, Canada T5K 2L6.
(2)	Unless otherwise noted, each person has sole voting and investment power over the shares listed opposite his or her name.
(3)	Stantec has agreed that, upon consummation of the merger, it will appoint Aram H. Keith, currently Chairman and Chief Executive Officer of Keith, to the Stantec board of directors. Mr. Keith has indicated that he intends to elect to receive a mix of cash and Stantec common shares as merger consideration in exchange for the 1,374,217 shares of Keith common stock he beneficially owns. Based on the closing sale price of Stantec common shares on the Toronto Stock Exchange on May 6, 2005, it is estimated that the Aram H. Keith and Margie R. Keith Revocable Trust, of which Aram H. Keith is a trustee, will receive US$15,116,387 and 640,385 Stantec common shares as merger consideration.

108

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109

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	•	the laws of California, particularly the California Corporations Code, referred to in this proxy statement/ prospectus as the CCC;
	•	Keith’s Amended and Restated Articles of Incorporation, referred to in this proxy statement/ prospectus as Keith’s charter; and
	•	Keith’s Amended and Restated bylaws, referred to in this proxy statement/ prospectus as Keith’s bylaws.

	•	the Canada Business Corporations Act, referred to in this proxy statement/ prospectus as the CBCA;
	•	Stantec’s Restated Articles of Incorporation, which are referred to in this proxy statement/ prospectus as Stantec’s charter; and
	•	Stantec’s bylaws, which are referred to in this proxy statement/ prospectus as Stantec’s bylaws.

	Keith

	Stantec

	Keith

110

---

 

	Stantec

	Keith

	Stantec

	Keith

	Stantec

111

---

 

	Keith

	Stantec

	Keith

	Stantec

	Keith

112

---

 

	Stantec

	Keith

	•	Certain increases or decreases in the aggregate number of authorized shares of such class;
	•	An exchange, reclassification, or cancellation of all or part of the shares of such class, including a reverse stock split but excluding a stock split;
	•	An exchange, or right of exchange, of all or part of the shares of another class into the shares of such class;
	•	A change in the rights, preferences, privileges or restrictions of the shares of such class;
	•	Creation of a new class of shares having rights, preferences or privileges prior to the shares of such class, or an increase in the rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or privileges prior to the shares of such class;
	•	In the case of preferred shares, the division of the shares of any class into series having different rights, preferences, privileges or restrictions or the authorization of the board of directors to do so; and
	•	Cancellation of dividends on the shares of such class which have accrued but have not been paid.

	Stantec

113

---

 

	Keith

	Stantec

	Keith

	Stantec

	Keith

114

---

 

	Stantec

	Keith

	Stantec

	Keith

	•	were not, immediately prior to the reorganization, listed on a national securities exchange or designated as a Nasdaq National Market security (not including any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation);

115

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	•	were outstanding on the date for determination of shareholders entitled to vote on the reorganization and were not voted in favor of the reorganization;
	•	the dissenting shareholder has demanded that the corporation purchase at their fair market value; and
	•	the dissenting shareholder has submitted to be endorsed with a statement that the shares are dissenting shares.

	Stantec

	•	any amalgamation with another corporation (other than with certain affiliated corporations);
	•	an amendment to a corporation’s charter to add, change or remove any provisions restricting or constraining the issue, transfer or ownership of shares;
	•	an amendment to a corporation’s charter to add, change or remove any restriction upon the business or businesses that such corporation may carry on;
	•	a continuance under the laws of another jurisdiction;
	•	a sale, lease or exchange of all or substantially all the property of a corporation other than in the ordinary course of business;
	•	a going-private transaction or a squeeze-out transaction;
	•	a court order permitting a shareholder to dissent in connection with an application to the court for an order approving an arrangement proposed by a corporation; or
	•	certain amendments to a corporation’s charter that require a separate class or series vote, provided that a shareholder is not entitled to dissent if an amendment to a corporation’s charter is effected by a court order approving a reorganization or by a court order made in connection with an action for an oppression remedy, unless dissent rights are granted or ordered by the court.

	Keith

	Stantec

116

---

 

	Keith

	Stantec

	Keith

117

---

 

	Stantec

	Keith

	Stantec

	Keith

	Stantec

	•	the director or officer disclosed his interest in accordance with the CBCA;
	•	the contract or transaction was approved by the directors; and
	•	the contract or transaction was reasonable and fair to Stantec at the time it was approved.

118

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	Keith

	•	In respect of any claim as to which the person is adjudged to be liable to the corporation in the performance of that person’s duty to the corporation and its shareholders, unless the court determines that the person is entitled to indemnity for expenses;
	•	Amounts paid in settling or otherwise disposing of a pending action without court approval;
	•	Expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval;
	•	Where it appears that indemnification would be inconsistent with a provision of the articles, bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
	•	Where it appears that indemnification would be inconsistent with any condition expressly imposed by a court in approving a settlement.

	•	A majority vote of a quorum consisting of directors who are not parties to the proceeding;
	•	If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion;
	•	Approval of the shareholders with the shares owned by the person to be indemnified not being entitled to vote; or
	•	The court in which the proceeding is or was pending upon application made by the corporation, the agent, the attorney or other person rendering services in connection with the defense.

119

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	Stantec

	(1) that person acted honestly and in good faith with a view to the best interests of the corporation; and
	(2) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, that person had reasonable grounds for believing that his or her conduct was lawful.

	Keith

	Stantec

120

---

 

	Keith

	1) The plaintiff was a shareholder of the corporation at the time of the transaction of which he or she complains. The CCC provides that any shareholder who does not meet this requirement may nevertheless be allowed, in the discretion of the court, to maintain the action if:

	•	there is a strong prima facie case in favor of the claim asserted on behalf of the corporation;
	•	no other similar action has been or is likely to be instituted;
	•	the plaintiff acquired the shares before there was disclosure to the public or to the plaintiff of the wrongdoing of which plaintiff complains;
	•	unless the action can be maintained the defendant may retain a gain derived from defendant’s willful breach of a fiduciary duty;
	•	the requested relief will not result in unjust enrichment of the corporation or any shareholder of the corporation; and

2) The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board the action plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.

	Stantec

	•	the complainant has given reasonable notice to the directors of the corporation or its subsidiary of the person’s intention to apply to the court if the directors of the corporation or its subsidiary do not bring, diligently prosecute or defend or discontinue the action;
	•	the person is acting in good faith; and
	•	it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued.

	Keith

121

---

 

	Stantec

	•	any act or omission of a corporation or an affiliate effects a result;
	•	the business or affairs of a corporation or an affiliate are or have been carried on or conducted in a manner; or
	•	the powers of the directors of a corporation or an affiliate are or have been exercised in a manner,

	•	a present or former registered holder or beneficial owner of securities of a corporation or any of its affiliates;
	•	a present or former officer or director of a corporation or any of its affiliates;
	•	the Director under the CBCA; and
	•	any other person who in the discretion of the court is a proper person to make such application.

	Keith

	Stantec

	•	acquires, sells, leases, transfers or disposes of an asset;
	•	acquires or issues treasury securities;
	•	assumes or transfers a liability; or
	•	borrows money from or lends money;

122

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	•	more detailed disclosure in the proxy material sent to security holders in connection with a related party transaction;
	•	the preparation of a formal valuation of the subject matter of the related party transaction and any non-cash consideration offered for the subject matter; and
	•	the inclusion of a summary of the valuation in the proxy material.

	Keith

	•	A corporation as to which an order for relief has been entered under Chapter 7 of the federal bankruptcy law;
	•	A corporation which has disposed of all of its assets and has not conducted any business for a period of five years immediately preceding the adoption of the resolution electing to dissolve the corporation; or
	•	A corporation which has issued no shares.

	Stantec

123

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124

---

 

The Keith Companies, Inc. SEC Filings		Date
Annual Report on Form 10-K		Year ended December 31, 2004, as filed on March 10, 2005
Quarterly Report on Form 10-Q		Quarter ended March 31, 2005, as filed on May 10, 2005
Current Report on Form 8-K		Filed on February 14, 2005, April 18, 2005 and May 26, 2005
Schedule 14A Definitive Proxy Statement		Filed on April 12, 2005

The Keith Companies, Inc. 19 Technology Drive Irvine, California, USA 92618-2334 Phone: (949) 923-6001 Attention: Investor Relations		Stantec Inc. 10160-112 Street Edmonton, Canada, T5K 2L6 Phone: (780) 917-7000 Attention: Investor Relations		The Altman Group, Inc. 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Phone: (201) 806-2205 Attention: Charlotte Brown

125

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126

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		Page
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets as at December 31, 2004 and December 31, 2003			F-3
Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 2004, 2003 and 2002			F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002			F-5
Notes to Consolidated Financial Statements			F-6
Consolidated Balance Sheets as at March 31, 2005 (unaudited) and December 31, 2004			F-25
Consolidated Statements of Income and Retained Earnings for the Quarters Ended March 31, 2005 and 2004 (unaudited)			F-26
Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2005 and 2004 (unaudited)			F-27
Notes to Consolidated Financial Statements (unaudited)			F-28
Unaudited Pro Forma Condensed Consolidated Financial Statements			F-32
Unaudited Pro Forma Condensed Consolidated Balance Sheet as at March 31, 2005			F-33
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Three Months Ended March 31, 2005			F-34
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended December 31, 2004			F-35
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements			F-36

F-1

---

 

	/s/ Ernst & Young LLP
	Chartered Accountants

F-2

---

 

		As at				As at
		December 31,				December 31,
		2004				2003
		$				$
		(In thousands of Canadian
		dollars)
ASSETS [note 7]
Current
Cash and cash equivalents			37,890				7,343
Accounts receivable, net of allowance for doubtful accounts of $21,095 in 2004 ($16,952 – 2003)			112,476				87,101
Costs and estimated earnings in excess of billings			40,861				67,094
Income taxes recoverable			–				6,921
Prepaid expenses			4,165				3,246
Future income tax assets [note 14]			8,532				5,924
Other assets [note 6]			4,831				–
			208,755				177,629
Property and equipment [note 3]			48,262				67,670
Goodwill [note 4]			84,694				69,696
Intangible assets [note 5]			6,278				5,112
Future income tax assets [note 14]			6,357				3,487
Other assets [note 6]			7,754				2,981
			362,100				326,575
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Bank indebtedness [note 7]			–				17,151
Accounts payable and accrued liabilities			78,718				68,796
Billings in excess of costs and estimated earnings			18,832				16,882
Income taxes payable			5,732				–
Current portion of long-term debt [note 8]			12,820				13,416
Future income tax liabilities [note 14]			10,653				10,802
			126,755				127,047
Long-term debt [note 8]			21,155				31,159
Other liabilities [note 9]			16,818				1,459
Future income tax liabilities [note 14]			8,316				6,382
			173,044				166,047
Commitments and contingencies [notes 10 and 11]
Shareholders’ equity
Share capital [note 12]			87,656				84,281
Contributed surplus [note 12]			2,544				1,842
Cumulative translation account [note 13]			(19,018	)			(13,861	)
Retained earnings			117,874				88,266
			189,056				160,528
			362,100				326,575

F-3

---

 

		Year				Year				Year
		Ended				Ended				Ended
		Dec. 31,				Dec. 31,				Dec. 31,
		2004				2003				2002
		$				$				$
		(In thousands of Canadian dollars
		except per share amounts)
Income
Gross revenue			520,879				459,942				428,456
Less subconsultant and other direct expenses			71,728				68,546				63,308
Net revenue			449,151				391,396				365,148
Direct payroll costs			205,513				183,471				173,609
Gross margin			243,638				207,925				191,539
Administrative and marketing expenses			183,739				154,788				145,515
Depreciation of property and equipment			11,986				9,912				9,502
Amortization of intangible assets			927				925				1,079
Net interest expense [note 8]			2,805				2,637				2,630
Foreign exchange (gains) losses			(94	)			615				73
Share of income from associated companies			(385	)			(580	)			(355	)
Income before income taxes			44,660				39,628				33,095
Income taxes [note 14]
Current			18,065				10,050				12,949
Future			(3,595	)			4,508				(46	)
			14,470				14,558				12,903
Net income for the year			30,190				25,070				20,192
Retained earnings, beginning of the year			88,266				64,240				44,690
Shares repurchased [note 12]			(582	)			(1,044	)			(642	)
Retained earnings, end of the year			117,874				88,266				64,240
Earnings per share [note 15]
Basic			1.63				1.37				1.12
Diluted			1.59				1.31				1.07

F-4

---

 

		Year				Year				Year
		Ended				Ended				Ended
		Dec. 31,				Dec. 31,				Dec. 31,
		2004				2003				2002
		$				$				$
		(In thousands of Canadian dollars)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Cash receipts from clients			568,897				465,114				437,354
Cash paid to suppliers			(169,573	)			(156,460	)			(128,148	)
Cash paid to employees			(313,321	)			(274,444	)			(257,667	)
Dividends from equity investments			300				–				175
Interest received			6,426				2,710				3,970
Interest paid			(8,639	)			(4,462	)			(6,122	)
Income taxes paid, net			(6,739	)			(15,565	)			(13,453	)
Cash flows from operating activities [note 16]			77,351				16,893				36,109
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Business acquisitions, including cash acquired and bank indebtedness assumed [note 2]			(18,845	)			(6,046	)			(17,409	)
Cash of joint venture held for sale			–				(369	)			–
Purchase of investments held for self-insured liabilities			(9,562	)			–				–
Proceeds on disposition of investments			55				195				2,158
Proceeds on disposition of Technology segment			1,014				–				–
Proceeds on disposition of subsidiary			–				–				1,856
Purchase of property and equipment			(17,488	)			(28,713	)			(17,444	)
Proceeds on disposition of property and equipment			34,672				1,444				1,612
Cash flows used in investing activities			(10,154	)			(33,489	)			(29,227	)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Repayment of long-term debt			(35,546	)			(20,592	)			(18,619	)
Proceeds from long-term borrowings			13,960				–				30,540
Net change in bank indebtedness financing			(17,151	)			17,151				(14,671	)
Repurchase of shares for cancellation [note 12]			(720	)			(1,392	)			(880	)
Proceeds from issue of share capital [note 12]			3,490				651				18,484
Cash flows from (used in) financing activities			(35,967	)			(4,182	)			14,854
Foreign exchange loss on cash held in foreign currency			(683	)			(1,081	)			(60	)
Net increase (decrease) in cash and cash equivalents			30,547				(21,859	)			21,676
Cash and cash equivalents, beginning of the year			7,343				29,202				7,526
Cash and cash equivalents, end of the year			37,890				7,343				29,202

F-5

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1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

F-6

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Engineering equipment			20% -	30%		declining balance
Business information systems						straight-line over 3 to 5 years
Office equipment			20% -	30%		declining balance
Automotive equipment			30%			declining balance
Leasehold improvements						straight-line over term of lease plus one renewal period to a maximum of 15 years or the improvements’ economic life
Buildings			4% -	5%		declining balance

F-7

---

 

F-8

---

 

F-9

---

 

2.	BUSINESS ACQUISITIONS

F-10

---

 

		December 31,				December 31,
		2004				2003
		$000’s				$000’s
Cash consideration			12,432				4,300
Promissory notes			1,487				3,375
Purchase price			13,919				7,675
Assets and liabilities acquired at fair values
Bank indebtedness assumed			(6,413	)			(1,746	)
Non-cash working capital			6,057				3,578
Property and equipment			3,211				1,337
Investments – other			87				44
Goodwill			18,425				3,848
Intangible assets			2,158				1,344
Other liabilities			(1,642	)			-
Long-term debt			(8,414	)			(646	)
Future income taxes			450				(84	)
Net assets acquired			13,919				7,675

3.	PROPERTY AND EQUIPMENT

		December 31, 2004										December 31, 2003
								Accumulated										Accumulated
		Cost						Depreciation				Cost						Depreciation
		$000’s						$000’s				$000’s						$000’s
Engineering equipment			33,622						19,058				27,261						12,257
Business information systems			9,681						1,796				7,223						328
Office equipment			19,953						7,519				17,654						6,017
Automotive equipment			4,254						2,578				3,406						1,850
Leasehold improvements			11,994						2,031				6,570						1,386
Buildings			1,901						594				27,191						1,553
Land			433						–				1,756						–
			81,838						33,576				91,061						23,391
Net book value						48,262										67,670

F-11

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4.	GOODWILL

		December 31,				December 31,
		2004				2003
		$000’s				$000’s
Goodwill, beginning of year			69,696				72,423
Current year acquisitions			18,006				5,047
Additional purchase price payments			–				925
Other purchase price adjustments			419				(2,124	)
Impact of foreign exchange on goodwill balances			(3,427	)			(6,575	)
Goodwill, end of year			84,694				69,696

5.	INTANGIBLE ASSETS

		December 31, 2004												December 31, 2003
		Gross												Gross
		Carrying								Accumulated				Carrying								Accumulated
		Amount								Amortization				Amount								Amortization
		$000’s								$000’s				$000’s								$000’s
Client relationships			6,859								1,195				5,626								691
Contract backlog			339								290				905								901
Other intangible assets			750								185				266								93
			7,948								1,670				6,797								1,685
Carrying amount							6,278												5,112

6.	OTHER ASSETS

		December 31,				December 31,
		2004				2003
		$000’s				$000’s
Investments held for self-insured liabilities			9,562				–
Investment in associated companies			1,909				1,844
Investments – other			1,114				1,137
			12,585				2,981
Less current portion of investments held for self-insured liabilities			4,831				–
			7,754				2,981

7.	BANK INDEBTEDNESS

F-12

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8.	LONG-TERM DEBT

		December 31,				December 31,
		2004				2003
		$000’s				$000’s
Non-interest bearing note payable			111				102
Other non-interest bearing notes payable			7,862				14,436
Bank loan			23,997				19,186
Mortgages payable			1,765				10,609
Other			240				242
			33,975				44,575
Less current portion			12,820				13,416
			21,155				31,159

F-13

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		$000’s
2005			12,820
2006			10,968
2007			8,617
2008			1,459
2009			–
Thereafter			111
			33,975

9.	OTHER LIABILITIES

		December 31,				December 31,
		2004				2003
		$000’s				$000’s
Provision for self-insured liabilities			5,236				2,410
Deferred gain on sale leaseback			7,073				–
Lease inducement benefits			4,742				1,902
Lease liabilities on exit activity			2,817				–
			19,868				4,312
Less current portion included in accrued liabilities			3,050				2,853
			16,818				1,459

F-14

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10.	COMMITMENTS

		$000’s
2005			29,509
2006			26,551
2007			23,750
2008			17,952
2009			16,259
Thereafter			93,645
			207,666

11.	CONTINGENCIES

12.	SHARE CAPITAL

Unlimited common shares, with no par value.
Unlimited preferred shares issuable in series with attributes designated by the Board of Directors.

		Capital Stock																								Contributed Surplus
		2004								2003								2002								2004				2003				2002
		# of Shares				$				# of Shares				$				# of Shares				$				$				$				$
(in thousands of dollars except share amounts)
Balance, beginning of the year			18,327,284				84,281				18,282,720				83,973				16,846,340				61,555				1,842				1,247				1,205
Share options exercised for cash			573,101				3,490				119,264				651				29,300				148
Shares repurchased under normal course issuer bid			(29,300	)			(134	)			(74,700	)			(343	)			(54,600	)			(235	)			(4	)			(5	)			(3	)
Shares issued on acquisitions			–				–				–				–				261,680				3,712
Shares issued under public offering, net of share issue costs			–				–				–				–				1,200,000				18,793
Reclassification of fair value of stock options previously expensed							19								–								–				(19	)			–				–
Stock-based compensation expense																											725				600				45
Balance, end of the year			18,871,085				87,656				18,327,284				84,281				18,282,720				83,973				2,544				1,842				1,247

F-15

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		2004								2003								2002
						Weighted								Weighted								Weighted
						Average								Average								Average
						Exercise								Exercise								Exercise
						Price								Price								Price
		# of Shares				$				# of Shares				$				# of Shares				$
Share options, beginning of year			1,479,100				9.28				1,296,200				6.09				1,188,500				5.10
Granted			167,000				24.50				307,500				21.29				137,000				14.50
Exercised			(573,101	)			6.09				(119,264	)			5.46				(29,300	)			5.04
Cancelled			(1,666	)			18.40				(5,336	)			12.62				—				—
Share options, end of the year			1,071,333				13.34				1,479,100				9.28				1,296,200				6.09

Options Outstanding																Options Exercisable
								Weighted
								Average				Weighted								Weighted
Range of								Remaining				Average								Average
Exercise								Contractual				Exercise				Shares				Exercise
Prices				Outstanding				Life in				Price				Exercisable				Price
$				#				Years				$				#				$
	3.50 -  3.60				373,000				1.8				3.56				373,000				3.56
	5.20 -  7.00				108,100				1.1				6.07				108,100				6.07
	14.50 - 18.85				176,733				7.6				15.51				107,822				14.95
	21.00 - 27.10				413,500				6.8				23.14				52,167				21.00
	3.50 - 27.10				1,071,333				4.2				13.34				641,089				7.32

F-16

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		2004				2003								2002
		Granted at				Granted at				Granted in				Granted at
		market				market				excess of market				market
Risk-free interest rate (%)			4.07				4.48				5.04				4.35
Expected hold period to exercise (years)			6.0				6.2				9.1				6.0
Volatility in the price of the Company’s shares (%)			26.1				27.4				28.5				17.5
Dividend yield			0.0				0.0				0.0				0.0
Weighted average fair value per option			8.46				7.40				6.04				4.19

13.	CUMULATIVE TRANSLATION ACCOUNT

		2004				2003				2002
		$000’s				$000’s				$000’s
Cumulative translation account, beginning of year			(13,861	)			1,966				2,807
Current year deferred translation adjustment			(5,157	)			(15,827	)			(841	)
Cumulative translation account, end of year			(19,018	)			(13,861	)			1,966

14.	INCOME TAXES

				2004				2003				2002
				%				%				%
Income tax expense at statutory Canadian rates					34.7				36.8				39.3
Increase (decrease) resulting from:
	Loss (income) from associated companies accounted for on the equity basis				(0.3	)			(0.6	)			(0.3	)
	Rate differential on foreign income				(2.0	)			0.6				(0.1	)
	Non-deductible expenses:
		Meals and entertainment			1.4				1.4				1.8
		Stock compensation			0.6				0.6				–
	Non-taxable foreign income net of non-creditable withholding taxes				(1.3	)			(1.6	)			(2.4	)
	Other				(0.7	)			(0.5	)			0.7
					32.4				36.7				39.0

F-17

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		December 31,				December 31,
		2004				2003
		$				$
Future income tax assets
Differences in timing of deductibility of expenses			9,434				6,060
Loss carryforwards			2,316				2,051
Share issue and other financing costs			237				431
Tax cost of property and equipment in excess of carrying value			684				645
Deferred gain on sale of building			1,518				–
Other			700				224
			14,889				9,411
Less current portion			8,532				5,924
			6,357				3,487

		December 31,				December 31,
		2004				2003
		$000’s				$000’s
Future income tax liabilities
Cash to accrual adjustments on acquisition of US subsidiaries			2,091				508
Differences in timing of taxability of revenues			7,702				9,955
Carrying value of property and equipment in excess of tax cost			5,025				2,970
Carrying value of intangible assets in excess of tax cost			2,016				1,996
Other			2,135				1,755
			18,969				17,184
Less current portion			10,653				10,802
			8,316				6,382

		$000’s
2006			22
2007			325
2008			1,454
2009			66
2010			636
2014			1,013
			3,516

F-18

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15.	EARNINGS PER SHARE

		December 31,				December 31,				December 31,
		2004				2003				2002
		#				#				#
Basic shares outstanding			18,499,598				18,329,960				17,987,358
Share options (dilutive effect of 1,041,333 options; 2003 – 1,419,100; 2002 – 1,296,200)			507,691				788,056				812,126
Diluted shares outstanding			19,007,289				19,118,016				18,799,484

16.	CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES

			2004				2003				2002
			$000’s				$000’s				$000’s
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year				30,190				25,070				20,192
Add (deduct) items not affecting cash:
	Depreciation of property and equipment			11,986				9,912				9,502
	Amortization of intangible assets			927				925				1,079
	Future income tax			(3,595	)			4,508				(46	)
	Loss on dispositions of investments and property and equipment			(504	)			57				89
	Stock-based compensation expense			894				706				45
	Share of income from equity investments			(385	)			(580	)			(355	)
Dividends from equity investments				300				–				175
				39,813				40,598				30,681
Change in non-cash working capital accounts:
	Accounts receivable			(1,542	)			(1,252	)			8,174
	Costs and estimated earnings in excess of billings			30,218				(35,239	)			(4,673	)
	Prepaid expenses			496				113				29
	Accounts payable and accrued liabilities			(4,589	)			13,944				4,576
	Billings in excess of costs and estimated earnings			1,600				4,951				(2,147	)
	Income taxes payable/recoverable			11,355				(6,222	)			(531	)
				37,538				(23,705	)			5,428
Cash flows from operating activities				77,351				16,893				36,109
Income taxes paid during the year in accordance with US GAAP				10,530				18,142				14,143

F-19

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17.	JOINT VENTURES

		Percentage Owned
		December 31,				December 31,				December 31,
		2004				2003				2002
		%				%				%
yyC.T. Joint Venture			20				20				20
Lockerbie Stanley Inc.			n/a				n/a				50
Stantec – S&L Partnership			50				50				50
Colt Stantec Joint Venture			50				50				50
Edmonton International Airports Joint Venture			33				33				n/a
Pine Creek Consultants Joint Venture			33				33				n/a
Dunlop Joint Ventures			33-80				n/a				n/a

		December 31,				December 31,				December 31,
		2004				2003				2002
		$000’s				$000’s				$000’s
Statements of income:
Gross revenue			1,186				11,949				11,174
Subconsultant and other direct expenses			894				9,611				12,529
Administrative and marketing expenses			217				776				277
Net income for the year			75				1,562				(1,632	)
Balance sheets:
Current assets			3,445				1,547				4,374
Current liabilities			2,822				1,583				5,516
Statements of cash flows:
Cash flows used in operating activities			(274	)			(86	)			(425	)

18.	SEGMENTED INFORMATION

F-20

---

 

						Property and								Property and								Property and
						Equipment,								Equipment,								Equipment,
						Goodwill,								Goodwill,								Goodwill,
		Gross				Intangible				Gross				Intangible				Gross				Intangible
		Revenues				Assets				Revenues				Assets				Revenues				Assets
		2004				2004				2003				2003				2002				2002
		$000’s				$000’s				$000’s				$000’s				$000’s				$000’s
Canada			325,844				86,731				290,413				104,088				238,774				76,882
United States			190,362				52,032				161,655				37,815				180,296				51,509
International			4,673				471				7,874				575				9,386				596
			520,879				139,234				459,942				142,478				428,456				128,987

19.	FORWARD CONTRACTS

20.	SUBSEQUENT EVENTS

F-21

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21.	UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

a.	Net income and comprehensive income

			2004				2003				2002
			$000’s				$000’s				$000’s
Net income under Canadian and US GAAP				30,190				25,070				20,192
Other comprehensive income, net of tax:
	Unrealized foreign exchange loss on translation of self-sustaining foreign operations			(5,157	)			(15,827	)			(841	)
Comprehensive income				25,033				9,243				19,351
Accumulated other comprehensive income, beginning of year				(13,861	)			1,966				2,807
Unrealized foreign exchange loss on translation of self-sustaining foreign operations				(5,157	)			(15,827	)			(841	)
Accumulated other comprehensive income, end of year				(19,018	)			(13,861	)			1,966

F-22

---

 

b.	Other disclosures required

	i) Accounts payable and accrued liabilities

		December 31,				December 31,
		2004				2003
		$000’s				$000’s
Trade accounts payable			21,651				17,806
Employee and payroll liabilities			37,188				31,276
Accrued liabilities			19,879				19,714
			78,718				68,796

	ii) Allowance for doubtful accounts

		2004				2003				2002
		$000’s				$000’s				$000’s
Balance, beginning of year			16,952				17,316				15,755
Acquired balances			5,294				651				2,616
Provision for doubtful accounts			6,632				4,544				3,512
Deductions			(7,152	)			(4,221	)			(4,453	)
Impact of foreign exchange			(631	)			(1,338	)			(114	)
Balance, end of year			21,095				16,952				17,316

	iii) Income (loss) before income taxes

		2004				2003				2002
		$000’s				$000’s				$000’s
Domestic			48,111				36,583				37,548
Foreign			(3,451	)			3,045				(4,453	)
Total			44,660				39,628				33,095

	iv) Income tax expense

		2004				2003				2002
		$000’s				$000’s				$000’s
Current tax expense
Domestic			17,724				9,474				13,968
Foreign			341				576				(1,019	)
Total			18,065				10,050				12,949
Future tax expense
Domestic			(566	)			3,532				470
Foreign			(3,029	)			976				(516	)
Total			(3,595	)			4,508				(46	)
Total tax expense
Domestic			17,158				13,006				14,438
Foreign			(2,688	)			1,552				(1,535	)
Total			14,470				14,558				12,903

F-23

---

 

	v) Self-insured liabilities

		2004				2003
		$000’s				$000’s
Balance, beginning of year			2,410				—
Current year provision			2,826				2,410
Balance, end of year			5,236				2,410

	vi) Long term contracts

c.	Effects of new accounting pronouncements

	i) Comprehensive Income – New section 1530 becomes effective for our fiscal 2007 year end and establishes standards for the reporting and display of comprehensive income. Unrealized gains on the translation of our self-sustaining foreign operations will be included in comprehensive income. Currently these items are reflected in our cumulative translation account.
	ii) Financial Instruments – Recognition and Measurement – New section 3855 becomes effective for our fiscal 2007 year end and provides standards for the classification of financial instruments and the related interest, dividends, gains and losses. This section will impact the classification of the Company’s investments held for self-insured liabilities and will require the company to revalue certain investments to fair value with the resulting unrealized gains or losses being reflected through other comprehensive income until realized when the gains or losses will be recognized in net income. This new standard is not expected to have a material effect on the results of operations.
	iii) Variable Interest Entities – Accounting Guideline 15 is effective for our interim period ending March 31, 2005. As the Company currently consolidates its interests in variable entities, there will be no impact on the financial reporting of the Company other than to amend a policy note – principles of consolidation to include the consolidation of variable interest entities.

22.	COMPARATIVE FIGURES

F-24

---

 

		March 31				December 31
		2005				2004
		$				$
		(In thousands of
		Canadian dollars)
		(Unaudited)
ASSETS
Current
Cash and cash equivalents			18,850				37,890
Accounts receivable, net of allowance for doubtful accounts of $19,198 in 2005 ($21,095 — 2004)			104,816				112,476
Costs and estimated earnings in excess of billings			44,031				40,861
Income taxes recoverable			3,915				—
Prepaid expenses			3,462				4,165
Future income tax assets			8,647				8,532
Other assets			4,755				4,831
			188,476				208,755
Property and equipment			49,649				48,262
Goodwill			85,752				84,694
Intangible assets			6,053				6,278
Future income tax assets			5,693				6,357
Other assets			9,096				7,754
			344,719				362,100
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities			62,656				78,718
Billings in excess of costs and estimated earnings			19,422				18,832
Income taxes payable			—				5,732
Current portion of long-term debt (note 3)			9,507				12,820
Future income tax liabilities			10,015				10,653
			101,600				126,755
Long-term debt (note 3)			19,020				21,155
Other liabilities			18,780				16,818
Future income tax liabilities			8,235				8,316
			147,635				173,044
Shareholders’ Equity
Share capital (note 4)			88,138				87,656
Contributed surplus (note 4)			2,740				2,544
Cumulative translation account			(18,336	)			(19,018	)
Retained earnings			124,542				117,874
			197,084				189,056
			344,719				362,100

F-25

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		For the quarter ended
		March 31
		2005				2004
		$				$
		(In thousands of
		Canadian dollars except
		per share amounts)
		(Unaudited)
INCOME
Gross revenue			141,144				117,317
Less subconsultant and other direct expenses			22,011				13,751
Net revenue			119,133				103,566
Direct payroll costs			54,439				47,540
Gross margin			64,694				56,026
Administrative and marketing expenses			51,262				43,809
Depreciation of property and equipment			2,764				2,624
Amortization of intangible assets			238				137
Net interest expense			75				674
Foreign exchange losses			61				11
Share of income from associated companies			(68	)			(125	)
Income before income taxes			10,362				8,896
Income taxes
Current			3,828				4,420
Future			(201	)			(1,182	)
			3,627				3,238
Net income for the period			6,735				5,658
Retained earnings, beginning of period			117,874				88,266
Net income for the period			6,735				5,658
Shares repurchased (note 4)			(67	)			(355	)
Retained earnings, end of period			124,542				93,569
Weighted average number of shares outstanding — basic			18,917,670				18,373,983
Weighted average number of shares outstanding — diluted			19,424,308				19,176,483
Shares outstanding, end of period			18,933,019				18,464,818
Earnings per share
Basic			0.36				0.31
Diluted			0.35				0.30

F-26

---

 

		For the quarter ended
		March 31
		2005				2004
		$				$
		(In thousands of
		Canadian dollars)
		(Unaudited)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Cash receipts from clients			151,134				124,568
Cash paid to suppliers			(53,263	)			(43,866	)
Cash paid to employees			(92,124	)			(82,241	)
Dividends from equity investments			250				200
Interest received			1,264				1,747
Interest paid			(1,321	)			(2,360	)
Income taxes paid			(13,475	)			(2,066	)
Cash flows used in operating activities			(7,535	)			(4,018	)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Business acquisitions, including cash acquired and bank indebtedness assumed (note 2)			(700	)			—
Purchase of investments held for self-insured liabilities			(1,726	)			—
Proceeds on disposition of investments			432				—
Purchase of property and equipment			(4,151	)			(4,750	)
Proceeds on disposition of property and equipment			2				33
Cash flows used in investing activities			(6,143	)			(4,717	)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Repayment of long-term debt			(5,882	)			(6,275	)
Net change in bank indebtedness financing			—				15,342
Repurchase of shares for cancellation (note 4)			(83	)			(439	)
Proceeds from issue of share capital (note 4)			440				855
Cash flows from (used in) financing activities			(5,525	)			9,483
Foreign exchange gain on cash held in foreign currency			163				53
Net increase (decrease) in cash			(19,040	)			801
Cash, beginning of period			37,890				7,343
Cash, end of period			18,850				8,144

F-27

---

 

F-28

---

 

		2005				2004
		$000’s				$000’s
Cash consideration			700				—
Promissory notes, due 2004 through 2007			105				(205	)
Purchase price			805				(205	)
Assets and liabilities acquired at fair values
Non-cash working capital			263				71
Property and equipment			(9	)			—
Goodwill			606				(276	)
Future income taxes			(55	)			—
Net assets acquired			805				(205	)

		March 31				December 31
		2005				2004
		$000’s				$000’s
Non-interest-bearing note payable			114				111
Other non-interest-bearing notes payable			4,227				7,862
Bank loan			22,236				23,997
Mortgages payable			1,750				1,765
Other			200				240
			28,527				33,975
Less current portion			9,507				12,820
			19,020				21,155

F-29

---

 

		Capital Stock
																		Contributed
		2005								2004								Surplus
		Common								Common								2005				2004
		Shares								Shares
		#				$000’s				#				$000’s				$000’s				$000’s
Balance, beginning of year			18,871,085				87,656				18,327,284				84,281				2,544				1,842
Share options exercised for cash			64,834				440				155,434				855				—				—
Stock-based compensation expense																			254				178
Shares repurchased under normal course issuer bid			(2,900	)			(15	)			(17,900	)			(83	)			(1	)			(1	)
Reclassification of fair value of stock options previously expensed							57								—				(57	)			—
Balance, as at March 31			18,933,019				88,138				18,464,818				85,053				2,740				2,019

For the quarter ended

For the quarter ended

March 31, 2005

March 31, 2004

Property and

Property and

Equipment,

Equipment,

Goodwill,

Goodwill,

Gross

Intangible

Gross

Intangible

Revenues

Assets

Revenues

Assets

$000’s

$000’s

$000’s

$000’s

Canada

86,916

88,372

78,944

103,351

United States

53,156

52,616

36,615

38,673

International

1,072

466

1,758

492

141,144

141,454

117,317

142,516

F-30

---

 

F-31

---

 

F-32

---

 

																		Pro Forma
		Stantec				Keith				Pro Forma								Consolidated
		US GAAP				US GAAP				Adjustments								US GAAP
		(note 2)				(note 3)								(note 4)
		(In thousands of Canadian dollars)
ASSETS
Current
Cash and cash equivalents		$	18,850			$	9,944			$	(3,237	)			(b	)
			—				—				90,956				(c	)
			—				—				(109,806	)			(d	)		$	6,707
Available for sale securities			4,755				38,944				—								43,699
Accounts receivable			104,816				19,872				—								124,688
Costs and estimated earnings in excess of billings			44,031				14,621				—								58,652
Other current assets			16,024				2,359				—								18,383
Total current assets			188,476				85,740				(22,087	)							252,129
Property and equipment			49,649				5,645				(687	)			(d	)			54,607
Goodwill			85,752				28,019				(28,019	)			(d	)
			—				—				148,609				(d	)			234,361
Intangible assets			6,053				—				13,338				(d	)			19,391
Other long-term assets			14,789				900				587				(e	)			16,276
Total assets			344,719				120,304				111,741								576,764
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Bank indebtedness			—				—				90,956				(c	)			90,956
Accounts payable and accrued liabilities			62,656				12,039				759				(d	)
			—				—				7,892				(d	)
			—				—				1,677				(e	)			85,023
Other current liabilities			38,944				4,057				—								43,001
Total current liabilities			101,600				16,096				101,284								218,980
Long-term debt			19,020				—				—								19,020
Other long-term liabilities			27,015				1,954				4,546				(d	)			33,515
Total liabilities			147,635				18,050				105,830								271,515
Shareholders’ equity
Share capital			88,138				10				(10	)			(d	)
			—				—				(1,090	)			(e	)
			—				—				112,227				(d	)			199,275
Additional paid in capital			2,740				59,395				(59,395	)			(d	)			2,740
Deferred stock compensation			—				(1,637	)			(1,335	)			(d	)			(2,972	)
Retained earnings			124,542				44,486				(3,237	)			(b	)
			—				—				(41,249	)			(d	)			124,542
Accumulated other comprehensive income			(18,336	)			—				—								(18,336	)
Total shareholders’ equity			197,084				102,254				5,911								305,249
Total liabilities and shareholders’ equity			344,719				120,304				111,741								576,764

F-33

---

 

																		Pro Forma
		Stantec				Keith												Consolidated
		US GAAP				US GAAP				Pro Forma Adjustments								US GAAP
		(note 2)				(note 3)								(note 4)
		(In thousands of Canadian dollars except per share amounts)
INCOME
Gross revenue		$	141,144			$	34,149			$	—							$	175,293
Less subconsultant and other direct expenses			22,011				2,369				—								24,380
Net revenue			119,133				31,780				—								150,913
Costs of revenue			—				19,771				(19,771	)			(g)				—
Direct payroll costs			54,439				—				14,100				(g)				68,539
Gross margin			64,694				12,009				5,671								82,374
Administrative and marketing expenses			51,262				8,394				5,061				(g)
											58				(i)				64,775
Depreciation of property and equipment			2,764				—				610				(g)				3,374
Amortization of intangible assets			238				—				909				(f)				1,147
Net interest expense (income)			75				(228	)			932				(h)				779
Other income, net			(7	)			(17	)			—								(24	)
Income before income taxes			10,362				3,860				(1,899	)							12,323
Income tax expense			3,627				1,474				(715	)			(j)				4,386
Net income			6,735				2,386				(1,184	)							7,937
Earnings per share
Basic earnings per share			0.36																0.35
Diluted earnings per share			0.35																0.34
Weighted average number of common shares outstanding
Basic			18,918								3,778				(k)				22,696
Diluted			19,424								3,860				(k)				23,284

F-34

---

 

																		Pro Forma
		Stantec				Keith												Consolidated
		US GAAP				US GAAP				Pro Forma Adjustments								US GAAP
		(note 2)				(note 3)								(note 4)
		(In thousands of Canadian dollars except per share amounts)
INCOME
Gross revenue		$	520,879			$	137,740			$	—							$	658,619
Less subconsultant and other direct expense			71,728				11,234				—								82,962
Net revenue			449,151				126,506				—								575,657
Costs of revenue			—				78,925				(78,925	)			(g)				—
Direct payroll costs			205,513				—				58,989				(g)				264,502
Gross margin			243,638				47,581				19,936								311,155
Administrative and marketing expenses			183,739				30,089				17,350				(g)
											599				(i)				231,777
Depreciation of property and equipment			11,986				—				2,586				(g)				14,572
Amortization of intangible assets			927				—				3,874				(f)				4,801
Net interest expense (income)			2,805				(629	)			3,729				(h)				5,905
Other income, net			(479	)			(60	)			—								(539	)
Income before income taxes			44,660				18,181				(8,202	)							54,639
Income tax expense			14,470				7,149				(3,050	)			(j)				18,569
Net income			30,190				11,032				(5,152	)							36,070
Earnings per share
Basic earnings per share			1.63																1.62
Diluted earnings per share			1.59																1.58
Weighted average number of common shares outstanding
Basic			18,500								3,778				(k)				22,278
Diluted			19,007								3,860				(k)				22,867

F-35

---

 

1.	Basis of Presentation

2.	Conversion of Stantec’s Historical Financial Statements to U.S. GAAP

3.	Conversion of Keith’s Historical Financial Statements to Canadian Dollars

F-36

---

 

		U.S. GAAP				U.S. GAAP
		US$				C$
		(In thousands of dollars)
ASSETS
Current assets
Cash and cash equivalents			8,184				9,944
Available-for-sale securities, at fair value			32,050				38,944
Contracts and trade receivables, net of allowance for doubtful accounts of US $1,119			16,354				19,872
Costs and estimated earnings in excess of billings			12,033				14,621
Prepaid expenses and other current assets			1,941				2,359
Total current assets			70,562				85,740
Equipment and leasehold improvements, net			4,646				5,645
Goodwill			23,059				28,019
Other assets			741				900
Total assets			99,008				120,304
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts payable			1,293				1,571
Accrued employee compensation			5,151				6,259
Current portion of deferred tax liabilities			1,661				2,018
Other accrued liabilities			3,464				4,209
Billings in excess of costs and estimated earnings			1,678				2,039
Total current liabilities			13,247				16,096
Deferred tax liabilities			1,125				1,367
Accrued rent			483				587
Total liabilities			14,855				18,050
Shareholders’ equity
Common stock			8				10
Additional paid-in-capital			48,881				59,395
Deferred stock compensation			(1,347	)			(1,637	)
Retained earnings			36,611				44,486
Total shareholders’ equity			84,153				102,254
Total liabilities and shareholders’ equity			99,008				120,304

F-37

---

 

		U.S. GAAP				U.S. GAAP
		US$				C$
		(In thousands of dollars)
INCOME
Gross revenue			27,838				34,149
Subcontractor costs			1,931				2,369
Net revenue			25,907				31,780
Costs of revenue			16,117				19,771
Gross profit			9,790				12,009
Selling, general and administrative expenses			6,843				8,394
Income from operations			2,947				3,615
Interest income, net			186				228
Other income, net			14				17
Income before provision for income taxes			3,147				3,860
Provision for income taxes			1,202				1,474
Income from continuing operations			1,945				2,386

		U.S. GAAP				U.S. GAAP
		US$				C$
		(In thousands of dollars)
INCOME
Gross revenue			105,346				137,740
Subcontractor costs			8,592				11,234
Net revenue			96,754				126,506
Costs of revenue			60,363				78,925
Gross profit			36,391				47,581
Selling, general and administrative expenses			23,013				30,089
Income from operations			13,378				17,492
Interest income, net			481				629
Other income, net			46				60
Income before provision for income taxes			13,905				18,181
Provision for income taxes			5,468				7,149
Income from continuing operations			8,437				11,032

F-38

---

 

4.	Pro Forma Assumptions and Adjustments

		In US				In C
		$000’s				$000’s
Cash consideration			90,368				109,806
Share consideration (3,860,000 of Stantec common shares)			92,359				112,227
Estimated transaction costs			625				759
Total purchase consideration			183,352				222,792

F-39

---

 

		In US				In C
		$000’s				$000’s
Assets and liabilities acquired:
Cash and cash equivalents			5,520				6,707
Available for sale securities			32,050				38,944
Accounts receivable			16,354				19,872
Costs and estimated earnings in excess of billings			12,033				14,621
Other current assets			1,941				2,359
Property and equipment			4,081				4,958
Other long-term assets			741				900
Goodwill			122,301				148,609
Intangible assets			10,977				13,338
Accounts payable and accrued liabilities			(16,403	)			(19,931	)
Other current liabilities including deferred income tax			(3,339	)			(4,057	)
Other long-term liabilities including deferred income tax			(5,349	)			(6,500	)
Deferred stock compensation			2,445				2,972
Net assets acquired			183,352				222,792

	•	Client relationships — C$8,809,000 (US$7,250,000) — the amount allocated was based on the present value of the after tax profit component in identified existing Keith client revenue streams (net of related customer contract backlog) less after tax contributory charges for working capital, capital assets, workforce and software, grossed up for tax savings. The amortization term is estimated to be 10 years based on an evaluation of the duration of the Keith client relationships.
	•	Contract backlog — C$3,801,000 (US$3,128,000) — the amount allocated was based on the present value of the after tax profit component represented in existing contract backlog less after tax contributory charges for working capital, capital assets, workforce and software, grossed up for tax

F-40

---

 

		savings. The amortization term is estimated to be 18 months which is based on the term over which contract backlog has historically been completed; and
	•	Value of favorable premise leases — C$728,000 (US$599,000) — the amount allocated was based on the present value of after tax cash flows for the difference between the actual lease rates and the fair value lease rates as determined by comparable properties that were on the market at the time the assessment was completed, grossed up for tax savings. The amortization period of 47 months was based on the terms of the underlying leases.

F-41

---

 

F-42

---

 

A-1

---

 

---

 

				Page
ARTICLE I The Merger
Section 1.01.		The Merger			1
Section 1.02.		Effective Time; Closing			1
Section 1.03.		Effect of the Merger			2
Section 1.04.		Articles of Incorporation; By-laws			2
Section 1.05.		Directors and Officers			2
ARTICLE II Conversion of Securities; Exchange of Certificates
Section 2.01.		Conversion of Securities			2
Section 2.02.		Exchange of Certificates			5
Section 2.03.		Stock Transfer Books			7
Section 2.04.		Company Stock Options			7
Section 2.05.		Company Restricted Stock			7
Section 2.06.		[Reserved]			7
Section 2.07.		Dissenting Shares			8
Section 2.08.		[Reserved]			8
Section 2.09.		Affiliates			8
ARTICLE III Representations and Warranties of the Company
Section 3.01.		Organization and Qualification; Subsidiaries			8
Section 3.02.		Articles of Incorporation and By-laws			9
Section 3.03.		Capitalization			9
Section 3.04.		Authority Relative to This Agreement			10
Section 3.05.		No Conflict; Required Filings and Consents			10
Section 3.06.		Permits; Compliance			10
Section 3.07.		SEC Filings; Financial Statements			11
Section 3.08.		Absence of Certain Changes or Events			12
Section 3.09.		Absence of Litigation			12
Section 3.10.		Employee Benefit Plans			12
Section 3.11.		Labor and Employment Matters			14
Section 3.12.		Real Property; Title to Assets			15
Section 3.13.		Intellectual Property			15
Section 3.14.		Taxes			15
Section 3.15.		Environmental Matters			16
Section 3.16.		[Reserved]			16
Section 3.17.		Material Contracts			16
Section 3.18.		Insurance			17
Section 3.19.		Board Approval; Vote Required			17
Section 3.20.		Customers and Suppliers			18
Section 3.21.		[Reserved]			18
Section 3.22.		Interested Party Transactions			18
Section 3.23.		Opinion of Financial Advisor			18
Section 3.24.		Brokers			18

i

---

 

				Page
ARTICLE IV Representations and Warranties of Parent and Merger Sub
Section 4.01.		Corporate Organization			18
Section 4.02.		Articles of Incorporation and By-Laws			18
Section 4.03.		Capitalization			19
Section 4.04.		Authority Relative to This Agreement			19
Section 4.05.		No Conflict; Required Filings and Consents			19
Section 4.06.		Permits; Compliance			20
Section 4.07.		ASC Filings; Financial Statements			20
Section 4.08.		Absence of Certain Changes or Events			21
Section 4.09.		Absence of Litigation			22
Section 4.10.		Stockholder Vote			22
Section 4.11.		Operations of Merger Sub			22
Section 4.12.		Taxes			22
Section 4.13.		Board Approval			22
Section 4.14.		[Reserved]			22
Section 4.15.		Ownership of Company Common Stock			22
Section 4.16.		Brokers			22
Section 4.17.		Intellectual Property			23
Section 4.18.		Environmental Matters			23
ARTICLE V Conduct of Business Pending the Merger
Section 5.01.		Conduct of Business by the Company Pending the Merger			23
Section 5.02.		Conduct of Business by Parent Pending the Merger			25
ARTICLE VI Additional Agreements
Section 6.01.		Registration Statement; Proxy Statement			25
Section 6.02.		Company Stockholders’ Meeting			26
Section 6.03.		Access to Information; Confidentiality			26
Section 6.04.		No Solicitation of Transactions			27
Section 6.05.		Employee Benefit Matters			28
Section 6.06.		Directors’ and Officers’ Indemnification and Insurance			29
Section 6.07.		Notification of Certain Matters			29
Section 6.08.		Company Affiliates			29
Section 6.09.		Further Action; Reasonable Best Efforts			30
Section 6.10.		Plan of Reorganization			30
Section 6.11.		Obligations of Merger Sub			31
Section 6.12.		Consents of Accountants			31
Section 6.13.		Listing			31
Section 6.14.		Subsequent Financial Statements			31
Section 6.15.		Public Announcements			31
Section 6.16.		Board of Directors of Parent			31
Section 6.17.		Company Contribution			31
Section 6.18.		Unvested Company Restricted Stock			31

ii

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				Page
ARTICLE VII Conditions to the Merger
Section 7.01.		Conditions to the Obligations of Each Party			32
Section 7.02.		Conditions to the Obligations of Parent and Merger Sub			32
Section 7.03.		Conditions to the Obligations of the Company			33
ARTICLE VIII Termination, Amendment and Waiver
Section 8.01.		Termination			34
Section 8.02.		Effect of Termination			35
Section 8.03.		Fees and Expenses			35
Section 8.04.		Amendment			36
Section 8.05.		Waiver			36
ARTICLE IX General Provisions
Section 9.01.		Non Survival of Representations, Warranties and Agreements			36
Section 9.02.		Notices			36
Section 9.03.		Certain Definitions			37
Section 9.04.		Severability			41
Section 9.05.		Entire Agreement; Assignment			42
Section 9.06.		Parties in Interest			42
Section 9.07.		Specific Performance			42
Section 9.08.		Governing Law			42
Section 9.09.		Headings			42
Section 9.10.		Counterparts			42
Section 9.11.		Waiver of Jury Trial			42

iii

---

 

1

---

 

	(i) (A) 0.23 common shares, without par value, of Parent (“Parent Common Stock”) (the “Fixed Ratio Stock”) and (B) that number of shares of Parent Common Stock equal to US$16.50 divided by the Average Stock Price (the “Floating Ratio Stock” and, together with the Fixed Ratio Stock, the “Exchange Stock”); or
	(ii) cash equal the sum of (A) US$16.50 and (B) the product of (x) 0.23 and (y) Average Stock Price (the “Cash Payment”); or
	(iii) (A) US$11.00, (B) the Fixed Ratio Stock and (C) that number of Parent Common Stock equal to US$5.50 divided by the Average Stock Price (the “US$5.50 Stock” and, together with the Fixed Ratio Stock, the “Mixed Election Stock”); or
	(iv) such other combination of shares of Parent Common Stock and cash determined in accordance with Section 2.01(e) or Section 2.01(f)

2

---

 

	(i) cash per Share equal the Cash Payment (a “Cash Election”); or
	(ii) the number of shares, or fraction thereof, of Parent Common Stock per Share equal to the Exchange Stock (a “Stock Election”); or
	(iii) the “Mixed Consideration” per Share, which consists of US$11.00 in cash and the Mixed Election Stock (a “Mixed Election”, and together with the Cash Election and the Stock Election, the “Elections”);

	(i) a number of shares (the “Pro Rata Number of Shares”) of Parent Common Stock equal to the quotient determined by (A) the difference of the Aggregate Stock Amount minus the number of shares of Parent Common Stock to be issued in exchange for Mixed Election Shares, divided by (B) the number of Stock Election Shares; and

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	(ii) an amount in cash equal to the product of (A) the difference of (x) the Exchange Stock, minus (y) the Pro Rata Number of Shares, multiplied by (B) the Average Stock Price;

	(i) an amount in cash (the “Pro Rata Amount of Cash”) equal to the quotient determined by (A) the difference of the Aggregate Cash Amount minus the amount of cash to be paid in exchange for Mixed Election Shares, divided by (B) the number of Cash Election Shares; and
	(ii) a number of shares of Parent Common Stock equal to the quotient of (A) the difference of (x) the Cash Payment, minus (y) the Pro Rata Amount of Cash, divided by (B) the Average Stock Price;

	(i) Parent or the Company receives written notice from its counsel specified in Article VII to the effect that such counsel is unlikely to be able to deliver a tax opinion required pursuant to Section 7.02(l) or Section 7.03(e), as the case may be, on the date of the Effective Time; and

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(ii) instead of depositing the Aggregate Cash Amount and the Aggregate Stock Amount in accordance with Section 2.02(a), Parent deposits, or causes to be deposited (including as contemplated by Section 7.02(f)), with the Exchange Agent (as defined below), for the benefit of the holders of Shares, for exchange in accordance with this Article II through the Exchange Agent, cash in an amount equal to US$22.00 per Share,

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	(i) all employer and employee contributions to each Non-U.S. Benefit Plan required by law or by the terms of such Non-U.S. Benefit Plan have been made, or, if applicable, accrued in accordance with normal accounting practices, and a pro rata contribution for the period prior to and including the date of this Agreement has been made or accrued;
	(ii) the fair market value of the assets of each funded Non-U.S. Benefit Plan, the liability of each insurer for any Non-U.S. Benefit Plan funded through insurance or the book reserve established for any Non-U.S. Benefit Plan, together with any accrued contributions, is sufficient to procure or provide for the benefits determined on any ongoing basis (actual or contingent) accrued to the date of this Agreement with respect to all current and former participants under such Non-U.S. Benefit Plan according to the actuarial assumptions and valuations most recently used to determine employer contributions to such Non-U.S. Benefit Plan, and no Transaction shall cause such assets or insurance obligations to be less than such benefit obligations; and
	(iii) each Non-U.S. Benefit Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities. Each Non-U.S. Benefit Plan has been operated in full compliance with all applicable non-United States laws.

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	(i) each “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) with respect to the Company and its Subsidiaries;
	(ii) each contract and agreement which is likely to involve consideration of more than US$5,000,000, in the aggregate, in any 12-month period;
	(iii) any employment or consulting agreement or any other written agreement with any other officer, employee or consultant with annual compensation in excess of US$100,000 or which includes a change of control provision or provides for severance obligations upon termination;
	(iv) all management contracts (excluding contracts (i) for employment or (ii) which involve consideration of less than US$100,000 in any 12-month period or (iii) which are terminable with no more than 90 days notice without payment of a termination fee), including any contracts involving the payment of royalties or other amounts calculated based upon the revenues or income of the Company or

16

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	any Subsidiary or income or revenues related to any product of the Company or any Subsidiary to which the Company or any Subsidiary is a party;
	(v) all contracts and agreements with any Governmental Authority to which the Company or any Subsidiary is a party that are not for professional services or not otherwise in the ordinary course of business;
	(vi) all contracts and agreements that limit, or purport to limit, the ability of the Company or any Subsidiary to compete in any line of business or in any geographic area;
	(vii) all material contracts or arrangements that result in any person or entity holding a power of attorney from the Company or any Subsidiary that relates to the Company, any Subsidiary or their respective businesses, excluding any power of attorney entered into in the ordinary course of business consistent with past practice; and
	(viii) all other contracts and agreements, whether or not made in the ordinary course of business, which the breach, non-performance, amendment, termination or the absence of would, individually, have a Company Material Adverse Effect.

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	(a) Registration Statement. The Registration Statement shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no proceeding for that purpose shall have been initiated by the SEC.
	(b) Company Stockholder Approval. This Agreement shall have been approved and adopted by the requisite affirmative vote of the stockholders of the Company in accordance with the CCC and the Company’s Articles of Incorporation.
	(c) No Order. No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, judgment, decree, executive order or award (an “Order”) which is then in effect and has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger.
	(d) U.S. Antitrust Approvals and Waiting Periods. Any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated.
	(e) TSX Listing. The shares of Parent Common Stock to be issued in the Merger shall have been authorized for listing on the TSX, subject to official notice of issuance.

	(a) Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall have been true and correct when made and shall be true and correct as of the Effective Time, with the same force and effect as if made as of the Effective Time (other than such representations and warranties as are made as of another date which shall be true and correct as of such date), except where the failure to be so true and correct (without giving effect to any limitations or qualification as to “materially” (including the word “material”) or “Company Material Adverse Effect” set forth therein) would not, individually or in the aggregate, have a Company Material Adverse Effect.
	(b) Agreements and Covenants. The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time.
	(c) Officer Certificate. The Company shall have delivered to Parent a certificate, dated the date of the Closing, signed by the Chief Executive Officer of the Company, certifying as to the satisfaction of the conditions specified in Sections 7.02(a), 7.02(b) and 7.02(e).
	(d) Consents. All consents, approvals and authorizations legally required to be obtained to consummate the Merger shall have been obtained from and made with all Governmental Entities.
	(e) Material Adverse Effect. No Company Material Adverse Effect shall have occurred since the date of this Agreement.
	(f) Company Contribution. The Company shall have deposited, or shall have caused to be deposited, with the Exchange Agent for the benefit of the holders of the Company Common Stock the lesser of (i) $18,000,000 and (ii) the maximum amount of cash that would not preclude the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.

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	(g) Company Cash Balance. The Company shall have at least $40,000,000 of cash on deposit in cash or cash equivalents, less the amount of cash deposited with the Exchange Agent pursuant to Section 2.04 and Section 7.02(f).
	(h) Dissenting Shares. The number of Dissenting Shares shall be less than 5% of the issued and outstanding Shares.
	(i) Cancellation of Company 401(k) Plan. Prior to the Effective Time, the Company Board shall have duly adopted a resolution providing for the termination and cancellation, as of the day immediately preceding the date on which the Effective Time occurs, of the Company’s Plan qualified under Section 401(k) of the Code (the “401(k) Plan”) and provided a certified copy of such resolution to Parent, which is reasonably satisfactory to Parent. Notwithstanding the foregoing, the Board of Directors of the Company shall not act to terminate and cancel the 401(k) Plan if Parent provides written notice to that effect to the Company at least two (2) days prior to the Effective Time.
	(j) Taxes. Subject to Section 2.01(k), Parent shall have received the opinion of Shearman & Sterling LLP, counsel to Parent, based upon representations of Parent and the Company, and normal assumptions, to the effect that, for federal income tax purposes, the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code and that each of Parent, Merger Sub and the Company will be a party to the reorganization within the meaning Section 368(b) of the Code, which opinion shall not have been withdrawn or modified in any material respect. The issuance of such opinion shall be conditioned on receipt by Shearman & Sterling LLP of representation letters from each of Parent and Company contemplated in Section 6.10. Each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect as of the Effective Time.

	(a) Representations and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement shall have been true and correct when made and shall be true and correct as of the Effective Time, with the same force and effect as if made as of the Effective Time (other than such representations and warranties as are made as of another date which shall be true and correct as of such date), except where the failure to be so true and correct (without giving effect to any limitations or qualification as to “materially” (including the word “material”) or “Parent Material Adverse Effect” set forth therein) would not, individually or in the aggregate, have a Parent Material Adverse Effect.
	(b) Agreements and Covenants. Parent and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time.
	(c) Material Adverse Effect. No Parent Material Adverse Effect shall have occurred since the date of this Agreement.
	(d) Officer Certificate. Parent shall have delivered to the Company a certificate, dated the date of the Closing, signed by the President or any Vice President of Parent, certifying as to the satisfaction of the conditions specified in Sections 7.03(a), 7.03(b) and 7.03(c).
	(e) Taxes. Subject to Section 2.01(k), the Company shall have received the opinion of Akin Gump Strauss Hauer & Feld LLP, counsel to the Company, based upon representations of Parent and the Company, and normal assumptions, to the effect that, for federal income tax purposes, the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code and that each of Parent, Merger Sub and the Company will be a party to the reorganization within the meaning Section 368(b) of the Code, which opinion shall not have been withdrawn or modified in any material respect. The issuance of such opinion shall be conditioned on receipt by Akin Gump Strauss Hauer & Feld LLP of representation letters from each of Parent and Company contemplated in Section 6.10. Each such

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	representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect as of the Effective Time.
	(f) U.S. Exchange Listing. The shares of Parent Common Stock to be issued in the Merger shall have been authorized for listing or quotation, as the case may be, on the U.S. Exchange, subject to official notice of issuance.

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	(i) if Parent shall terminate this Agreement pursuant to Section 8.01(c); or
	(ii) if the Company shall terminate this Agreement pursuant to Section 8.01(g);

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	Stantec Inc.
	10160 — 112 Street
	Edmonton, Alberta T5K 2L6
	Canada
	Attention: Jeffrey S. Lloyd
	Facsimile No: (780) 917-7330
	Email: jlloyd@stantec.com

	Shearman & Sterling LLP
	Commerce Court West
	Suite 4405, P.O. Box 247
	Toronto, Canada M5L 1E8
	Attention: Christopher J. Cummings, Esq.
	Facsimile No: (416) 360 2958
	Email: ccummings@shearman.com

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	The Keith Companies, Inc.
	19 Technology Drive
	Irvine, CA 92618
	U.S.A.
	Attention: Aram H. Keith
	Facsimile No: (949) 923-6026
	Email: aram.keith@keithco.com

	Akin Gump Strauss Hauer & Feld LLP
	2029 Century Park East
	Suite 2400
	Los Angeles, CA 90067-3012
	Attention: C.N. Franklin Reddick III, Esq.
	Facsimile No: (310) 229 1001
	Email: freddick@akingump.com

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Defined Term		Location of Definition
Action			§3.09
“affiliate”			§2.09
Aggregate Cash Amount			§2.01	(b)
Aggregate Stock Amount			§2.01	(b)
ASC			§4.07	(a)
Average Stock Price			§2.01	(a)
Agreement			Preamble
Blue Sky Laws			§3.05	(b)
Canadian GAAP			§4.07	(b)
Cash Election			§2.01	(e)
Cash Election Share			§2.01	(e)
Cash Payment			§2.01	(a)
CCC			Recitals
Certificate of Merger			§1.02
Certificates			§2.02	(b)
Change in the Company Recommendation			§6.04	(c)
Closing			§1.02
Code			Recitals
Company			Preamble
Company Affiliate			§6.08
Company Board			Recitals
Company Common Stock			§2.01	(a)
Company Designated Director			§6.16
Company Disclosure Schedule			Article III
Company Licensed Intellectual Property			§3.13	(a)
Company Owned Intellectual Property			§3.13	(a)
Company Permits			§3.06
Company Preferred Stock			§3.03	(a)
Company Recommendation			§6.01	(b)
Company Restricted Stock			§2.05
Company SEC Reports			§3.07	(a)
Company Stock Awards			§3.03	(a)
Company Stock Options			§2.04	(a)
Company Stock Option Plans			§2.04	(a)
Company Stockholders’ Meeting			§6.01	(a)
Company Triggering Event			§8.01
Competing Transaction			§6.04	(d)
Confidentiality Agreement			§6.03	(b)
Dissenting Shareholder			§2.07	(a)
Dissenting Shares			§2.07	(a)
Effective Time			§1.02

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Defined Term		Location of Definition
Election Deadline			§2.01	(i)
Elections			§2.01	(c)
Environmental Permits			§3.15
ERISA			§3.10	(a)
Exchange Act			§3.07	(a)
Exchange Agent			§2.02	(a)
Exchange Fund			§2.02	(a)
Exchange Stock			§2.01	(a)
Expenses			§8.03	(a)
Fee			§8.03	(b)
Fixed Ratio Stock			§2.01	(a)
Floating Ratio Stock			§2.01	(a)
Form of Election			§2.01	(c)
Forward LLC Merger			§2.01	(l)
GAAP			§3.07	(b)
Governmental Authority			§3.05	(b)
Holder Representative			§2.01	(c)
HSR Act			§3.05	(b)
Insurance Policies			§3.18
IRS			§3.10	(a)
Law			§3.05	(a)
Leased Real Property			§3.12	(a)
Leases			§3.12	(a)
Material Contracts			§3.17	(a)
Merger			Recitals
Merger Consideration			§2.01	(a)
Merger LLC			§2.01	(l)
Merger Sub			Preamble
Mixed Consideration			§2.01	(c)
Mixed Election			§2.01	(c)
Mixed Election Share			§2.01	(d)
Mixed Election Share			§2.01	(a)
Multiemployer Plan			§3.10	(b)
Multiple Employer Plan			§3.10	(b)
Non-U.S. Benefit Plan			§3.10	(g)
Notice of Superior Proposal			§6.04	(c)
Nasdaq			§6.13
NYSE			§6.13
Option Consideration			§2.04
Option Exchange Fund			§2.04
Order			§7.01	(c)
Parent			Preamble
Parent Board			Recitals
Parent Common Stock			§2.01	(a)

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Defined Term		Location of Definition
Parent Licensed Intellectual Property			§4.17
Parent Owned Intellectual Property			§4.17
Parent Permits			§4.06
Parent Preferred Stock			§4.03	(a)
Parent Reports			§4.07	(a)
Parent Stock Option Plans			§4.03	(a)
Parent 2004 Balance Sheet			§4.07	(c)
Plans			§3.10	(a)
Potential Dissenting Shareholder			§2.07	(a)
Potential Dissenting Shares			§2.07	(a)
Pro Rata Amount of Cash			§2.01	(f)
Pro Rata Number of Shares			§2.01	(e)
Proxy Statement			§6.01	(a)
Registration Statement			§6.01	(a)
Representatives			§6.03	(a)
Reverse-Subsidiary Merger			§2.01	(k)
SEC			§3.07	(a)
Securities Act			§3.07	(a)
Significant Subsidiary			§6.04	(d)
Shares			§2.01	(a)
Stock Election			§2.01	(c)
Stock Election Share			§2.01	(e)
Stockholder			Recitals
Subsidiary			§3.01	(a)
Superior Proposal			§6.04	(e)
Support Agreement			Recitals
Surviving Corporation			§1.01
Terminating Company Breach			§8.01	(e)
Terminating Parent Breach			§8.01	(f)
Transactions			Recitals
TSX			§2.01	(a)
Unvested Options			§2.04
U.S. Exchange			§6.13
2004 Balance Sheet			§3.07	(c)
401(k) Plan			§7.02	(i)
US$5.50 Stock			§2.01	(a)

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	STANTEC INC.

	By	/s/ Anthony P. Franceschini

	Name:         Anthony P. Franceschini

	Title:	President & CEO

	By	/s/ Jeffrey S. Lloyd

	Name:         Jeffrey S. Lloyd

	Title:	Vice President, Secretary & General Counsel

	STANTEC CONSULTING CALIFORNIA INC.

	By	/s/ Anthony P. Franceschini

	Name:         Anthony P. Franceschini

	Title:	President

	By	/s/ Michael Slocombe

	Name:         Michael J. Slocombe

	Title:	Secretary

	KEITH COMPANIES, INC.

	By	/s/ Aram H. Keith

	Name:         Aram H. Keith

	Title:	CEO

	By	/s/ Gary Campanaro

	Name:         Gary Campanaro

	Title:	Secretary

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“THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED APRIL 14, 2005 BETWEEN THE REGISTERED HOLDER HEREOF AND PARENT, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF PARENT.”

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933.”

	Very truly yours,
	Name:

By:

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	STANTEC INC.

	By	/s/ Anthony P. Franceschini

	Name: Anthony P. Franceschini
	Title:  President & CEO

	By	/s/ Jeffrey S. Lloyd

	Name: Jeffrey S. Lloyd
	Title:  Secretary, Vice President & General Counsel
	STANTEC CONSULTING CALIFORNIA INC.

	By	/s/ Anthony P. Franceschini

	Name: Anthony P. Franceschini
	Title:  President

	By	/s/ Michael Slocombe

	Name: Michael Slocombe
	Title:  Secretary
	THE KEITH COMPANIES, INC.

	By	/s/ Aram H. Keith

	Name: Aram H. Keith
	Title:  Chief Executive Officer

	By	/s/ Gary Campanaro

	Name: Gary Campanaro
	Title:  Secretary

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	§	reviewed the Merger Agreement;
	§	reviewed the Company’s Annual Reports to Shareholders and Annual Reports on Form 10-K for the years ended December 31, 2002, 2003 and 2004, its preliminary results for the quarter ended March, 31, 2005 and its Current Reports on Form 8-K for the three years ended the date hereof;
	§	reviewed Stantec’s Proxy Circular, Annual Information Form and Annual Reports to Shareholders for the years ended December 31, 2002, 2003 and 2004 and its interim financial reports for the three years ended the date hereof;
	§	reviewed certain operating and financial information relating to the Company’s business and prospects, including an operating budget for the year ended December 31, 2005, as prepared and provided to us by the Company’s management;

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	§	met with certain members of the Company’s senior management to discuss the Company’s business, operations, historical financial results, a range of projected financial results and future prospects;
	§	reviewed certain operating and financial information relating to Stantec’s business and prospects, as prepared and provided to us by Stantec’s management;
	§	reviewed certain projections for Stantec for the year ended December 31, 2005, published by certain equity research analysts, selected by us following discussions with Stantec’s senior management;
	§	met with certain members of senior management of Stantec and the Company to discuss Stantec’s business, operations, historical and projected financial results and future prospects;
	§	reviewed the historical prices, trading multiples and trading volumes of the shares of Company Common Stock and Stantec Common Stock;
	§	reviewed publicly available financial data, stock market performance data and trading multiples of companies which we deemed generally comparable to the Company and Stantec;
	§	reviewed the terms of recent mergers and acquisitions of companies which we deemed generally comparable to the Company;
	§	performed discounted cash flow sensitivity analyses based on the ranges of projected financial results for the Company furnished to us by the Company’s senior management;
	§	reviewed the pro forma financial results, financial condition and capitalization of Stantec giving effect to the Merger; and
	§	conducted such other studies, analyses, inquiries and investigations as we deemed appropriate.

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Very truly yours,
Bear, Stearns & Co. Inc.

By:	/s/ Neil B. Morganbesser

Senior Managing Director

B-4

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	1.	Representations and Warranties of the Stockholders. Each Stockholder hereby, jointly and severally, represents and warrants to Parent and Purchaser as follows:

	(a)	The Trust is a trust duly organized, validly existing and in good standing under the laws of the State of California. The Trust has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by the Trust and the performance by the Trust of its obligations hereunder have been duly and validly authorized by all necessary action, and no other proceedings on the part of the Trust are necessary to authorize this Agreement or to perform its obligations hereunder. This Agreement has been duly executed and delivered by the Trust and, assuming the due authorization, execution and delivery by Parent and Purchaser, constitutes the legal, valid and binding obligation of the Trust, enforceable against the Trust in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy insolvency and similar laws affecting creditors’ rights generally and general principles of equity (whether considered in a proceeding at law or equity).

	(b)	The execution and delivery of this Agreement by the Trust do not, and the performance of this Agreement by the Trust will not, (A) conflict with or violate the organizational documents of the Trust, (B) assuming that all consents, approvals, authorizations and other actions described in subsection (c) have been obtained and all filings and obligations described in subsection (c) have been made, conflict with or violate any Law applicable to the Trust or by which any property or asset of the Trust is bound or affected, or (C) result in any breach of or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien or other encumbrance on

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		any property or asset of the Trust pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation.
	(c)	The execution and delivery of this Agreement by each Stockholder does not, and the performance of this Agreement by each Stockholder will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, except for applicable requirements, if any, of the Securities Act of 1933, as amended, the Exchange Act and the HSR Act.
	(d)	With respect to Aram H. Keith and Margie R. Keith (each an “Individual”), this Agreement has been duly executed and delivered by each Individual and, assuming the due authorization, execution and delivery by Parent and Purchaser, constitutes the legal, valid and binding obligation of each Individual, enforceable against each Individual in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy insolvency and similar laws affecting creditors’ rights generally and general principles of equity (whether considered in a proceeding at law or equity).
	(e)	Except for shares of Company Common Stock held directly by the Trust, the Individuals do not own, either directly or beneficially, any shares of Company Common Stock.

	2.	Grant of Proxy. Each Stockholder, by this Agreement, with respect to his, her or its Shares, hereby agrees, and to secure such agreement, grants an irrevocable proxy to Parent (and agrees to execute such documents or certificates evidencing such proxy as Parent may reasonably request) to vote, at any meeting of the stockholders of the Company, and in any action by written consent of the stockholders of the Company, all of such Stockholder’s Shares (i) in favor of the approval and adoption of the Merger Agreement and approval of the Merger, (ii) against any action, agreement or transaction (other than the Merger Agreement or the Merger) or proposal (including any Superior Proposal) that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or that could result in any of the conditions to the Company’s obligations under the Merger Agreement not being fulfilled, and (iii) in favor of any other matter necessary to the consummation of the Merger and considered and voted upon by the stockholders of the Company. Each Stockholder further agrees to cause such Stockholder’s Shares to be voted in accordance with the foregoing. THIS PROXY IS IRREVOCABLE AND SECURES THE PERFORMANCE BY THE STOCKHOLDERS OF THE DUTIES SET FORTH HEREIN. Each Stockholder acknowledges receipt and review of a copy of the Merger Agreement.
	3.	Transfer of Shares. Each Stockholder agrees that he, she or it shall not, directly or indirectly, (a) sell, assign, transfer (including by operation of law), lien, pledge, dispose of or otherwise encumber any of the Shares or otherwise agree to do any of the foregoing, (b) deposit any Shares into a voting trust or enter into a voting agreement or arrangement or grant any proxy or power of attorney with respect thereto that is inconsistent with this Agreement, (c) enter into any contract, option or other arrangement or undertaking with respect to the direct or indirect acquisition or sale, assignment, transfer (including by operation of law) or other disposition of any Shares or (d) take any action that would make any representation or warranty of such Stockholder herein untrue or incorrect in any material respect or have the effect of preventing or disabling the Stockholder from performing his, her or its obligations hereunder.
	4.	No Solicitation of Transactions. None of the Stockholders shall, directly or indirectly, (a) solicit, initiate or encourage the submission of, any Competing Transaction or (b) participate in any discussions or negotiations regarding, or furnish to any person, any information with respect to, or otherwise cooperate in any way with respect to, or assist or participate in, facilitate or encourage, any unsolicited proposal that constitutes, or may reasonably be expected to lead to, a Superior Proposal; provided, however, that nothing in this Section 3 shall prevent Aram H. Keith, in his capacity as a director and executive officer of the Company from, engaging in any activity permitted pursuant to Section 6.04 of the Merger Agreement. Each Stockholder shall, and shall

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		direct his, her or its representatives and agents to, immediately cease and terminate any discussions or negotiations with any parties that may be ongoing with respect to any Competing Transaction.
	5.	Information for Proxy Statement/ Prospectus; Disclosure. Each Stockholder authorizes and agrees to permit Parent and Purchaser to publish and disclose in the Proxy Statement/ Prospectus and related filings under the securities laws such Stockholder’s identity and ownership of Shares and the nature of his, her or its commitments, arrangements and understandings under this Agreement and any other information required by applicable Law.
	6.	Termination. The obligations of the Stockholders under this Agreement shall terminate upon the earlier of (i) the Effective Time and (ii) upon the termination of the Merger Agreement. Nothing in this Section 7 shall relieve any party of liability for any breach of this Agreement occurring prior to the time of such termination.
	7.	Miscellaneous. Notwithstanding anything to the contrary contained herein, no action of a Stockholder in his, her or its capacity as a director or executive officer of the Company shall constitute a breach of this Agreement. Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the transactions contemplated hereby are consummated; all notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy, e-mail or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at their addresses as specified on the signature page(s) of this Agreement; if any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party; this Agreement and the Merger Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof; this Agreement shall not be assigned (whether pursuant to a merger, by operation of law or otherwise), except that Parent may assign all or any of its rights and obligations hereunder to any affiliate of Parent, provided, however, that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations; this Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement; the parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity; this Agreement shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts executed in and to be performed in that State; this Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement; from time to time, at the request of Parent, in the case of any Stockholder, or at the request of the Stockholders, in the case of Parent and Purchaser, and without further consideration, each party shall execute and deliver or cause to be executed and delivered such additional documents and instruments and take all such further action as may be reasonably necessary or desirable to give effect to the rights, duties and obligations of the parties set forth in this Agreement; each of the parties hereto hereby waives to the fullest extent permitted by applicable law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under or in connection with this agreement.

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	Stantec Inc.

	By:	/s/ Anthony P. Franceschini

	Name:     Anthony P. Franceschini

	Title:	President & CEO

	By:	/s/ Jeffrey S. Lloyd

	Name:     Jeffrey S. Lloyd

	Title:	Vice President, Secretary & General Counsel

	Stantec Consulting California Inc.

	By:	/s/ Anthony P. Franceschini

	Name:     Anthony P. Franceschini

	Title:	President

	By:	/s/ Michael J. Slocombe

	Name:     Michael J. Slocombe

	Title:	Secretary

	Aram H. Keith and Margie R. Keith Revocable Trust

	By:	/s/ Aram H. Keith

	Aram H. Keith, as Trustee

	By:	/s/ Margie R. Keith — Trustee

	Margie R. Keith, as Trustee
	/s/ Aram H. Keith
	Aram H. Keith
	/s/ Margie R. Keith
	Margie R. Keith

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		Number of Shares of Company
		Common Stock Owned
Name of Stockholder		Beneficially
ARAM H. KEITH AND MARGIE R. KEITH REVOCABLE TRUST DATED OCTOBER 23, 1989			1,366,217
ARAM H. KEITH			1,366,217
MARGIE R. KEITH			1,366,217

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	(1)	Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on the National Market System of the NASDAQ Stock Market, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and provided, further, that this provision does not apply to any class of shares described in subparagraph (A) or (B) if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class.
	(2)	Which were outstanding on the date for the determination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or which were held of record on the effective date of a short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting.
	(3)	Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301.
	(4)	Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302.

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	(a)	The corporation abandons the reorganization. Upon abandonment of the reorganization, the corporation shall pay on demand to any dissenting shareholder who has initiated proceedings in good faith under this chapter all necessary expenses incurred in such proceedings and reasonable attorneys’ fees.
	(b)	The shares are transferred prior to their submission for endorsement in accordance with Section 1302 or are surrendered for conversion into shares of another class in accordance with the articles.
	(c)	The dissenting shareholder and the corporation do not agree upon the status of the shares as dissenting shares or upon the purchase price of the shares, and neither files a complaint or intervenes in a pending action as provided in Section 1304, within six months after the date on which notice of the approval by the outstanding shares or notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder.

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	(d)	The dissenting shareholder, with the consent of the corporation, withdraws the shareholder’s demand for purchase of the dissenting shares.

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